COVID-19 and Litigation Risk: Does your back-to-work strategy plan for litigation risks?
In the first instalment of our three-part series covering litigation and COVID-19, we discuss some of the potential COVID-19 related litigation risks that businesses may face in the upcoming weeks and months, and need to be aware of and plan for as part of a comprehensive back-to-work strategy.
Canadians have heard it over and over: we must flatten the curve. To do so, non-essential businesses were shut down and employees were asked to work from home. Most Canadian provinces, including Québec, Ontario, Alberta, and British Columbia have now announced frameworks for the reopening of businesses and the return of employees to physical workplaces. This is welcome news for many businesses who are experiencing significant financial hardship as a result of the COVID-19 pandemic.
Now that it is time for business directors to develop a back-to-work strategy, we are publishing a trilogy for the re-opening of businesses, which will discuss: (i) potential exposure to COVID-19 related litigation; (ii) how to mitigate the risks of potential litigation exposure; and (iii) what to do should you face a litigation-precipitating event such as a COVID-19 outbreak in your workplace.
This post highlights some of the potential COVID-19 related litigation risk that businesses may face in the upcoming weeks and months, and need to be aware of and plan for as part of comprehensive back-to-work strategy. This publication does not purport to address all relevant considerations and we encourage our readers to discuss their own particularities as well as their back-to-work and/or current strategies with their legal advisors.
Types of Potential Exposure to COVID-19 Related Litigation
Businesses may face COVID-19 related litigation. It is most important that directors and officers be aware of the different areas from which risks might arise, which we have identified as follow:
Health and safety: Some workplaces may find it challenging to address the risk of potential exposure to COVID-19 through measures such as social distancing. Under provincial and federal occupational health and safety legislation, businesses have various obligations including obligations to assess risk and to take all reasonable precautions in the circumstances to protect the health and safety of workers. Determining the sufficiency of precautions will depend on a number factors specific to the circumstances of each case. Government orders and emergency legislation may also set out certain health and safety requirements businesses are to follow in order to open and operate their workplace. Businesses may also have a duty of care towards non-workers such as visitors and clients, especially where products are sold.
Failure to have appropriate health and safety policies and procedures in place may leave a business exposed to onerous regulatory orders, work refusals, workers compensation claims, or liability in the event of prosecutions, health and safety tort claims or class actions by persons who have attended the workplace, bought or consumed a product. Legal proceedings related to COVID-19 also come with a risk of reputational damage and the challenge of appropriately managing communications with various stakeholders and customers.
Employment issue: Employee layoffs and terminations create various litigation risks, including potential claims for statutory, contractual, and common-law entitlements. Further, employers should consider any statutory and/or contractual requirements when recalling employees from a layoff. Consult our recent blog post which details further considerations for employers.
Contract: In this climate, it may be difficult for parties to business contracts to perform them. We expect that many businesses will face contract-related litigation should they fail to perform their contractual obligations. To learn more about the principles of force majeure and frustration as they may apply to contracts, consult our blog post.
Consumer protection claims, including deceptive advertising and business practices, and securities class actions: As we explained in this recent blog post, the pandemic poses high risks of consumer protection class actions, including alleged unfair, deceptive or unconscionable business practices, and securities-related class actions. These types of class actions have already emerged in the United States. Any statement made to the public pertaining to outlooks for the corporation in the context of COVID-19 should be carefully reviewed. Branding, packaging, labelling, and marketing should be given the same precautions.
Claims against Directors and Officers: In light of the foregoing high-risk litigation areas, and in the context where directors and officers will have to re-think the way the company does business, often under tight time constraints, we anticipate that claims, including class actions, will be made not only against businesses, but also against their directors and officers. D&O insurance policies offer liability coverage for directors and officers to protect them from claims that may arise from the decisions and actions taken within the scope of their regular duties. As a result, we also expect an increase in litigation regarding insurance coverage for directors and officers faced with COVID-19 related claims. We encourage readers to consult our recent blog post discussing directors’ duties and key considerations in the context of the COVID-19 pandemic.
Now that we have outlined the potential risks, stay tuned for our second publication which will discuss best practices for risk mitigation.