Legal Considerations For Adapting Your Small Business During COVID19
We hope you are all safe and healthy and navigating the available resources ok. Unfortunately, it looks like we’re in for a bit of a long haul with shutdowns and operating adjustments during this pandemic. And while we’re all still processing this new reality, many businesses are working to adapt and stay alive.
Methods of adapting include switching to online sales and classes, giveaways and flash sales, finding ways to get funds to employees, and launching new types of products. While it’s hard to think about spending time or money on legal right now, it’s important that as you modify your business, you make sure you’re still legally covered. A lack of protection or an unforeseen event could leave you vulnerable to even more losses. So in this blog we’re going to cover some of the important legal considerations to remember as you adapt your business.
Terms and Conditions
As businesses switch to online sales and course offerings, it’s important that your customer knows all the terms of the transaction. Even if you use a third-party website or vendor to deliver your electronic services and they have terms, those vendor terms likely still put a good amount of liability back on your business for your services and customer interactions so it is important you have your own terms.
Terms include what services you’re offering, any limitations on what you’re offering, waivers of liability (these are especially crucial if you’re offering online fitness services), cancellation terms (what happens if you’re offering a monthly service and someone wants to cancel mid-month?), return policies, etc. If you’re selling products online when you didn’t previously, or expanding your offerings, and you don’t have terms, it could mean that customers could be interpreting sales terms differently or implying guarantees where there aren’t any.
If you’re making your site available to people in Europe, you may need to comply with the European General Data Protection Regulation (GDPR) requirements or risk serious fines. It’s especially important to have terms in this COVID19 time to account for what happens if you have to cancel or delay an order because you can’t get to your physical location due to a shelter-in-place requirement or because your supplier can’t get you a product.
If you’re a gym, yoga studio, or another business offering online classes or services for a fee that you normally would offer in person, you need to make sure clients are signing the same waivers and understanding the same provisions they would if they were attending your business in person.
If you’re a farm and doing online sales, make sure to include terms about spoilage, temperature, and other food safety and quality considerations, as well as product appearance variation.
Also make sure your insurance covers your online activities!
Giveaways and Flash Sales
While money is tight, giveaways and flash sales can be a good way to remind people about your business and sell products at reduced prices to drive sales for much needed operating capital. However, it’s important to remember that there are best practices you need to follow in order to make sure your giveaway or flash sale is legally legit.
For giveaways, you need to make sure it’s very clear how your customers enter the giveaway--what do they need to do in order to enter? You also need to make sure you’re either offering a product of your own or, if you are giving away a registration or product of someone else’s, you make it clear if it’s related to a sponsorship.
Next, have giveaway rules. What is the time frame to enter? Are there any restrictions? Most giveaways require someone to be 18 because that is the age in which you can enter into a contract. You also probably want to make it clear no purchase is necessary, as requiring a purchase to enter is illegal. In Pennsylvania, you also generally can’t include alcohol in a giveaway. So while giveaways and flash sales can be great, make sure you are doing them in a legally correct way to avoid both legal and business reputation issues.
Paying Money or Tips Out to Employees After Laying Them Off
The COVID19 pandemic has created a very unique situation for employers. While most employers lay off employees during general economic hardship and are anticipating a long-term layoff or want to let an employee go, COVID19 has resulted in employers very reluctantly laying off almost all of their staff (or a significant portion), while hopefully being able to hire them back later. Because of this, many employers are working to find ways to pay their employees on the side or pay them out tips. While the intent is admirable, there are some liability and unemployment compensation issues employers should consider.
First, if you laid off employees, making payments to them or continued reimbursements could imply they are still working for you which could have legal implications such as employer liability. Secondly, if you are still tipping out someone who used to be an employee, they may have to report that in their workers compensation report which could limit their benefits (which may be a better option) or they could be considered gifts and the IRS regulates how companies can give gifts to employees and how much is deductible.
It may be important to talk to your attorney and accountant about these efforts and look to some other options that create a separation between the business and a laid-off employee such as encouraging people to gift to laid-off employees directly (subject to personal gift tax laws which are way more generous that business gift laws), such as virtual tip jars, and funds being run through non-profits, etc. (If you still have the employees on payroll at reduced hours/temporary furlough these considerations may be different, so even more reason to check with an attorney).
Checking and Amending Contracts
Shutdowns and changes to operations can affect not only how you operate but any contracts or agreements you have in effect. For example, businesses should check any employee and independent contractor agreements before laying off either, to see if the contract details requirements for termination. If you can no longer meet a delivery or product expectation, make sure you check your contract to see if it has a force majeure (unforeseeable circumstances) provision or change order/amendment provision. If you don’t, you could be risking a breach of contract claim.
Another important contract to check is if you have any loans and you’re worried about repaying them. Check the loan agreement or promissory note and determine if it can be deferred or altered. Finally, check your commercial lease, if applicable, to see what terms may govern this type of situation and then talk to your landlord to work something out if you need to modify rent. Don’t rely on eviction or court moratoriums to default; it could result in huge costs and losses. Communicate with those you are in contracts with and GET. CHANGES. IN. WRITING. Make sure to draft an amendment or new agreement in writing signed by both parties (email and e-signature could work in these remote times--just make sure you put that in the contract).
Ways to Tackle These Legal Considerations
We know money is tight right now but there are ways you can approach these legal needs that can help get you through. You can use online templates, which can be a great, cost-effective starting block, but you will want to make sure they cover all of your specific products and services. Looking at the policies of businesses offering similar services or products may give you some ideas for important language to include. Both options may help hold you over or at least reduce your legal fee, if you have an attorney review them, which we recommend for the most legally sound approach. You can also work with an attorney, if you have the budget, to draft the documents and language for you. At Trellis, we’re offering 20% off of all services during the shutdown (currently through the end of April).
One thing you can do right now is make a to make a list of how you’ve adapted your business and how that list compares to the legal to-dos above. Then, pick one to tackle and do some research as to how you can accomplish checking that off your list!
We know times are tough and we hope that understanding these legal considerations can help as you plan to adapt your business to this new way of operating. We wish you the best of luck out there and are here to support you.
DISCLAIMER: This blog post is meant for informational purposes only and does not constitute specific legal advice or create an attorney-client relationship. Readers should discuss their specific situation with an attorney.