Legally Navigating Treacherous Times in Distribution

While maintaining business relationships seems critical at this juncture, how they are maintained is a matter of choice.

I Stock 1131313549

As I write, the statistical impact of the Coronavirus continues to spike in many affected areas of the country. This rapidly spreading virus has adversely affected the global economy in unprecedented ways, and the totality of its damage remains to be seen. By now, most distributors have taken great measures to obtain relief through many of the federal, state and local programs and new legislation, including the Paycheck Protection Program (PPP). Yet even as businesses are clamoring to hear from lenders, and others, on relief or subsidies, the IRS, DOL, SBA, EEOC and the Treasury are continuing, even over this past weekend, to issue guidance to aid affected businesses, including continuing guidance on the Families First Coronavirus Response Act (FFCRA).

Many distributors I have spoken with are deemed essential businesses, forced to continually modify their operations to address the constantly changing state if the law and operational challenges. Others deemed non-essential are exploring how they will operate in the wake of COVID-19 shelter-in-place or stay-at-home orders. The situation is challenging, not only on the human front, but also the economic and legal landscape that may well change our economy, as we know it, in everlasting ways.

Is your company an industrial distributor? Take ID's 2020 Survey of Distributor Operations and be entered to win one of five $10 AmEx gift cards. Information and survey link here.

Why a legal article, now?

For businesses and their constituents (e.g., supply chain and other key partners) there is an ongoing and substantial demand for legal advice as this pandemic marches-on. The diverse issues are, of course, novel and include, without limitation, numerous labor and employment laws; contracts (such as leases, labor, staffing, vendor temporary labor and insurance coverages); personal and employer liability; corporate responsibility, health liability, cyber-security, and supply chain legalities; and litigation of all sorts.

In the forthcoming May/June issue of Industrial Distribution, I intend cover in more detail business interruption and other insurance coverage matters, but this article covers a broader perspective of COVID-19 issues. For specific COVID-19 topics, my law firm, Burke, Warren, MacKay & Serritella (BWMS) has a dedicated Coronavirus Resource Center.

Business is business; but we are all in this one, together

Regardless of your business, business is still about people, and people matter. In these challenging times, there is a need to take stock of your business relationships, but work within those relationships, to better the outcome of this crisis for all businesses. On the other hand, many business parties are challenging their business partners by, for example, engaging in hard bargaining, leveraging contract rights (e.g., Force majeure clauses [superior force in French], statutory and common law defenses, etc.), and taking legal action when necessary. While maintaining business relationships seems critical at this juncture, how they are maintained is a matter of choice.

Ultimately, now is a good time for distributors to build on their supply chain relationships, but also inventory and reassess their contract portfolios. This list of contracts is endless – and can be readily assembled by your executive management team, and then evaluated by counsel to determine how to handle specific legal circumstances that evolve from the pandemic.

Business continuity; and operations

Increased emphasis on the areas of estate and succession planning have emerged, particularly for distributors and others inextricably tied to the supply chain.  This is because, in the wake of the Coronavirus, business continuity is critical and invokes consideration of a myriad of laws, and rights and obligations, as well as risk assessment and management.  Proper planning is essential in these uncharted waters to maintain production, distribution and sales in the supply chain (especially for essential businesses and for those now closed, to reopen) and, importantly, to avoid business disruptions or the (hopefully, temporary) suspension of operations.

For those distributors who believe they can clear these hurdles, ensuring compliance with the FFCRA (both sick and emergency FMLA relief), and utilizing federal, state and local relief programs (many cities, counties and states have their own relief programs) is key. Importantly, so too is OSHA compliance and ensuring that each business that continues to operate has in place a documented COVID-19 Preparedness and Response Plan (a term of art for addressing business operations in these perilous times). Many distributors may identify strategic business and financial opportunities amidst the gray of COVID-19.

Keep your Business informed of current events; keep on top of public announcements and news

While there has been a great deal of aspersions cast on the quality of information being disseminated from all sources – from White House briefings to social media commentary – it is critical to ensure that your workforce and others impacted or that affect your business are operating based on reasonable data and comply with the multitude of obligations businesses face in light of COVID-19. At the same time, it is critical that businesses, generally, keep accurate records not only of historical processes, financial obligations, sales, expenses, etc., but also information about ongoing statistics that affect your business as a result of COVID-19. I detailed a great number of these costs and data-points in an article authored and appearing on the BWMS Coronavirus website, under the Insurance Recovery practice group: Business Interruption Insurance Claims: Nuts & Bolts.

Distributors and all businesses should track the separation, leave rights utilized and other benefits or actions that affect employees; employees affected directly or indirectly by the pandemic (including as much legally permissible information) obtainable; document dissemination of proper information to an existing employee workforce, if warranted; document exemptions claimed from legislation like FFCRA; and any losses and extra expense that has been incurred from the pandemic. Itemizing and detailing payroll, rents and other costs that play into calculations for relief recovery is likewise critical but should be readily available (maybe with some hard work) to each affected applicant.


In the wake of the pandemic, lawsuits are already surfacing. Putting aside that most if not all court systems have implemented emergency orders and taken other steps to avoid crisis at the courthouse, lawsuits continue to be filed at a relatively regular rate, despite that their resolution may be substantially delayed. Recently, the Supreme Court issued an important opinion in an ADEA case (age claims under federal law), and several suits have been filed addressing insurance coverage for closed or distressed businesses – the hospitality sector of course is at the center of this litigation.

But employer liability, too, has surfaced as evidenced by a recent suit filed in Federal Court in Chicago against Walmart for failing to take proper sterilization and social distancing procedures provide safety equipment, such as masks and gloves, to their employees. In that case, at least one party is alleged to have died from these failures. Ultimately, the litigation landscape is ripe for the plaintiffs’ bar to assert claims, both for and against business casualty losses, plus a myriad of other claims – from landlord/tenant disputes, construction disputes, to new legislation violations (e.g., FFCRA), employer liability, and likely a number of class action suits, seeking recovery for those persons alleged to be similarly situated and adversely affected by specific conduct. Within the last week, a suit was filed in Chicago seeking recovery for all businesses with business interruption coverage issued by Society Insurance.

Mendelsohn 5da764f65177c 5db9fa43cbfffAs each distributor works through the various issues inextricably intertwined with the law that emerge from COVID-19, I encourage any business to reach out to their professionals, including their counsel, if uncertain about how to address these issues. For distributors interested to pursue any particular issue, I can be reached at [email protected] or 312-840-7004.

Fred Mendelsohn is a partner at Burke, Warren, MacKay & Serritella in Chicago.

More in Operations