How sponsors can mitigate legal exposure across portfolios amid nation’s reopening

As employees are asked to come back to work, Debevoise's Hamid said portfolio companies will begin to see workers comp claims, complaints to OSHA and court actions.

PE firms are looking inward as they prepare for the reopening of the economy, with a myriad of potential litigation anticipated to challenge portfolio companies, be it negligence actions or anti-retaliation claims. 

“A few weeks ago we were spending a lot of time talking to clients about layoffs and furloughs and the like, and now the focus has shifted,” Jyotin Hamid, a partner at Debevoise & Plimpton, said in a recent interview with PE Hub.  

With state orders modified on a frequent basis, “the first step in developing a back to work plan is understanding what is permissible and non-permissible under applicable state orders,” said Hamid, who has a particular focus on employment litigation and intellectual property disputes. “The second set of issues really relate to the health and safety of employees and potential liabilities.”

As employees are asked to come back to work – and, for example, start commuting again – Hamid said portfolio companies will begin to see workers compensation claims, complaints to OSHA and court actions. Court actions could be negligence actions or wrongful death actions in state courts, Hamid said. “Having a plan that really mitigates exposure to those kinds of lawsuits is very important.”

There have already been a few prominent examples. For example, the New York State Nurses Association (NYSNA) sued Montefiore Medical Center in the Bronx, New York, claiming the hospital was not providing adequate protective gear. 

Elsewhere, Walmart was hit with a wrongful death lawsuit, while Smithfield Foods was accused of failing to provide adequate personal protective equipment to workers. 

Even if there are bad outcomes, which inevitably there will be — there will be people who get sick and there will be people who die when folks get asked to come back to work – the best way firms can position their companies is to stay current on the best practices and guidelines that are put out, said Hamid.

“To prevail on one of those cases, the plaintiff would have to demonstrate that the workplace was taking actions that fell below some standard of care – [and] that standard of care in this environment is not yet well defined,” Hamid said. “So the best we can do is look to CDC guidance, OSHA guidance and State Department of Health guidance.”

Firms are talking through many logistical options to try to maintain a safe and healthy workplace, including staggered start times or coming back in phases, or having an A team and a B team to encourage reduced volume in the workplace. There will also be many alterations to what have been normal operations in the workplace: social distancing in the office, limiting the number of people in meetings and limiting business travel, Hamid said.

The third set of issues likely to come up are employee relations challenges, and in particular, anti-retaliation claims. 

Addressing employees who are reluctant to return to work will be particularly relevant, Hamid said. “If you retaliate against employees for raising legitimate health and safety concerns there may be a liability for retaliation under OSHA or under The National Labor Relations Act.”

Portfolio companies will need to address accommodation requests, leave requests and prevent discrimination against employees that either had covid-19 or are perceived to be at a higher risk for it, whether that’s based on age or disability status, Hamid said. 

If, during this period, a client has done a furlough or a reduction in force, then there will also be diligencing on whether there are potential claims to come out of that. After the Global Financial Crisis, layoffs were followed six or 12 months later by employment litigation, he said. 

The analysis of how to reduce cost is more complicated in the current situation, Hamid said, because under the CARES Act unemployment benefits are enhanced by $600 a week. 

“It may seem like a kindness to reduce comp or hours, but you actually could be hurting those employees,” he said. “For a low wage worker it’s often better to be terminated and to get those benefits.”

Finally, companies are starting to think about the balance between privacy concerns and the legitimate need to gather related information from employees. 

“In normal times, employees don’t ask a lot of health related questions,” he said. “In this kind of an environment – a back to work process that we’ll be going through in next weeks and months – there will be a need to make medical inquiries.” 

Action Item: Get in touch with Jyotin Hamid at jhamid@debevoise.com