The COVID-19 pandemic has greatly affected small businesses and entrepreneurs across the country, and finding helpful information to navigate through this ever-changing landscape can be challenging. The University of Pennsylvania Carey Law School’s Entrepreneurship Legal Clinic (ELC), led by Practice Professor of Law and Dean of Clinical Education Praveen Kosuri, is aiming to fill that gap with a carefully crafted series of frequently asked questions and answers that matter most to small business owners and entrepreneurs during the pandemic. ELC Law Student Counselors researched each set of questions, looking at the multitude of resources available to the public, and distilled the available information down to what they thought was the best and most essential for early stage and small businesses.
Below are some examples from the ELC’s FAQ page from a selection of the seven different sections currently on the site: force majeure clauses, business interruption insurance, managing employees during COVID-19 shutdowns, shutdown orders and “essential” businesses, operating a physical business while social distancing, pivoting a business to e-commerce/delivery/pickup, and financial difficulties and relief.
Q: Can I use a force majeure clause to get out of a contract?
A: Depending on your circumstances and exactly what the force majeure clause of your contract says, you may be able to cancel the contract entirely. However, it is more likely that exercising your options under the force majeure clause will just put your obligations “on pause” until you are able to resume operations. Force majeure clauses will also typically only allow you to suspend the portion of the contract that is affected by the force majeure event. Typical force majeure clauses do not allow you to suspend or cancel the entirety of the contract.
The force majeure clause in your contract may also set forth different obligations you will have to undertake if you choose to exercise the clause. For example, you may have to notify the other party as soon as possible, or cover the other party’s losses.
Q: What is business interruption insurance and what does it cover?
A: Business interruption insurance helps replace lost profits and pay for extra expenses when a business is affected by a covered occurrence. It is typically part of a business’s commercial property insurance policy.
Business interruption insurance works in conjunction with your commercial property insurance. For instance, if your business suffers a fire, your commercial property insurance would cover the physical damages, and the business interruption insurance would cover the lost income from the interruption in business because of the fire.
There are two basic types of commercial property insurance policies—policies that protect against “named peril,” and policies that protect against “all risks” (as defined below)
“Named perils” policies typically include theft, fire, wind, falling objects, vandalism, or lightning.
“All risks” policies cover property damage (i.e. physical losses) and business interruption loss resulting from any unexpected cause, unless it is specifically excluded in the policy.
Business interruption insurance can usually help reimburse you for the following: (1) Lost profits, (2) Mortgage/Rent payments, (3) Utility payments, (4) Tax payments, (5) Payroll, (6) Advertising expenses, and (7) Relocation fees.
Q: What enforcement actions may be taken against businesses that violate the shutdown orders?
While generally refraining from prescribing specific penalties for violations of the shutdown orders, Governor Wolf and Mayor Kenney have both indicated that violators could be met with civil or criminal penalties, as well as enforcement actions from other agencies with authority over aspects of the business such as the Pennsylvania Liquor Control Board. The Commonwealth has advised that it expects any discipline for violation of the shutdown orders to be progressive discipline that begins with a warning to any suspected violator.
Q: Can I deny service and physical entry into my building to a customer who isn’t wearing a mask?
A: Yes, you can deny physical entry and service. However, if you are a business in Pennsylvania that sells food, medication, or medical supplies you must provide for pick-up services for customers who are not wearing a mask.
Please note, per a PA Secretary of Health Order, you cannot deny service to someone because they are not wearing a mask due to an underlying medical condition that prevents them from wearing a mask, or if they are a child under two years of age. Persons with an underlying medical condition are not required to provide documentation.
You may want to alert your customers in advance that they need to wear masks before entering your business. An alert could take the form of an e-mail, posting on social media, an app notification, hanging posters outside your building, or a combination of these.
Q: What if I can’t pay my rent on my commercial lease? What options do I have with my landlord?
The Pennsylvania Supreme Court has stayed all evictions through April 30, 2020. This means that no evictions may be filed with a court or proceed until May. The date may be subject to an extension, as the Pennsylvania Supreme Court has already extended the stay on evictions once.
Many commercial landlords are working with tenants to avoid evicting tenants. If you do not believe you will be able to pay upcoming rent, it is important to open a line of communication with your landlord. Your landlord might be willing to defer collection of this month’s rent or let you use your security deposit to pay a month’s rent.
If you are fearing eviction, you should research your county or city eviction policy. Many counties and cities have suspended evictions from property due to this pandemic, enabling you to figure out a long-term solution.
For those seeking even more information, the ELC’s FAQ page also includes a list of additional COVID-19 resources for businesses and entrepreneurs.