Private Equity & the Impact of the COVID-19 Pandemic: Part 1 of 3

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Viviane Falzon is the Head of Complex Management Liability Claims at Ironshore /Liberty Mutual Insurance Co.  Viviane has been with Liberty since October 2016 in her current role.  She has 30 years’ experience in the insurance industry and is licensed attorney with diversified claims and underwriting experience in domestic and international Financial Lines and Specialty insurance products, including Directors and Officers, Investment Managers and Financial Institutions, Professional Errors and Omissions, Employment Practices Liability, Pension Trust Fiduciary Liability, Crime and Fidelity, Cyber Crime and Liability, Representations and Warranties, Surety, and Construction Risk policies.

Scott A. Schechter is a partner at Kaufman Borgeest & Ryan LLP and has been with the firm since 2001.  Scott’s practice concentrates on representing international and domestic insurers in all aspects of claims handling and coverage litigation, particularly in the areas of Directors and Officers Liability, Financial Institutions Liability (with an emphasis on banking, private equity, hedge funds, venture capital, and investment advisers), and Professional Liability.  Scott also defends individuals and companies in professional liability and commercial litigation.

Joshua A. DiLena is a partner at Kaufman Borgeest & Ryan LLP and has been with the firm since 2010.  Joshua’s practice focuses on Management and Professional Liability involving financial institutions, particularly private equity firms; and also includes the areas of public and private Directors and Officers Liability, Errors and Omissions, and Fiduciary Liability.  Joshua represents insurers in all aspects of the claims handling process, as well as coverage litigation.

Matthew E. Mawby Is a partner at Kaufman Borgeest & Ryan LLP and has been with the firm since 2015.  Matt’s practice focuses on complex coverage litigation and arbitration, particularly in the areas of Financial Institutions Liability, Directors and Officers Liability, Professional Liability, and Employment Practices Liability.  Matt also counsels international and domestic insurers in all aspects of claims handling and resolution of coverage disputes.  Matt also defends individuals and companies in commercial litigation and arbitration.

Andrew S. Paliotta is an associate attorney at Kaufman Borgeest & Ryan LLP and has been with the firm since 2018.  Andrew’s practice concentrates on representing international and domestic insurers in insurance coverage matters and coverage litigations/arbitrations involving Directors and Officers Liability, Employment Practices Liability, Errors and Omissions, and Professional Liability claims.  Andrew also represents commercial entities in arbitration and litigation in both state and federal court in professional liability actions and various commercial and construction claims.

This is post is Part 1 of 3. Part 2 will be available tomorrow here on the PLUS Blog.

I. Introduction

Coronavirus disease 2019 or “COVID-19,” first discovered in late 2019, has impacted over 188 countries to date.  As of the writing of this article, there have been over 30 million cases of COVID-19 in the United States alone.[1]  While the impact on health and welfare cannot be understated, the economic impact of COVID-19 has also been enormous, adversely affecting every type of business from the multi-national corporation to the mom and pop shop.  The focus of this article is the effects of COVID-19 at the private equity level, which present challenges unique to the PE space, as well as some challenges shared by other businesses around the world.   In addition, we will explore the potential implications of COVID-19’s impact on PE firms and their insurers.

II. Increased Regulatory Scrutiny

While every insurer of a PE firm is familiar with a claim submission consisting of a subpoena, formal order of investigation or target letter, and the underwriting risks posed by administrative and regulatory investigations/proceedings, the attempts by the government at both the federal and state levels to quell the economic impacts of COVID-19, and the potential for allegations of fraud, will only increase these potential risks.  The outpouring of relief in both monetary form (as discussed below) and forbearance on certain regulatory requirements (such as the SEC temporarily suspending the requirement under the Investment Company Act for in-person board votes) will potentially lead to greater scrutiny by regulators moving forward.

            A. PPP Loans and Private Equity

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, a $2 trillion-dollar economic relief package, was signed into law.  Part of the CARES Act was implementation by the Small Business Administration (“SBA”) of the Paycheck Protection Program (“PPP”): “a loan designed to provide a direct incentive for small businesses to keep their workers on the payroll.”[2]  (The Consolidated Appropriations Act, 2021, expanded the PPP by authorizing second draw loans for small businesses that had previously received a PPP loan.)   In April 2020, the SBA issued an “Interim Final Rule” that provided, among other things, that “private equity firms are primarily engaged in investment or speculation, and such businesses are therefore ineligible to receive a PPP loan,”[3] thus precluding (at least on its face) the use of PPP loans for PE operations.  The foregoing Rule did not foreclose the opportunity for portfolio companies owned by PE firms (and backed with PE funds) to obtain PPP loans as long as they fulfilled the other loan qualifications, including that the business had 500 employees or fewer.[4]

In July 2020, after pressure from Congress, the SBA publicly released PPP loan data, including the identities of the businesses that received loans of more than $150,000.  While the loan data did not reveal the exact amount of the loans, it did reveal that at least ten PE firms received loans of between $150,000 and $1 million.[5]  While a partner in one PE firm noted that the funds were used “to cover only salaries of support staff that would have been laid off,”[6] it is undeniable that the disclosure of the loan data placed increased scrutiny on businesses that received the loans, the SBA and banks that underwrote and issued the loans, which also led to some businesses deciding to return the funds. The critical point is that a business was required to certify its compliance with the PPP’s qualification rules prior to disbursement of the loan.  These certifications will inevitably come under increased scrutiny for the truthfulness in the disclosures.

The CARES Act created a Special Inspector General for Pandemic Recovery (“SIGPR”) in the Treasury Department with the authority to investigate and audit a PPP loan (to “conduct, supervise, and coordinate audits and investigations of the making, purchase, management, and sale of loans, loan guarantees, and other investments…”) and to refer matters to the Department of Justice (“DOJ”) for a civil or criminal proceeding.[7]  In this regard, the DOJ’s Fraud Section has charged over 100 defendants for alleged PPP or similar loan fraud.[8]  Further, it also appears that the Division of Enforcement of the SEC has issued requests for information to several companies that received PPP loans in order to examine whether “positive or insufficiently negative statements in recent 10-Qs may have been inconsistent with certifications made in PPP applications regarding the necessity of funding.”[9]

In the insurance coverage context, the increased scrutiny of PPP loan recipients (whether PE firms or other companies) may lead to more inquiries, investigations, and potentially civil and criminal proceedings by various government entities (the DOJ, SEC, U.S. Attorney and even the IRS), which could lead to an increase in claims submissions moving forward.  Given the breadth of PPP loans provided by the SBA – which as of March 21, 2021 was over 8.2 million loans for a total of over $718 billion[10] – it could take some time for the government to uncover and investigate potential fraud and misrepresentations in the PPP loan process, which is a risk that certainly should be considered in the underwriting process.

III. Employment-Related Claims

One area of concern for PE firms and their portfolio companies is the increased risk of employment-related claims arising out of the COVID-19 pandemic.  The increased use of furloughs, layoffs, and salary reductions by PE firms and their portfolio companies is likely to result in increased employment-related litigation.  Furthermore, companies may face increased exposure to lawsuits for failure to adequately protect employees who have been directed to return to the office.  While many types of employment claims may be made relating to the COVID-19 pandemic, several specific areas of liability may be of particular concern to private equity firms and/or their portfolio companies.

            A. FFCRA Lawsuits & Private Equity

In March 2020, the Families First Coronavirus Relief Act (“FFCRA”) created two new emergency paid leave requirements in response to the COVID-19 pandemic.   First, the “Emergency Paid Sick Leave Act” (“ESPLA”) requires employers with 500 or fewer employees to provide two weeks of paid sick leave to employees at partial pay, up to a specified cap.  Second, the “Emergency Family and Medical Leave Expansion Act” (“EFMLEA”), which amended the Family and Medical Leave Act (“FMLA”), permits certain employees to take up to twelve weeks of expanded family and medical leave, ten of which are to be paid leave at partial pay, up to a specified cap.  Certain states and localities have also passed similar legislation expanding paid leave options to employees impacted by the COVID-19 pandemic.   While the FFCRA’s expanded leave expired on December 31, 2020, litigation surrounding the FFCRA is certain to last well beyond the end of last year.

For private equity firms, which tend to employ fewer than 500 employees and will therefore be required to provide qualifying employees with expanded leave benefits under the ESPLA and EFMLEA, caution must be taken when evaluating leave requests and considering whether qualifying employees have met all legal requirements.  The FFCRA incorporates the FLSA’s remedies provisions, such that an employee who is denied expanded leave will be able to recover damages in the form of lost wages, salary, benefits and other compensation (or the costs of actual monetary losses resulting from the denial of leave, such as costs of child care).  Further, a successful employee is entitled to liquidated damages equal to the employee’s actual damages, plus interest – effectively doubling an employer’s exposure.  While benefit caps reduce exposure to an individual claim by an employee, plaintiffs’ attorneys may find bringing class action or collective action cases to be lucrative when an employer has improperly denied a larger number of expanded leave requests.

From a coverage standpoint, given that the ESPLA and EFMLEA programs incorporate the FLSA’s remedies provisions, wage and hour exclusions found in many types of insurance policies may preclude coverage for lawsuits alleging improper denial of ESPLA and EFMLEA benefits.

            B. Other Potential Employment-Related Disputes

Given that many businesses, including private equity firms, have employed or are considering employing cost-cutting measures such as layoffs, furloughs or salary reductions, private equity firms must also be mindful of the potential for discrimination and retaliation lawsuits that may result from reductions in force or pay.  As with all reductions in force, even if individual employees are separated for legitimate, non-discriminatory business reasons, discharged employees may be able to assert a discrimination claim based on disparate impact.  For example, if a company has greatly increased the diversity of its employees in the past year pursuant to diversity and inclusion initiatives, conducting layoffs or furloughs based only on seniority might have a disparate impact on minority employees who were most recently hired.  Retaliation claims are also a concern – particularly if employees who have expressed health concerns about returning to work are chosen for separation or furlough.  Given these potential claims, among others, private equity firms should carefully consider how to carry out reductions in force or reductions in salary before implementing such programs.

            C. WARN Act

The federal Workers Adjustment and Retraining Notification Act (“WARN Act”) requires that employers provide 60 days’ written notice before effecting plant closures and mass layoffs, or be subjected to liability for back pay and benefits.  The WARN Act potentially creates exposure to a PE firm and its affiliated entities when a portfolio company acquired by the PE firm ceases operations without providing the required notice under the WARN Act.

In the context of the COVID-19 pandemic, it is important to keep in mind that the WARN Act does have several exceptions to the 60-day notice requirement, including when layoffs are required due to a natural disaster or unforeseeable business circumstances – i.e., a “sudden, dramatic, and unexpected” event that the employer could not have reasonably foreseen.  While the latter exception may apply to many businesses forced to conduct layoffs due to declines in revenues resulting from the pandemic, employers must still provide employees with as much notice of a plant closure or mass layoff as practicable.

A Florida federal district court recently denied a motion to dismiss a WARN Act claim based on plant closures or mass layoffs necessitated by the COVID-19 pandemic in Benson v. Enterprise Leasing Co., No. 20-cv-891, 2021 WL 1078410 (M.D. Fla. Feb. 4, 2021).   There, Defendants argued that dismissal was warranted on the basis of the two exceptions/affirmative defenses, which appeared on the face of the complaint.  With respect to the natural disaster defense, while the Court recognized that COVID-19 is a natural disaster, it explained that to rely on this defense, the plant closing or mass layoff must have been a direct result of the natural disaster; and here, the shutdowns indirectly resulted from COVID-19 through the economic downtown caused thereby.  The Court recognized that the second defense – unforeseeable business circumstance – was an appropriate affirmative defense in this context, but could not dismiss on this basis because there was a fact issue as to whether notice had been given as soon as practicable.

The district court in Benson certified its decision for immediate appeal to the United States Court of Appeals for the Eleventh Circuit, which will undoubtedly be closely monitored and the decision may provide insight into how courts will treat WARN Act claims related to the pandemic.

With respect to private equity firms, existing case law indicates that such firms should be concerned about potential WARN Act liability if affiliated portfolio companies institute mass layoffs without providing the required notice to impacted employees.

In particular, several cases decided over the past few years have held that a private equity firm, while not a direct employer of impacted employees, may nevertheless be held liable for violations of the WARN Act under a “single employer” theory.  Courts have routinely used a five-factor test promulgated by the Department of Labor (“DOL”) to determine whether a private equity firm can be considered a “single employer” with its affiliated portfolio company: (1) common ownership; (2) common directors and/or officers; (3) de facto exercise of control; (4) unity of personnel policies; and (5) operational dependency between the PE firm and its portfolio company.  While each case is necessarily based on its unique facts, some courts have focused almost exclusively on the element of de facto exercise of control.  In those cases, a private equity firm is much more likely to be held liable under the WARN Act if it makes the decision to conduct the layoffs or strongly pressures the portfolio company to conduct the layoffs.

In an effort to minimize potential WARN Act liability and exposure, PE firms are well-advised to take steps to separate themselves from their portfolio companies’ decisions to conduct mass layoffs.  Of course, with the hands-on management approach of many PE firms with respect to their portfolio companies, the WARN Act will undoubtedly be an area of increased activity and increasing risk for PE firms and, particularly, for their portfolio companies.

From an insurance coverage perspective, insurers providing private equity coverage typically include exclusions for WARN Act claims.  However, because coverage questions turn on specific policy language and factual circumstances of each case, the scope of a WARN Act exclusion may not be sufficient to preclude an insurer’s coverage obligations in some instances.  Thus, the likelihood of increased exposure to PE firms for WARN Act claims may, in turn, also impact private equity insurers with narrowly-worded WARN Act exclusions, and this risk should be considered during the underwriting process.

This article will be continued in a following post. 

[1] https://covid.cdc.gov/covid-data-tracker/#cases_casesinlast7days

[2] https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/paycheck-protection-program

[3] https://home.treasury.gov/system/files/136/Interim-Final-Rule-on-Requirements-for-Promissory-Notes-Authorizations-Affiliation-and-Eligibility.pdf

[4] The so-called “affiliate rule” is particularly important in the PE context as a business must include the employees of any companies that it is “affiliated” with which includes “an entity, concern, or individual that owns or has the power to control more than 50% of the concern’s voting equity.”  See https://www.sba.com/funding-a-business/government-small-business-loans/ppp/affiliation-rules/

[5] https://www.wsj.com/articles/private-equity-firms-borrow-from-ppp-despite-later-rule-barring-them-11594114201

[6] Id.

[7] https://www.govinfo.gov/content/pkg/BILLS-116hr748enr/pdf/BILLS-116hr748enr.pdf

[8] https://www.justice.gov/criminal-fraud/cares-act-fraud

[9] https://www.thecorporatecounsel.net/blog/2020/05/ppp-loans-sec-enforcement-sweep-of-public-company-borrowers.html

[10] https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/paycheck-protection-program.

Neither Ironshore nor any other Liberty Mutual company (the “Insurer”) are engaged in the practice of law. The foregoing information is for informational purposes only. It is not a substitute for legal advice from a licensed attorney, nor does it create an attorney-client relationship. The Insurer disclaims all liability arising out of this resource. 

This document provides a general description of this program and/or service. Not all insurance coverages or products are available in all states or regions and policy terms may vary based on individual state or region requirements. See your policy, service contract, or program documentation for actual terms and conditions. Some policies may be placed with a surplus lines insurer. Surplus lines insurers generally do not participate in state guaranty funds and coverage may only be obtained through duly licensed surplus lines brokers.

Deal with Me: Transaction Insurance Leaders Chat featuring Mary Duffy

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The fourth episode of “Deal with Me” is here! In this podcast series, Matt Simpson and Dan Auslander provide insights—both personally and professionally—into the people that lead the Transaction Insurance industry, and increase the understanding of the Transaction Insurance marketplace, products, and trends. Their guest for this episode is Mary Duffy, head of AIG’s global Mergers and Acquisitions Group.

Listen below to episode four:

Mary Duffy is a former practicing attorney who heads AIG’s global Mergers & Acquisitions Insurance Group, specializing in Reps & Warranties Insurance, Tax Insurance and other solutions to facilitate deals.  After starting her career with Morgan, Lewis & Bockius as an associate in the Business & Finance group, she was Managing Director of Aon’s Private Equity & Transaction Solutions Group.  Mary earned her J.D. from Georgetown University Law Center and her B.A. from Juniata College.

In his current role at Ambridge Partners, Daniel Auslander is responsible for maintaining and developing their brokerage relationships.  Ambridge, a managing general underwriter, is a market leader in the Transactional Insurance product lines with a keen interest in expanding its product portfolio – including Directors & Officers Liability and Intellectual Property Insurance.

Mintz Member Matthew T. Simpson focuses his practice on helping his clients navigate increasingly complex corporate transactions including leveraged buyouts, recapitalizations and minority investments in the United States and abroad. He is a leader of the firm’s transactional insurance practice, offering his clients increasingly creative and effective ways to distinguish themselves in competitive processes while mitigating downside risk, and acts as underwriting counsel to a leading transactional insurance underwriter.

COVID-19 EPLI Update

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Elan Kandel represents insurance companies with respect to all aspects of claims involving directors and officers liability, employment practices liability, fiduciary liability, professional liability and commercial general liability policies.

Michelle Gordon is Claims Manager of the Management Liability team at Markel Service, Incorporated. Michelle is responsible for overseeing a team of claims examiners located across the US. Her team handles employment practices liability, directors and officers liability, and errors and omissions claims for private and public institutions. Prior to joining Markel Service, Incorporated, Michelle practiced law as an insurance defense attorney in New York, focusing on professional and general liability. She received her bachelor’s degree from Binghamton University and her law degree from Hofstra University School of Law. She is currently President-Elect of the New York City Association of Insurance Women.

Jamie A. LaPlante is experienced in all aspects of management-side employment and labor law at the state and federal levels. She defends employers in a variety of litigation matters under Title VII of the Civil Rights Act, the Americans with Disabilities Act (ADA), the Age Discrimination in Employment Act (ADEA), the Family Medical Leave Act (FMLA), the Fair Labor Standards Act (FLSA), and other state and federal laws and regulations, as well as breach of contract, whistleblower claims, workers’ compensation retaliation, and public policy violations.

Early in the COVID-19 pandemic, insurers predicted a flood of EPLI (employment practices liability insurance) claims related to the pandemic. So far, employers have held back the flood waters. Little by little, however, the claims have come trickling in, and we expect that trend to continue throughout 2021.

What are the potential sources of EPLI claims?

Employees cannot simply make a claim that they contracted COVID-19 and therefore, should recover from their employers. That does not mean that employers are immune from claims related to COVID-19.

Several different situations in the new COVID-19 workplace can result in potential liability:

  1. When employers lay off employees and recall some or none of those employees, the employers face risks of individual and systemic discrimination claims.
  2. When employers transition employees back to work in the workplace from remote work, it may give rise to employment claims related to requests to accommodate disabilities and religious practices and harassment.
  3. Employees may retaliate against employees returning from quarantine related to COVID-19 exposure or diagnosis.
  4. When return-to-work results in allegedly unsafe work conditions, employers can face citations from the Occupational Safety and Health Administration (OSHA) and employee retaliation claims following an OSHA investigation. Employers also face claims for negligence; public nuisance; negligent hiring, retention, and supervision; wrongful discharge; and whistleblowing related to unsafe workplaces.
  5. The COVID-19 relief bills provided two new causes of action for failure to provide required paid sick and family leave and for retaliation after the use of paid sick or family leave.
  6. Vaccination requirements and incentives can give rise to disability and religious discrimination claims, as well as wage-and-hour violations and privacy claims.
  7. Defamation and invasion of privacy claims can result from improper disclosure and handling of employee private health information.
  8. Employees who raise issues concerning PPP loan fraud or misuse of funds may have whistleblowing claims.

2020 revealed several litigation trends.

Looking at 2020 court filings, trends emerged. California and New Jersey lead the way with significantly more COVID-19-related employment cases than any other states. Florida, New York, Texas, Ohio, and Michigan round out the top states for employment claims related to COVID-19. In addition, two-thirds of the cases are filed in state court.

On March 25, 2020, an employee representative filed the first EPLI lawsuit against Walmart. The estate of a deceased Walmart employee sued, alleging that managers knew that several employees and customers had COVID-19 and failed to protect the decedent-employee. The estate claimed that the store failed to: adopt social distancing and quarantine guidelines; adequately clean and sterilize the facility; provide appropriate personal protective equipment (PPE); develop a response plan for infections; and provide warnings to employees who may have been exposed to COVID‑19.

In Texas, the family of a deceased meatpacking employee sued for negligence. The family alleged that the employer required an employee to report to work, despite disclosing symptoms of COVID-19, or be terminated. Employees claimed that the meatpacking company took no precautions against the spread of COVID-19, placing workers at risk of illness or death.

COVID-19 caused temporary and permanent layoffs that could give rise to EPLI lawsuits.

Many states implemented emergency health orders that required businesses to temporarily cease in-person operations. Those business where work-at-home was not possible immediately implemented layoffs—e.g., restaurant, retail, and beauty industries. Many of those employers that continued operations realized a decline in revenue that necessitated layoffs and/or pay cuts. EPLI lawsuits are likely if those layoff and/or pay cut decisions adversely affected certain protected groups (i.e., race, color, ethnicity, national origin, religion, age, disability, sex, sexual orientation, and gender identity).

Many workplaces failed to plan and adapt to the COVID-19 world.

A recent study by The Counterpart[i] found that most businesses that could implement work-at-home had not reopened their offices. In fact, many employers anticipated continuing remote work for many employees indefinitely. Yet half of employers surveyed had yet to adapt their workplace policies to COVID-19 or remote work. Those that did updated their policies updated them in order to permit: voluntary remote work, reimbursement of home office expenses, revised travel requirements, and staggered shifts. Nearly 75% of survey respondents cited safety as the reason for new policies and procedures. Surprisingly, 88% of survey respondents did not seek professional or legal counsel in implementing changes in response to the COVID-19 pandemic.

What are the risks when employers do decide to transition back to in-person work?

Many employers may be delaying the return to in-person work to avoid dealing with return-to-work issues. Inevitably, some employees will refuse to return to work in the office and cite safety concerns. The law permits employers to force an employee to return to work in person unless the employee needs remote work as a reasonable accommodation for a disability under the Americans with Disabilities Act (ADA).

Handling these accommodation requests incorrectly could give rise to disability discrimination claims under state and federal law. Even if an employee has a disability that subjects him/her to a greater risk of COVID-19 complications, remote work is not an automatic accommodation. An employee could be alternatively accommodated through a private, safe workspace, additional PPE, or alternative less crowded shift. Conversely, an employer cannot require a disabled employee to accept a work-at-home accommodation if he/she wants to work in the office, even if the accommodation is intended to protect the employee.

Further, employers may face employment claims if they harass or retaliate employees, or allow coworkers to do so, upon the employees’ return to work after quarantine. This underscores the need for employers to be discrete about who is told of an employee’s COVID-19 diagnosis or exposure. Only those employees within human resources who “need to know” should be informed.

How does an employer safely transition back to in-person work?

With all these concerns, how can an employer safely transition back to in-person work without risking employment claims? Before returning to in-person work, an employer should consider the following safety issues and appropriately mitigate COVID-19 risks:

  • Appropriate social distancing;
  • Redesigned meeting spaces;
  • Cleaning and sanitizing common and shared areas;
  • PPE – e., sanitizers, masks, gloves, etc.;
  • Daily symptom checking;
  • Encouraged use of paid sick leave when ill;
  • Testing; and
  • Contact tracing and quarantine requirements.

While EPLI policies often exclude OSHA citations, retaliation claims from employees who made OSHA complaints or participated in an OSHA investigation usually are not excluded. In addition, employees who in good faith and reasonably refuse to work due to safety concerns, can allege retaliation and wrongful discharge claims that may be covered by EPLI policies. Further, employers who require employees to work in an allegedly unsafe work environment could face claims for: negligence; public nuisance; negligent hiring, retention, and supervision; wrongful discharge; and whistleblowing.

Employers must comply with new COVID-19 employment laws.

The COVID-19 relief bills provided employees with new causes of action for employment claims related to the pandemic. The Families First Coronavirus Response Act (FFCRA) provided COVID-19 sick and family leave to employees who work for employers with less than 500 employees. The small employers covered by the FFCRA may lack robust human resources departments to assist them with compliance.

These employers could face claims under the FFCRA if they failed to provide the required (a) two weeks of paid sick or quarantine leave or (b) twelve weeks of paid family leave related to a daycare or school closure. In addition, through an amendment to the Family and Medical Leave Act (FMLA) and Fair Labor Standards Act (FLSA), the FFCRA provides employees with a right of action to sue in court for retaliation following the use or request for FFCRA leave. This is notable, as retaliation claims, unlike FMLA interference and FLSA wage-and-hour claims, often are covered by EPLI policies.

Employers must appropriately and confidentially handle an employee’s COVID-19 diagnosis or quarantine information.

Once an employer knows that an employee or his/her household member has COVID-19, the employer must handle that information confidentially. Only those employees within human resources that typically handle medical information (e.g., FMLA, workers’ compensation, and accommodation requests) should be informed. The employee’s supervisor only should be notified that the employee is off work. Employees who are exposed only should be notified that they were exposed to someone diagnosed with, or suspected to have, COVID-19. Identifying the employee is improper and unnecessary.

This process is full of potential landmines for an employer to step into, resulting in an employment claim for defamation, invasion of privacy, disability discrimination, and/or breach of Health Insurance Portability and Accountability Act (HIPAA) rules.

What about requiring or encouraging employees to get the COVID-19 vaccine?

The additional costs of PPE, social distancing, cleaning, sick leave, and other mitigation measures led many employers to encourage their employees to obtain one of the COVID-19 vaccines once they are available. The Equal Employment Opportunity Commission (EEOC)’s current guidance on the responsibilities of employers and rights of employees states that, if an employee cannot get vaccinated for COVID-19 because of a disability or a “sincerely held religious belief, practice, or observance,” and there is no reasonable accommodation possible, it would be lawful for the employer to exclude the employee from the workplace. This does not mean that the employer may automatically terminate the worker; rather, the employer must consider whether the employee is a direct threat to the rest of the workplace and/or whether remote work is a potential accommodation. A private work area, alternative schedule, or continued mask use could permit in-person work of an unvaccinated employee if most of the workforce is vaccinated. In addition, if the employer requires vaccination, the time spent obtaining the vaccine likely is compensable time under wage-hour laws.

Vaccine mandates are not the only concern. Many employers opted to encourage vaccination through incentives and workplace vaccine clinics. Some employers offered additional vacation days and cash in amounts ranging from $50 to $200. The most recent EEOC guidance on wellness incentives is that anything more than a de minimus incentive (e.g., a water bottle) in exchange for a wellness program is illegal under the ADA. The EEOC declined, thus far, to provide guidance on COVID-19 vaccine incentives, despite urging from the business community. Providing these incentives, despite the lack of guidance, remains a gray area of the law.

In addition, if an employer hosts a vaccine clinic at the workplace, poor handling of employee responses to vaccine screening questions could result in ADA violations, by converting the interaction into an improper workplace “medical examination.”

Some claims related to COVID-19 may be excluded by EPLI policy exclusions.

EPLI coverage exclusions may exclude some employment claims from EPLI policies. Many policies exclude FMLA claims, wage-and-hour claims, OSHA citations, bodily injury damages, WARN Act violations, and claims arising from criminal acts. These exclusions may exclude some—but certainly not all—employment claims related to COVID-19. It is important to review your EPLI policy and understand that there are exclusions that may apply for these type of claims.

The future remains unclear.

Thus far in 2021, it looks like employment claims related or stemming from COVID-19 are on the rise. In the first quarter of 2021, employees filed 671 new lawsuits against employers. By way of comparison, in 2020, there were 284 filings in second quarter, 458 in third quarter, and 539 in fourth quarter. The vast majority continue to be filed in state court. In addition, nearly one-half of all claims are based on disability, leave, and accommodation issues, with retaliation and whistleblower claims closely following in proportion. Regardless, employers—and EPLI insurers—should pay close attention to the potential employment claims that could result from the COVID‑19 pandemic and focus their efforts on prevention and compliance.

[i] “The Reinvention of the Workplace Study,” Counterpart™