By Bernie Dixon
Now that we are a couple of weeks into the crisis, tough decisions are on your plate. You are mobilizing your teams for remote work and now evaluating the longevity of your businesses. Maybe the impact of the current market forces is settling in. Your sales cycles may be lengthening. The cost structure of a direct sales team may have to be adjusted. Partners in your supply chain may be struggling to serve your needs and requiring a reassessment by your business. The final decisions are on the shoulders of the CEO especially in an early stage business. These can be tough decisions.
Our partners at Trusted Counsel, a leading business and intellectual property law firm, are committed to your businesses success and partnered with me on creating the following considerations for CEOs engaged in rightsizing or readjusting their company cost structure.
You carry fiduciary obligations. CEOs and other C -level executives are reminded of their fiduciary obligations. Your investors and business partners, no doubt, are anticipating your business longevity plan. Your fiduciary obligations to act in the best interests of all shareholders, members and owners require you to act to preserve your business. You are responsible for what could be tough decisions. Consider:
- Reductions in operating costs
- Salary reductions or reduction in compensation
- Reductions in staff levels through layoffs or furloughs
- Keeping your systems and data secure
Remain consistent and objective when conducting reductions in salary or compensation. If you will be reducing compensation of salaried or hourly employees, please remember to do this with consistency and preferably based on objective criteria. Be aware of any employment agreements or provisions that may allow for adjustments. If employees are under any sort of written employment agreement, you need to have a provision that permits the change or consent from the individual(s) concerned. Employees must be “at will” in order to put this in place. Trusted Counsel highly recommends that you reach out to your attorney or consult an employment attorney prior to making any decisions. Trusted Counsel will provide a consultation for your business upon your request. Consider getting legal advice or a review prior to making any announcements or implementing any new policies.
Remain consistent and data driven when performing reductions in staff levels. If you must layoff or furlough employees or terminate the employment of some employees, it is imperative that you consider all legal perspectives. If there are equity shares to be considered, your operating agreement needs to have provisions for separations. Because it is a complicated matter, it is best to use an attorney to support you through the process. Your choices, decisions and the manner in which you conduct your process can have significant long term and legal implications. Now is the time to invest in the support of a good attorney who has experience in staff reductions particularly in the small business arena.
Know your obligations Under Families First Coronavirus Response Act. You are probably already aware of the adoption of this Act by the President last week which goes into effect on April 2nd. “The components requiring emergency paid leave and extended FMLA leave apply to all employers who have fewer than 500 employees, with exceptions for first responders or healthcare workers or employers with fewer than 50 employees if compliance would “jeopardize the viability of the business as a growing concern”.
EMERGENCY PAID SICK LEAVE ACT (“EPSLA”). Regardless of an employee’s tenure with a covered employer, full-time employees who themselves are seeking medical attention for COVID-19 symptoms, are quarantined or have been advised to be quarantined by a healthcare provider must be paid their regular rate of pay up to $511 per day for the first ten days of leave. If they need leave to care for others for COVID-19 related problems, they are entitled to payments of 2/3rds of their regular rate up to $200 per day for the first ten days. Part-time employees may also be entitled to paid leave based on average hours or anticipated scheduled hours.
EXPANSION OF COVERAGE UNDER THE FAMILY MEDICAL LEAVE ACT (“EFMLA”). In addition to Emergency Sick Pay, covered employers will have to provide up to 12 weeks of partially-paid leave to any employee who has worked for at least 30 days, is unable to telework, and needs to care for a child under the age of 18 if their school or daycare has been closed for COVID-19 related reasons. After 10 days of unpaid leave (which the employee may elect to be paid under the EPSLA), the employer must pay 2/3rds of the employee’s regular wage up to a maximum of $200 per day and a total cap of $10,000. Unpaid leave for other reasons under the existing FMLA law that are not COVID-related also remains available.
OTHER PROVISIONS. While the new leave provisions will impose major new administrative and operational burdens on employers with fewer than 500 employees, employers will be able to recoup their paid leave expenses with refundable tax credits applied against the employer portion of Social Security Taxes. The FFCRA also provides for emergency grants to states for unemployment benefits and mandates free COVID-19 testing.
Review your business insurance policies. Most agents and carriers are telling insureds that they have no coverage for issues arising as a result of the pandemic. This is in their best interests. The onus is on you to pull together your policies and review them carefully, particularly general liability, property damage (if your landlord has shut down your building for work or you have been ordered by a government authority to cease work other than remotely (or exceptions for certain businesses), any business continuity coverage, directors and officers, and event cancellation insurances. Depending on your coverage, you may have certain losses covered under your policies – however, you must notify insurers of your intent to claim in writing. It is expected there will be massive litigation over insurance coverage for the pandemic. You will need to step up to this one forcibly.
Keep your systems and data secure. Unless you have always had a remote workforce, your business may be at increased risk during this time due to a variety of issues, including increased piracy emails and attacks during the pandemic. There are many free webinars taking place on this subject, so it is best to make yourself aware of your strengths and vulnerabilities in this area. If you need support in this area, please connect with us directly to discuss access to resources that can help reduce your exposure.
What I presented here can be challenging decisions where you will want support. If you have any questions on the applicability of the Act to your business or would like a consultation about any employee or business reductions, insurance policies, or systems security please reach out to firstname.lastname@example.org.
Here at Launchpad2X we are committed to your success. Please let us know where you need support.
Playing for your win.
Bernie P. Dixon is Founder and Chairman of Launchpad2X, a founder-to-CEO accelerator training program for women entrepreneurs. Find her on LinkedIn.