April 23, 2020
Managing the Reputational Risk of COVID-19 Litigation
As companies continue to face myriad challenges resulting from COVID-19, many now also face the threat of high-stakes litigation driven by the crisis. Communications missteps risk causing long-lasting reputational harm, alienating vital stakeholders and compromising the legal strategy. Finsbury offers counsel that considers the most common pitfalls and strategic countermeasures.
As companies grapple with the employee safety and business continuity challenges presented by COVID-19, a new front is opening in this crisis in the U.S. in the form of high-stakes litigation.
With new class actions and other legal claims targeting virtually every sector – from travel, hospitality and pharmaceuticals to retail, fitness and consumer goods – even highly regarded companies with track records of integrity and excellence could face significant reputational damage as a result of COVID-related litigation.
When developing responses to these rising threats, companies should keep in mind two guiding communications principles that are particularly relevant in the current situation.
First, tone is critical. Opposing parties in litigation may be customers, employees, business partners and investors – all of whom a company will want to maintain strong, positive relationships with as the economy begins to reopen. While some arguments may be compelling in a legal setting, they may not resonate with the broader public and could, in fact, have unintended consequences.
Second, and more broadly, companies should ask themselves how the actions they take now will be viewed in hindsight – in the court of public opinion, not just the court of law. While there may still be difficult decisions to come, leadership should work to articulate a clear and compelling rationale for their actions and deliver tough news in a way that is transparent, honest and empathetic.
The legal challenges to which companies may need to apply these principles, or otherwise carefully consider the implications of their stakeholder communications, are multiplying each day:
- Many companies are facing allegations that they did not say or do enough to protect employees, consumers, or investors from harm. This type of liability is especially relevant as businesses consider when, where and under what circumstances to reopen.
- Some employers have been targeted by plaintiffs’ counsel for not taking adequate precautions to protect frontline workers, and this risk will only grow as employers make decisions about sending employees back to work. Plaintiffs are also alleging that furloughs and layoffs have been discriminatory or that benefits for contract workers are unclear and inconsistent.
- Consumer class actions around refund policies are surging. Airlines are facing claims that issuing time-limited vouchers for canceled flights violates the law. Event organizers are facing allegations that a failure to refund money for postponed events constitutes breach of contract.
- Shareholders have filed securities litigation alleging companies misrepresented the current or potential impact of the pandemic on their business.
- With forced cancellations and closures, supply chain disruptions and mounting loan losses, litigation will stress test companies’ contractual obligations.In light of this, companies must consider whether their position today will constrict their arguments in future litigation.
- Insurers and policyholders are asking courts to decide whether business interruption or civil authority provisions in commercial property insurance cover business losses from the pandemic. Public comments by either party may have implications for their legal positions down the road.
- Contract disputes are expected to grow in number and scope as service providers, suppliers and tenants struggle to meet their commitments. Disagreements around force majeure clauses will likely be closely watched and may force bet-the-company litigation, while “material adverse change” clauses could impact commercial lending and borrowing contracts.
- “Act of God” clauses are typically applicable to natural phenomena but not economic downturns and their resulting fallouts—even if severe. How companies describe the impact on their businesses could influence the eventual outcome of related litigation.
- COVID-related communications viewed as unclear, misleading or false could serve as the basis for other claims. For instance, any claims that businesses make about the effectiveness of products in treating or preventing COVID-19 may make them targets for false advertising claims.
Bottom line, any representations related to COVID-19 could create additional liability for companies trying to navigate these unprecedented times. As companies look to manage these legal challenges and emerge from the COVID-19 crisis with their relationships and reputations intact, they cannot forget the core principles of integrated communications, namely:
- Speak with one voice: It is critical that communications and legal are able to work as a coordinated team alongside executive leadership, other business functions and outside advisors to help ensure that company messages are carefully vetted, aligned across all stakeholder groups and delivered in a timely and consistent manner.
- Plan ahead:Legal and communications teams should prepare response plans now for various scenarios given the significant reputational risk that litigation could pose. Putting the right cross-functional working group in place can help the company speed decision-making and respond to allegations promptly, accurately and in a manner that reassures its stakeholders.
Finsbury is helping companies and institutions around the world manage their most critical COVID-19 communications challenges – and see around corners to prepare for what’s coming next with customers, investors, employees, government officials and other vital stakeholders.
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