Virus COVID’s Long-Term Impact: Six Unique Legal Issues Facing Businesses in 2022

The legal landscape is constantly changing as new laws are enacted or existing laws are interpreted or applied differently. Brooks Pierce attorneys have identified the biggest legal issues businesses will need to know in the coming months—from labor and employment to cybersecurity and federal investigations—and provide a top-level review of what company leaders need to know now. Prepare themselves for the future.

Labor and employment

Federal agencies have identified a number of workforce-friendly priorities since President Joe Biden takes office in January 2021. Many of these initiatives are likely to be further developed by 2022. We also see high rates of cooperation between government agencies in investigating employee complaints. Several federal agencies have entered into a memorandum of understanding (MOU) to improve enforcement of federal labor laws. This makes employers more likely to fend off agency investigations on multiple fronts. For example, a discrimination charge from the Equal Employment Opportunity Commission (EEOC) may follow a notice of investigation from the US Department of Labor’s (DOL) Wage and Hour Division with information not covered by the EEOC.

For employers, this means we expect two things. First, there will be more agency investigations into workplaces than we’ve seen in recent years. Second, those investigations are likely to be tougher than those of past administrations and involve multiple government agencies.

In light of these developments, employers should work with counsel to prepare their files, policies and procedures for scrutiny. Employers notified of an internal complaint or government investigation should immediately engage legal counsel to avoid any inadvertent mistakes. As always, employers should be aware of whistleblower laws, and should consult with counsel before taking any actual or perceived adverse action against any employee who engages in “protected activity” under state or federal employment laws.

Data privacy and cyber security

In the year 2022 is set to be the year we see real movement on federal data privacy legislation. California’s passage of the California Consumer Privacy Act (CCPA) two years ago has put some pressure on Congress to enact a federal standard. However, the slow uptake in other states has somewhat halted the initial push. In the year In 2021, however, Colorado and Virginia both passed consumer privacy protection laws inspired by the CCPA that could take effect as early as 2023. As more states begin to adopt consumer privacy laws like the CCPA, there is a real threat to compliance. Different state laws and requirements may not apply to businesses. Federal law solves this problem.

We also expect cyber liability insurance costs to continue to grow rapidly through 2022. Cyber ​​insurers offer affordable coverage or premium discounts based on a company’s various security requirements and use of mitigation tools. Companies should expect cybersecurity audits, inspections, and the like to be conducted before a vendor writes a policy. Additionally, the days of shopping for cyber coverage once are gone. Today’s cyber policies and supplemental plans are tailored to specific situations. More and more, we see policies with unexpected exclusions or limitations. For example, some providers may exclude business email coverage from traditional cyber coverage because most of these incidents are due to “human factor” errors. A policy that excludes conditions caused by employee error leaves a gap in coverage for many companies.

White collar prevention and tests

In October 2021, US Department of Justice Deputy Attorney General Lisa Monaco announced that the DOJ was returning to a tougher stance on white-collar crimes, particularly those involving corporate crime. The DOJ has issued a series of policy changes designed to eliminate repeat corporate misconduct and prosecute the individuals involved. For example, companies under investigation by the DOJ for wrongdoing must resubmit a list of individuals connected to the wrongdoing, not just those “actually involved,” regardless of their position within the company.

Another significant change in this policy is the importance a company’s criminal history can play in an investigation. For the past several years, DOJ investigations have focused only on related misconduct — such as problems with the IRS when investigating tax violations. DOJ now examines the entire regulatory, criminal, and civil record to make the appropriate decision for a company that is the target or subject of a criminal investigation. For example, if a prosecutor is deciding how to resolve a federal tax investigation of a target company, he or she must also consider any prior non-tax offenses—including prosecutions in another state, country, or various branches of the federal government—the target company has been involved in in the past.

The DOJ also said it will increase its use of independent corporate oversight to ensure companies are meeting their compliance standards. DOJ considers pretrial diversions (non-plea agreements and deferred prosecution agreements) to be taken seriously by corporate criminals and relevant to recidivist companies.

These new policies mean that any company and its officers, executives and employees must prepare for tougher enforcement and more invasive investigations from federal agents and prosecutors.

The impact of rising interest rates and inflation on M&A activity

Over the past few years, we have seen M&A activity despite the Covid-19 pandemic. Constantly low interest rates made debt relatively cheap, and dealmakers were resistant. With the Federal Reserve sending signals that it will soon begin raising interest rates and continued inflation, we may begin to see a slowdown in M&A activity. However, despite growing headwinds, financing costs are currently low, there is a strong pipeline of deals and buyer interest is strong through 2022.

Representations and Warranties Insurance

The demand for representation and warranty insurance (RWI) has increased over the past several years due to mergers and acquisitions. Indeed, there is a global expectation that RWI is required for private equity-backed deals above a certain threshold. The value of such policies has increased due to the increase in demand for RWI and the increase in the overall settlement rate. Additionally, RWI underwriters are becoming more selective, imposing more restrictions and requiring higher quality due diligence to attach policies. In the current market, middle and lower middle market agreements may continue to be challenging to find an appropriate RWI policy and parties may have to forego RWI for traditional compensation structures.

The impact of Covid-19 on contractual provisions

As the Covid-19 pandemic continues to spread, contractual provisions in purchase agreements are evolving. In the wake of the pandemic, parties have focused on risk-adjustment provisions in procurement agreements, such as the definition of material adverse effect (MAE) and temporary operating commitments. As of 2020, many purchase agreements have created effects related to the Covid-19 pandemic under the MAE definition or excluded acts or omissions related to the pandemic from the covenant, requiring the seller to conduct business “only in the ordinary course of business with past practice.” As the pandemic becomes chronic, the parties In light of COVID-19, they will need to reevaluate how provisions that exclude MAE, or “ordinary business conduct,” are interpreted.

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