Business Law Update for 2021

Business Law Update for 2021

Matthew J. Kirkpatrick, Esq. and Sierra N. Grandbois, Esq.

January 14, 2021

In the business world, it is common to forecast and anticipate the market conditions for the next year so that the business may continue to thrive. After 11 months of living in a global pandemic, we all know and understand that any forecasts and predictions made in 2019 were not true for 2020. Major changes in how business had to be conducted in an ever-changing climate were made by business owners in an attempt to survive various lockdowns and re-opening restrictions in the state of California. As we discuss the recent changes in law and look ahead in this article to 2021, we hope that the market will begin to stabilize and provide a more certain outlook for those both in California and across the country.

Force Majeure

The biggest change that we saw during 2020 and expect to prominently see in 2021 is an increased focus on force majeure provisions in contracts. Force majeure is set forth both in California Civil Code §3526, which states “No man is responsible for that which no man can control,” and California Civil Code §1511(2), which states that performance of an obligation is excused “when it is prevented or delayed by an irresistible, superhuman cause…unless the parties have expressly agreed to the contrary,” meaning that not all events are controllable by the parties in a contract and that performance may be excused due to impracticability. Force majeure in contracts, also known as the “act of God” provision, often lists events such as earthquakes, fires, or state of emergencies declared by the President of the United States, but prior to COVID-19, the provision did not normally list pandemics. This unprecedented event forced contracts into instability as it was unknown whether not listing “pandemic,” “COVID-19,” or some other variation in the provision would negatively impact the party attempting to be excused from performance.

California traditionally interprets force majeure provisions broadly but, as of this point, no California courts have addressed excusing a party from performance due to COVID-19. If California follows its precedent, then it is likely that, although not explicitly listed in a force majeure provision, pandemics will likely fall within a normal provision and will excuse the party. As courts begin to open and operate once more, litigation over force majeure provisions will likely make its way through the court system in 2021.

Given that the world has now experienced a global pandemic, the addition of “pandemic” should be considered when drafting a force majeure provision to protect future parties until the courts solidify an alternative.

A.B. 979 – Publicly Held Corporations

New for publicly held corporations and foreign corporations that are headquartered in California is A.B. 979, which was signed by Governor Newsom on September 30, 2020 and is similar to 2019’s S.B. 826. A.B. 979 requires diversity on a board of directors by December 31, 2021 with the inclusion of one director being from an “underrepresented community.” The bill defines an underrepresented community member as “an individual who self-identifies as Black, African American, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian, or Alaska Native, or who self-identifies as gay, lesbian, bisexual, or transgender.” By December 31, 2022, those corporations with a board of at least four directors must have at a minimum two directors from underrepresented communities and board with nine or more directors must have at least three directors from underrepresented communities. If a corporation is not in compliance, the corporation will be fined $100,000 for the first violations and $300,000 for subsequent violations. This bill does not apply to those corporations that are not publicly held or those incorporated in other states or countries and therefore would not apply to small businesses.

Compliance with this bill along with the aforementioned S.B. 826, which requires at least one woman to be on the board of directors for publicly held corporations, could be tricky, as these bills open up those affected corporations to potential liability for discrimination and reverse discrimination claims.

Small Business Relief

On November 30, 2020, Governor Newsom made an announcement that temporary tax relief would be extended to businesses that were and continue to be impacted by COVID-19. The tax relief measures include: (1) an automatic three-month income tax extension for those with less than $1 million in sales tax, (2) extensions to existing interest and penalty-free payment agreements to companies with up to $5 million in taxable sales, and (3) expanded interest free payment options for larger businesses particularly affected by restrictions in operation.

Further, a new COVID relief grant for small businesses totaling $500 million was also announced November 30, 2020 and will be administered by the California Office of the Small Business Advocate in early 2021. Non-profits and small businesses will each be eligible for grants of up to $25,000. The program has yet to launch, but businesses may apply for notifications at the California Office of the Small Business Advocate’s website.

A.B.5 and the Transition of Gig Workers

On January 1, 2020, A.B. 5 went into effect, which reclassified many independent contractors as employees. The purpose behind this law was to allow workers access to benefits that regular employees do, such as healthcare and unemployment. This transition from independent contractors to employees, of course, created a big rift in the employment world as many of those who formerly employed independent contractors, such as Uber, Postmates, and Doordash had to supply minimum wage and benefits to thousands of people across the state who acted as independent contractors, or “gig workers” for those companies.

Due to this, those companies put together a massive campaign of $200 million to change the law through Proposition 22. Specifically, Proposition 22 makes gig drivers for those companies such as ridesharing and food delivery be classified as independent contractors and supersedes A.B. 5. 58% of Californians voted in favor of Proposition 22 this year. This historic campaign and decision by the Californian voters could have some major impacts both in the state and across the nation. It is possible that other sectors of the workforce, such as beauticians and trucking companies, will band together for future attempts to further carve out industries that A.B. 5 will not be applicable.

However, as of now, A.B. 5 still applies to a majority of workers in California. A.B. 5, also known as the “ABC Test” has three qualifiers that must be met for a worker to be classified as a independent contractor. Those qualifiers are: (A) They are free from the control and direction of the hiring entity in connection with the performance of their work; and (B) They are performing work that is outside the usual course of the hiring entity’s business; and (C) They are customarily engaged in an independently established trade, occupation, or business. Most employers at this point cannot overcome qualifier (B) but it is anticipated that litigation regarding the ABC test will occur in the future.

The information presented in this article is not to be taken as legal advice. Every situation is different. If you are facing a legal issue of any kind, get competent legal advice in your state immediately so that you can determine your best options.

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