As various states (and local governments) begin (and continue) lifting or loosing up the stay-at-home restrictions, restaurants and other food and beverage retailers throughout the United States are now dealing with new legal challenges, regulatory compliance and operational impediments. Nearly all restaurants and other food and beverage retailers have taken a substantial hit as a result of closures or government-mandated limits stemming from COVID-19. But now there seems to be light at the end of the tunnel, and as these businesses forge ahead and begin to reopen, they must take preemptive and calculated measures to ensure their continued survival (or alternatively, strategically plan for the efficient liquidation or restructuring of their business).
Social Distancing Guidelines and Occupancy Restrictions
While stay-at-home orders are being lifted as it relates to many industries that pose a lower threat for spreading COVID-19 (such as construction), the hospitality industry is finding that, for the most part, it is only seeing loosing up of dining-in restrictions. Specifically, most jurisdictions are continuing to allow for drive-through, curb-side pickup or delivery, but when it comes to indoor and outdoor dining, jurisdictions are implementing a number of occupancy-based limitations. For example, in Florida’s phased approach, restaurants can reopen in all counties (except Palm Beach, Broward and Miami-Dade), but must maintain indoor seating at 25% capacity and may offer outdoor seating but six-foot space between tables is required. A similar “restricted occupancy” approach has been taken in various other jurisdictions as well (i.e., Indiana, Mississippi, and Texas, to name a few. Further, additional social distancing guidelines are being required to be implemented once indoor dine-in service does resume. While these additional restrictions may vary from jurisdiction to jurisdiction, they include, among other things, required face coverings for employees, minimum of six feet of space between tables, and use of disposable menus, condiments and silverware (in lieu of frequently touched, reusable items). In New York, the epicenter of the pandemic, the planned approach, however, is less clear with restaurants and bars slated to be the next to last phased group of business (the third group) scheduled to fully reopen as of an undetermined date varying upon region (and with few specifics on post-reopening restrictions), after certain objective coronavirus related benchmarks (on hospitalizations, death rates, testing, and hospital-bed vacancy rates) are achieved following May 15. In New York City, the mayor is considering permitting restaurants to add outside seating on closed car-free streets, but no plans have been finalized. Ultimately, as more States begin loosing restrictions in the coming weeks, we anticipate similar occupancy-based restrictions and social distancing guidelines for the next several months, and suggest consulting qualified legal counsel before reopening your doors for business.
Regulatory and Legal Considerations
Once restaurants and other food and beverage retailers open their doors (even subject to the social distancing guidelines and occupancy restrictions discussed above), they are undoubtedly going to face new operational hurdles and legal claims relating to COVID-19. Specifically, these businesses need to consider (1) what duty they have to inquiry of and exclude employees exposed to COVID-19; (2) what duty do they have to report a threat of infection; (3) whether they can (or should) exclude at-risk customers or customers demonstrating symptoms; and (4) potential liability for employee and customer COVID-19 infections (with potentially no meaningful insurance coverage). These questions require businesses to review insurance policies and consult with applicable Federal and State laws, recommendations and guidance, including that of the Occupational and Safety Administration, Center for Disease Control, and Americans with Disabilities Act, just to name a few. Coming up with a written policy in advance that addresses all of these concerns (as well as other related preemptive measures) will likely present an opportunity to significantly mitigate potential future legal claims or regulatory or judicial action.
Last Resort Alternative Avenues
While we all hope that the end of quarantine (and the loosing up of restrictions) will result in a release of pent up demand for travel, socialization and dining out, there is unfortunately no guarantee that all restaurants and food and beverage retailers can weather this once-in-a-lifetime storm intact. Restaurateurs struggling to stay afloat due to closures or onerous occupancy limitations should consider how beneficial renegotiations with their landlord and lenders may be at this time. Having a professional evaluate your rights and options under your leases and credit facilities may provide an opening to leverage upcoming lease renewals, loan term dates, etc. or negotiate forbearance agreements, loan modifications or rent deferment – thereby providing much needed financial breathing space.
As a last resort, clients should be aware of their range of insolvency options during these highly uncertain financial times. Restructuring in bankruptcy is one option – although other options should be considered first. The Bankruptcy Code provides protections to debtors, including the automatic stay upon filing against any collection activity against the debtor and its assets, thereby giving the debtor some time to develop a reorganization plan for approval by the court and creditors. An alternative to bankruptcy is a receivership. Creditors (and debtors) can seek a receiver to be appointed for a debtor or a debtor’s property. Receivership proceedings can be commenced in state or federal court. Receiverships often are less costly than a bankruptcy case, and a receiver has great flexibility to manage the debtor or debtor’s property for the benefit of all parties during a case. Additional options could include assignment for the benefit of credits or a statutory dissolution.
Ultimately, pursuing any of these alternative avenues involve stressful legal challenges and complexities that are greatly mitigated by the guidance and assistance of skilled legal counsel.
This alert should not be construed as legal advice or a legal opinion on any specific facts or circumstances. This alert is not intended to create, and receipt of it does not constitute, a lawyer-client relationship. The contents are intended for general informational purposes only, and you are urged to consult your attorney concerning any particular situation and any specific legal question you may have. We are working diligently to remain well informed and up to date on information and advisements as they become available. As such, please reach out to us if you need help addressing any of the issues discussed in this alert, or any other issues or concerns you may have relating to your business. We are ready to help guide you through these challenging times.