Understanding Executive Litigation Risks During A Recession
Jun 11, 2020 10:32 AM EDT
The Coronavirus has decimated economic growth across the world and has thrust the vast majority of people into an economic recession that will last for months, if not years, to come. Businesses everywhere are scrambling to respond to this chaos, and in doing so are discovering that they could face serious litigation if they don't act appropriately during these trying times. For executives, in particular, litigation risks must be avoided during a recession, and the only surefire way to do that is to understand them in the first place.
Here's what business owners need to know about litigation risks during a recession.
Bankruptcies are abounding
Many companies are going bankrupt as a result of COVID-19 and its ensuing economic fallout. What too few entrepreneurs and executives realize is that these bankruptcies bring with them the threat of litigation. It has already been pointed out that the energy sector, in particular, is facing serious litigation concerns now that major oil and gas companies are suffering due to the drop in demand caused by COVID-19. What executives in these endangered industries need to understand is that litigation will almost certainly occur if their legal and moral obligations to shareholders and employees alike aren't upheld faithfully.
Investing in corporate litigation services may be a good idea right now, but there are also ways to avoid litigation entirely by providing solid management that doesn't leave employees or shareholders hanging. You could be faced with a breach of fiduciary duty claim, regardless of how well you manage your business, so investing in legal expertise ahead of time is likely a safe bet no matter what. Unfortunately, preventing litigation during a recession is extraordinarily difficult, as even savvy business executives who make the right decisions can find themselves liable for failing to achieve certain fiduciary obligations or goals.
Avoiding the worst of it
To avoid facing litigation, ensure all of your decisions are well-founded. If you have to lay off workers to avoid financial calamity, make sure you have data you can cite to validate this decision. Otherwise, you may end up on the receiving end of a duty to care case that could cost your company a huge sum of money. Republican legislators on Capitol Hill are working on passing liability protections for businesses due to the coronavirus, but it's unclear if legislation like this could ever be passed in Canada.
The popularity of that legislation is dubious at best, as many workers will seek to avoid giving companies widespread liability protection. Therefore, business owners and executives cannot depend upon that sort of legislation entirely, and should take care to cover their legal bases and prepare for eventual litigation. It is also worthwhile to read up on managing layoffs without litigation, though right now that is an immensely tricky thing to do.
Executives should realize that certain things are unavoidable. During a recession, litigation can harm your business immensely, but it's often impossible to avoid. Investing in legal expertise ahead of time and ensuring your decisions, which were made in the heat of an economic crisis, didn't violate the law is of the utmost importance.