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Pandemics: The Legal Issues for the Hospitality Industry.
By Charles L. Menges & Joseph P. McMenamin
Thursday, 30th November 2006
 
Seasonal influenza is a common - highly infectious disease that afflicts millions of people every year and causes - on average - about 38,000 U.S. deaths annually.†

For most of us, however, the flu is ordinarily little more than an inconvenience, and its effects upon business are relatively modest.† But the influenza virus is exceptionally versatile and mutates readily.† The so-called H5N1 virus, as it exists now, spreads readily from bird to bird, but only with difficulty from birds to humans, and so far only quite infrequently and after intense interpersonal exposure from human to human ("HTH").† If the organism, currently a large-scale threat only to birds, should mutate so as to permit efficient HTH transmission, the consequences could be devastating.† Such a change would replace the annual, seasonal flu epidemic with a mortal threat on a global scale.††

Experts analogize a possible, contemporary H5N1 pandemic to the Spanish flu pandemic of 1918, the greatest pubic health catastrophe in human history.† In 1918, mankind had no immunity to H1N1, the causative organism, and an estimated 20-40 million fatalities ensued, including 600,000 or more in the U.S. alone. Today, humans have no immunity to H5N1, and the mortality rate so far among the few persons contracting the disease approaches 60%.† The threat, then, is real, and not merely theoretical.† Should the organism mutate so that HTH transmission becomes efficient, experts predict an attack rate of about 30%, absenteeism in the range of 40%, and economic losses amounting to hundreds of billions of dollars.†††

If efficient HTH transmission does develop, it is likely that the disease will spread rapidly.† With over 6 billion inhabitants, and routine global air travel, the world has become much smaller than it was in 1918.† It is estimated that about 1.5 billion people cross international borders by air every day.† If a flu pandemic breaks out in Asia, the virus is expected to be on our shores within six weeks and that the rate of spread here will be far too rapid to rely on strategies developed only after the problem is at our doorstep.† Moreover, unlike floods and fires, a pandemic will probably occur in waves, each lasting 6-8 weeks, at 3-6 month intervals, over 6-12 months.† A person sick with the flu will probably be acutely ill for ten days or so and, if he survives, incapable of peak efficiency for several weeks thereafter.† So, not only will the disease spread rapidly; it may well recur within the population.

While the public health consequences are by far the most important issues, hospitality companies need to focus on the legal issues as well.††

Business Continuity

First, if there is a pandemic, business disruption is so likely as to be nearly inevitable.† Sickness will be widespread, and deaths numerous.† Healthy employees will need to care for sick loved ones.† Schools and day care centers may well be closed, so healthy parents will need to care for their children during the work hours.† Suppliers will face the same personnel challenges as hotels and restaurants will.† Bookings will probably plummet as business and personal travel fall off sharply. There are very few businesses more vulnerable to the impact of pandemic than those in the hospitality and travel industries.

Sickness among your personnel and their families, and among your suppliers and patrons and their families, will not be the only disrupting force.† Government has extensive authority to take steps deemed necessary in an emergency to protect the public health. School closings are mentioned above. Federal, state and local authorities can also:†

  • Order isolation or quarantine.
  • Control and prioritize access to utilities and commodities.
  • Limit domestic and foreign travel and prevent cross border movement of goods.
  • Restrict access to buildings, neighborhoods, towns, highways and so forth.
  • Cancel mass gatherings, and close office buildings, theatres, malls, and other accommodations.
  • Curtail or cut off access to public transportation.†
  • Enforce these restrictions, if necessary, with military force.
The U.S. health care system has very limited surge capacity.† It is estimated, for example, that upwards of 95% of the nation's ventilators are in use at any given time. If a pandemic occurs, hospital beds will be at a premium and the nation's health care resources may be stretched to the breaking point. Nothing about a pandemic, after all, provides protection against, or limits the need for care of, the normal array of sickness and injury that hospitalizes patients every day.† Significantly, public health authorities can commandeer hotels, dormitories, and other buildings as infirmaries if they deem it necessary to do so.†† This has happened in the past.† Hence, disruption in the hospitality industry, and indeed in the economy as a whole, is apt to be massive.†

Shareholder Suits

It is not difficult to imagine claims arising against corporate leadership for losses occasioned by foreseeable business disruption.† At publicly held companies, officers and directors are fiduciaries for their investors.† Claims might be brought against officers and directors by disgruntled shareholders after significant, pandemic-related financial loss, especially if competitors took steps that enabled them to keep their doors open, or, at least, to minimize their losses.†

Contract Claims

Contract disputes could well arise.† Companies facing massive absenteeism and supply chain disruption will likely experience substantial difficulty in meeting their contractual obligations.† Although a pandemic would certainly be uncontrollable, as by definition acts of God are, it is not unforeseeable.† Depending on which jurisdiction's law controls, the foreseeability of the pandemic may thwart the efficacy of an act of God clause or other force majeure clauses.† Moreover, to the extent that a claimant could convince a court that failure to perform arose not so much from flu itself but rather from fear of flu among employees of the other contracting party, the clause might provide no defense.† To the extent that damages might be attributable both to uncontrollable forces of nature and to poor human planning, the law in some states strips the force majeure clause of its power to protect altogether; in others, damages are apportioned, and the allegedly negligent actor pays for only that portion of the damages for which it is responsible.††

Insurance Disputes

The insurance industry has generally taken the position that businesses suffering loss as a consequence of pandemic are not insured against such losses.† Business income and business interruption insurance, for example, often depend upon a showing of damage to the physical premises.† The nature of influenza, of course, is such that the physical premises are not damaged in the least.† On the contrary, the organism attacks humans only.† Carriers are likely to take the position, then, that no coverage exists.††

Communication

In the event that a pandemic arises, you may very well need to communicate urgently with a variety of audiences: employees, guests or reservation holders, suppliers, stockholders, regulators and the media.† These communications, arising in time of and to respond to crisis, must be clear, reliable, and timely.† Messages useful, or even indispensable, for one audience, may not be suitable for another.

Because no one knows how the pandemic will play out, it is impossible to prepare such communications in full ahead of time.† What one can do, however, is identify audiences and the subjects that those audiences need to hear about.† Communications with employees, for example, should address such topics as return-to-work issues, among other topics. Thus, communications templates can be created and the blanks filled in when the facts are known.† Taking this approach may facilitate speed and accuracy of communications and avoid creating confusion.† The time to identify pandemic-related issues is now, not when two employees in five fail to report to work.

HR/Labor and Employment

There are, of course, a whole variety of labor and employment questions raised by a pandemic.† These include:

  • Leaves of absence, including issues under the Family and Medical Leave Act and company leave policies.
  • Family member illnesses in the context of FMLA's definition of "serious health condition."
  • Forced quarantine and issues arising from employees working from home.
  • Workplace safety requirements, including the OSHA general duty clause, respiratory hygiene, and issues associated with vaccinations.††
  • Under the Americans Disabilities Act, there could be questions about reviewing job descriptions, determining if physical attendance is an essential job function, and the impact of such decisions in the event of pandemic.††
  • The process for determining which employees may be essential during a pandemic, and the employment law implications, such as those under the Fair Labor Standards Act for such employee selections.
  • Requiring medical testing and possible vaccinations for employees identified as essential.
  • Conditions associated with a pandemic that would qualify as a disability under ADA.
  • Benefits issues, such as continuation of health benefits during a forced leave.
  • Worker's compensation implications of 1) contracting the disease at work, and 2) complications associated with a forced vaccination.††
Some of the staffing issues implicated by a potential 40% absentee rate may include recruiting, replacement, and cross-training of employees. You may wish to consider whether travel should be suspended in event of a pandemic.††

Preparedness Plans

There is no panacea for pandemic - medically, legally, or financially.† Leaders in the field, however, and government at all levels, stress planning to identify risks and to diminish their impact.† The odds are remote that any plan, however well thought-out, will do the job intended without needing modification.† Creating a plan, however, is a valuable way to identify the key issues, and hence critical to the kind of improvisation that the pandemic will doubtless require.

If you decide to develop a plan, you should create a committee to write it. Each critical department should be represented.† Identifying essential employees, services, and products will help with prioritization of asset allocation. You may want to appoint someone to stay abreast of public health developments, and someone to discuss with lenders letters of credit or other mechanisms to cope with financial dislocations.† Your committee should consider the issues discussed above, probably with assistance from in-house or outside counsel.† You may want to confer with local public health authorities as well, both to understand their planning and to coordinate your efforts, as much as practicable, with theirs.

A number of table top and similar exercises have been carried out in recent years to test preparedness of various levels of government against a variety of emergencies.† In these exercises, hypothetical disasters of various kinds arise in selected locations, and the responses of the relevant authorities are observed to evaluate how they would perform in event of a real catastrophe.† From Operations TOPOFF and Dark Winner, it is clear that a major problem in event of pandemic is likely to be determining who has authority to act in a crisis.† A well-crafted plan can answer that question in advance.† As unpleasant as it is to think about, the CEO may be just as vulnerable as the bellhop.† Think carefully about succession planning, so that even if the leadership is incapacitated, decisions critical to the business can still be made.††

Some plans propose heavier emphasis on telecommuting.† This approach is designed to allow employees to work from home, thereby reducing the risk that they could become contaminated or contaminate a colleague at the workplace.† At the executive level, telecommuting may to some extent be a viable option, but much of the work the industry does is in the nature of personal services that simply cannot be provided from afar.† In hospitality, cross-training employees may be more viable.

Many experts advocate purchase and distribution of personal protective equipment ("PPE"), such as gloves and masks. From a business point of view, this is probably a good idea, even though actual scientific evidence that these measures will succeed is lacking.† If you do not stockpile this equipment, your litigation position may be weakened, even if no one ever proves that use of the equipment would have saved the day.† If you do invest in these devices, you will need to store them in an accessible location and train employees and guests in their use.† Recognize that masks are uncomfortable to wear, and if not properly chosen and fitted, may create a false sense of security and do more harm than good.††

Bulk purchases of Tamiflu would seem to be of questionable value.† First, a prescription is needed, and it is not clear that a physician would authorize creation of a stockpile outside a health care setting.† Second, the drug has to be used properly.† Careless or incorrect use could make a bad situation worse and possibly give rise to claims.††

Hand-washing, in contrast, is clearly prudent and beneficial.† Employees must be required to wash their hands frequently, especially before and after food preparation, and after coughing, sneezing, or using the bathroom.† Guests should be urged, politely but forcibly, to do the same.† Cough etiquette should be stressed as well.† The authorities recommend social distancing (keeping at least three feet between yourself and anyone else) whenever possible.† There are distinct limits, of course, to how realistic this approach may be in the hospitality industry, but to the extent the concept is feasible it should be practiced.† Efforts to avoid or reduce contamination of HVAC systems, such as use of air filtration and filter drip pans, may be useful.† As with PPE, however, hard data on efficacy may be scanty, but, again as with PPE, your litigation position may be stronger if you make these investments than if you do not.

Recognize too that, if the pandemic materializes, fear will be one of its prominent symptoms.† If you can arrange for expanded mental health care services through EAPs, for example, this may help your personnel cope with loss.† Panic is not impossible; civil disturbances could occur.† You may want to consider contracting for extra security in event of a pandemic.

Once you have a plan, test it.† Doing so will help uncover its weaknesses, and suggest how to address them.† It will also improve the ability of your personnel to react effectively should the need to implement the plan becomes real.††

Legislation

If it is enacted, the company may wish to consider complying with the proposed YFluK Act. Generally speaking, the proposal provides for a measure for tort immunity for those companies that can demonstrate compliance with best practices within their industries.† Currently under consideration in the Senate Financial Services Committee, the bill's sponsors have encouraged interested parties to provide input.† The industry should consider this invitation; accepting might have an opportunity to shape the legislation in helpful ways.

Preparation and Other Threats

Since the H5N1 pandemic may never materialize, it is possible that the effort the industry undertakes will not be needed to protect against the ravages of avian flu.† Gambling on that possibility seems unwise, however, since if the threat does materialize the costs of apathy could easily dwarf the costs of preparation.† But the analysis need not end there. For one thing, planning may have PR value; its absence, quite the opposite effect.† For another, even if H5N1 never becomes a global threat, the probability remains high that either because of natural evolution, as with SARS, or because of a terrorist attack, another organism will in the foreseeable future. Most of the steps one might take to prepare against avian flu would also be useful, with but modest modification, against other biological threats.† Hence, the logic impelling preparation for flu can be applied to a variety of other microbiological risks, and the cost-benefit analysis should take that into account.

Charles Menges & Joseph McMenamin are both partners at the law firm McGuire Woods.† Charles Menges leads the commercial lending practice and represents both institutional lenders and corporate borrowers in a wide variety of financing transactions. Charles also has extensive experience in representing owners and developers of hotels and resorts, including in the negotiation of management agreements, franchise agreements, and asset purchase agreements.†

oseph McMenamin focuses on health-related litigation, including products liability and toxic torts; risk management and claims avoidance, and health law. His practice places particular emphasis upon identification and development of the science informing the defense of claims against the manufacturers of medicines, vaccines and medical devices. More recently, he has been assisting clients in the preparation of pandemic and emergency plans.†

They may be contacted at 804-775-4331 or www.mcguirewoods.com This information provided is general and educational and not legal advice.† For additional information go to www.hospitalitylawyer.com

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