Law360 (March 10, 2020, 8:54 PM EDT) -- Hospitality lawyers across the globe are scrambling to help clients as the spread of the coronavirus rocks key businesses like hotel chains and cruise lines, with widespread cancellations and mounting travel disruptions.
Major hotel companies, including Wyndham, Hilton and Hyatt, have temporarily shuttered hundreds of locations in China this year, and stocks of publicly listed hotel brands have plummeted since February.
Marriott International Inc. has said it is waiving cancellation fees for hotel stays through March 31 for guests traveling to or from locations including mainland China, Hong Kong, Singapore, Japan, South Korea, Australia and Italy.
As for cruise ships, the U.S. Department of State has warned travelers about the increased risk of COVID-19, noting in an advisory Monday that U.S. citizens, particularly those with underlying health conditions, should not travel by cruise. Norwegian Cruise Line announced strict preventive measures Tuesday, barring passengers who have traveled through airports in seriously affected countries like Iran and Italy.
"In the hospitality industry, we have to think of all the categories of people who may be affected — employees, investors and the guests, whether they're people who are staying in a hotel or eating at the hotel's restaurant," said Yuval Tal, head of Proskauer Rose LLP's Hong Kong and Beijing offices and co-head of the firm's hospitality, gaming and leisure group. "The situation keeps changing. A week ago, things in the U.S. were very different than they are now. We're all adapting to new information that keeps coming in."
Several lawyers spoke with Law360 about the toll the coronavirus is taking on their clients' businesses, sharing observations on fast-evolving trends and offering advice for other lawyers anticipating a rough road ahead.
Tourism Takes a Hit
Dana A. Kravetz, the Los Angeles-based firm managing partner at Michelman & Robinson LLP, said he is fielding calls from convention-organizer clients that have already booked their annual roster of conferences but are now wondering whether they can get out of their contracts.
"From a hospitality standpoint, there is no doubt that tourism is going to take a hit and that properties are going to see fewer people traveling and less occupancy," Kravetz said. "They're going to see at least an attempt to cancel booked events, or at least there will be conversations about postponement. It's very real, and it's happening in real time."
He said he recently attended a 20-hotel roundtable and spoke with human resources managers about what they are facing. Thoughts ran from how the coronavirus crisis will affect events already on the books to how to deal with employee issues and any possible impact on a property's revenue.
People aren't registering for events as rapidly as they normally would, and planners expect to see low attendance at conferences, Kravetz said. As a result, some planners think they should try to cancel banquet hall and hotel property bookings now since so many regular attendees at annual events are already asking for exceptions to cancellation policies.
Kravetz noted that hospitality providers are "trying to do right by guests" and accommodate them by not charging cancellation fees and not letting loyal customers' preferred status lapse if they don't visit properties as much as they normally would.
Contracts Under Review
Proskauer's Tal recommended that businesses prepare a "coronavirus disruption checklist" to identify key provisions in contracts that affect customers and supplier obligations.
The checklist would include a review of spending threshold amounts in contracts, a close look at the possibility of travel restrictions and court closures requiring teleconferences for arbitrations, and consideration of contractual provisions such as price adjustments, termination rights and default events.
Proskauer's coronavirus task force, of which Tal is a member, also advises clients to review "force majeure" contract clauses that address unforeseeable catastrophes such as factory closings, transportation restrictions, and shortages of critical employees and supplies caused by a pandemic. The task force cites a Dun & Bradstreet report saying that at least 51,000 companies worldwide — 163 of them Fortune 1000 companies — have one or more direct suppliers in regions most seriously hit by the virus.
"The details really matter," Tal said. "It's about being prepared, looking at the details and staying alert, because this is a quickly evolving situation and it's not one-size-fits-all geographically. You need to look at your insurance policies, and you need to look at what you have. If you're running a hotel, for example, you need the right equipment."
Tal, who is currently in New York but ready to travel to China when necessary, also said he has spoken with hospitality clients about making short-term capital calls from investors and liability issues if a sick guest stays at their hotel.
HR Faces New Challenges
On the employee side, Kravetz said, HR managers are grappling daily with scheduling changes and special requests as they implement new policies.
"They've never really had to deal with a mass disease or virus scare, and so they are trying to implement policy that aligns with what the WHO is putting out there, which is the safe way to comply," Kravetz said, referring to the World Health Organization.
Health and safety requests are forcing hospitality companies to deal with employees who want to wear a mask even if — or especially if — they stand at reception desks and welcome guests who are arriving from other countries, according to Kravetz.
"What do you do about an employee who says, 'I'm scared to come to work. I understand we had a group come here from overseas who stayed in the last week, and I don't want to work for two weeks until you guys give me the all clear'?" Kravetz said. "There's the difficulty of dealing with a fear or a preventative like a mask, and if you start making exceptions to your policies and start to accommodate that, it becomes an avenue for continual requests from employees."
Kravetz noted that if there's a drop-off in business and a property sees diminished occupancy, then the labor force will suffer. Some employees will have to be told not to come to work, and there may be temporary layoffs and unemployment claims that result, he said.
Kravetz's New York-based Michelman colleague Richard Reice, a labor and employment partner on the firm's newly formed coronavirus task force, wrote in a March client alert that companies may soon have a legal duty under the federal Occupational Safety and Health Act of 1970 to prevent spread of the virus. He added they will likely have to deal with increased worker absenteeism due to illness, mandatory quarantines and parents' child-care concerns due to school closures.
Reice told Law360 that New York Gov. Andrew Cuomo is sending a paid sick leave bill to the state Legislature that protects people who stay home from work because they are self-isolating or quarantined. He also predicted the virus' dynamic will hit blue-collar workers more dramatically than white-collar workers, who can more easily work remotely.
"This quarantine business will have a big impact on hotel and other hospitality workers," Reice said. "Every HR department has to write a policy. Employers need to be benevolent, because they'll need a workforce after this is all over. There's a tug of war between business continuity interests and a supportive HR policy."
Restaurants Workers Can't Face Special Screenings
Carolyn D. Richmond, chair of Fox Rothschild LLP's hospitality practice group and counsel to the New York City Hospitality Alliance, said she is helping many restaurants handle misinformation about COVID-19 while complying with city, state and federal privacy and employment laws.
"The last 10 days has been full-on advice and counsel concerning coronavirus," Richmond said in a statement Tuesday. "While the repercussions on the hospitality industry were more limited in the last several weeks, this week the conversations have turned to full-on layoffs as a result of cancelled events in every sector. Corporate clients have led the pack in cancelling events, and some segments are down anywhere from 25% to 75%."
Richmond told Law360 on Thursday that her group is fielding nonstop questions from around the country about guest and employee issues. One question, for example, is whether restaurants can require employees to take their temperature when they come to work, she said.
"That certainly brings the Americans with Disabilities Act into play, as well as state and city human rights laws," she said. "The ADA is the biggest concern with whether taking someone's temperature is considered a medical exam. The answer by and large is: No, you may not require your employees to put a thermometer in their mouth or touch their skin and take their temperature. That's a big issue and a surprise to a lot of people."
There's no known higher risk of infection from being in a restaurant or retail store than, say, just walking down the street, according to Richmond. The same rules about careful and frequent hand washing apply, and restaurants can certainly send employees home if they appear to be sick, with uncontrollable coughing, for example. Additionally, Richmond said any restaurant, cafe or chain that uses touch screens for customer orders must be more vigilant about cleaning them often.
Unfairly, Richmond said, she has seen a significant drop in business in Asian restaurants.
"I've spoken to a number of clients in the tri-state area with Thai or Chinese or sushi restaurants, and they are seeing a drop," she said. "That's a lot of profiling, and there's no evidence that anyone has the virus in these restaurants or any more so than in another restaurant."
Chicago's Convention Business Suffers
Larry Eppley, co-lead of Sheppard Mullin Richter & Hampton LLP's hospitality industry team and the firm's Chicago managing partner, said the city's hospitality industry has also been affected by coronavirus transmission fears, with hotel room cancellations rolling in as Chicago's massive McCormick Place convention center sees scheduled events called off.
As of Monday, McCormick conventions have been canceled by Oracle, Ace Hardware, the International Housewares Association and the American College of Cardiology.
Eppley is urging hotel owners and operators to create a flexible response plan, noting in a memo to clients that the federal Centers for Disease Control and Prevention and Occupational Safety and Health Administration have both already provided guidance on crafting such plans.
The memo suggests hotels communicate their coronavirus response plans to employees, and that at least a portion of those plans be shared with guests. A plan may include placement of hand sanitizer in all public areas and guest rooms, increased cleaning of restrooms, and closure of fitness centers and pools.
"The hospitality market is instantaneous. You get an instantaneous read on people's decisions because prices are set on a daily basis. Any falloff happens immediately," Eppley said. "The real unknown, and what may hurt the hotel industry like it did after 9/11, is whether people will permanently change their behavior. I personally doubt it. Things will come back. But there's a lot of uncertainty now about how this virus will change the hospitality industry moving forward."
--Additional reporting by Kelly Zegers. Editing by Philip Shea and Jill Coffey.
Update: This story has been updated with additional information from Carolyn D. Richmond of Fox Rothschild LLP.
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