22 Nov [Transcript] Disaster Response & Recovery
Disaster Response and Recovery. Steps to take in the wake of a disaster. Good morning. This is Roger Royse. I’m the founder of the Royse Law Firm. Today’s webinar is on disaster response and what to do to ensure business continuity immediately after a disaster. This is part of a webinar series for Royse University. This podcast, this webinar is being recorded. You’re going to be able to access this after today on RoyseUniversity.com. It’s also available on the Royse Law YouTube site. You’ll be able to download the audio as a podcast in the Apple iTunes store, and the materials are available on SlideShare. If you’re tweeting today, tweet to either or both of #RoyseUniversity or #disasterrecovery.
We’ve got a great panel put together today by experts and authorities on five or six different areas that you want to consider in the event of a disaster. Now, ideally, what everybody would do is they would have a disaster response plan and a lot of times people … In fact, I read a study this weekend that said that two-thirds of the companies out there don’t even have a plan. Even if you do have a plan, today’s webinar is going to focus to the extent that we can on the steps to take immediately after disaster strikes. These are steps to again to ensure business continuity and minimize the disruption that might occur because of a disaster.
What should you immediately do? We’re going to break this up, like I say, into six different topics. I’m going to talk a little bit about the overall structure of what you should be thinking about immediately after a disaster. Michael Tashman will talk about technology and communications, insurance and loss recovery. Bernard Lauper, employment issues, and personnel. Lisa Chapman, real estate issues, especially about tenants. Steven Haley, hazardous materials, and John Epperson.
Before we get started, I do want to say a few words about our panelists. Steven Haley, he’s an attorney at law with the Offices of Steven B. Haley. He has a lot of transactional experience. He’s been engaged in a practice of law here in Santa Clara County since 1976. He’s primarily a real estate lawyer in consultation negotiation drafting commercial office retail and industrial leases, as well as purchase and sale agreements.
John Epperson is an environmental lawyer at Cooper White and Cooper. He has a broad environmental health and safety law practice. He advises clients regarding a wide range of regulatory compliance, counseling, transactional, and permitting entitlement issues, and also represents clients in administrative enforcement actions and efforts to investigate and remediate contaminated properties.
Michael Tashman is the executive vice president of sales and marketing at Micro Tech. He’s a frequent speaker on planning for technology recovery and communications and disaster scenarios. His firm is a services firm and IT services firm whose objective is to enable its clients to focus on their business and not IT. They do that through their offices in Southern California Irvine and Los Angeles.
Bernard Lauper. He specializes, he’s with the insurance company of MacCorkle Insurance Service, and he specializes in high net worth individuals and corporations concerning their insurance and employment employee benefit needs.
Then, finally, Lisa Chapman is an employment lawyer and employment litigator here with the Royse Law Firm. She has an employment law litigation practice where she works with start-up and mid-sized companies and helps them comply with federal and state employment laws and regulations, including wage and hour sexual harassment, retaliation, worker classification, overtime laws, mass termination, everything employment-law related.
That is our panel. I want to say a few introductory words before we jump into some of the specifics. When we say disaster, I was just set around this weekend thinking about all the ways that this could come up and thought of a few more even this morning, but weather, of course, is the one we read about the papers most often here in California that could be an earthquake, that could shut down a business, terrorism data breach, loss of personnel.
Backing up, if you’ve been practicing long enough, you might remember 911. I will tell you anecdotally when I was in the middle of a deal with a company in the building right next to the Twin Towers. When 911 came in that deal came to a screeching halt. Everything went dead. The phones didn’t answer at the other end of the line. I never heard from the counterparty. I have no idea what happened to them. It just completely shut down their business and they did not recover at all. Needless to say, that deal didn’t happen, but no other deal happened as well.
Terrorism can affect us even here even if we’re not the immediate or not the immediate target of the terrorism. Loss of personnel, I include that as a disaster. Everybody that walks out your company gets raided. We see that often. Loss of office, for whatever reason. Health crisis and pandemics. Litigation. We see that fairly often now. Somebody walks in with a court order and shuts down the business. Strikes, of course. Riot. I would also probably add to that, I was thinking about this morning, there’s probably some economic issues, business failure, eviction, things like that. Anything that threatens the continuity of a business.
My business continuity, here are the five things I think we need to focus on immediately after. Let’s start, I’m a big believer in the checklist, so where I would start is number one, let’s focus on these five things numbers protect backups recover books and records. It’s going to be important to hang on to the books and records.
Secondly, figure out an alternative means of communication with customers, and Michael will talk more about that. Key personnel, employees, vendors, and regulators. That includes providing notice of a business interruption, or maybe the death of key personnel, or the cessation of business activities. We have to give people noticed as to what’s going on. We can’t just have people and companies completely disappear.
Office relocation in the event of a temporary or permanent loss of a principal office and that could be virtual. Lisa is going to talk about that a little bit.
Reassignment of duties or assignment of duties to responsible persons. That’s one of the first things we ought to be doing is divvying up the duties because there’s going to be a million things that need to be done and just otherwise minimizing service disruptions or might place client harm that could result from a sudden significant business interruption.
I put together a kind of a handy little checklist here of things that I would go down the list in the event of the disaster. Who are the key employees? Where are they? So, we can contact them immediately and make sure that we can stay in touch with them.
Supplies. Let’s marshal and store supplies while we can. Secure our property. Do we have backup resources available and how quickly can we get them up, including power and communications? Michael will talk more about that. Bernard will probably tell you a little bit how important it is to expect an inventory of the property before it gets disposed, possibly on the video, because that’ll be important for insurance claim purposes. We should immediately schedule insurance policies, so we know who we’re going to be talking to. If we have backups, it’s important to access them while you still can.
The other thing you might not think about is shared facilities. You may not be alone in this boat if there is a disaster and you may want to enter into some reciprocal agreement for a shared facility, possibly with your competitors. As weird as that sounds, it might be the right approach that somebody will have to step up and take a leadership position and make sure that happens.
Outside suppliers. If it’s a local disaster, you want to immediately, before some other people do, be contacting suppliers outside of the geographical area so you can ensure a constant source of supply. A phone list would be a good thing to put together as soon as possible or even an email list. Hopefully, you’re in the cloud, or you have access to a cloud-based system.
Then, finally, securing the building because it’s hard to believe, but looting often occurs after disasters in scenarios where you wouldn’t think that’s possible. That means the entry points, that means alarm systems have to be working. You might want to think fairly quickly about hiring security guards and making temporary repairs.
This is not the immediate thing, but I am a tax lawyer, so I have to mention it, but you’re going to think about. The one thing I like to tell people because people come to me after something really bad happens and when they complain about their financial loss, I have to remind them, well, keep in mind, there might be a deduction in there. So, the financial aspect might need not be as bad as you think.
In other words, you think you lost $1 million, but it’s only $500,000 because you’re going to get a $500,000 deduction out of that. There is such a thing as the casualty loss deduction. So, don’t freak out about the financial part of this just yet. You’ve got plenty of time to sort that out later. In fact, if it’s a disaster loss, there is in the tax code an election to deduct it in the preceding year, so you get the immediate benefit of it.
Then, Section 1035, the idea of a gain on an involuntary conversion. When could that happen? When your insurance recovery exceeds your cost basis in the asset, you have again. 1033 allows in certain scenarios a way to roll that gain over into the replacement property. We’re going to do a later webinar that dives into all of these issues in much more depth, but for now, just know that there are provisions out there, including filing and penalty relief.
Probably more immediate is just the idea that there is such a thing as disaster aid. We’re not going to go into that in any depth here today. But if you are in an official disaster zone, as declared by the governor, the president can issue a major disaster declaration, and you may qualify for aid.
Here, you should keep this slide handy. There’s DisasterAssistance.gov. Those are the phone numbers. There’s a smartphone URL. Also, if you Google “disaster recovery centers,” you can find a place for temporary housing.
That’s it at a high level. With that, I’d like to turn this over to Michael to talk a little bit about the information technology disaster recovery and planning. Michael, do you want to go ahead?
I very much do. Good morning, everybody. We’re going to touch on IT-specific disaster recovery. This is more than a Disaster Recovery 101, but less than a complete class. Next, we’re going to touch on a BCP, not in the comprehensive way that Roger just touched on, but in context of it being part and parcel connected to a disaster recovery plans, we’re going to go through the various elements of planning. We’re also going to talk about once the plan, you have that plan, how do you test it?
Why don’t we start with the process? Well, the simple, first of all, is creating a couple of lists. One of them, of course, is an overview of what is the IT environment in your company? Some people call it data center, some people call it computer room, some people call server room. Whatever you may call it, consider creating an environment where you can do failover. Today, if you do it in the cloud, it not only costs a lot less than trying to recreate an entire IT environment at a remote site, it will often supply, for example, the power systems that you need to be able to support the recovery site or the remote site. It will often be a duplication of your network as well to the degree that is needed.
One of the most important things, of course, is data backup. Today, it has become affordable for small- to medium-sized firms to engage an enterprise level backup. What’s an enterprise level backup? It is a combination of typically an on-site appliance that backs up all the servers and provides immediate restoration capability on the premise.
Also, it can back up to the cloud. In fact, typically what will happen is that appliance will turn on in about 2:00 or 3:00 in the morning, send all the information up to a secondary location, and you have a better support system regarding data recovery, regarding recovering from a disaster. Larger firms may even want that secondary site duplicated to another site, perhaps out of state.
Now, Roger listed a lot more disasters than I’ve listed here. Here in California, for example, building fires, earthquakes will not be that unusual. Only a few weeks ago, you may recall a lot of companies, whose business is focused on the web, experienced denial of service attacks, which shut down their businesses for as long as it was going on. If I recall correctly, it was going on for several days.
Imagine a business, not as large as some of the companies in Silicon Beach, but who entirely resides, as far as revenue, as far as their existence on the web, not being able to access their clients or, more importantly, not having their clients being able to access their services. So, the revenue stream stops right there and, for many companies, that itself would be a disaster.
We’re not going to go through all ten elements of the plan, to get to the plan. But there are a few things here that are important to touch on. Not the least of which is making sure that everything that becomes part of the plan is documented. It goes into a binder. It has a place to be found. Of course, nothing in the plan is going to matter if we don’t have people in leadership and other roles assigned to be part of the emergency or the disaster response team. Without those people, you have nobody who will know how to engage a disaster recovery plan in the event a disaster occurs.
That plan has to have, not only alternatives to your data processing site but alternatives for employees to work, whether it’s from home or remote or on another remote office, that has to be part of a DR plan. As you’re getting to the DR plan, one of the things you’re going to do is examine your environment, find out where the gaps and deficiencies are, not only fix them but implement where possible measures that would be preventive, would provide a defense against an electronic attack or potential power outage, or what-have-you.
Now, if nothing else is addressed, a BIA, a business impact analysis, is probably the most important part of a plan, because its entire purpose is to identify what’s critical to the organization regarding business processes. For each process, you’re trying to find out what’s the longest we can do without that process before clicking the on the switch doesn’t matter anymore. As you go through this process, you’ll identify which ones can be disabled longer, which ones can be turned off shorter.
You create a list basically out of this process that says, “Okay. These are the business processes that can be turned off the shortest amount of time to the longest amount of time.” The ones on the short-end of that list are your most critical business processes where, if you exceed the amount of time they can be down, they won’t matter anymore. The fact of the matter is when you identify those processes you are in a position to say, “Okay. Let’s conduct a risk analysis on each of those critical processes. Let’s find any vulnerabilities that may exist at this moment in time and let’s mitigate them today.”
I’m not going to go over the entire part of an IT disaster recovery plan, but three of them bear mentioning and in a way repeating. Without leadership, without people assigned to various roles, whether it is specific to backup security or what-have-you, nothing will happen, obviously. You have to have people who have those responsibilities. You have to make sure they’re trained to assess the damage from a particular disaster occurrence, they have to be on the IT site, certainly in a position to know how do we spin up our systems again, how do we get ourselves back to offering IT to the company so that the company can get back on track?
Now, you can have all the people assigned, you can have all the documentation created, but if you don’t test it now and then in some way or review it in some way, disaster recovery, the best plans are going to be nothing. At a minimum, maybe smaller companies will do this. Take down the binders, put together the team, sit down and review what you’ve done, see if things that you plan for are still relevant. Ideally, maybe the team goes for a walk through the environment, identifies, maybe some issues are ongoing that need to be repaired, maybe there’s been an important change to the company, new personnel, new lines of business that would impact the IT DR plan.
Larger firms who have created an entire failover environment on a regular basis would be testing a failover environment, whether primary systems are taken down or not, you want to see how long it takes to spin up your failover environment, the remote site if you will. You want to know how long it takes to-no, sorry. Both how long it takes to spin up. Does it respond within five seconds, five minutes, five hours? God forbid. Also, can it take the load? Can it work under the load that the primary systems operate on?
This slide is just a summary of everything we just talked about. But none of it matters until somebody does an IT assessment. In other words, find out what the health network is, what the health of your server environment and storage is, your backups environment, your security environment. Once you have all of those things coming along properly, corrected regarding any potential issues, you are then in a position to engage in creating a disaster recovery.
That’s about it for now. I don’t know if we’re taking questions or not, but thank you very much for your time.
We will be taking questions. I want to remind everybody in the audience if you’re listening live, there is a dialog box in the right-hand side of your screen, it’s in the lower part of your screen if you’re on mobile. You can go ahead and type in your questions, and at the conclusion of the presentations we’ll go ahead and get to those. We’ll also forward those to the speakers, and they can call up directly.
Thank you very much, Michael. Now, I want to move on to some of the insurance considerations because that’s got to be probably the first thing that a person is going to think about if there’s a huge loss from a disaster. Bernard, are you there? Can you go?
I’m here. I’m ready to go.
Thank you. Go ahead.
All right. Well, Roger, I thank you for your introduction and thank you for the opportunity to speak today. I would be remiss in saying that I think that everyone should have a disaster recovery plan. I am going to assume that as I speak today that you don’t have one. Because the reality is most people don’t have one and when the disaster sometimes happens even if they do have one they can’t locate it.
I will tell you that having disaster recovery plan in place will help you get back into the business a lot faster. It will make it a lot less stressful during a very stressful time. It’s a wonderful business opportunity. If you look at what happened with Hurricane Katrina in Louisiana and Alabama, the companies that had planned had got back into business faster. It took a lot of business away from those companies that were slower to respond.
With that said, let’s … I learn best by examples. Let’s walk through a fictitious situation and just because we’re in California and because there had been earthquakes in New Zealand, Argentina, and Oklahoma recently, let’s pretend, we have an earthquake.
So, I’m a fictitious business owner, a CEO, and for the reality, for the most part, it doesn’t matter if it’s an earthquake, a flood, fire, or what-have-you, the responses are going to be much the same. How your insurance covers the coverage will differ, but we’ll get back to that a minute or two. Obviously, if something happens to you, it’s a catastrophe, and it’s not a small one. The type of catastrophe that happens does will have an impact on you. Obviously, if the San Andreas Fault moves and half of the Bay Area is adversely affected like it was back in 1989, resources are going to be stretched. If it’s something that’s more localized, you’ll have more help; you’ll have more resources.
For our example today, let’s pretend that I’m a business owner, I’m a CEO. I get shaken awake at four o’clock on a Saturday morning; I’m at home. We had an earthquake, I get up, I walk around the house, and while some stuff has gone fallen off the shelves, the house seems to be okay, no smell of gas. Everything’s okay. My TV is working; my internet is working, my phone seems to be working. What I quickly learned is that the epicenter of the earthquake was much closer to my place of business and that’s where most of the accidents or most of the damage has happened.
The first question that pops into my mind is, am I the kind of operation that has people on site 24/7? Is it possible for me to call the office and see what has happened there? Maybe the answer is no; I don’t have anyone on site or two, I can’t get through on the phone because it’s not working. The next thing that’s going to pop into my head is, hey, can I get to the office? Maybe I live across a bridge, and they’re telling me like, no, they have to inspect the bridge. There’s not many travel for the short-term. What can I do in a near-term?
The first thing I would say is, I want to start reaching out to my employees, make sure that everyone is okay. Because one of the things we have learned from past disasters is that frequently the businesses are up and running long before the employees are ready to come back to work. While it’s important to make sure that your physical location is ready to go back to work, you also have to make sure that your employees are ready to go back to work. I’m going to start the phone registry that Roger talked about earlier, making sure that all my key people are well, that everyone’s reaching out, and if there’s anyone within our family that needs help or taking care of them.
The next thing I want to do is, I want to start to worry about my insurance, what insurance I got. Right? I want to know who is my insurance with. Who’s my insurance company, what’s my policy numbers, what’s my coverage, what are the phone numbers I need a call? The vast majority of the people I speak with would have no clue as to who their insurance companies are. Maybe if I’m lucky, they might know it’s Hartford or Chubb or something like that, but typically they don’t.
What they do often know, I’d say probably about three-quarters of times; they know who their insurance broker is. Now what you want to do at that point is jump on the phone with your insurance broker, obviously, speak to him about what is going on. If for some reason you don’t know who your insurance broker is, the folks that normally do are your CFO, your HR, and your accounting team. So, reach out to your broker.
What if you can’t reach the broker? Maybe his place of business was also affected, and you can’t get through. Is it a national firm? Do they have offices somewhere else? Call one of those offices. One of the things you want to do with both the insurance broker and the insurance companies is you want to get in line quickly because, if it’s a large catastrophe, there will be a lot of people filing a lot of claims. So, get in line early.
Okay. I’ve tried to do that. The CFO, the VP, the HR and the accounting people still don’t know who our insurance broker is and we can’t get hold of the records. You can always try calling the Department of Insurance in the state. That happened with Katrina, and the Department of Insurance would help you locate your insurance companies.
When you reach your insurance broker, I want you to ask for copies of all your policies, not just the commercial insurance policies, not just the liability and the property and the workers comp, and hopefully, environmental and extra expenses, I want you to get copies of your health insurance, your life insurance, STD, LTD, and what-have-you. I want you to group numbers, 800 numbers, and websites. I want you to you send all that health information to your employees.
At that point, you’ve done all that, and you now have learned it’s safe to travel. You can get across the bridge safely. Before you jump in the car, I want you to make sure that you are dressed appropriately. Wear jeans, wear layered clothing, bring sunglasses, safety glasses, what-have-you, gloves, food, water, flashlights, toolboxes, extra batteries, paper, pen, phones, cameras, and garbage bags, bring anything that you think might help you.
You get to the work site. The first thing you got to do is inspect it. If you take anything away from this conversation: document, document, document. Don’t write when you can take a picture. Don’t take a picture when you can use video. I want you to absolutely document everything that happens. The first thing you got to do is figure out whether it’s safe or not to get into the building. Walk around, figure that out.
Then, another thing you got to do is make sure that you go to duty to eliminate any potential losses. You notice that the water pipes had burst. Well, you’ve got your toolbox with the wrench. Let’s turn off the water pipes. Roger alluded to looting. Well, you have a warehouse where the doors fell off the warehouse, and your art gallery, you have expensive art in the warehouse. You have another warehouse, which is literally across the street. You should, obviously, if at all possible and safe, move the art from point Building A where it’s more secured to Building B.
Then what I want you to do is report the claims. I want you to get on the phone with your various insurance companies. It may or may not be the claim, may or may not be covered by the insurance policies, I don’t want you to try to figure that out. I want you to call the insurance company and say, “Hey, here’s who I am, here’s my group number. I am submitting a claim.”
I want you to work with your insurance broker to get assigned a claim specialist. Most insurance brokers have an expert claims person assigned to that person. When you speak to the insurance company communicate with your insurance broker to let them know what you are doing and who you spoke to, and once again document, document, document.
At some point, they’re going to see a claims adjuster. Depending on the severity of the catastrophe, it might be very quick; it might be quite a while. Know that if it’s a large catastrophe that some of the adjusters you’re meeting with maybe people who are now home-office employees and haven’t been adjusters for years. They’re out on the street. You may see multiple adjusters. When one adjuster comes out and tells you something, once again, document it. Know that, once again, because they’re home-office folks, they may not be quite as expert as they should be, so once again track everything that you can.
You’re not going to be policy experts on the insurance commercial, once again, work with your insurance broker. When in doubt, submit.
My best advice for you is to get in line early. I want you to document, document, document. I will tell you that the single biggest issue that I run into is folks doing things without documenting. So, that’s it. I know I’m repeating myself. I would ask that when we’re done you ask. Feel free to ask any questions then.
That, Roger, is my presentation for today.
Okay. Thank you very much, Bernard. Of course, we are taking questions; we’ll save them for the end. We have a dialogue box in the right-hand corner of your screen. Moving from insurance to employment issues, what happens when there’s no place for the employees to come for help. Lisa Chapman.
Good morning or afternoon, depending on where you’re at. I’m going to speak about the types of things with employers need to think about very quickly in the event of a disaster. This is a general matter. Keep in mind that companies have various fiduciary duties and statutory obligations, which they must comply with in the aftermath of a disaster. What I’m trying to do in my slides and my discussion with you is to provide a summary of some of those obligations as well as suggestions, which you can use to handle certain types of situation.
Sort of the threshold question, which you need to ask yourself, is: how does a disaster affect the employer-employee relationship? As the slide indicates, under the Federal WARN Act and, by the way, you’re probably familiar with that acronym. It relates to the Worker Adjustment and Retraining Notification Act. There are local and state laws which mimic or mirror this particular statute and provide additional color.
Anyway, at any rate, under that act, employers must provide … I’m sorry. Unless that act applies, an employee’s employment agreement will possibly trigger prohibited termination without notice, and a company may terminate its employees after the occurrence of a disaster. So, a termination of the employment relationship would be deemed to have occurred.
It would be considered a termination if any of these happen, again, we’re not talking about the Federal WARN Act situation. First is an employer notifying an employee of a termination. Second is an employer is not able to notify the employees of termination, but because the employee is not providing services, i.e., can’t come to work because of a disaster, et cetera. The employer treats these failures to provide services by the employee as a breach of the employment relationship or contract. Or, third, the employee resigns.
In a situation where a company is not interested or cannot afford to continue to meet the payroll obligations of that company after a disaster and has to terminate the employment relationship for economic or other reasons and cannot contact the employees to notify them of the termination, the only thing that the company can rely on is a written policy, which it, hopefully, has in place before the disaster, which states very simply that the employee, that if they fail to work or provide services, the company will treat that failure as a resignation or constructive termination.
Without that, employees may perceive the working relationship to be continuing and will expect to be paid accordingly. The purpose of this procedure, this policy is to give the company some protection if they want to terminate the relationship.
There are a lot of factors companies need to think about when they are making that decision probably on the spot about whether or not they will terminate their employees. Obviously, the first one is the economic and that is whether the company can afford payroll after a disaster. The second is sort of, I suppose, a bit attached to the first as for whether or not there’s business interruption insurance and some protections for the company so that they can rely on something other than just around resources.
The second is what’s the impact on future relationships with these employees or the employees that are not let go if some employees are terminated. Will your employees be angry at you and not cooperative if you try and rehire them? Will they feel disappointed, et cetera? That could affect your business activities.
The third is the extent to which a decision to terminate may affect the reputation of the company with its clients and the community. That’s something that’s a little more subjective and ephemeral, but you should think about it if you suddenly lay up all your workers because there’s, say, for instance, an earthquake, the community, the local community may take notice and that could have a negative impact on your business activities.
I mentioned WARN Act, and there are some issues I want to make sure you’re familiar with. Under the Federal WARN Act, companies with 100 employees or more who terminate 50 employees or more must provide the employees that terminate with 60 days’ notice of termination. Again, a lot of cities and counties impose similar and different requirements, and you should be aware of those in advance.
The question is: what is notice? How do you give notice of termination to folks who, a, may be homeless, or, the community may be entirely disruptive? The notice requirement is satisfied if a company sends a written notice to an employee’s last-known home address. If the employee’s homes are destroyed, the company should send the notice regardless of that fact and also post a notice of termination at the office or plant to the extent possible. That would be simply a matter of posting on the door in some waterproof or weather-proof form. Companies basically at some point are going to have to establish that they’ve compiled in good faith with requirements, that they provide notice.
If your company, your plant or your office is uninhabitable or there’s a crime scene, what are you obligated to do to ensure that your company, your employees can continue to work? To the extent that an employee’s job functions can be accomplished remotely, I suggest that you give that some deep consideration. Federal and State laws don’t prevent companies from asking their employees to work remotely. However, the issue you’re going to come up against is whether or not the specific duties any particular employee has are ones that can be handled at a remote location, such as their home.
If it’s a desk worker or someone who can perform services on the computer at home or some other remote location, working remotely is probably a good solution. However, if it’s a plant, a manufacturing plant, for instance, or a collaborative environment is required or needed, it may not be possible to ask them to work remotely.
Keep in mind that some employment agreements, especially those of senior employees or executives, contain specific clauses, which require that the employee be allowed to work at the office or plant or some other location, and that where there’s a change of work location the senior employee might deem that to be a termination without cause giving rise to a severance obligation on the part of the company. So, the company should avoid requiring a change of location without first obtaining a written waiver of that requirement to the extent it applies in a particular contract.
This speaks to the issue that, I’m sure you’ve thought about already, hopefully, these key documents will be located off-site or somewhere in the cloud where they’re accessible so that these decisions can be informed decisions and you’re not scrambling and guessing as to the contents of various documents and agreements.
If you do have your employees work from home, you’re going to have to pay for their expenses that they incur in connection with working remotely to the extent they’re simply providing office services, doing research, or engineering coding, that sort of thing. This might be limited simply to their internet bill, 50, 80, whatever dollars a month that is. You should let them know that you will cover that cost to the extent it applies to work-related activity. You don’t have to pay their entire bill, but just the portion which relates to the work that they incurred.
This raises the issue of what about your employees who under Federal and State wage and hour laws are not exempt from overtime laws. If an employee is not exempt from overtime laws, then you will need to ensure that you comply with overtime laws. As you can imagine when folks are working remotely and you’re not working near them that is quite difficult and the only protection you have for yourself is to communicate with the employees, hopefully, in writing that they are still required to take lunch and meal breaks, and that those lunch and meal break requirements are mandatory, and the fact that there’s been an interruption in their work environment that does not relieve them of their obligation to comply with your requirements.
I suggest that you have each employee that’s working remotely that’s not exempt send a weekly time report. I think you need to look at those very carefully. If you see that they are not taking their meal and rest breaks, communicate with them and let them know that it’s mandatory. You don’t need to get a lawsuit at the end of this disaster when you’re back in your office by employees who are contending that, because of the disaster, because they had to work remotely, they worked an additional number of hours that required overtime pay.
There are different types of disasters as Roger alluded to, and those different types of disasters require different responses in connection with how you treat your employees. Crime, shootings, acts of violence typically require that companies address the emotional and psychological impact that those activities have in an office. Again, I’m speaking of a criminal action or act of violence in the workplace or perhaps of an employee related to the company.
It’s not uncommon for companies to hire security and, in fact, we recommend that highly in the aftermath of an act of violence, and also to bolster if they haven’t done so already, their camera security, et cetera. It’s also not uncommon for companies to bring in psychological support or coaches to work with the employees to get them comfortable with the work environment. Obviously, acts of violence on a work site can lead to a lot of resignations by employees and, presumably, the company would like to avoid that.
Natural disasters, on the other hand, while they do present psychological and emotional issues for employees, they raise greater issues of focus on safety and those types of issues, which I’ll cover in a moment. Now, I’m covering them. I’m going to talk about some suggestions for handling the damage or destruction of an office or plant, with an eye towards how is this impact on the employee. As I’m sure Bernard can appreciate, one of the issues here is to try and avoid as best you can an employee being injured and, of course, submitting a claim, an insurance claim.
If an office or plant is damaged or partially destroyed after a disaster, the company, before it allows the employees back on the premises, needs to satisfy the fiduciary obligation to its employees to have a safe work environment. So, obtain inspections for safety and compliance with OSHA requirements. Get a professional to do that if you can. I follow Bernard’s advice and videotape that inspection and videotape the condition of the premises. So that if someone later comes back, an employee later argues that say there is a massive pipe in the hallway that wasn’t removed, you can have evidence in the case of a lawsuit in the future to dispel that claim.
Specifically, and the inspection will take care of this, but specifically focus on any obstructions, ingress, and egress, debris in the hallways and pathways and make sure that furniture and walls in place are safe and secure. If they’re not bolted, do it now, or do it at that time.
I would also recommend since a disaster has occurred in the company is on notice of risk that they may face in the future, the company should also think about how to make their office safer in the future or plant safer in the future in the case of a reoccurrence of a disaster.
I would recommend, among other things, this would include providing water and some food resources on-site and bolstering first-aid supplies just in case.
What do you do when an employee refuses to return to the office or plant but wants to continue the employment relationship? Some employees are just not going to be able to or not going to want to come back to work, but that doesn’t mean that you can fire them. There are exceptions where an employee might argue that because of the act of violence or the disaster they’re suffering from stress related to work, because of the work environment is compromised, or something to that effect, especially in the act of violence.
In that case, the company is going to have to comply with the ADA, the Americans with Disabilities Act if an employee claims that they’re suffering from stress due to something work-related. You’re going to have to follow the rules and procedures relating to conducting an interactive process to evaluate that tension. Treat everyone the same, be careful not to discriminate against your employees. Take those claims seriously. It’s not something that should be disregarded offhand.
Finally, my last slide, you may be wondering, well, what about my independent contractors or consultants? What you need to do with these, folks carefully analyze the agreements that you have with them, including the termination clauses. Unless there’s an act of God type clause, which is, I haven’t seen that very often.
In an independent consultant agreement clause, if there is a set term, say, six months, whatever, you’re going to have still to pay that individual through the end of that term. Think about what those terms look like and be aware of those. Also, be aware the fact that some of your agreements with these individuals may require them to be able to work at the office, and again, as we discussed before, you’re going to have to comply with those requirements.
That’s the end of my slides. Thank you.
All right. Well, thanks very much, Lisa. Moving from employment to real estate, Steven Haley.
Good morning. Thank you, Roger, for the introduction, for including me on the panel. The scope of my presentation this morning relates to commercial leases. I am a real estate attorney and I practice here in the Bay Area. In connection with commercial leases in response to disaster and casualty events, the negotiation of the lease provisions relating to casualty events at the premises provides the framework for the response to the damage to the leased premises. My presentation will focus on those lease provisions applicable to a disaster or casualty events.
The scope of the presentation is number one, an overview of commercial leases; number two, lease provisions applicable to the disaster events; number three, common provisions in a lease relating to a casualty event; number four, insurance policies and remedies; and number five, summary.
Overview of commercial leases. Commercial leases are an extensive document that involves the transfer of possession and control of the real property from the landlord to the tenant for extensive periods of time. Generally speaking, the tenant is entitled to acquire possession of the premises to conduct its business without the interference of the landlord. Nevertheless, the lease establishes a limitation on the tenant’s use and the occupancy of the property. Commercial leases apply to many types of property, whether it’s industrial, offices, research, and development, restaurants, retail or shopping centers.
About the focus on the provisions relating to the disaster, the first thing to define is a casualty event as an event that causes significant damage to all or part of the premises and that results in an interference with the tenant’s occupancy and use of the premises. The interference can be total or can be partial types of casualty events, including fire, floods, water damage, earthquakes, wind, storms, explosions, acts of God, terrorist acts, acts of war.
About lease provisions, the most commonly used provisions in the lease are two provisions: one relating to casualty, one relating to the insurer. The general purpose of a casualty or damage provision in the lease is to allocate responsibility for repairs to the premises and to provide guidelines for the party as to whether to elect to restore the premises or to terminate the lease. The insurance provisions in the lease establish requirements for insurance policies required by both parties and provide sources of funds for use in addressing the problems resulting from the damage on the premises.
The interplay between these two provisions is critical within the context of casualty event at the premises. It is essential to view them as distinct, yet complementary provisions, addressing the problems presented by the evidence of the property and determining the resolution of the issues that arise as a result of a casualty event. These provisions set forth criteria for the parties to determine whether to repair the premises or to terminate the lease.
Some factors relate to the decision to repair and terminate, in fact, it doesn’t include the extent of the damage to the premises, costs of restoration, time needed for restoration, and the impact on the tenant’s use of the premises.
There are certain common provisions; they are common in connection with the casualty event portion of the lease. First, the tenant is required to provide written notice the landlord in the event of a casualty event at the premises. Next, the landlord must restore the premises or exercise its right to terminate the lease.
Some factors relate to the landlord’s duty to restore the premises. Among those factors is the landlord must use a reasonable effort to restore the premises. The landlord must use the proceeds of landlord’s insurance policies for purposes of restoration. The landlord may also be entitled to access a tenant’s insurance proceeds to the extent that such proceeds relate to property that the tenant has made improvements if those improvements are going to become part of the property of the landlord after the termination of the lease. The landlord’s duty to restore is limited to restoration of premises. The landlord’s duty does not extend to the tenant’s personal property or trades fixtures or another leasehold improvement.
The limitations on the landlord’s duty to restore the premises are: the damages to the premises may not be the type that is covered by the landlord’s insurance; the landlord’s lender may require that the insurance proceeds be applied to the outstanding loan balance leaving little or no proceeds available for restoration; insurance proceeds may be insufficient to cover the restoration costs; restoration may not be capable of being completed within a certain period after the date of the casualty event; common time limit set forth on leases would be 180 days or 270 days, but it depends upon the nature of the occupancy and the length of lease; Existing laws or regulations may preclude returning the premises to the condition it was in at the outset of the lease, or the property may no longer be allowed to be used for the lease.
The landlord’s the right to terminate the lease may be triggered by certain factors. The time necessary to complete the restoration may take more than the 180 or 270 days. The damage may not be covered by the landlord’s insurance as required by the lease or may not be fully insured by the landlord’s insurance.
There may be circumstances where a tenant is satisfied with the location and wants to continue operating a profitable business at that site and tenant may agree to cover some of the noninsured portions of the restoration costs. Also, if the damages occur within the last 12 months of the lease and the time to restore the premises exceeds 60 and 90 days, the parties may be allowed to terminate the lease.
Finally, if the damages exceed 25 or 30% of the full replacement cost of premises, the landlord has a right to terminate the lease. The tenant’s right to terminate the lease mirror some of those that are available to the landlord’s right to terminate the lease. Again, if the time necessary to complete the restoration exceeds a certain period, 180 days or 270 days, the landlord or the tenant may elect to terminate the lease. Damages may appear over the last 12 months of the lease, and it’s not reasonable to try to restore the property within that period, or the damages to the property may exceed 25 or 30% of the total square footage of the premises, and again that may render restoration not to be a reasonable solution.
The lease also includes notice periods regarding restoration or termination. The notice periods may include immediate notification from the tenant to the landlord that a casualty event has occurred. The landlord will be required to provide the tenant with notice regarding the nature and extent of the damage to the premises or the larger property in which the premises is located and may include an estimate of the time necessary to restore the premises. The landlord should give the tenant a written notice in the event the landlord attempts to terminate the lease, and the tenant should provide the landlord its intent to terminate the lease as well.
In the event of termination of the lease by the landlord, there may be an issue regarding whether the landlord should reimburse the tenant for costs of relocation.
Then, rent abatement mostly leases provide for a big temporary event waiting a period of restoration based on the ratio of the square footage of the premises in proportion to the square footage of the portion of premises that’s been damaged or destroyed.
About insurance policies, the first thing, when you’re involved in negotiating the leases, the parties should consult with their respective insurance brokers before entering into the lease, and then again after the occurrence of a casualty event.
Types of casualty events that may be covered, as we mentioned, fire, floods, earthquakes, water damage, wind, storms, explosions, or acts of God. Though that may not be covered will be terrorist acts or acts of war.
About the tenant insurance policy requirements, well, Bernard mentioned a number of them, the ones that are applicable are the general commercial liability. The tenant is required to maintain general commercial liability, which covers injury, death, or property damage at the premises. The lease may require a special contractual liability endorsement that ensures the tenant’s duty to indemnify the landlord.
Property insurance. Tenant’s property insurance should be special forms coverage for loss of tenant’s improvement of business or personal property. It should include an endorsement for sprinkler leakage and may be required to include earthquakes and floods. Also, the tenant’s property insurance policies should include business income insurance to cover any number of months six, nine, 12 months of loss of income and continuing expenses. Bear in mind that most leases required that the landlord and the landlord’s lender be named as an additional insured of the tenant’s policies.
Turning the landlord’s insurance requirements that landlord is required to have a CGL policy. Landlord should also have a fire and extended property coverage property insurance, should include a provision to cover loss of rents for six to nine or 12 months to cover physical property damage. However, the landlord’s insurance policy and property insurance will not cover loss of the tenant’s trade fixtures, leasehold improvements, inventory, or other business or personal property of the tenant.
Each party needs to familiarize itself with the claims, notice provisions for the respective leases. Insurance policies contain specific instructions and requirements relating to providing notice or claims to the insurance company. Strict compliance with the timeliness of notice to the insurance company and location of the claims department for the insurance company is very important. The policy may also include instructions regarding the nature and extent of documentation to be provided to the insurance company. Usually, the broker is not the contact person regarding claims issues. However, the broker can provide invaluable information and guidance as to initiate the claims process in the event of a casualty event.
Finally, many of the leases may require a waiver of subrogation rights between the parties. This is a common provision. When you do have that provision in your lease you need to check with your insurance broker as to whether the waiver of subrogation is acceptable to the insurance company.
Okay. Thanks very much, Steve. We move from real estate into something that’s probably a little bit related. That is imminent hazardous materials if we have the sort of disaster that might implicate toxics. John Epperson, are you there, are you ready?
I am here. Roger, thanks for the opportunity to participate. I think it’s probably easiest if I just let someone there advance through the slides. I’ll try to go quickly since we’re already a little bit past the hour. If I can get the next slide. Things I’m going to try and cover here today, an overview, is legal requirements that are specific to facilities that have hazardous materials if you have certain regulated quantities of specific chemicals. In addition to all the good reasons to have emergency plans and disaster response plans that the other panelists have talked about, you may have specific legal requirements of what has to be in those plans and how those plans have to be submitted to the state and such.
I’m also going to cover release reporting requirements, which would seem to be a relatively minor issue, but it’s amazing how often it’s a detail that gets missed in the chaos of a release or a disaster and you end up talking to a client as they explain their woes with something that happened at their site. They were asking, “Well, was it a reportable quantity? Did you report it?” and you realize that they’ve never even thought that. We’re going to touch on that.
Then, avoiding the post-disaster disasters. I mean, after you get done with the emergency response, the fire has put out, the release has been stopped, you still have other potential disasters. You could have litigation if you’ve had releases of your chemicals. You could have from enforcement actions by various regulatory agencies. We’re helping you respond to the disaster and are now looking for evidence of violations. You could have problems with your insurance claims; it could be denied or partially denied. There are things that you can do during the disaster in the immediate aftermath that can help you when dealing with this kind of post-disaster issues.
Next slide, please. While we’re waiting for the slide to pop up. A $151 million lesson learned. You may recall there was a release into the Elk River in West Virginia in 2014. The company promptly declared bankruptcy. But there were 7,500 gallons; I’m not even going to try to give you the full name, the acronym was MCHM, not particularly well-known, it’s something that’s used to clean coal. It’s not heavily regulated. A matter of fact, they didn’t have a reportable quantity for a particular chemical. But it was something that people claimed that it made them ill when it got into the drinking water. There was a class action filed which was just settled $126 million from the downstream drinking water company. They had an intake for their system that was only a mile downstream from where the release took place and then $25 million from the manufacturer of the chemical.
The point here is that neither defendant released the chemical and yet they were paying $151 million to settle a class-action suit. So, even if you don’t necessarily have hazardous materials on your site, it’s probably worthwhile to know what some of the adjoining properties have on their sites if that’s possible.
Next slide, please. Jumping into the legal requirements, probably the lowest tier, if you will, which applies to the most companies in California are what we call the “hazardous materials business plans.” I’ve got the health and safety code and regulatory sites here if you want to go looking a little bit deeper into this. This applies to the businesses that handle hazardous materials, which is pretty broadly defined, either 55 gallons of liquid, 500 pounds of a solid, 200 cubic feet of compressed gas, or what we call extremely hazardous substances above certain thresholds that are in the regulation.
The purpose of the hazardous material business plan is fundamental to inform the first responders. If they report to your site and there’s been a fire, they’ll have a sense of what problems they might encounter when they get there. It applies to the most number of businesses.
Next slide, please. Elements of the hazardous materials business plan include a site map, inventory of hazardous materials, a rough sort of fundamental emergency plan, something regarding training of employees to deal with the hazardous materials. There are a few more issues in there as well, but they don’t necessarily deal with releases and disasters. I just want to make the point that these hazardous materials business plans end up becoming a public document because you upload it to an electronic system that California maintains. So, keep that in mind that information regarding your business may end up getting uploaded to this public database and you may want to consider.
Again, threshold quantities of certain regulated substances are listed in 19 CCR Section 2770.5. There are some tables in there. I’m going to hope that if somebody is subject to these requirements, you probably are aware of it because it applies to larger facilities that handle larger quantities of chemicals. It is different than the hazardous material business plan. If you have plans in place that doesn’t mean you don’t have to have the hazardous material business plan and it just the accident response. It gets into how can one prevent the accident.
Next slide, please. Just covering a few of the elements that go into risk management plans. I won’t read them here. The key points here are: you actually have to assess the off-site consequences of an accidental release; you’re going to have to sit down and look at what chemicals do you have on site, what form do they take, what are the potential releases, and what would be the off-site consequences of this release? Again, this is something that’s a little more complicated, and I’m hopeful that anybody who is subject to the requirements for risk management plans is already aware of them.
Next slide, please. The risk management plans are essentially dealing with off-site consequences. The requirement for them comes out of the Federal Clean Air Act. The risk management plans are looking for off-site consequences. There’s a corollary companion program that deals with on-site consequences, and that’s called “process safety management,” and Cal OSHA implements it. It’s very similar to risk management plans, but now you’re looking at the on-site consequences and the occupational exposures. Again, it’s like these others; it’s a particular threshold quantity of certain listed chemicals that trigger the need to have the process safety management.
Much like the risk management plans, I’m presuming that most people who are subject to have enough of the listed chemicals on-site should be aware of these requirements. Even if you’re not necessarily subject to these stricter disaster planning requirements, if you want to know what could go into a disaster response plan for a site that doesn’t necessarily handle hazardous materials, there’s usually some good information.
Next slide, please. This is on release reporting requirements. What you want to do … Could you possibly trigger the release reporting requirements? What substances do you have on-site? What quantities of these substances do you have? What are the reportable quantities of them? Who are you going to call if you have a release? Next slide after this, I’ll give you some references, websites you can look up to see what are the reportable quantities.
This started with CERCLA, the Federal Superfund law, which had reportable quantities and it’s grown significantly since then to some other reporting requirements. I always urge when in doubt go ahead and make the notification, because it’s supposed to be an immediate notification. Don’t forget that many of these, there’s not only a telephonic notification immediately upon learning of the release, but there may be a follow-up written report, which again people often forget.
Could I get the next slide, please? These are a couple of websites, links to websites that provide the release reporting requirements. If you want to determine whether or not your facility might be subject to them.
Next slide, please. Moving now to the avoiding post-disaster disasters. I’m finding that many of the things that were discussed by other panelists are equally applicable here. I particularly liked Bernard’s document, document, document comment because that’s very true here. At some point, after you’re done with the immediate first response after you’re done with sort of the immediate mopping up operations, you’re going to begin to turn your attention to things like potential enforcement actions, and potential litigation, and ensuring that your insurance claims are in fact going to be paid.
Can I get the next slide, please? When we’re talking about environmental enforcement actions, I mean, there is a laundry list here of agencies that may in fact, after a disaster come in and begin to investigate why was there a release, why was there a fire, what went wrong, was it in fact a violation of legal requirements, and assessing violations and penalties, and these can be pretty eye-catching amounts. Now, of course, that’s typically for more significant disasters, but still, the fact is some of these agencies that started out perhaps assisting you with the response to the disaster are going to turn their attention to enforcement actions and cease to be your friends.
Next slide, please. Enforcement action investigations. What should you be doing? This is something that should be in place for normal routine non-emergency inspections as well. You need some protocol for how do you deal with an inspector who shows up to the site. That’s critically important when you have a disaster where you may have multiple agencies investigating all at the same time. Typically, what I tell clients if you don’t interfere with the enforcement action. You do want to cooperate with them, that you want to go along with inspectors.
I would say here, particularly in the case of where you’ve had some disaster, which I would have to believe there’s going to be a number of things going on here in terms of litigation and enforcement actions and insurance claims, it’s good to have somebody whose job, whose task is to go along with the inspectors or to coordinate collecting the evidence or something like that, somebody whose job is not to respond, documents that they request. Try to make sure it’s not just a willy-nilly, oh, I could use a copy of this. Have them give you a list of what documents they need, make sure that you are responsive. But to get them copies don’t necessarily let them walk off with originals.
Interviews, which is a turkey point because particularly post-disaster may have a right to come in and interview employees in certain cases such as OSHA. You may not be allowed to have management or outside counsel present. I would certainly encourage people to prepare the people that are going to be interviewed. Particularly, if it’s right after a disaster, they may be a little shaken up, they may be uncomfortable whether they did something wrong. Sit them down, encourage them to be truthful, but don’t speculate if you don’t know something tell them you don’t know. But I certainly encourage people to speak to the inspector and heads up the inspector will often say, “Did someone from the employer talk to you before this interview and what they tell you?” They’re looking to make sure that the employer is not out their sort of scripting what the response would be.
Then after they do the interviews, certainly go back to the employee and find out what was the inspector interested in. This can be very helpful for the employees who are being interviewed as well because they can be nervous. I dealt with the situation; it’s rather unfortunate. It was like electrocution accident that ended up with two fatalities. I was at the site the next day, and OSHA inspector was there also. The employees are very shaken up. I mean, they had been at the site when two of their co-workers were killed. They didn’t want to talk to this inspector. I had to explain to them that it was okay to go in and talk to the OSHA inspector. But they were quite shaken up, and they needed somebody to kind of coach them and get them ready to do the interview.
Next slide, please. I’m not going to spend much time on this one. Just going to point out that in addition to the investigations that may be done by outside agencies, there are good reasons to do internal investigations even if you’re not required to do it.
The last point I want to make the slide here is that often there’s inclination to have this done in the direction of counsel so that you can apply a training work product privilege. But that’s a little tricky because if you end up with a report and you just keep it in the attorney’s file drawer, that doesn’t help regarding any corrective action or heading off the next disaster. So, you need to figure out a way to maintain the privilege while still being able to make use of the results.
Just one last substantive slide here, so next slide, please. This is going to go back to what several other people have mentioned. It’s documenting and preserving evidence. It’s hard to do when you’re in the middle of the chaos. In fact, people are trying to do the right thing regarding clean up; they’re trying to get equipment back in service, trying to get the facility up and running again. They’re not necessarily thinking about preserving evidence. But on the other hand, if you don’t document things, if you don’t maintain physical evidence, sometimes, let’s say, a pump failed, and you may end up with a claim against the vendor who supplied the pump. You certainly don’t want to have somebody toss the pump in the trash or rebuild it and destroy the evidence that you might need in subsequent litigation or an insurance claim.
Again, I think it’s important to assign someone to document, to coordinate this because everybody else is going to be running around dealing with a disaster, trying to get the facility back up to speed. You need to have somebody whose sole job is to focus on collecting this information and preserving whatever evidence you may need down the road. Also, I think it’s important to be maintaining a chronology of events because having gone through a few of these everybody will remember things differently two weeks after the event. It’s important that designate somebody whose job is to keep track of the chronology as you go through it.
Last slide. Most of the disasters aren’t going to be like this one. This was a refinery accident. You can see right there; it was pretty horrific. Most of the disasters that we’re dealing with are relatively minor by comparison to this, but still, it’s important to have a plan in place up front so that you don’t make the disaster worst.
That’s all I have.
Okay. Well, thank you very much, John. That concludes the presentations. I want to thank our panelists here on Disaster Response and Disaster Recovery. I remind our listeners and viewers that this webinar has been recorded. You can find it on the Royse University webinar page. You’ll also find the audio available for download as a podcast in the iTunes podcast store. The webinar, the video is also on our YouTube site Royse Law YouTube. The slides will be available on SlideShare as the speakers decide to post them. If you’ve been tweeting, #disaster, #RoyseUniversity, if you want to pick up some of the tips from today. Again, thank you very much, speakers, and thank you, attendees, for being here.