Hunton Retail Law Resource

Over the last two years, courtesy of a once-a-century pandemic, government-mandated business closures, nationwide stay-at-home orders, and—unprecedented—disruptions to the global supply chain have illuminated, previously unknown, vulnerabilities across a whole host of industries. Would anyone have seriously questioned the viability of office space two years ago? Now, inflation, in keeping with the recent chaos, may be upending the viability of another tried-and-tested institution: the supply contract.

The FTC, through the Department of Justice, has entered a settlement with two companies and the joint corporate President for falsely claiming that the LED lighting products and personal protective equipment (PPE) they sold were “Assembled in the USA,” “Buy American Act Compliant,” “Manufactured in the USA” and “100% Made in the USA,” despite having been imported from China. According to the FTC’s complaint, the defendants, Axis LED Group, LLC, ALG-Health LLC and Adam J. Harmon, went so far as to peel “Made in China” stickers off the products and replace them with Made in USA labels. The FTC had previously investigated and warned the companies, and received assurances that they would remove unqualified Made in USA claims from their marketing materials. The defendants subsequently were investigated by the National Institute for Occupational Safety & Health (NIOSH) over safety superiority claims for their KN95 masks.

In the retail industry, staff shortages caused by COVID-19 exposure and positive cases can significantly disrupt business operations, particularly during this time of unprecedented turnover and resignations in the retail labor market.  During this latest surge in COVID-19 cases, retail employers should be aware of recent changes in federal, state, and local guidance related to COVID-19 isolation and quarantine requirements.  On December 27, 2021, the Center for Disease Control and Prevention (CDC) updated their isolation and quarantine recommendations for the general public, including more limited time periods for quarantine and isolation periods.  On December 30, 2021, the California Department of Public Health (CDPH) released updated guidance to conform to the new CDC guidelines but added additional requirements, including testing to exit isolation or quarantine after the fifth day (which the CDC now acknowledges is the “best approach” but does not require as part of its formal guidance).  Notably, the new guidance also introduces a distinction between boosted and non-boosted individuals for the first time.  The key requirements and takeaways from this new guidance are detailed below.

With the busy holiday shopping season underway, retailers should remain vigilant in their efforts to protect consumers and themselves from the risks of selling potentially unsafe, ineffective or misbranded products in violation of the U.S. Environmental Protection Agency (EPA’s) federal pesticide law, the Federal Insecticide, Fungicide and Rodenticide Act (FIFRA).  As concerns with the spread of COVID-19 and new variants increase over the winter months, consumers are likely to stock up disinfectant products and devices like air purifiers and air filters marketed to reduce the transmission of COVID-19 and other microorganisms.  These products are tightly regulated under FIFRA, and retailers can unwittingly become entangled in regulatory enforcement actions for selling and distributing products that do not comply with EPA’s regulations.  FIFRA extends legal liability not only to the makers of violative products, but also retailers who sell them to consumers, whether or not the retailer was necessarily aware of the violation. In addition to EPA, state agencies also enforce state regulatory requirements applicable to these products.

Events such as the COVID-19 pandemic, extreme weather events and labor shortages have created significant supply chain challenges for retailers. In addition, the demand for more productive internet sales fulfillment centers has dramatically increased and will continue to increase for the foreseeable future. Many retailers were already in the process of converting to automation systems for supply chain facilities and internet fulfillment centers as a means to increase efficiency, productivity and revenue on a per square foot basis of logistics space, and the recent supply chain challenges have accelerated that process for many retailers. Automation includes equipment installations, automated vehicles, robotics and software products, and is designed to increase efficiency and productivity, reduce labor needs and operating expenses, and improve work place safety. Of course, there are many factors to consider for retailers converting to automated systems, including many real estate related considerations. This blog post focuses primarily on leasing issues, but retailers should also consider alternatives such as using or purchasing owned land or contracting with a 3PL service provider.

In May of 2021, the CDC issued guidance that fully vaccinated individuals could stop wearing masks and observing social distancing in most indoor and outdoor settings.  However, in the following months, the delta variant of COVID-19 has presented a resurgence in cases across the country.  This uptick forced the CDC to reevaluate its guidance to again recommend that even vaccinated people wear masks in certain indoor public spaces, especially considering many of these COVID spikes are occurring in the least vaccinated areas of the United States.

The COVID-19 pandemic caused supply chain interruptions across industries, from toilet paper and cleaning supplies, to red meat.  Although most states have resumed close to “normal” capacity and operations, the nation still faces an historic and unprecedented lumber shortage.  The shortage is the result of growing demand for bigger homes, new construction, and a surge of new DIY-ers amid the pandemic, coupled with supply chain disruption caused by the virus as production cuts and government shutdown orders stifled production at both domestic and foreign mills.  As a result of this perfect storm, prices for lumber and other building materials have skyrocketed since the start of the pandemic, and have only just begun to fall, as the increasing supply struggles to catch up with still very high demand.  According to the National Association of Home Builders (NAHB), the average price of a newly constructed single-family home has increased by about $36,000 since April 2020, and the “price per thousand board feet” went from $350 to over $1,400 in May 2021.

Business re-openings, increased hiring, and a fresh batch of stimulus checks have driven a recovery in retail sales during the first half of 2021.  However, the collective sigh of relief that many retailers (and their landlords and lenders) are breathing is not being shared by all.  The recovery is not benefitting every retailer evenly, and some may never recover their pre-pandemic sales as COVID-19 has accelerated trends towards e-commerce and away from larger brick and mortar locations.  Many commercial tenants who were unable to secure rent forgiveness from their landlords still owe rent from April and May 2020, when nearly half of commercial retail rents went unpaid.  As struggling retailers weigh their options, some recent cases involving The Gap, Inc. offer insight into how courts may treat attempts by commercial tenants to break their leases using COVID-19 as justification.

As California continues to advance its reopening efforts, the state’s retailers are grappling with rapid changes to the law surrounding their operations and the management of their workforce during the COVID-19 pandemic.  One area that has seen frequent change is the sick leave landscape in California.  While the last statewide California sick leave law (applying to businesses with 500+ employees) expired on December 31, 2020, the state has now created a new sick leave entitlement that will create new challenges for retailers in the Golden State.

The CPSC recently announced its first civil penalty of 2021.  Cybex International, Inc. (Cybex) agreed to pay $7.95 million after the workout equipment manufacturer allegedly failed to immediately report to the CPSC the defects in two of its products.

Signed into law on December 27, 2020, the Trademark Modernization Act of 2020 (TMA) provides amendments to existing federal trademark law that will assist US retailers and other businesses with branding decisions. Congress passed the TMA as part of the COVID-19 relief and government-funding bill.

Commercial tenants who are unable to pay their rent as a result of COVID-19 shutdown and capacity-limit orders have, thus far, found little relief from courts, who have by and large rejected their common law defenses seeking a discharge of lease obligations. One recent Massachusetts case, however, sides with a commercial tenant, albeit under narrow circumstances, approving of the often-unsuccessful “frustration of purpose” defense.

In response to industry and consumer demand created by the COVID-19 pandemic, ASTM International (ASTM) has released a new voluntary standard for the design, labeling, testing, and performance of face coverings.  The new standard, ASTM F3502-21, is the first voluntary standard directed at face coverings and “is intended to establish a national baseline” to allow consumers to make more informed decisions about the face covering products they use.

During his 2020 campaign, now President Biden promised to raise the federal minimum wage to $15 an hour, something progressives have long been proposing.  The Democratic-held House of Representatives introduced and passed the Raise the Wage Act in 2019, but the bill never reached a vote in the then-GOP controlled Senate.

Disputes between restaurants and third-party food delivery services—such as Grubhub and Uber Eats—have made headlines over recent years. This tension has only been compounded by the COVID-19 pandemic. 2020 was a particularly tough year for restaurants across the country and even tougher in cities like New York where rents are high and state-mandated business closures resulted in significant cuts to already narrow profit margins. However, the same has not been true for third-party food delivery services. In 2020, food delivery apps saw substantial increases in revenues. Uber Eats, for example, reported revenues of $2.51 billion in 2019; that number jumped to approximately $3.5 billion for the first nine months of 2020.

Congress has passed a law mandating nationwide compliance with California’s flammability standard for upholstered furniture.  The “COVID-19 Regulatory Relief and Work from Home Safety Act,” included in the massive appropriations bill passed by Congress and signed into law by the President on December 27, 2020, incorporates the provisions previously proposed in the Safer Occupancy Furniture Flammability Act (SOFFA), a bill widely supported by the furniture industry.

Corporate executives are optimistic about M&A activity in 2021, with 53% of U.S. CEOs in a recent PwC survey stating that their companies planned to increase M&A activity in the coming year. Despite the economic challenges faced in 2020, in large part due to the COVID-19 pandemic, other factors, such as record low interest rates and significant amounts of corporate cash reserves and private equity capital, mean that some strategic and private equity buyers are in a strong position to engage in deal making.

The CPSC recently posted guidance on its website for consumer products related to COVID-19, including personal protective equipment. The guidance covers four categories of products: (a) face coverings, (b) gowns, (c) gloves, and (d) disinfectant and cleaning products. The guidance emphasizes that personal protective equipment sold to consumers must comply with all CPSC regulations, which include testing, certification, labeling, and recordkeeping requirements. The guidance drew sharp criticism from CPSC Commissioner Dana Baiocco in a statement:

In a resounding victory for policyholders, a North Carolina court ruled that “all-risk” property insurance policies cover the business-interruption losses suffered by 16 restaurants during the COVID-19 pandemic.  North State Deli, LLC v. Cincinnati Ins. Co., No. 20-CVS-02569 (N.C. Sup. Ct., Cty. of Durham, Oct. 7, 2020).  This is the first judgment in the country to find that policyholders are, in fact, entitled to coverage for losses of business income resulting from the COVID-19 pandemic.  Equally important, the decision illustrates that a proper analysis of the operative ...

The Consumer Product Safety Commission (CPSC) has released COVID-19 guidance confirming that certain personal protective equipment (PPE) must comply with CPSC regulations, including testing, certification, labeling, and recordkeeping requirements.  The guidance, summarized below, also provides a concise overview of other federal regulations that may apply to these products.

In the age of COVID-19, demand for surface wipes, sprays and similar products is at record levels. Retail stores have struggled to keep supplies stocked and shelves may once again be emptied when the winter flu season arrives. If schools and businesses reopen concurrently, the prospects of securing these products becomes even bleaker, which may re-fuel consumer stockpiling. To meet this surging demand, manufacturers have ramped up production and new entrants are pouring into this market space in unprecedented numbers. Supply chains are already stressed and further straining is expected to continue.

As the COVID-19 pandemic continues to take its toll on retail businesses throughout the country, the phenomenon of curbside pickup has spread from coast to coast.  With some evidence suggesting that retail customers may continue to prefer curbside pickup over traditional in-store pickup for the foreseeable future, retail businesses and their landlords should consider the potential lease implications of initiating or expanding curbside pickup programs.  These may include dedicated parking allotments, use and maintenance of common areas, new signage, modifications to site plans, insurance requirements, and compliance with title, zoning, and land use restrictions, among others.

Many retailers are preparing for an increase in shareholder activism in late 2020 and early 2021.  The COVID-19 pandemic largely sidelined activist hedge funds in the spring, but as investors and companies have evolved to the “new normal,” activist hedge funds will start engaging with new targets.  The retail industry has been severely affected by the pandemic and is particularly vulnerable to activists who accumulate shares at historically low prices and then pressure companies to shift strategy.

The COVID-19 pandemic continues to cause uncertainty for employers across the country, but, as the National Labor Relations Board reiterated on September 18, it does not excuse labor law violations.

While there were already a number of high profile retail bankruptcies in 2019, current economic conditions and pandemic-related market challenges have exacerbated an already difficult retail environment, which has led to a significant increase in bankruptcies in 2020. Year to date, more than 30 major retail and restaurant chains have filed for bankruptcy, which is more than in all of 2019. Furthermore, 2020 is on track to have the highest number of retail bankruptcies in 10 years. Although the Q4 holiday season often provides the strongest quarterly financial performance for many retailers, which may slow the pace of bankruptcy filings, projected holiday sales numbers may be uncertain this year, and additional bankruptcies are still likely to follow by year end.

Even in a pandemic, some things do not change.  This month’s Recall Roundup finds the CPSC focusing on dangers that have been front and center for some time.  Specifically, the CPSC continues to focus its regulatory efforts on protecting consumers from product defects in all-terrain vehicles (ATV) and other recreational off-highway vehicles such as snowmobiles, golf carts, and utility vehicles.  The CPSC recently issued a warning to consumers about the risks associated with such products, especially as more consumers look for outdoor activities during the pandemic.  The warning cites to the CPSC’s Annual ATV Report of 2018, which identified almost 82,000 ATV-related injuries that required hospital treatment.  Nearly one-fourth of these injuries were sustained by children under 16 years old, the highest fraction of any age group.  There were also 264 ATV-related deaths in 2018, though this number is expected to rise as reporting is ongoing.  So far, the CPSC has issued 15 recalls for recreational off-highway vehicles in 2020.  In 2019, that figure was 20 recalls.

On August 3, 2020, the United States District Court for the Southern District of New York struck down portions of the DOL’s Final Rule regarding who qualifies for COVID-19 emergency paid sick leave under the Emergency Paid Sick Leave Act (“EPSLA”) and the Emergency Family and Medical Leave Expansion Act (“EFMLEA”), collectively referred to as the Families First Coronavirus Response Act (“FFCRA”).

With the prevalent spread of COVID-19, hand sanitizers have become this spring and summer’s “fidget spinners,” cycling through the process from market shortage to glut in short order.  With such a rush to meet the drastic spike in demand, product missteps seem inevitable.  Although the Recall Roundup generally focuses on recalls under CPSC jurisdiction, the numerous FDA recalls involving hand sanitizers merits mention here.  Since June 27, 2020, there have been 15 recalls noted on the FDA’s “Recalls, Market Withdrawals, & Safety Alerts” website.  Retailers looking to meet market demand should keep an eye on this FDA web site relative to the hand sanitizers they may have stocked for sale.

Few other retail sectors have seen the expansion that dollar stores have in the past decade, not to mention in the chaotic first half of 2020. During a time when other retailers are struggling to stay afloat due to social distancing requirements and widespread economic uncertainty, dollar stores are continuing to increase their physical presence as well as their profits. Dollar stores tend to cluster in either rural areas where access to traditional grocery and retail stores is limited or in underserved urban communities that lack full-service grocery stores.

The ongoing effects of the Covid-19 pandemic and other recent socio-political events will present a number of disclosure questions for publicly-traded retailers completing their second fiscal quarters.

3M Company (3M) is a leading manufacturer of N95 respirators. According to 3M, medical workers and public-health professionals consider 3M-branded N95 respirators to be “the gold standard.”

Due to the novel coronavirus (COVID-19), many San Francisco businesses have closed in order to contain the spread of the pandemic, resulting in declining revenues and widespread business interruption. These economic conditions have led to employee layoffs across San Francisco. As San Francisco employers work to restore their business operations in the wake of COVID-19, they should be aware of new rules that may affect how they rebuild their workforce.

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In April 2020, the National Advertising Division (NAD) rolled out a Fast-Track SWIFT option (“Single Well-defined Issue Fast Track”) for certain cases under review. The new SWIFT track expedites the process for single-issue disputes that do not require complex evidence or argument and meet certain parameters. On June 10, the NAD published its first trio of SWIFT decisions that illustrate what participants can expect from the new process.

One novel feature of the 2020 proxy season has been the surge in virtual shareholder meetings. For example, one provider of virtual meeting services reported four times as many virtual shareholder meetings as last year. Although the rise in virtual meetings this year resulted from safety precautions surrounding COVID-19, after weighing the benefits and becoming more comfortable with conducting business remotely, it is likely that many companies will continue to use virtual shareholder meetings or hybrid in-person and virtual meetings in the future.

According to U.S. Census Bureau estimates, retail sales plummeted 16.4% in April 2020. As state and local governments across the country begin to lift or ease Stay at Home Orders and business closures, retailers reopening their doors are grappling with how to protect their employees’ health and reassure customers that it is safe to shop.

A consumer advisory issued on June 1, 2020 by the United States Environmental Protection Agency (EPA) clarifies which hard-surface disinfectant products may legally make claims regarding expected efficacy against the COVID-19 virus. The advisory, titled “What You Need to Know Regarding Products Making Claims to Kill the Coronavirus Causing COVID-19,” also warns retailers of potential enforcement actions if they sell non-compliant products.

The COVID-19 pandemic has driven a large shift toward online retail transactions. In April of 2020, nonstore sales, mostly conducted through e-commerce, increased by nearly 30 percent while overall retail sales in the US are down 16 percent year over year, according to the Department of Commerce. The recent flood of e-commerce has left unprepared retailers struggling to fulfill orders, as they currently lack the requisite warehouse space and other supply chain capabilities. At the same time, other retailers have been forced into bankruptcy as a result of COVID-related closures. The changing needs of retailers who are adopting e-commerce strategies and the market exits of others are altering the industry’s real estate footprint.

COVID-19 has had an unprecedented effect on the retail industry across the United States, as many retailers grapple with government mandates that either require closure or impose stringent restrictions on being open, employment and supply chain disruptions, and an overall decline in consumer demand as market conditions remain volatile and unemployment rates continue to rise. The devastating consequences of the coronavirus began to come into focus at the same time many companies were preparing to issue quarterly or annual results and convene investor calls.

The COVID-19 pandemic has wreaked havoc on retailers in an already battered industry. Commencing in mid-March, governors from a majority of states issued executive orders requiring nonessential businesses to close to combat the spread of COVID-19. Retailers who rely on foot traffic to support their businesses felt a swift and severe impact. Retailers who recently had filed bankruptcy under chapter 11 had their reorganization efforts disrupted in unprecedented fashion.

Many recent government orders require “nonessential” businesses to close due to COVID-19, resulting in massive financial losses for many retail businesses. The orders also change how “essential” retailers do business. For instance, Miami-Dade County’s mayor issued an executive order requiring people who visit or work at, among other places, grocery stores, restaurants and pharmacies to use face coverings. Los Angeles County issued a similar order. These orders may result in businesses’ turning away noncompliant customers, which will cause further financial harm. Regardless of the jurisdictions where your retail business is located, it is likely that there is a governmental order affecting its operations. Your business is likely sustaining or will sustain substantial losses as a result, and incur additional expenses to comply with evolving requirements and guidelines and in resuming operations as soon as possible.

Importers that have suffered “significant financial hardship” due to COVID-19 may qualify for a 90-day pay extension for certain tariffs. On April 19, 2020, following calls for trade liberalization to ease economic pressures, the Trump administration issued an executive order, along with a temporary final rule by the US Department of Homeland Security’s Customs and Border Protection (CBP), which postpones the time to deposit certain duties, taxes and fees. However, the 90-day pay extension is limited in scope and certain goods are not eligible for the extension.

As previously reported on the Hunton Insurance Recovery Blog, our lawyers discuss the types of claims that may arise from COVID-19, and the impact the pandemic may have on D&O insurance policyholders and their insurers.

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As reported on the Hunton Employment & Labor Perspectives blog, Texas Governor Greg Abbott has issued two executive orders to begin the process of reopening businesses in the state. These executive orders, which will go into effect in the coming week, pertain to businesses that provide non-essential retail services, and hospital capacity in the face of COVID-19.

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The COVID-19 pandemic poses unique and novel challenges to publicly-traded retailers, particularly with respect to design and testing of both internal controls over financial reporting and disclosure controls and procedures. We recommend that retailers assess what has changed in the current financial reporting environment, consider whether existing controls are sufficient to prepare financial statements and disclosure documents at the reasonable assurance level, and determine what new controls (if any) are necessary to reduce the risk of errors and fraud.

As previously reported in the Hunton Employment & Labor Perspectives Blog, on April 7, 2020, the City of Los Angeles joined San Diego County and issued an Order that requires certain workers to wear cloth face coverings. Notably, the Order is more expansive than San Diego County’s face-covering mandate because it covers workers in more occupations, applies to customers and visitors of certain businesses, provides face-covering maintenance requirements, and requires certain employers to furnish face coverings and other sanitary products.

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The COVID-19 pandemic has changed most aspects of the economy. The world of consumer products is no exception to this trend. The CPSC has the following notice posted on its website warning that not all recall remedies may be currently available:

On April 3, 2020, the United States Environmental Protection Agency (EPA) and leading retailers participated in a conference call to discuss ways to protect American consumers from fraudulent COVID-19 disinfectant product claims. As the pandemic continues to wage on, some manufacturers have started to advertise their products as effective against the virus despite a lack of scientific evidence supporting the claim. Such advertising may violate federal law and potentially endangers consumer health and the environment, and could expose retailers to liability.

In light of the various restrictions on retail businesses being issued nationwide in an effort to slow the spread of COVID-19—such as the “safer at home” orders issued in Los Angeles County and throughout California last week—one Southern California city is taking action to support local businesses, while continuing to push compliance with the new legal restrictions.

As coronavirus (COVID-19) continues to spread globally, precautions such as event postponement, travel cancellations and avoidance of crowds are having a significant economic impact, with many retailers being hit especially hard. After several years of solid market performance and economic growth, panic surrounding COVID-19 has resulted in volatility and significant drops in the stock market, creating less favorable economic conditions for M&A activity.

As reported on the Hunton Employment & Labor Perspectives Blog last week, although the World Health Organization (“WHO”) has declared the coronavirus outbreak a “public health emergency of international concern,” WHO has not yet declared the outbreak as a pandemic. Nevertheless, the emergence of the latest coronavirus is an opportunity for employers, as it reminds them to consider policies and procedures related to pandemic planning.  The following are a few of the key considerations for employers when planning for or responding to an outbreak.

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