TheCorporateCounsel.net

October 12, 2021

Risk Oversight: Caremark & COVID-19 Mandates

The Delaware Chancery Court’s decision in the Boeing case is the latest in a series of cases suggesting that, as Liz put it in a recent blog, we’re in an era of “easier” Caremark claims.  Whatever else that may mean, in this environment, it’s pretty clear that directors need to keep their heads on a swivel when it comes to identifying potential sources of alleged breaches of their duties of oversight.  This Directors & Boards article identifies one such area – compliance with COVID-19 mandates. Here’s an excerpt:

On Sept. 9, President Joe Biden announced his six-pronged COVID-19 Action Plan, which will have a significant impact on employers across the country by mandating vaccinations for many employees and requiring regular testing of certain others. Although key details are unknown at the time of this writing, the plan will have a significant impact on many private sector employers, particularly companies that contract with the federal government, those that receive Medicare or Medicaid reimbursement and, most sweepingly, companies with 100 or more employees.

The rule applicable to employers of more than 100 individuals is being developed by OSHA now and, once issued via temporary standard, will require these companies to ensure that their staff is fully vaccinated against or tested weekly for the COVID virus. Employees who are not vaccinated will have to show proof of a negative virus test before reporting to work. The White House estimates this requirement will impact over 80 million workers.

OSHA is seeking to issue its new rule initially pursuant to rarely used emergency authority that it may exercise only where there is evidence of “grave danger from exposure to … agents determined to be toxic or physically harmful or from new hazards.” This basis for the regulation will almost certainly be challenged in court, but in the meantime, it sets forth an unambiguous statement of the importance of a vaccine requirement for employee safety.

Although the COVID-19 Action Plan includes frequent testing as an alternative to vaccination, boards may justifiably be concerned that if the company fails to comply with the regulations, this response could be second-guessed in lawsuits brought alleging that the board’s response reflected inadequate oversight of the “grave danger” to employee (and possibly customer) safety posed by COVID-19. Even if the board requires compliance but relies primarily on testing and not by mandating employee vaccinations, this could possibly still be alleged to be an inadequate response to the risk.

Putting the vaccine mandate aside, the article notes that boards will have a tough time in the current environment arguing that addressing the employee safety risks posed by the pandemic isn’t the kind of essential and mission critical function that triggers a duty to actively oversee the company’s response. That means the company’s overall response to the pandemic, and not just to the COVID-19 Action Plan, needs to be carefully considered and appropriately documented.

John Jenkins