Arent Fox Association Digest

Six Months Into COVID, What’s on the Minds of Trade Association Leaders and Their Lawyers?

Since the pandemic began, associations and their members have had to manage tighter budgets and virtual gatherings. With pandemic-related litigation already blooming, as we reported in May and August, managing liability risks is critical. This digest summarizes the critical issues we have been working through with our trade association clients.

Employees and HR

Top of mind for leaders is keeping staff safe, while not creating reasons for them to bring claims. Our Labor & Employment team has been feverishly publishing up-to-the-minute reports on the latest guidance, including:

How to comply with EEOC, ADA, and other laws in a time of remote work and in-office distancing. The latest EEOC guidance is synthesized here.
Can you require your staff to return to work? The answer is, of course, it depends. See our analysis here.
How can leadership help staff who have a responsibility to supervise children as they adapt to learning remotely? The latest guidance is summarized here.
Navigating the form I-9 for foreign employees has been in turmoil. The latest on the ability to use these visas is here.

Canceling Events – Contracts, Force Majeure, and Insurance

Force majeure provisions have never received such a high level of attention, with tradeshows and other events going entirely virtual. Our team has successfully helped associations deploy force majeure, impossibility, and other theories to avoid contractual obligations, including cancellation penalties. Our clients are generally seeing hotels and event venues demonstrate a high level of cooperation, allowing associations to cancel events or reschedule them for a year later. But the outcome going forward will depend upon the facts on the ground.

We’ve released two short podcasts on force majeure strategies (episode 1 and episode 2), and a longer webinar about these provisions.

We have also worked with associations to navigate event cancellation insurance claims, as well as claims under business interruption insurance and other coverages. We discuss here how to identify possible coverage, and how to make and document your claim.

Cybersecurity

This is the time to take stock of your cybersecurity program. While employees are working from home, phishing attacks and ransomware are on the rise. We discuss key planning steps here, including documenting your incident response plan and training staff so they are prepared to respond quickly. We often recommend that clients engage a third party to audit their readiness, including through mock attacks. We recommend in some cases to hire this type of consultant through legal counsel, as the findings may otherwise be discoverable if litigation were to arise (a recent case example is discussed here).

Privacy

In the midst of the pandemic, the California Consumer Privacy Act’s regulations went into effect earlier this year, and the first round of regulations are now in place. If your association has yet to revisit your online privacy policy and your internal protocols for managing member data, now is the time. Here is a summary checklist of the issues to consider.

UBIT and Virtual Event Revenue

Most associations have converted their trade shows and other live events to virtual gatherings. Our clients are asking whether this may change the tax treatment for the revenue. Ordinarily, in-person trade shows do not create taxable income for nonprofit associations. But a virtual event may run a risk of triggering unrelated business income tax (UBIT).

The IRS collected input from the association industry back in 2004, to evaluate whether an association’s online activities affiliated with a trade show may trigger UBIT. The IRS’s resulting Revenue Ruling 2004-112 concluded that an online retail environment, with visual displays, product listings, and online purchase capabilities would trigger UBIT for an association if the webpage was not timed and otherwise associated with an in-person trade show. The IRS’s distinction focused on whether the online experience was directly connected with the trade show’s facilitation of individual, personal interaction between members and vendors during a fixed set of dates.

Taking this guidance into account, associations must take care to blur the lines between in-person and virtual events by, to the extent possible, replicating the in-person experience and interactive nature of the live trade show event when holding a virtual event. The more the virtual event looks merely like an advertisement or online store, the more likely revenues will trigger UBIT.

Copyright

Associations are updating their websites and other materials at record speeds to get information out to members as quickly as possible. In these situations, it’s easy for staff or a creative contractor to paste in a picture found on the web, or copy whole sections of the text of a news article. Both of those examples can represent copyright violations and lead to heavy costs and penalties for clients. Many companies are now using online “bots” to search for potential infringers, and we have had clients receive demands for thousands of dollars – even hundreds of thousands of dollars – in damages when caught using a picture in a presentation they posted online or accused of posting some else’s text articles.

The best practice is to use only pictures your organization took or purchased itself. If a member or vendor creates a presentation, post the slides online only if you know the images have the proper licenses, or take the images out or replace them with your own. And if you are circulating industry news, post only the headline, a link to the original source, and your own description of the news without copying the text from the news source.

Antitrust

Associations have brought their members together in critical ways these past six months, helping to identify and coordinate resources to keep business running. This has raised important questions for compliance with the antitrust laws: Can members collectively order supplies? Can members negotiate sales terms together? Can members coordinate on how to bring their employees back to work? Can companies coordinate on the concessions they offer? We’ve worked through these and more.

During this time, the DOJ and FTC also issued new guidelines for companies engaging in mergers up and down the supply chain (vertical mergers). We discussed here how this guidance also touches on a facet relevant to trade associations: information exchanges.

Meanwhile, we are working with clients to respond to two sets of antitrust lawsuits pending in four federal courts against trade associations and companies serving the residential real estate industry that question the bounds of an association’s ability to require members to abide by cooperative and participatory requirements. We reported on a federal court’s decision in this area of antitrust law a few years ago, and continue to help associations and other member-governed companies with this challenge.

Financing – SWAPS and PPP Loan Forgiveness

In a time of budget uncertainty, seeking nonprofit financing can be even less clear. We summarize here considerations when using swaps and the anticipated death of LIBOR.

The CARES Act’s Paycheck Protection Program (PPP) provided critical funds for many organizations. While nonprofit trade associations were largely left out of the eligibility pool, some were able to obtain funds, and the latest draft legislation being negotiated on the Hill would provide new PPP funds that are available to 501(c)(6) associations. If your organization or members received PPP funds, most or all should be eligible for “forgiveness,” allowing the organization to keep the funds. We summarize the Treasury Department and Small Business Administration’s instructions for applying for forgiveness, and describe the application forms here and the so-called EZ application form here. Banks have yet to enable access to their forgiveness applications, so most borrowers continue to wait for the ability to take this issue off their to-do list.