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ASCM Insights

4 Hidden Legal Risks Your Company May Be Facing Right Now


Evolving business practices, laws and regulations, and technology continuously create new legal risks for companies. Small changes across different areas of business can open up an organization to huge liabilities. Here are four legal challenges you should keep an eye out for in the coming months.

1. CARES Act liability: The Coronavirus Aid, Relief, and Economic Security Act created several payroll tax benefits for employers adversely affected by the pandemic. Since enactment, there have been many subsequent guidelines issued by the Small Business Administration (SBA) and the U.S. Department of the Treasury. However, questions still linger about what exactly can be deferred, how to calculate the maximum Paycheck Protection Program (PPP) loan amount to which an organization is entitled and whether there is adequate need in the first place to receive the PPP funds.

 The SBA and the Treasury Department issued a series of statements in response to criticism that several large companies had received PPP loans. Specifically, employers now are cautioned that, in order to make the certification that current economic uncertainty makes the PPP loan necessary to support ongoing operations, each applicant must take into account its current business activity and its access to other sources of liquidity. Further, the SBA has decided, in consultation with the Treasury Department, that it will review all loans in excess of $2 million, in addition to other loans as appropriate, following the lender's submission of the borrower's loan forgiveness application.

 Each organization that receives PPP funds should make contemporaneous records of its decision-making process and review with its advisors how to properly calculate the loan forgiveness amount. That way, leaders can show their diligence in these matters in the event any issues arise.

2. Misclassification of employees: Many states have made it difficult and costly for employers who misclassify employees as independent contractors. This year, many new laws took that protect workers and offer guidance on how to properly classify employees and independent contractors.

Amidst these changes, it is important to review all independent contractor agreements currently in place to ensure compliance with new and existing laws. In addition, you should determine if a change in business model, contract amendments or a recruitment practices is necessary to minimize risk. In certain situations, carefully drafted contracts can protect your business against class-action lawsuits and mandate arbitration of disputes.

3. Proper employee I-9 documentation: As every employer knows, a U.S. Citizenship and Immigration Services Form I-9 form must be completed for each new paid employee upon hiring. This form serves to verify the employee’s identity and work authorization. As there are exacting rules in place for completion and retention of these forms, now is a good time to self-audit these records, make corrections, and update your records to avoid fines and penalties in the event of any violation. First, verify that each paid employee has completed their I-9 and that the employer portion of the form is signed and dated. Any missing information or signatures can be completed now — but only if your business follows certain rules. Note also that the form changes periodically, as it did in 2019, and only the most recent version may be used for new hires starting after October 21, 2019. Make sure your business is using the correct form.

These I-9 records must be retained for either three years after the date of hire or one year after termination, whichever is later. Some companies are choosing to keep these records electronically. If your company opts for this method, ensure that your human resources team is able to quickly pull up this information, if it is needed, and that the files are backed up in case of a technological issue.

Although I-9 forms are not required for properly classified independent contractors, all businesses that engage independent contractors should take steps to ensure that work authorizations of its contractors are in place. For instance, all contractor agreements should contain assurances that all I-9s are properly completed and retained, that all workers placed with your business have proper work authorizations, and that your organization is indemnified from violations.

4. Accurate marketing: Yes, even a company’s marketing materials are important tools in minimizing its legal risks. In recent legal cases, courts have cited online materials to impose liability on companies when other factors, such as contract terms, were vague.

For example, if a company brands itself as a motor carrier, but it really operates under a broker business model, the company could be held liable. Recently, in the 2019 case Tryg Insurance v. C.H. Robinson Worldwide Inc., the marketing promise of seamless service without any mention of third parties contributed to the logistics company being converted from a broker to a motor carrier for purposes of liability under the Carmack Amendment, which set up a national liability system for interstate carriers.

Although it is enticing to incorporate marketing buzzwords in your promotional content, it is important that your company accurately portrays itself and its services in order to avoid liabilities in business transactions.

These are just a few of the legal challenges companies are facing now. Because laws, regulations and legal precedents shift frequently, it is imperative that company leaders stay on top of the latest requirements and expectations and seek advisors who can help ensure compliance.

About the Author

Deborah Carlson Partner, Arent Fox LLP

Deborah Carlson is a partner in legal firm Arent Fox LLP’s corporate and securities group. She may be contacted at

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