INSIGHT

COVID-19 and class action risk – some (early) lessons for Australia from overseas

By Jaime McKenzie, Kate Austin, Matthew McCarthy, Ingrid Weinberg
Class Actions COVID-19

In brief

As COVID-19 spreads throughout Australia and the world, its impact is being felt across every industry. With the pandemic at a relatively early stage, the virus has disrupted supply chains and shuttered businesses, resulting in record levels of unemployment and unprecedented market volatility.

Unsurprisingly, a number of COVID-19 related class actions have now been filed in the United States, giving some early indications of what we can expect to see in Australia. In this article, our class actions team explores some of these actions and the risks of similar actions being brought against Australian companies.

COVID-19 litigation to date

COVID-19 related class actions filed in the United States since early March have included shareholder claims; negligence claims; misleading and deceptive conduct claims; employee claims; consumer law claims; privacy law claims; and claims relating to cancelled services or events. These actions have targeted some of the largest companies in the United States, including Amazon and Uber.

These early COVID-19 related cases provide some insight into the types of class action claims that might be on the horizon for Australian companies, notwithstanding the different legal landscape applicable to class actions in Australia. These types of claims are consistent with, and reflect, the areas of greater or emerging class action risk reported in the Allens 2020 Class Actions Risk Report.

Shareholder claims

Two class actions have been filed against Norwegian Cruise Lines alleging that the company downplayed the severity of the impact of COVID-19 on its business, following a stock plunge of over 50 percent. The plaintiffs allege that sales representatives were instructed to tell customers who were concerned about COVID-19 that 'the coronavirus can only survive in cold temperatures', inducing them to proceed to book cruises. It is also alleged that the company emphasised its 'strong position' and 'positive outlooks' in statements to the market.

A separate class action has been filed against Inovio Pharmaceuticals following statements from CEO Joseph Kim during a press interview that the company could construct a vaccine against  COVID-19 in a matter of 'hours'. That did not eventuate and Inovio's stock fell 71 percent.

In Australia, the Australian Stock Exchange released guidance on 31 March about the disclosure obligations of listed companies – reiterating that companies are not required to 'predict the unpredictable'. Equally, the ASX reminded companies to review their published guidance in light of COVID-19 and (if necessary) amend it or withdraw it. Many listed companies have withdrawn their earnings guidance. The ASX has also warned against misleading announcements about treatments and cures for the virus, products that can kill the virus and testing kits, and reminded listed companies that operational decisions likely to have a material effect on share price (like, for example, a decision to stand down a material number of employees or close or suspend operations) should be announced immediately.

Given the risk of class action claims in the current environment, there have been calls for interim relief for both companies and directors in relation to earnings guidance and forward-looking statements concerning COVID-19. The Australian Institute of Company Directors has proposed amendments to the Corporations Act which would prevent claims for misleading and deceptive conduct or any breach of continuous disclosure obligations in relation to COVID-19. The Business Council of Australia is advocating for the introduction of a 'good faith' defence where a breach of directors' duties results from actions relating to COVID-19, and for a 'freeze' on class actions with only ASIC being permitted to bring actions against companies for COVID-19 related disclosure issues. There has been significant resistance to these proposals and it remains to be seen whether they are accepted by the Australian government.

These proposals form part of a broader call for reform in this space, including the Australian Law Reform Commission's recommendation that a review be undertaken of the legal and economic impact of Australia's continuous disclosure regime.

Negligence claims

Passengers on the Grand Princess have sued Princess Cruise Lines, alleging that the company caused them emotional distress from a fear of developing COVID-19. The passengers claim that the cruise line failed to warn them of a potential exposure to the virus. In Australia, litigation funders and plaintiff lawyers are already focussing on the COVID-19 diagnoses associated with the Ruby Princess cruise ship.

Misleading and deceptive conduct claims

Several class actions have been filed against the manufacturers of hand sanitisers, including well-known brands Purell and Target, for alleged misleading and deceptive conduct and negligent misrepresentation. It is alleged that the companies made claims that their sanitisers prevent viruses like COVID-19. These actions focus particularly on the advertising and marketing strategies of the manufacturers.

Similar issues have been identified by regulators in Australia. As noted above, the ASX has warned against misleading statements in relation to treatments for COVID-19, noting that it has experienced a 'significant number of instances' where listed companies have made potentially misleading statements about products related to the virus. In a recent press release, the Australian Competition and Consumer Commission noted that the product safety responsibilities of Australian companies remain a top priority.

For companies seeking to pivot their facilities and workforce to assist in producing essential items for the pandemic response, such as hand sanitiser and personal protective equipment, it will be important to consider how such equipment is marketed and how the consumer guarantees under the Australian Consumer Law may apply to those products.

Employee claims

Uber is the subject of a class action alleging that the company is endangering its drivers and the general public in California by classifying drivers as 'independent contractors' with no consequent rights to sick leave. The claim alleges that drivers will need to continue working to support themselves, even if they fall ill, and will thereby put themselves and others at risk.

Allens' 2020 Class Action Risk Report, released last month, notes a steady increase in the number of employee-related class actions over the last ten years in Australia. This effect is likely to be compounded by the COVID-19 pandemic. As at 7 April, The NSW State Insurance Regulatory Authority, which regulates workers compensation insurance in that State, reported 126 claims in relation to COVID-19.1 In addition to claims from employees relating to infection in the workplace, the current environment also gives rise to increased risk of claims relating to injuries suffered as a result of inadequate home working environments, and claims related to measures taken by companies to reduce the financial impact of the virus on their business, including forced leave, reduced hours or staff being stood down. On 8 April 2020, Parliament amended the Fair Work Act to provide certainty in relation to standing down staff, but the changes only to apply to JobKeeper qualifying employers.2

Consumer law claims

A class action has been filed against Amazon alleging that it has been unconscionably charging consumers excessive prices for basic goods such as toilet paper and hand sanitiser. In Australia, the ACCC has announced it will focus enforcement activity on businesses exploiting the crisis to 'unduly enhance their commercial position or harm consumers'. Specifically, the ACCC has identified price gouging and COVID-19 scams as focus areas for its newly-formed 'COVID-19 Taskforce'.3 Of course, the ACCC cannot control the prices at which essential products are sold, but it has warned against price hikes that may be considered unconscionable, or may involve misleading or deceptive claims as to the reason for the price increase.

Privacy claims

With the significant increase in the number of employees working from home, remote conferencing services such as Zoom have grown in popularity. Zoom is now the subject of a class action based on its alleged disclosure of users' personal information in violation of consumer privacy laws.

Allens' 2020 Class Action Risk Report identified an increased community focus around data privacy and use with a corresponding increase in related class action risk. This risk will only increase as companies become more reliant on virtual operations during the COVID-19 pandemic. The Office of the Australian Information Commissioner has been quick to react, establishing a national response team for proposals on COVID-19 privacy law implications. The Commissioner has also developed guidance to assist entities regulated by the Privacy Act 1988 (Cth) to understand their obligations in the context of the pandemic.

Cancelled services and events

There have also been a series of actions brought against service and event providers across various industries for failing to appropriately reimburse customers. For example, a suit has been filed against a New York based sports club for allegedly failing to refund, or put on hold, membership fees for over 600,000 patrons, despite being closed due to COVID-19. Similar issues may face Australian service and event providers unable to operate during the pandemic.

The ACCC has released guidance for consumers on cancelled services as a result of COVID-19 (including in relation to gym membership fees, wedding cancellations and travel changes) and has noted that it 'is alert to any instances of unfair or unconscionable conduct on the part of businesses in dealing with consumers during the current crisis'.

Impacts to your business – issues to consider

While Australia has not yet seen any class actions filed relating to COVID-19, it is only a matter of time before this changes. Plaintiff law firms and litigation funders have already begun inviting interest from potential claimants, particularly in relation to the Ruby Princess cruise ship. We expect that as the medium to longer term impacts of COVID-19 are felt, we are likely to see plaintiff firms and litigation funders investigate potential claims across various at risk sectors.

To manage class action risk during this period, issues to consider include:

  • in light of the latest developments in Australia and overseas, identifying where the key risks for your business may lie in this period;
  • implementing risk-minimisation strategies now, including, for example, reviewing advertising material for products likely to be in high demand over the next few months and considering how best to comply with disclosure obligations in this time of heightened market volatility; and
  • making sure your business is up-to-date with its employee obligations, including occupational health and safety issues for the traditional and 'at home' workplaces, and that you know your rights when it comes to reducing your employees' hours or wages or standing down employees.