Hunton Retail Law Resource

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.

As we previously reported, new SEC rules requiring reporting on human capital resources will take effect November 9, 2020. The new disclosure is not required to be included in third quarter Forms 10-Q, but publicly-traded retailers should begin the analysis now to assess whether disclosure will be required in Form 10-K, and if so, what will be disclosed in 2020 annual reports to shareholders. Retailers determining that disclosure is immaterial under the federal securities laws may still elect to provide a human capital narrative in corporate sustainability reports, which are not filed with the SEC, in an effort to address increasing stakeholder demand for such information.

On September 10, 2020, the United States District Court for the District of Massachusetts issued a Memorandum and Order granting summary judgment in favor of a franchisor in response to claims by a purported class of franchisees that they were not truly independent contractors, but employees of the franchisor. This ruling is particularly applicable to retailers using the franchise business model (especially those in Massachusetts), as it aids in the preservation of the franchise business model and the rights of franchisors to operate in compliance with federal law.

The upcoming election offers opportunities for leadership changes at the CPSC.  The agency currently has four commissioners and one vacancy:

On October 1, 2020, New York state implemented a ban on businesses charging a “pink tax” for their products or services. The new law prohibits any individual or entity, including retailers, suppliers, manufacturers or distributors, from charging a different price for two “substantially similar” goods or services based on the gender for whom the goods or services are marketed.

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.

Last week the Eleventh Circuit delivered a surprising blow to class action settlement practice finding that 19th century Supreme Court precedent “prohibit[s] the type of incentive award that the district court approved here–one that compensates a class representative for his time and rewards him for bringing a lawsuit,” a type of incentive award that is “commonplace in modern class-action litigation.” Retailers and other defendants in class action cases should take note, because this ruling may impact how settlements in the Eleventh Circuit should be structured going forward.

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.

Your product development team spent years designing a product, working out every design detail until it is just right. Your company spent significant time and money marketing the product, shoring up a great reputation for the product and the company that stands behind it. Then, a copycat comes along with a knockoff and starts selling a product that looks eerily similar—or even identical—to yours. When your customers search online for your long-developed and lauded product, the knockoff appears, and at a fraction of the price. You are certainly surprised, and likely dismayed.

On September 4, 2020, the United States Environmental Protection Agency (EPA) released the final scoping documents for the next 20 chemicals it has designated as “high priority” for risk evaluation under the Toxic Substances Control Act (TSCA). If EPA’s risk evaluation process identifies an “unreasonable risk” associated with any use of a chemical, TSCA requires the agency to regulate the risk. That means manufacturers, distributors, and retailers alike may soon be grappling with new regulations and increased litigation risk as EPA moves forward with its analyses and public scrutiny of these chemicals intensifies.