Bloomberg Law
Free Newsletter Sign Up
Bloomberg Law
Advanced Search Go
Free Newsletter Sign Up

ANALYSIS: Covid-19 Vaccine Mandates in the M&A Context

Sept. 15, 2021, 9:00 AM

How do deal parties merge two companies that have different Covid-19 vaccine policies and approaches in place?

Employee vaccination policies—ranging from mandates to penalties or incentives—are a central consideration for many companies making return-to-work plans amid the ongoing pandemic. Given the highly active M&A market we’re in now, it’s safe to assume that vaccination rates and policies are the subject of M&A deal discovery requests and negotiations. With these developments, as well as the prospect of emergency OSHA regulations, we expect explicit references to vaccinations to make a widespread entry into M&A contract drafting in the near term.

A Patchwork of Corporate Policies

Last week, the Biden administration announced plans to issue an emergency rule that will require all U.S. companies with 100 or more employees to mandate either Covid-19 vaccinations or weekly testing for their workers. The rule is likely to face legal challenges, but if enacted, it will be the first federal directive to set a baseline for private-sector worker vaccination policies.

In the meantime, businesses are mostly free to develop their own vaccination policies and return-to-office plans. While that freedom allows businesses to adopt policies that fit the needs of their workforce, it also means that the business community is taking on a patchwork of different approaches that each come with different legal risks.

Many businesses have adopted incentive programs that allow workers to earn some kind of benefit—generally ranging from a few hours of paid leave to cash bonuses—for verifying that they are vaccinated. Incentives can boost vaccination rates and morale, but they can’t guarantee a fully vaccinated workforce.

A few organizations have opted for the stick over the carrot, and instead imposed health premium surcharges to help offset the increased health care costs of unvaccinated workers. At least one business claims the surcharge was successful in boosting vaccination rates. Even so, businesses that opt to implement such surcharges have to navigate a complicated web of federal laws including the Affordable Care Act, Health Insurance Portability and Accountability Act, Employee Retirement Income Security Act, and Americans with Disabilities Act.

As Covid-19 variants become more prevalent, businesses seem to be increasingly comfortable mandating worker vaccination. But vaccine mandates remain controversial and can cost businesses valuable workers. They are further complicated by a new crop of state laws that prohibit employers from enforcing vaccine mandates.

So back to our initial question: How do deal parties merge two companies that have different vaccine policies and approaches in place? By undertaking thorough due diligence, contract negotiation, and drafting.

Due Diligence

By asking the right questions, parties can obtain detailed information about their counterparties’ Covid-19 policies and practices. Due diligence requests regarding any policies in place on employee vaccination—such as mandates, penalties, or incentive programs—can be made alongside any other Covid-19-related requests pertaining to testing of employees; general return-to-work plans; remote work flexibility; compliance with federal, state, and local Covid-19 health protocols (e.g., those regarding masking and quarantine periods); applicable privacy policies; and the like. In addition, reviewing management and human resources communications to employees may provide insight into internal policy implementation issues, and the company may have conducted internal employee surveys concerning vaccine awareness and tolerance that could shed light on corporate culture.

If the OSHA emergency mandate goes into effect, due diligence requests sent to companies covered by the new rule would need to inquire as to whether they are in compliance with the rule and whether they have any additional requirements, incentives, or penalties they have in place that may go above and beyond the minimum requirements of the rule.

If a party is so inclined, it might also inquire as to the aggregate percentage of a company’s workforce that is vaccinated, provided that the company already collects such information and no privacy-compromising individual employee information is requested. For some companies that have implemented expensive incentive programs or risked the ire of employees by implementing penalty programs or outright vaccine mandates, this statistic may be key to understanding the compatibility of the two companies.

While some categories of Covid-19-related information arguably might be covered by standard due diligence requests, many questions are novel and will likely require new requests to be added to a firm’s standard due diligence request list. Even for those Covid-19 issues that might technically be covered by other standard requests, it would still be prudent to either list Covid-19 as an enumerated item covered by the request or add separate Covid-19 requests to make them impossible to miss.

Given all the complex reasons why a company might implement a particular approach to vaccines, integration of a workforce with differing Covid-19 policies may be a deal-breaker for some parties. And even where there is no plan to integrate workforces, acquisition of a company with different vaccine policies may present an operational or reputational risk for the buyer. The first place to start is getting the full picture through due diligence.

Agreement Provisions

With the growing importance of vaccine mandates, we expect vaccination to be woven into agreements as a standard practice in the near term—and we are beginning to see that happen already.

We are tracking the emergence of new Covid-19-related M&A provisions as deal lawyers adapt to the evolving pandemic. Below are provisions in which deal parties may be able to address vaccination mandates and policies.

‘Covid-19 Measures’

“Covid-19 Measures” is now a commonly found defined term in M&A agreements that typically covers government-mandated pandemic-related measures. The term is referenced, as a way of including or excluding such measures, in key provisions such as Material Adverse Effect, the Absence of Certain Changes representation and warranty, Interim Operations/Conduct of Business covenants (which often address the ordinary course of business), Access to Information/Records covenants, and as an inclusion or exclusion from the definition of the “Ordinary Course.” It is also commonly included wherever there is reference to “applicable Laws” to clarify that the laws also include Covid-19 Measures.

We have found only two very recent instances of publicly available deal agreements, filed with the SEC in August (see excerpt below) and September, in which deal parties have included “vaccination” in their definition of “Covid-19 Measures.” It’s important to recall that when “Covid-19 Measures” emerged as a defined term, we did not yet have a Covid-19 vaccine, and the issue of vaccine mandates has really only begun to heat up recently. Now, we can likely expect this straightforward addition, which would cover any government mandated vaccination requirements, to show up more often.

For example:

“COVID-19 Measures” means any quarantine, “shelter in place,” “stay at home,” workforce reduction, social distancing, shut down, closure, sequester or any other Law, order or directive by any Governmental Authority or public health agency in connection with or in response to COVID-19, including the CARES Act and all guidelines and requirements of any Governmental Authority, such as social distancing, cleaning, vaccination requirement or other similar or related measures. (Landmark Infrastructure Partners LP Transaction Agreement, dated Aug. 21, 2021 (governed by Delaware law)).

‘Covid-19 Actions/Responses’

“COVID-19 Actions” and “COVID-19 Responses”, defined terms that have increased in popularity this year, cover actions taken by one or all parties (most typically the target) in response to Covid-19. There is a great deal of variety in how these terms are defined. However, many versions of these terms impose a reasonableness requirement (such as “commercially reasonable” or “reasonably determined to be necessary or prudent”) on actions taken in response to the pandemic. Some versions of these defined terms might already arguably cover voluntary vaccine mandates based on how they are drafted. However, this would be an obvious place for parties to address company vaccine protocols explicitly—"for the avoidance of doubt,” if you will.

Definition of Ordinary Course

Some deal parties have been explicitly including past actions taken in response to the pandemic in the definition of the ordinary course of business, which, depending on how the inclusion is drafted, could potentially be problematic if new vaccine protocols are undertaken in the period between signing and closing. As such, this would be another opportune provision for addressing vaccination policies or mandates. Note: Many parties refer to “Covid-19 Measures” in defining ordinary course, which is another rationale for addressing it there as well.

Representations & Warranties

Issues related to Covid-19 are being addressed in a wide variety of representations and warranties. Compliance with laws representations explicitly stating that the party is “in compliance in all material respects with all COVID-19 Measures” have emerged. Absence of Certain Changes, Compliance with Laws, any labor and employment-related representations, and Covid-19-specific representations and warranties could be implicated by vaccination policies or mandates and should be drafted with them in mind.

Pending Deals

If parties have already signed deal agreements but have yet to close, could implementing a new vaccine policy during this interim period violate the parties’ Interim Operations covenant? As mentioned above, that possibility could depend on how the ordinary course of business is defined. Even in agreements where the ordinary course includes past pandemic practice, would a new vaccine policy be considered consistent with the pandemic ordinary course? And do you need to update your disclosure schedules?

What if mass resignations ensue as a result of a new voluntarily implemented vaccine mandate during this period? These are difficult questions, and require a case-by-case analysis based on the facts and exact terms of the agreements, but they illustrate exactly why much care should be taken in due diligence and during drafting to account for such issues.


Realistically, given the current Covid-19 outlook—which takes into account emerging variants, questions about how long the protection of the first versions of vaccines will endure, and the possible need for vaccine boosters that is being debated by scientists—the issue of company vaccination policies could be relevant for another year or more. As hard as it is to see around corners, M&A deal parties are in a position to begin to attempt to address vaccination in their negotiations and agreements.

Bloomberg Law subscribers can find related content on our M&A Deal Analytics resource and all our pandemic M&A deal term analysis here.

If you’re reading this on the Bloomberg Terminal, please run BLAW OUT<GO> in order to access the hyperlinked content or click here to view the web version of this article.