For many months now businesses have been asking each other "Is your business Y2K compliant?" These inquiries have caused legal counsel concern that a response might create liability should it turn out to be incorrect or misleading.
In an effort to encourage businesses to disclose Y2K issues without fear of exposing themselves to liability, Congress passed the Year 2000 Information and Readiness Disclosure Act. The new law preempts state and local rules. It also provides some protections to the business community without affecting existing contractual rights and liability. Most importantly, qualifying Y2K disclosures are deemed inadmissible in a lawsuit.
The key points of the Act are as follows:
* Businesses are encouraged to disclose their Y2K concerns and plans. In return, the Act provides that such disclosure shall be inadmissible in court to prove the accuracy of any Y2K statement set forth in the disclosure (with some limited exceptions noted below).
* The Act provides a temporary anti-trust exemption, from state or federal anti-trust laws, to businesses who combine forces to correct or avoid Y2K problems.
* Y2K statements made prior to the new law, but after January 1, 1996, are also protected if proper notice is given by December 3, 1998. Because this article is written subsequent to the deadline for achieving retroactive protection, this issue is probably moot.
* Disclosures made on company Internet websites are deemed notice to the public of that statement, unless it becomes an issue in a lawsuit involving personal injury or serious physical damage. It is also ineffective if some other form of notice is required by the nature of the past relationship of the parties.
To receive the Act's protection of inadmissibility, any disclosure must state on its face that it is a Y2K readiness disclosure. The statement becomes inadmissible in court unless it's used in a claim for anticipatory breach or repudiation of contract or the court finds that non-disclosure would amount to bad faith or fraud, or "is otherwise beyond what is reasonable" to achieve the purposes of the Act. This protection is particularly helpful if the disclosing company has a Y2K problem and feels obligated to disclose it.
In addition, even if the response is not labeled a "Y2k readiness disclosure," the Act shields the maker of the Y2K statement from liability for any allegedly false, inaccurate or misleading comment unless, by clear and convincing evidence, the information was material and made with actual knowledge of its falsity or a reckless disregard as to its truth. Similar protections are provided if a claim is made for defamation or trade disparagement.
The Y2K Act is not a cure all but does give business some comfort in sharing Y2K information with business partners without risking liability for their admissions. At the very least, all future disclosures should be identified on their face as "Y2k Readiness Disclosure Statements." If the parties making these disclosures know of a serious Y2K problem that will not be corrected by January 1, 2000, they are well advised to seek legal advice to make sure that any disclosure comes within the Act and does not leave the company exposed to liability under any of the exemptions or limitations in the new law.