Tag Archives: covid-19 resource

Proposed Legislation For Business Interruption Insurance Coverage: Life Raft For Small Businesses, Anchor For Insurance Carriers

New proposed legislation regarding business interruption coverage may be an economic life raft for small businesses but a significant financial risk to insurance carriers. The insurance industry has been hit with a substantial number of business interruption claims, a large part of which carriers have denied claiming a lack of physical property damage or citing a virus exclusion. The proposed legislation combats the growing economic challenges for small businesses and denial of insurance coverage. The insurance industry has pushed back hard against the legislation arguing that such laws would overwrite private contracts. Proponents of these bills reason that the laws would provide for the creation of funds to reimburse insurers for losses paid by the industry and are another form of government stimulus funding, which utilizes the insurance industry to administer the distribution of those funds.

Although it is unknown whether the proposed legislation will be enacted, it is important to recognize that not all policies need this legislative assistance. Some business interruption policies likely provide business interruption and other types of coverage for COVID-19 related losses under their terms, as written, and the enactment of legislation would not change such coverage.

Which Claims Are Covered under the Proposed Business Interruption Insurance Coverage Legislation?

Legislators in several states, including New Jersey, New York, Massachusetts, Michigan, Ohio, Pennsylvania, Louisiana, and South Carolina, as well as the House of Representatives, have introduced legislation to retroactively compel insurers to cover business interruption claims arising from damages sustained during a period of a declared state of emergency due to COVID-19, and a few bills going so far as including any mutated forms of COVID-19. The proposed bills provide coverage to claims asserted by small businesses, defined in the bills to be businesses with either 250, 150, or 100 and fewer employees. Further, some of the proposed bills expressly address virus exclusions and require insurers to provide coverage despite any virus exclusion provided in a policy.

None of the proposed legislation have yet passed, and most have been referred to the state’s respective insurance or finance committee for review.

Has California Introduced Proposed Legislation?

There is no comparable bill pending in California. However, California’s Insurance Commissioner Ricardo Lara sent a letter to Speaker Nancy Pelosi and California’s Congressional Delegation alerting them about the extent of the business interruption crisis and asking them to take immediate action to protect California’s businesses. To provide state policymakers with more information, Commissioner Lara directed carriers to submit data by April 9, 2020 to the Department of Insurance regarding coverage of commercial business interruption claims related to COVID-19. Commissioner Lara has not provided an update on the data produced by carriers.

Further, and in response to complaints regarding recent and swift denials of business interruption claims, Commissioner Lara issued a notice on April 14, 2020 requiring carriers and other insurance licensees to comply with their contractual, statutory, regulatory, and legal obligations and, importantly, to fairly investigate all business interruption claims related to COVID-19. And, if a carrier denies a claim in its entirety or in part, then the carrier must provide the insured a written explanation of the legal and factual bases for the denial.

Potential Pitfalls of the Proposed Legislation.

The proposed legislation has unsurprisingly come under scrutiny. While many of the proposed bills provide that carriers can apply for reimbursement from state funds made available specifically for this purpose, many critics believe that retroactively forcing coverage will bankrupt the insurance industry. For example, on May 8, 2020, the U.S. Department of Treasury issued a letter to members of Congress stating that such proposals “fundamentally conflict with the contractual nature of insurance obligations and could introduce stability risks to the [insurance] industry.”

In addition to economic considerations, the legislation (if enacted) will have to withstand constitutionality challenges that will certainly be raised by the insurance industry. Carriers can point to the “Contract Clause” (U.S. Const., Art. I, § 10, cl. 1) and Due Process Clauses (U.S. Const., Amends. 5, 14) of the Constitution in support of these challenges. The United States Supreme Court has held that the “Contract Clause” prohibits “substantial impairment” of contractual rights, including for example insurance policies, unless the state has a “significant and legitimate public purpose behind the regulation” and the impairment is reasonable and appropriate as it relates to the public purpose. Similarly, the Supreme Court has held that the Due Process Clauses prohibits such interference with contracts unless “the retroactive application of a statute is supported by a legitimate legislative purpose furthered by rational means.” Whether these legislative measures pass constitutional scrutiny will be very likely be the subject of lengthy litigation.

And while the purpose of the proposed legislation is to provide economic relief to small business, this relief may not arrive in time given the required legislative procedures to enact the proposed bills and lengthy litigation that will inevitably arise from constitutionality challenges. Without the enactment of the proposed legislation, business interruption coverage will depend on the unique circumstances of a business’s loss and the specific terms of the policy.

Things to Consider. . .

Insurance policies have notice provisions requiring insureds to provide timely notice of a claim for coverage. Thus, despite the pending legislation, small businesses can and should file a claim under existing business interruption coverage as soon as possible. Insurance companies may use untimely notice as a basis to deny coverage.

The insured must show that there is a covered loss under the policy. It is important to read the policy and understand what is required to entitle you to coverage Business interruption claims likely require the insured to establish that it has incurred losses stemming from property damage. Policies typically include one of following phrases in describing the type of property damage, the first being most favorable to the insured and the last being the most stringent showing: (1) “direct physical loss of or damage to” the covered property; (2) “direct physical loss or damage to” the covered property; and (3) “direct physical damage to” the covered property.

A common argument by insureds has been that the property damage is a result of the virus proliferating onto every surface and object in, on, and around the covered premises. Another common argument is that the disjunctive use of the provision “direct physical loss of or damage to property” includes coverage for loss of use of the covered property, i.e., physical damage is not required and loss of use of the property is sufficient.

A stronger argument on which to base a claim is if the policy has a provision for damages resulting from governmental action or under a “civil authority” provision. Some “civil authority” provisions provide coverage when a covered loss causes damage to property other than the covered property and the insured sustains a loss of income caused by action of civil authority that prohibits access to the covered premises. Insureds are claiming that the state and local orders shutting down their business and neighboring businesses constitutes property damage because there is a “loss of use” of the business.

In a case pending before the United States District Court, Southern District of New York, Social Life Magazine, Inc. v. Sentinel Insurance Co. Ltd., Case No. 20-cv-3311, the insured sought a preliminary injunction asking the court to order the carrier to provide coverage during the pendency of the underlying action to determine coverage for its business interruption claims related to COVID-19. The carrier opposed the injunction in part by arguing that the insured will not likely succeed in the underlying action because there was no “direct physical loss of or damage to” the premises, which is required under the terms of the policy to be entitled to coverage.

The court denied the insured’s request for an injunction. The court focused on the requirement of “direct physical loss of or damage to” the insured property and held that the language of the policy provided business interruption coverage only where the insured’s property suffered “direct” physical damage. This court’s holding, while telling, is not determinative of the outcome of other claims. Each policy must be reviewed and analyzed to determine whether or not the insured has coverage under its policy.

Once the insured establishes that it has coverage, it is up to the carrier to show that the loss is not covered as a result of, for example, an exclusion in the policy. And, indeed, claims arising from the COVID-19 pandemic have been met with significant pushback from carriers relying on “virus and contamination exclusions” that are included in many policies. These virus exclusions became predominant in 2006, after the Severe Acute Respiratory Syndrome (SARS) epidemic. Here is an example of a virus exclusion:

“We will not pay for loss or damage caused by or resulting from any virus, bacterium, or micro-organism that induces or is capable of inducing physical distress, illness, or disease.”

While the exclusion appears to be all-encompassing, insureds who have policies with the virus exclusion are not out of luck. Many businesses are attempting to overcome the virus exclusion by arguing that the predominant cause of the loss is the civil action—the state and local orders requiring non-essential businesses to shut down or allowing non-essential businesses to operate on a limited basis. Specifically, COVID-19 was first confirmed in the United States on January 20, 2020 and in California on January 26, 2020. Between these dates and through the day before the state and local orders were in effect, businesses were not impacted by the virus and did not experience any losses. However, as of the date of the state and local orders, and as a result of the restrictions, businesses were forced to shut down (or operate on a limited basis) causing the businesses to sustain losses. Thus, businesses are claiming that the government orders are in fact the cause of their loss and, therefore, the virus exclusion should not apply. Carriers will oppose the above argument by contending that the root cause of the loss is a result of the COVID-19 virus and, therefore, the claim is excluded. Stay tuned.

Another safety net for insureds is the inclusion of an applicable endorsement in the policy. Endorsements are typically attached at the end of the policy, which, as a result, has been interpreted by courts to mean that any coverage extended in the endorsement is not excluded by exclusions that are included in the preceding policy pages. For example, if a restaurant (1) has a policy with a virus exclusion, (2) the policy includes a “food contamination” endorsement at the end of the policy, and (3) the restaurant experiences food contamination relating to COVID-19, then the insured can seek coverage under the “food contamination” endorsement despite the virus exclusion.

The final determination of these issues will be subject to lengthy litigation and, again, will depend on the facts of the case and the specific policy language.

For more information visit our COVID-19 Preccelerator Resource Center
https://preccelerator.com/category/covid-19-resources/

Stubbs Alderton & Markiles‘ authors:

Karine Akopchikyan

Jeffrey Gersh

PPP Flexibility Act Guidance

On May 28, 2020, the U.S. House of Representatives approved the Paycheck Protection Flexibility Act to give more time and flexibility to employers who receive or have received forgivable loans under the Small Business Administration’s Paycheck Protection Program (“PPP”). On June 3, 2020, the Act passed the Senate by unanimous consent. The Act was signed and put into effect by President Trump on June 5, 2020.

Period eligible for loan forgiveness extended

Critically, the PPP Flexibility Act extends the time PPP recipients have to spend their funds and still be entitled to receive forgiveness of the loan from eight weeks to the earlier of 24 weeks or December 31, 2020. However, borrowers that have received their loans prior to the PPP Flexibility Act’s enactment may still elect to use their funds over the original 8-week period and the related obligation to maintain payroll levels only through June 30, 2020. Borrowers using the new covered period will be obligated to maintain payroll levels for an extra 16 weeks.

Exemption for reduced forgiveness amounts

Relatedly, the Act creates a new forgiveness exemption based on employee availability during the period from February 15, 2020 through December 31, 2020. Under this provision, loan forgiveness will be determined without regard to a proportional reduction in the number of full-time equivalent employees if a borrower documents in good faith both the inability to rehire individuals who were employees on February 15, 2020 and the inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020. This exemption also extends to borrowers whom in good faith are able to document the inability to return to the same level of business activity at which the borrower operated on or before February 15, 2020, due to compliance with regulatory standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID-19 and promulgated between March 1, 2020 and December 31, 2020 (the Act specifically identifies guidance issued by Department of Health and Human Services, the Centers for Disease Control and Prevention, and the Occupational Safety and Health Administration).

75/25 rule now 60/40

Another significant provision from the Act lowers the portion of PPP funds borrowers must spend on payroll costs to qualify for full loan forgiveness from 75% to 60%. This means that 40% of the loan may now be spent on covered non-payroll costs (i.e., rent, mortgage interest and utilities), as opposed to the prior 25% requirement.

Deferral period extended

The Act also extends the existing 6-month loan payment deferral period until the date on which the amount of forgiveness determined is remitted to the lender. Further, if a borrower fails to apply for forgiveness within 10 months of the last day of the covered period, payments of principal, interest, and fees will begin no earlier than 10 months after the last day of such covered period.

New minimum maturity date

Further, the Act also creates a new five-year minimum maturity date (applicable only to post-enactment loans) and provides that nothing shall be construed to limit lenders and pre-enactment borrowers from mutually agreeing to modify the maturity terms to conform with this change.

Adjustment to delay of employer payroll taxes

Lastly, the Act now permits borrowers whose loans were forgiven in whole or in part to delay the payment of employer payroll taxes until December 31, 2021 (with respect to up to 50% of the amounts due) and December 31, 2022 (with respect to the remaining amounts due up to 50%). Borrowers who received forgiveness were previously prohibited from taking advantage of this benefit.

Stubbs Alderton Authors:

Garett Hill

Jeffrey Gersh

Caroline Cherkassky

For more information on worker’s rights and business liability, visit our COVID-19 Preccelerator Resource Center
https://preccelerator.com/category/covid-19-resources/

Paycheck Protection Program: Guidance On Forgiveness

May 29, 2020 marks 8 weeks since Paycheck Protection Program (PPP) loans were first made available and thus the beginning of borrowers’ eligibility to apply for loan forgiveness. On May 22, 2020, the SBA released two rules to help clarify various aspects of loan forgiveness and inform on the SBA’s review process, discussed below.

Loan Forgiveness Process: Lenders determine loan forgiveness on a borrower-by-borrower basis. To receive loan forgiveness, borrowers must complete and submit the Loan Forgiveness Application (or a lender’s equivalent) to their lenders. Lenders have 60 days from the date the Loan Forgiveness Application is submitted to issue its decision to the SBA, which in turn has 90 days to remit the appropriate forgiveness amount to the lender. (For a more detailed discussion on what costs qualify as forgivable, see our prior post here.)

Alternative Payroll Covered Period: Borrowers are not required to base forgiveness amounts on the 8-week period that begins with the date of disbursement. Instead, borrowers may opt to use an 8-week period beginning on the first day of the first payroll cycle after loan funds are disbursed (the “alternative payroll covered period”). For example, if a borrower receives its PPP disbursement on June 1, but the borrower’s first pay cycle after disbursement begins on June 7, the borrower may elect to calculate its loan forgiveness amount by using the period from June 7 to August 1 (8 weeks after June 7).

Costs Incurred but not Paid During Covered (or Alternative Covered) Payroll Period: Payroll costs incurred during the borrower’s last pay period of the covered period (or alternative payroll covered period) are eligible for forgiveness if paid on or before the next regular payroll date; otherwise, payroll costs must be paid during the covered period (or alternative payroll covered period) to be eligible for forgiveness. Additionally, non-payroll costs that are otherwise eligible for forgiveness and are incurred within the covered period or alternative covered period and paid on or before the next regular billing date are also eligible for forgiveness. For example, a rent or utility payment paid after the designated 8-week covered period can still qualify for loan forgiveness to the extent the payments were for rent or utilities incurred during said period. However, advance payments for interest on mortgage obligations do not qualify for forgiveness.

Payroll Caps: Payroll costs are forgivable to the extent that they cover employees’ salary, wages, or commissions during the covered or alternative covered period and do not exceed a prorated annual salary of $100,000. This also applies to bonuses, hazard pay, and the salary, wages, or commissions paid to furloughed employees. Further, the amount of loan forgiveness requested for owner-employees and self-employed individuals’ payroll compensation can be no more than the lesser of 8/52 of 2019 compensation (i.e., approximately 15.38 percent of 2019 compensation) or $15,385 per individual in total across all businesses.

Reductions to Loan Forgiveness Amounts: The CARES Act provides that a borrower’s loan forgiveness amount will be reduced if a borrower reduces its full-time equivalent (FTE) employees (meaning 40 hours or more of work each week) or reduces any employees’ (who made less than $100,000 in 2019) salary or wages by more than 25%. The CARES Act also allows borrowers to avoid such reductions if employees are rehired and restored salary and wage levels by June 30, 2020. The May 22^nd interim rules clarify that borrowers may still be entitled to avoid such forgiveness reductions so long as they offer to rehire FTE employees or restore employees’ hours, even if they do not accept. Such offers must be made in good faith and be for the same salary, wages, and number of hours that the employee earned prior to separation or reduction in hours. Records of these offers and rejections must also be maintained, and the borrower must inform the applicable state unemployment insurance offer within 30 days of the employee’s rejection. Moreover, to ensure that borrowers are not doubly penalized, salary/wage reductions apply only to the portion of the decline in employee salary and wages that are not attributable to an FTE employee reduction. Further, if an employee is fired for cause, voluntarily resigns, or voluntarily requests a schedule reduction, then no corresponding loan forgiveness reduction will be imposed.

SBA’s Review Process: As discussed in our prior post addressing borrowers’ potential liability under the False Claims Act, all PPP loans in excess of $2 million, and any other loans “as appropriate,” will be reviewed by the SBA. Either way, if the SBA reviews a borrower’s loan, it will look at borrower eligibility, loan amounts and use of proceeds, and loan forgiveness. Borrowers are required to maintain PPP documentation for six years after the date the loan is forgiven or repaid in full and must permit the SBA access to such files upon request. If the SBA believes that a borrower may not have been eligible for the loan, the loan amount, or the loan forgiveness amount, the SBA will require the lender to contact the borrower in writing to request additional information and may also request information directly from the borrower. If the SBA determines that a PPP loan recipient should have been ineligible, no forgiveness will be permitted. The SBA may also seek repayment of the outstanding PPP loan balance or pursue other available remedies. Another interim rule will be issued that addresses how recipients ruled ineligible can appeal such a determination.

Modifications Expected: On May 28, 2020, the U.S. House of Representatives approved legislation (the “Paycheck Protection Flexibility Act,” H.R. 7010), that would extend the time PPP recipients have to spend their funds and receive forgiveness from eight weeks to 24 weeks. The bill would also lower the portion of PPP funds borrowers must spend on payroll costs to qualify for full loan forgiveness from 75% to 60%. The House bill passed under special rules established to expedite legislation while the House is not in full session, requiring a two-thirds vote for passage instead of a simple majority. The House bill will now need to pass the Senate before making its way to President Trump’s desk to be signed into effect. A separate bill advancing through the Senate would double the covered period of forgivable PPP spending to 16 weeks but would not change the 75% payroll cost requirement. We will continue to track these bills and provide updates accordingly.

Stubbs Alderton Authors:
Caroline Cherkassky
Garett Hill

For more information on worker’s rights and business liability, visit our COVID-19 Preccelerator Resource Center :
https://preccelerator.com/category/covid-19-resources/

What Every Business Should Know About Workers’ Rights and Business Liability During COVID-19

On May 8, 2020, California’s stay-at-home order was modified to reflect the state’s entering Stage 2 of its COVID-19 pandemic response, where businesses in the retail, manufacturing, and logistics industries can reopen, subject to certain restrictions (e.g., delivery and curbside pickup only). Last week, Governor Gavin Newsom also hinted that entering Stage 3 “may not even be a month away.” Below are some questions and answers about workers’ rights and business liability that may arise as businesses reopen.

Can workers obtain Workers’ Compensation benefits for injuries arising out of COVID-19 illness?

In California, workers’ compensation benefits are the exclusive remedy for injuries that a worker sustains from a condition of their employment. Some states’ workers’ compensation statutes exclude coverage for “non-occupational diseases” or “ordinary diseases of life,” such as a cold or flu, which may arguably encompass COVID-19. However, California’s Labor & Workforce Development Agency (“LWDA”) has clarified that workers are eligible for workers’ compensation benefits for injuries resulting from COVID-19.

However, generally speaking it is the worker’s burden to show that they were exposed to and contracted COVID-19 during their regular course of work. This showing will ultimately depend on the unique circumstances of each claim, including, for example, whether there were any known cases of COVID-19 infections at their workplace, whether the premises were contaminated with the virus, and whether the employer implemented safety and social distancing provisions.

On May 6, 2020, Governor Newsom changed the forgoing general presumption and issued an executive order that creates a rebuttable presumption for a period of 60 days (May 6 – July 5) that may entitle workers who work outside their homes to workers’ compensation benefits if they contract the coronavirus. Under the recent executive order, it will be presumed that the worker contracted COVID-19 during their regular course of work if (1) the employee tested positive with COVID-19 within 14 days after working at their place of employment; (2) the last day must have been on or after March 19, 2020; (3) the worker’s place of employment is not their home; and (4) the worker’s diagnosis of COVID-19 must be by a licensed physician and the diagnosis must be confirmed with further testing within 30 days of the diagnosis.

It will be up to the employer to establish that the worker did not contract COVID-19 at work by producing evidence that the injured worker did not satisfy one of the above four criteria or that the injured worker contracted the virus by another cause. The employer must produce such evidence within 30 days of the filing of the claim by the worker. After 30 days, an employer can produce evidence to rebut the presumption with evidence discovered after the 30-day period.

Overcoming the presumption will likely be difficult given the many variables in tracing how and where a worker has been exposed to the virus and obtaining evidence to disprove the worker’s claim. Further, employers and insurers will likely challenge the executive order due to the difficulty of proving that the employee contracted the coronavirus elsewhere. How is the employer supposed to establish this? Can the employer demand to know everyone the employee came into contact with outside of work and if those people were contagious? Can the employer go even further and inquire where the employee has been? And on and on down the line In short, there are a myriad of open issues and no guidance as of yet.

Are independent contractors eligible for workers compensation and unemployment compensation?

In California, workers compensation and unemployment compensation are typically only available to employees. However, workers who believe they were misclassified under recently enacted AB-5, and applicable case law, may be eligible for both of these benefits. To learn more about misclassification under AB-5, check out “The Fight For Clarity On Calif. Worker Classification Law.”

Additionally, independent contractors who have voluntarily contributed to unemployment insurance Elective Coverage and made the required contributions or had a past employer contribute to the unemployment insurance fund on their behalf in the past 18 months, may also qualify for unemployment compensation. Further, the Pandemic Unemployment Assistance (“PUA”) program of the CARES Act gives states the unprecedented option of extending unemployment compensation to independent contractors and other workers who are ordinarily ineligible. On April 28, 2020, California’s Employment Development Department (“EDD”) followed suit and expanded the availability of unemployment compensation via the federal PUA program to business owners, self-employed individuals, independent contractors, and gig economy workers.

What happens to workers who are receiving unemployment compensation and do not feel comfortable returning to work as businesses begin to reopen?

Workers who opt not to return to their positions when their employers reopen amid the COVID-19 pandemic will likely not remain eligible for unemployment compensation. Generally, individuals receiving regular unemployment compensation must act upon any referral to, and accept any offer of, suitable employment. A request that a furloughed employee return to his or her job very likely constitutes an offer of suitable employment.

Specifically, the U.S. Department of Labor outlines the conditions an individual has to meet to refuse to return to work in order to remain eligible for PUA, as provided by the CARES Act. The list includes (i) a COVID-19 diagnosis, restrictions due to childcare availability, (ii) caring for an ill family member, or (iii) health “complications that render the individual objectively unable to perform his or her essential job functions, with or without a reasonable accommodation” as a result of having recovered from COVID-19. However, voluntarily deciding to not return to work out of a general concern about exposure to COVID-19 is likely tantamount to the employee having quit and will likely eliminate PUA eligibility.

The EDD similarly requires applicants to be “able, available, and actively seeking work” to collect unemployment benefits. Accordingly, a worker’s decision to not return to work out of general health concerns related to COVID-19 would likely not satisfy this requirement. If, however, a worker declines to return given their underlying health conditions and thus an increased chance of significant illness if exposed to COVID-19, then the worker may be entitled to maintain unemployment compensation subject to the EDD’s discretion.

What if an employer offers a different position to a furloughed employee?

What if an employer offers a temporarily furloughed employee who is receiving unemployment compensation an otherwise similar role that provides, for example, hourly wages instead of the employee’s previous salaried compensation? Will this be considered “suitable work,” and would the adjusted compensation create “good cause” to refuse this position”? More generally, if the employer changes the terms of the employment – at what point does it constitute good cause to voluntarily quit and be eligible for unemployment compensation?

Whether an employee has good cause to not return to work or quit and be eligible for unemployment compensation is determined on a case-by-case basis and the burden of proving eligibility is on the claimant. The EDD provides the following framework in determining whether good cause exists for the claimant to have voluntarily quit and remain eligible for unemployment compensation:

“Once the claimant’s reasons for leaving are determined, the interviewer must apply a three-part test to determine the presence of ‘good cause’: (1) Is the reason for leaving ‘real, substantial, and compelling’? (2) Would that reason cause a ‘reasonable person,’ genuinely desirous of working, to leave work under the same circumstances? (3) Did the claimant fail to attempt to preserve the employment relationship, thereby negating any ‘good cause’ he/she might have had in leaving?… ‘Compelling,’ in this sense merely means that the claimant’s reasons for quitting exerted so much pressure that it would have been unreasonable to expect him or her to remain with the employment. The ‘pressures’ exerted upon the claimant may be physical (as with health), moral, legal, domestic, economic, etc.”

A relatively insignificant reduction in salary due to a worker’s being reassigned to a different hourly role has been found to not constitute good cause to terminate voluntarily. In one case, for example, a California court found that a reduction in the employee’s wages by roughly 7% did not, by itself, constitute good cause for voluntarily leaving employment. However, the California Supreme Court has held that a 25% wage cut constituted a “substantial reduction in earnings” and that reduction was regarded as good cause for leaving employment.

Also uncertain is what happens in the situation where a salaried employee is offered an hourly position with no guarantee of actual work. This would likely serve to support a claimant’s argument that good cause exists to reject the offer of employment and remain eligible for unemployment compensation. Moreover, in some situations, an employee may be deemed to be partially unemployed and thereby entitled to partial unemployment compensation. Thus, hourly employees with reduced workloads may still receive partial unemployment compensation to supplement lost hours. Each of these situations must be evaluated on a case by case basis.

What other rights do workers have if they believe their employer has not adequately addressed COVID-19 related safety concerns?

If a worker believes their employer has not adequately addressed COVID-19-related concerns, other limited remedies are available. Per California’s Department of Industrial Relations, employees deemed non-essential who believe they were terminated or otherwise retaliated against for refusing to go to work while the stay-at-home order is in effect may file a retaliation claim with the Labor Commissioner’s Office. Similarly, essential workers who feel their employer has not taken steps to ensure a safe work environment may also file a claim with the Labor Commissioner. These claims can lead to damages and penalties against the employer if it is found to have treated an employee adversely or fired an employee for refusing to work in (or complaining of) an unsafe work situation.

Under the federal Occupational Safety and Health Act, enforced through the Occupation Safety and Health Administration (“OSHA”), employees can refuse to work if they reasonably believe they are in imminent danger, which means they must have a reasonable belief that there is a threat of death or serious physical harm likely to occur immediately or within a short period. In the context of COVID-19, this will likely require a specific fear of infection that is based on fact—not just a generalized fear of contracting COVID-19 infection in the workplace, and that the employer cannot address the employee’s specific fear in a manner designed to ensure a safe working environment.

California’s counterpart to OSHA(“Cal/OSHA”), requires every employer to develop and implement a written safety and health program tailored to the specific workplace. Among other things, recent Cal/OSHA guidance mandates that all California employers must determine if COVID-19 infection is a hazard in their workplace and if it is implements prevention measures and training. Workers can file confidential complaints with OSHA or Cal/OSHA if they believe their employer is non-compliant, which could lead to on-site investigations, various civil penalties, and/or special orders requiring employers to make changes to their workplace.

Will businesses be shielded from COVID-19-related liability?

U.S. Senate Majority Leader Mitch McConnell has stated that any additional federal aid bill for state and local governments should make the money contingent on states providing liability protection to businesses and hospitals providing services amid the COVID-19 pandemic. Indeed, on May 12, Senator McConnell stated that he is overseeing the drafting of legislation that would “create a legal safe harbor for businesses, nonprofits, governments and workers and schools who are following public health guidelines to the best of their ability.” However, he was clear that the bill would not provide absolute immunity, and that “there will be accountability for actual gross negligence and intentional misconduct.”

The U.S. Chamber of Commerce has also made several suggestions on this topic, including safe harbors from: privacy laws for employers who inquire about health status, age and disability bias laws if companies follow guidelines regarding at-risk employees, and simple negligence claims for COVID-19 exposure if businesses follow government health guidance. Manufacturers have also suggested (i) raising the legal standard for plaintiffs’ claims that a business failed to protect them from COVID-19, (ii) giving additional protections to businesses making new products to address the COVID-19 crisis, and (iii) shielding businesses from privacy suits if they reveal a worker’s COVID-19 diagnosis for safety reasons. Currently, the extent to which any liability protections will be extended remains unclear.

What can businesses do to best protect against claims related to injuries from contracting COVID-19?

Businesses must consider the extent and manner in which they will reopen. As a best practice, and in compliance with Cal/OSHA requirements, businesses should establish safety protocols, update employee and company handbooks to reflect the safety protocols (and provide handbooks to workers), and enforce compliance with the protocols. Employers can turn to the California Department of Public Health (“CDPH”) for guidance on how to reopen their businesses and provide a safe working environment for their workers. While businesses can use effective alternative or innovative methods to provide a safe work environment, such as implementing guidance from the Centers for Disease Control and Prevention, the CDPH guidelines are helpful as they are industry-specific and cover employee training, cleaning and disinfecting protocols, physical distancing guidelines, and a big-picture plan for creating and implementing the safety protocols.

Important and recommended practices include establishing policies and practices for maintaining a healthy work environment and social distancing. Employers can maintain a healthy work environment by, for example, providing and mandating the use of personal protective equipment, such as masks and gloves, regularly sanitizing high-frequency touched surfaces, providing napkins and hand sanitizers to employees, limiting access to common areas such as break rooms and kitchens, increasing ventilation and outdoor air circulation, and requiring employees to report travel outside the state.

Social distancing means avoiding large gatherings and maintaining 6 feet distance from others when possible. Social distancing protocols can include providing flexible worksites (e.g., telework) and work hours (e.g., staggered shifts), increasing physical space among employees and between employees and customers at the worksite, implementing flexible meeting and travel options (e.g., postpone non-essential meetings or events, use video conferencing, etc.), and providing alternative delivery methods, including curbside pick-up for products and utilizing phone, video, or web for services.

For more information on worker’s rights and business liability, visit our COVID-19 Preccelerator Resource Center
https://preccelerator.com/category/covid-19-resources/

Authors:
Jeffrey Gersh
Karine Akopchikyan
Garett Hill

5 Marketing Tips to Staying Profitable During a Global Pandemic

We know it feels like the end of days right now. People are frankly freaked out about the coronavirus (or COVID-19). But if we don’t adjust our thinking around this, our economy, starting with small businesses, will be even more dramatically impacted than they already are.

Here are five ways you can support your community and hopefully stay profitable during these crazy times.

To read the full article visit the Elevate My Brand blog.

———————-

LAUREL MINTZ

Founder & CEO
Elevate My Brand

*Digital marketing, marketing strategy, business development, social media marketing

With a background and education in business and law from Rutgers University, and a passion for food, wine and lifestyle brands, Laurel’s expertise in marketing has been built and solidified through her work with prestigious restaurateurs and major brands across the nation.

Laurel established her influence as a creative marketing expert in the city of Brotherly Love. She was responsible for the production and promotion of high-profile, buzz-generating special events for Le Bec Fin, Philadelphia’s only restaurant with five stars from Mobil and a three-star Michelin rated restaurant. She developed Public House Restaurant Group’s flagship restaurant and managed the execution of their national marketing campaign strategy.

Upon returning to her native Los Angeles, Laurel took on the role of Executive Vice President and In-House Counsel for Bassett, and subsequently began consulting for beauty, food, beverage and consumer brands. Inspired by the success she found bringing her fresh approach to marketing to a wider group of clients, she founded Elevate My Brand in 2009. She now sits on the board of directors for the American Heart Association, the Fender Music Foundation, One With The Water, Ten X, and the British American Business Counsel. Laurel is also on the Social Committee for the Network of Executive Women, a Recipient of the Los Angeles Business Journal Women Making A Difference Award 2014, Keynote speaker for the Women and Business Enterprise Conference 2014, and runs her own exclusive networking group, ”The Taste Salon.” She is regularly featured in Inc. Magazine, where she has her own column, “On Brand.”

Laurel lives in Los Angeles, California, where she steers our digital marketing and event planning efforts.

For more information please visit our COVID-19 Resources page.

COVID Legal Briefing – SBA 7(A) Loan Programs: Affiliation Considerations For Startups

The Coronavirus Aid, Relief, and Economic Security (CARES) Act was recently signed into law, and includes, among other things, a new loan type under the 7(a) loan program of the Small Business Administration (SBA), called the Paycheck Protection Program (PPP). Also available under the SBA framework are Economic Injury Disaster Loans (EIDLs). Our focus here is specifically on potential issues emerging growth companies may face in the context of these loan programs regarding deemed “affiliation” between a company and its investors.

Why does affiliation matter? Understanding whether an applicant’s investors will be deemed to be affiliated is important to ensure that an applicant does not breach a maximum level of employees required for eligibility under the loan programs. In order to be eligible for 7(a) loan programs, an applicant must employ no more than 500 employees.[1] For many early-stage companies, the 500 employee threshold would at first glance appear to be easily satisfied, but the SBA 7(a) loan programs require that an applicant includes in its headcount the employees of any companies under common control, or affiliated, with the applicant. For the SBA’s purposes, affiliation is defined more broadly than in many other contexts, and currently available guidance suggests that some common contractual rights held by venture capital investors could trigger a finding that an investor such as a VC fund would be affiliated with the applicant and that in turn the other portfolio companies of such fund would be deemed affiliates and be required to be included for purposes of the 500 employee threshold.

What triggers a finding of “affiliation”? There are several bases on which affiliation may be found, including the following:[2]

1. Majority ownership. This is likely the easiest category to assess. If an investor owns more than 50% of the voting equity, that investor controls the company and shall be affiliated with the company, along with any other companies that such investor controls.

2. Veto rights, aka protective provisions or negative controls.

a. This is the category that has caused the most confusion in the startup ecosystem. A minority investor may, notwithstanding the minority ownership position, be deemed an affiliate based on its ability to negatively control (i.e., have veto power over) the applicant’s operations. Since most VC investors take minority positions, this is where most of the action is for assessing a startup’s likelihood of triggering a finding of affiliation with its investors.

b. There is, unfortunately, no bright-line list of triggering provisions, but there are past decisions by the SBA Office of Hearings and Appeals (OHA) from which guidance can be drawn. Generally, the SBA focuses a finding of affiliation by negative control on whether the negative controls are operational in nature, as opposed to fundamental matters seen as reasonable for protection of a minority investor’s interests. Thus, a right to veto a sale of the company is unlikely to result in a finding of affiliation, but a right to veto capital expenditures probably would trigger such a finding.

c. The National Venture Capital Association (NVCA) has put out a helpful summary of veto rights that, based on past OHA determinations, are likely to trigger a finding of affiliation with an investor holding any such rights (though it is important to bear in mind that removing any such negative controls does not guarantee that no finding of affiliation will be found). Those veto rights that are likely to be problematic are summarized below:[3]

i. Making distributions or paying dividends (other than tax distributions).
ii. Establishing a quorum for a board or stockholders meeting.
iii. Approving the budget or capital expenditures outside the budget.
iv. Determining employee compensation.
v. Hiring and firing officers.
vi. Changing the company’s strategic direction.
vii. Establishing or amending an option plan.
ix. Incurring or guaranteeing debts.
x, Initiating or defending a lawsuit.
xi. Entering into contracts or joint ventures.
xii. Amending or terminating leases.

d. A couple of additional important considerations:

i. Negative control is assessed not only with respect to the investor entity as an equity holder having blocking rights but also where an investor-appointed director has the ability to block actions at the board level.

ii. Negative control is assessed with respect to a minority investor acting alone. However, this does not mean that the investor must have a right granted specifically to them; rather, a company must look at its ownership. For instance, if negative controls are granted to a company’s Series A holders as a group, and a single investor holds a majority of the Series A voting power, that investor constructively holds the veto right and will be found to hold those negative controls. In contrast, if an investor holds a large portion of the Series A but not a majority, this large ownership stake alone is unlikely to result in a finding that such investor holds those negative controls, because they do not, acting individually, have a blocking right.

3. Convertible or exercisable securities, or agreements to sell. The SBA will give present effect, i.e. deem to have occurred for purposes of the affiliation analysis, any convertible instruments or agreements to sell. This includes, for instance, taking into account exercisable securities for calculating ownership thresholds, as well as in certain cases letters of intent to merge or sell securities.

4. Management. Entities under common management may be deemed to be affiliated. This may include, for instance, where one entity controls the management of the applicant through a management agreement, or where one or more officers of the applicant control the management and/or the board of one or more other entities.

What if an investor has rights that would trigger affiliation, but they do not exercise them? For purposes of the SBA 7(a) loan programs, affiliation is measured based on rights held, regardless of whether such rights are exercised.

What actions should a startup take now? We recommend all startup companies applying for an SBA 7(a) loan familiarize themselves with the rights held by their investors. If an applicant has agreements in place with investors that are likely to trigger a finding of affiliation, it may be possible to amend those agreements to mitigate the likelihood of a finding of affiliation.

Will these guidelines change? There are substantial efforts in progress by the NVCA and other groups lobbying for guidance to clarify affiliation matters and ensure that startups are not inadvertently deemed affiliated with their investors by virtue of control provisions. There is no guarantee such efforts will be successful, and unless and until they are, companies will need to operate assuming the currently available guidance will apply. On Thursday April 2, 2020, House Minority Leader Kevin McCarthy (R-Calif.) told the Axios Pro Rata Podcast[4] that he spoke with Treasury Secretary Mnuchin and that guidance would be forthcoming in a couple of days to set out clearer guidelines for PPP loan eligibility.

Author: Caroline Cherkassky

The attorneys of Stubbs Alderton & Markiles, LLP are continuously monitoring the current COVID-19 situation and publishing relevant updates that pertain to your business. Contact one of our legal professionals at info@stubbsalderton.com, if you have any questions.

For more information please visit our COVID-19 Resources page.

[1] Note that there are exceptions for certain franchises or applicants in the hotel or foodservice industry, but these exceptions will not be relevant for most technology or other startups.

[2] This is a non-exhaustive list of the bases most likely to be relevant for startups. See 13 CFR §121.301(f) for a complete listing.

[3] See NVCA Affiliation in the Context of SBA Loans – Guidance for Venture Capital Investors at https://nvca.org/wp-content/uploads/2020/03/VC-SBA-Lending-and-Affiliation-Guidance-for-SBA-Loan-Programs.pdf

[4] See https://www.axios.com/coronavirus-vc-startups-small-business-loans-6ae9e125-fbbb-4349-9d67-ce68d4a5ac57.html.

COVID-19 Legal Briefing – Payroll Protection Program (PPP)

Making payroll is one of the most stressful issues on every business owner’s mind, and thankfully, the Paycheck Protection Program (PPP) section of the CARES Act provides significant aid to provide some financial relief. The final PPP loan application is now available here.

Who Can Apply? According to the Dept of Treasury’s Information Sheet, all businesses with 500 or fewer employees can apply. Businesses in certain industries can have more than 500 employees if they meet applicable SBA employee-based size standards. Business types that qualify for PPP loans include independent contractors, LLCs, S corporations, C corporations, sole proprietorships, as well as other types of businesses including certain nonprofits, veterans’ organizations, and tribal business concerns. Businesses who have received Economic Injury Disaster Loans (EIDLs) through the SBA between January 31, 2020 and April 3, 2020 are not prohibited from obtaining a PPP loan so long as the EIDL was executed for purposes other than the permitted uses of a PPP (see below for discussion of PPP permitted uses).

The SBA’s affiliation standards have been waived for this Program for companies that are (a) in the hotel or food services industries; (b) franchises in the SBA’s Franchise Directory; and (c) receiving financial assistance from small-business investment companies licensed by the SBA. The affiliation standards have been the source of much confusion in the venture-backed startup community; and we explore those considerations in more detail here and will be monitoring for expected new guidance in that area and updating as that becomes available.

What Do I Need to Do to Apply? A business owner must apply through an approved SBA 7(a) Lender, or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating. Applications are open as of April 3, 2020 for small businesses and sole proprietors. Independent contractors can begin the application process as of April 10, 2020. All applications must be submitted to an approved lender by June 30, 2020.

Applicants will need to certify that the business is suffering from economic hardship due to the current COVID-19. In addition to the certification in good faith that the funds will be used to maintain payroll and make mortgage, lease or utility payments, the applicant will need to provide:

Documentation that demonstrates the number of full-time employees on payroll, total payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities for the eight weeks after getting this loan. Independent contractors (1099 workers) engaged by an applicant are not included for this analysis, but note that the PPP does provide opportunities for independent contractors to apply for their own PPP loan.
Certification that the business owner has not and will not receive any other loan assistance under the CARES Act.

How Much Can You Apply For? The amount of the loan is for up to 2.5 times a business’s average monthly payroll costs from the last year plus any outstanding amounts owed on an EIDL executed between January 31, 2020 and April 3, 2020, if any, and less any emergency advance amounts obtained through the EIDL program, if any. Note, this amount cannot exceed $10 million. If you are a seasonal or new business, you will use different applicable time periods for your calculation. Individual employee payroll costs are capped at $100,000 annualized, so anything above that is not considered for determining average payroll costs.

What Are the Permitted Uses of a PPP? A PPP loan can be used for “payroll costs” and other specific operating expenses.

Payroll costs include salary, wages, commissions, payment of vacation, sick, parental/family/medical leave, payment of retirement contributions, group health coverage premiums and state and local taxes assessed on payroll. Payroll costs do not include Federal Payroll Tax, compensation paid to employees in excess of $100,000, or compensation paid to employees outside the U.S.

In addition to payroll costs, PPP loans can be used to cover interest on mortgage obligations, rent, and utilities that were in use before February 15, 2020, and interest on other debt obligations incurred before February 15, 2020.

Loan Terms. PPP loans will be executed at an interest rate of 1% with a maturity date of two years.

When Do I Have to Pay it Back? A business’s loan repayment term is two years, with the first 6 months of payments deferred with interest accruing during deferment. There is no pre-payment penalty if paid back within that two-year period.

Is the Loan Forgivable? A business owner is eligible for loan forgiveness for the amounts they spend over the eight weeks after receiving the loan disbursement on the qualifying expenses named above (aside from interest on debt obligations incurred before February 15, 2020), provided that at least 75% of the forgiven amount must have been used for payroll costs.

If the number of full-time employees is reduced over the eight weeks or if the salary or wages of employees who earned $100,000 or less in 2019 are reduced by 25% or more, then the amount of the loan eligible for forgiveness will be reduced. However, depending on the timing of any such workforce or salary/wage reductions, reduced loan forgiveness can be avoided if the reductions are undone by June 30, 2020.

The lending bank will determine a business’s eligibility for loan forgiveness based on the criteria mentioned and has 60 days to render a decision.

Can I Still Qualify if I Already Have an SBA Loan? A business owner can have more than one SBA loan as long as the total combined amount of the loans does not exceed the maximum amount set by the SBA, and in the case of EIDL and PPP loans, a borrower cannot take out both types of loans unless they are for different purposes. EIDL loans executed before a PPP loan can be rolled into a PPP loan. In other words, the principal of an EIDL could later become part of a PPP loan, likely resulting in lower interest rates.

What are the similarities and differences between PPP loans and EIDL? Can I get both? As mentioned, you can receive both loans as long as the amount doesn’t exceed the maximum amount allowed by the SBA, and the proceeds are used for different things. EIDL can be used for payroll, paid sick leave, costs incurred due to supply chain disruption, rent or mortgage payments, and repayment of amounts owed that cannot be paid due to loss of revenue from a disaster’s (i.e. COVID-19) impact. Further, EIDL applicants can receive up to a $10,000 emergency advance, which does not have to be repaid even if the loan application is later denied but will reduce the principal of a PPP loan if such applicant subsequently executes one.

As addressed above, PPP can be used for payroll costs, group health care benefits, mortgage interest costs, rent, utilities and interest on debt incurred before February 15, 2020. Because the PPP is forgivable in certain cases, and forgiveness is tied to usage of the PPP loan on payroll specifically, borrowers should carefully evaluate which loan to use for which expenses where an expense is eligible to be paid by either type of loan. We have provided a useful flow chart, available at: PPE: EIDL Comparison Chart.

Authors:
Heidi Hubbeling
Garett Hill
Caroline Cherkassky
Greg Akselrud

For more information please visit our COVID-19 Resources page.

COVID-19 Legal Briefing: The Impact Of A “Force Majeure” Clause On Your Agreements & Other Possible Excuses For Non-Performance

Force Majeure provisions in an agreement may excuse performance by one or both parties to a contract as a result of events that can neither be anticipated nor controlled. These provisions range from simple and boilerplate to extraordinarily detailed. But you may also be excused from performance of a contract if performance of the agreement impossible or impracticable.

In the case of the outbreak of the current coronavirus (“COVID-19 Pandemic”), there are several terms or phrases to look for in an agreement, including a Force Majeure provision, when considering whether an event may provide a party with the ability to be excused from performance. However, you must also review the entirety of the applicable agreement to determine if there is any specific exclusion or exception to certain events that do not constitute a Force Majeure or otherwise justify non-performance.

The most obvious is, whether there is any reference to viruses, particular illnesses, pandemic, plague, etc. For example, an explicit reference to a “virus” or “pandemic” would most likely excuse performance based on the COVID-19 Pandemic. COVID-19’s classification as a “pandemic” by the World Health Organization (“WHO”) will trigger a Force Majeure clause that expressly accounts for “pandemics.” However, the declaration of this event as a pandemic all by itself – without a reference to pandemics in a Force Majeure clause – will not automatically constitute an excuse from performance given the courts’ focus on whether the event is specified within the specific language in the agreement. Clauses that are silent on pandemics, epidemics, or other viral outbreaks are likely to be insufficient for a Force Majeure defense to performance due to COVID-19, unless, of course, courts change the analysis to account for the existing current situation. Further, courts may still evaluate whether measures could have been taken to avoid the consequences of the Force Majeure event or if the actions exacerbated the likelihood of the Force Majeure event causing non-performance.

In addition to the foregoing, the enactment of substantial governmental regulations, as many local, state, and the federal governments have recently done, including limiting the movement of “non-essential” workers, which could impact the supply chain and physical performance on many contracts, as well as on travel, large gatherings and the like have all resulted in significant business interruptions with significant impact on many businesses. If the applicable Force Majeure provision provides that if inability to perform is the result of governmental orders or regulations which makes performance impossible, businesses may be able to invoke the Force Majeure provision to excuse any contractual obligation to perform resulting from these events. Although if the provision does not include a reference to viruses, illness or the like, it may be more limited, as any non-performance will need to be caused by government action, not the virus or illness alone.

Finally, “open-ended” or “catch-all” language does not always work to cover a situation not explicitly stated in an agreement. It is most likely that these provisions will only apply to Force Majeure events that were not foreseeable at the time of contracting. Courts are typically reticent to allow broadly worded Force Majeure provisions to excuse performance, and whether an unprecedent outbreak of a virus or disease is something that a court would find to be “foreseeable” will vary by jurisdiction.

California Courts’ Interpretation of Force Majeure Provisions

Foreseeability Standard For “Open-Ended”- Catch-All” Provisions

Reasonable Control Requirement

Interpretation of Force Majeure Provisions in Other States

Force Majeure and the COVID-19 Pandemic

Can Performance Be Excused Without a Force Majeure Clause and the Impact of California Civil Code Section 1511?

Impossibility or Impracticability of Performance

Authors: Jeffrey Gersh
Celina Kirchner
Crystal Jonelis
Karine Akopchikyan

For more information please visit our COVID-19 Resources page.

COVID-19 Legal Briefing – The CARES Act

Signed into law on March 27, 2020, The Coronavirus Aid, Relief and Economic Security Act — or “CARES Act”, among other things, provides significant relief for small businesses. The Act injects roughly $2 trillion into the economy for coronavirus relief – providing roughly $350 billion in small business loans and an additional $500 billion in relief to distressed companies in distressed industries, expanding unemployment compensation, and providing rebate checks/tax relief to individuals, families and businesses. This relief is intended to last 3 months.

Small Business Loans – The CARES Act allocates up to $350 billion in emergency loans for small businesses with fewer than 500 employees (including sole proprietors, independent contractors and the self-employed) affected by COVID-19. These loans can be for up to $10 million and will be available through June 30, 2020. Proceeds from these loans may only be used on payroll and compensation costs, interest on debt obligations incurred prior to February 15, 2020, utilities, and/or rent payments. These loans will be guaranteed by the Small Business Administration and do not require any fee, collateral or personal guarantees from borrowers. Moreover, so long as these loans are used for the permitted purposes as previously stated, they will largely be forgiven (subject to any employee or wage reductions).

Click here for more info on terms and eligibility on these small business loans.

The CARES Act also expands the current Economic Injury Disaster Loan (“EIDL”) loan program through December 31, 2020. The Act not only increases the categories of businesses eligible for the EIDL program, but it also eliminates certain requirements of the current program, such as personal guarantees on loans for $200,000 or less, the inability to find credit elsewhere, and that businesses be operational for 1 year prior to applying. EIDL applicants can also be approved solely on their credit score, as opposed to tax returns, and will be eligible for a fully forgivable $10,000 emergency advance that can be received within 3 days.

To learn more about the changes to the EIDL program, click here.

Severely Distressed Sectors – The CARES Act, specifically, the Coronavirus Economic Stabilization Act (“CESA”), authorizes $500 billion for loans, loan guarantees, and other investments in support of eligible businesses. CESA earmarks $25 billion for passenger air carriers; $4 billion for cargo air carriers; and $17 billion for businesses that work in national security. The remaining $454 billion (and any unused amounts in the above categories) are to be used for the benefit of businesses, States, and municipalities.

Specifically, these funds will go towards purchasing obligations or other interests directly from issuers of such obligations or other interests; purchasing obligations or other interests in secondary markets or otherwise; or making loans, including loans or other advances secured by collateral. Note, loans executed under CESA are not forgivable.

To learn more about terms and eligibility, click here.

Unemployment Insurance – The CARES Act Section, Relief for Workers Affected by Coronavirus Act (“RWACA”), provides funding for unemployment compensation (“UC”) to workers adversely impacted by COVID-19. RWACA extends the availability of UC to those workers who are not otherwise covered by State UC laws or that have exhausted State UC benefits.

For specifics, click here.

Relief for Individuals, Families, and Businesses –

Individuals and Families: Individual payments of $1,200 for individuals and $2,400 for couples. The payments are reduced for individuals with incomes over $75,000 (or $150,000 for couples) and provides an additional $500 per child. The payments are eliminated for those with an income over $99,000 ($198,000 for couples).

Businesses: Employers, including tax-exempt organizations but not governmental entities – will have the option to receive a refundable payroll tax credit equal to 50% of the first $10,000 in wages per employee (including certain health plan expenses).

For more information regarding eligibility, click here.

The U.S. Senate Committee on Small Business & Entrepreneurship has published a Guide to the CARES Act https://www.sbc.senate.gov/public/index.cfm/guide-to-the-cares-act

Small Business Owner’s Guide to the CARES Act

For more information please visit our COVID-19 Resources page.

COVID-19 Legal Briefing – Families First Coronavirus Response Act (FFCRA)

Families First Coronavirus Response Act (FFCRA)

The FFCRA was signed into law on March 18, 2020, by President Trump to provide emergency relief and support in response to the COVID-19 (or “coronavirus”) pandemic. The three provisions of the FFCRA discussed below significantly change employees’ rights to paid sick leave and employers’ responsibilities for providing it. It is therefore crucial for employers that need to comply with the FFCRA (those with less than 500 employees) to understand the impact of this new legislation.

1. The Emergency Family and Medical Leave Expansion Act (EFMLEA):

The EFMLEA requires employers with fewer than 500 employees to provide to employees that qualify under the Act with up to 12 workweeks of leave. However, the first 10 days are unpaid (discussed further below) and the next 10 workweeks are paid leave. An employee is qualified if he/she has been employed with the employer for at least 30 days and is “unable to work (or telework) due to a need for leave to care for the son or daughter under 18 years of age of such employee if the school or place of care has been closed, or the child care provider of such son or daughter is unavailable.” Notably, this does not apply to employees who cannot work because of: a recommendation or order by a public official or health care provider to quarantine due to exposure to or symptoms of coronavirus; or the need to care for a family member who is in quarantine based on a recommendation or order due to exposure to or symptoms of coronavirus.

As mentioned, the first 10 days of a qualifying employee’s leave are unpaid under the EFMLEA; however, if the employee is already entitled to paid time off, such as accrued vacation time, medical, or sick days, they could apply those days to the 10 days of unpaid leave and should be paid for the applicable time. For the remainder of the 12-workweek period, employers are required to provide qualifying employees with two-thirds pay for the number of hours the employee would otherwise be scheduled to work, with a cap of $200 per day and $10,000 in the aggregate.

Further, the EFMLEA gives the Department of Labor (DOL) explicit authority to create regulations that exempt businesses with fewer than 50 employees from the requirements of the EFMLEA “when the imposition of such requirements would jeopardize the viability of the business as a going concern.” The DOL has not acted on this yet and updates will be provided as changes occur.

Additionally, businesses with fewer than 25 employees will not be required to restore the job of an employee who takes leave under the EFMLEA if: (i) the employee’s position no longer exists due to economic conditions and (ii) the employer makes reasonable efforts to restore the employee to an equivalent role with equivalent pay and benefits or if a position is not available, the employer must make reasonable efforts for a 1 year period to contact the employee if an equivalent position becomes available.

Because the EFMLEA is technically an amendment to the Family and Medical Leave Act of 1993 (FMLA), the rights provided to employees under the FMLA, such as enforcement and a prohibition on retaliation, apply equally to the EFMLEA. Similarly, since the FMLA limits the 12 workweeks of leave to any 12-month period, an employee that has already exhausted 12 workweeks of leave under the FMLA in a 12-month period would be prohibited from additional paid leave under the EFMLEA.

The EFMLEA is set to go into effect on April 2 and will remain in effect until December 31, 2020.

2. The Emergency Paid Sick Leave Act of 2020 (EPSLA):

While the EFMLEA does not really deal with an employee who is ill, the EPSLA was enacted to deal with this in some part, although there is some overlap. The EPSLA requires employers with fewer than 500 employees to provide up to two workweeks of paid sick leave to all employees for almost any issue related to the coronavirus. Under the EPSLA, full-time employees will receive up to 80 hours of paid sick leave while part-time employees will be entitled to paid sick leave pro-rated by the average number of hours worked over a two-week period. This will apply to all employees regardless of how long the employee has been employed.

Unlike the EFMLEA, paid sick leave under the EPSLA will apply to any of the following situations:

To self-isolate because the employee is diagnosed with coronavirus;
To obtain a medical diagnosis or care if such employee is experiencing the symptoms of coronavirus;
To comply with a recommendation or order by a public official or health care provider to quarantine due to exposure to or symptoms of coronavirus;
To care or assist a family member who is self-isolating because of a coronavirus diagnosis or who is experiencing symptoms of coronavirus and needs to obtain medical diagnoses or care; or
To care for a child if the child’s school or place of care is closed or the child-care provider is unavailable.
To self-isolate due to any other substantially similar condition specified by the Secretary of Health and Human Services.
If an employee takes paid sick leave under reasons 1-3 as listed above, the leave will be paid at the employee’s regular rate or the minimum wage (whichever is higher) and is capped at $511 per day and $5,110 in the aggregate. If the employee takes leave due to reasons 4-6 as listed above, that leave will be paid at two-thirds of the employee’s regular pay or minimum wage rate and capped at $200 per day and $2,000 in the aggregate.

Employers must make paid sick leave under the EPSLA available in addition to what is already provided by an employer’s existing paid leave policies. Further, employers are prohibited from changing their existing leave policies to avoid this requirement (and are also prohibited from conditioning EPSLA paid sick leave on an employee’s finding a replacement). Employees will also be able to first use paid sick leave under the EPSLA before using other accrued paid sick leave, and an employer cannot require the employee to use other paid sick leave first. Unused paid sick leave under the EPSLA will not carry over from one year to the next and will not need to be paid out at the end of an individual’s employment. Moreover, the EPSLA can be applied in conjunction with the EFMLEA by employees who qualify under both Acts to cover the first 10 days of unpaid leave under the EFMLEA.

Employers will be required to post a notice related to the EPSLA in the workplace. A model notice will be provided by the DOL by March 25. Employers who fail to comply with the EPSLA will be subject to penalties under the Fair Labor Standards Act. Like the EFMLEA, the EPSLA will go into effect on April 2 and will remain in effect until December 31, 2020.

3. Tax Credits for Paid Sick and Paid Family and Medical Leave:

The FFCRA does extend some relief to employers that are required to provide paid leave to employees under the EFMLEA or the EPSLA. These employers will receive payroll tax credits subject to certain limitations. Credits for wages paid under the EPSLA will be capped at $511 per day for days in which full pay is required, and $200 per day for days in which two-thirds pay is required and are available for up to 10 days per employee per calendar quarter. EFMLEA credits are capped at $200 per day (and at $10,000 with respect to all calendar quarters). These credits are refundable to the extent they exceed the employer’s payroll tax and are not available to employers that are also receiving credits under Internal Revenue Code Section 45S for paid family and medical leave. The FFCRA also extends tax credits to the self-employed, which carry additional considerations.

SA&M is actively monitoring the labor issues and resources that become available to businesses during this time. For more information or if you have questions about labor or employment issues for your business, please contact Jeff Gersh at jgersh@stubbsalderton.com.

For more information please visit our COVID-19 Resources page.