Category: Health

Interpol Issues Alert on Increased Risk of Ransomware Attacks Against COVID-19 Medical Organizations

Interpol has issued an alert to global law enforcement agencies about the increased risk of ransomware attacks on hospitals, health care providers and other organizations on the front line of response to the COVID-19 pandemic.

The Purple Notice, issued to all 194 member countries, notified them that Interpol’s Cybercrime Threat Response team has detected a “significant increase” in ransomware attempts against hospitals and medical organizations.

According to a spokesman from Interpol, “[A]s hospitals and medical organizations around the world are working non-stop to preserve the well-being of individuals stricken with the coronavirus, they have become targets for ruthless cyber-criminals who are looking to make a profit at the expense of sick patients. Locking hospitals out of their critical systems will not only delay the swift medical response required during these unprecedented times, it could directly lead to deaths. INTERPOL continues to stand by its member countries and provide assistance necessary to ensure our vital healthcare systems remain untouched and the criminals targeting them held accountable.”

The primary vector for the ransomware attacks continues to be phishing attempts. Unfortunately, due to the emergency nature of COVID-19, healthcare workers are working long, stressful hours, and may not be as vigilant as usual in spotting phishing emails. The criminals are luring tired workers into clicking on links and attachments with subject lines that appear to be COVID-19- related or are from the Centers for Disease Control or other governmental bodies trying to keep healthcare workers informed about the rapidly spreading virus.

Hospitals and other healthcare entities should be aware of these warnings from INTERPOL and Microsoft [view related post] and notify their employees to be extra vigilant when opening emails, links and attachments.

Copyright © 2020 Robinson & Cole LLP. All rights reserved.

For more industries affected by COVID-19, see the National Law Review Coronavirus News section.

FCPA Landmines Beneath the Surface of the COVID-19 Crisis

COVID-19 took the world by surprise and continues to spread across the globe in more than 210 countries and counting.  The outbreak in the United States escalated rapidly, with over 585,000 confirmed cases as of April 14, 2020.  The federal government and a number of hard-hit states were caught off guard, and soon learned that their inventories of personal protective equipment (“PPE”) and other life-saving equipment such as test kits and ventilators were insufficient to keep pace with the pandemic.  The demand for equipment to fight COVID-19 skyrocketed and government and commercial entities have shifted into high gear to respond.  Whether motivated by humanitarian concern or commercial enterprise, many state and local governments, companies and individuals are now looking abroad to procure critical supplies on an expedited basis.  At the same time, many foreign industrial manufacturers are positioning themselves for the high demand of exports by adapting their facilities to produce PPE.  For example, Chinese electric car maker BYD announced on March 13, 2020 it is now the largest face mask factory in the world—less than one month after converting its facilities in response to the pandemic.  In the midst of these exigent circumstances, the global supply chain landscape is replete with Foreign Corrupt Practices Act landmines—and well-intentioned companies hoping to partner with foreign PPE manufacturers could become a casualty if they don’t watch their step.

Anticipated FCPA Enforcement in the Wake of the COVID-19 Pandemic

The Foreign Corrupt Practices Act of 1977 (“FCPA”) makes it unlawful for any commercial enterprise, or individual representing one, to offer, promise to pay, or direct or authorize another individual to pay money or anything of value to a foreign government official for the purpose of expanding or maintaining their commercial interests.  15 U.S.C. §§ 78dd-1, et seq.  The FCPA also requires publicly traded companies “make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the issuer.”  Id.  The statute has a criminal and civil bite; the DOJ is responsible for all criminal enforcement of the FCPA and civil enforcement of its bribery provisions, and the SEC is responsible for civil enforcement of the FCPA’s “books and records” provisions if securities are involved.  The DOJ and SEC rarely enforced the FCPA in its first three decades of existence.  These agencies, however, have aggressively interpreted and enforced the law since the turn of the century.  From 2000 to 2019, the DOJ brought 235 enforcement actions and the SEC brought 168 enforcement actions, together involving over $11 billion in monetary resolutions.  In 2019, the U.S. Government collected more in a single year through DOJ and SEC actions against companies in FCPA cases than ever before.  There are several FCPA-related considerations for companies to keep in mind as they navigate business during the COVID-19 pandemic.

Indeed, U.S. companies would be wise to assume the government will persist in its aggressive “a bribe is a bribe” approach to the FCPA, even in the midst of a worldwide health crisis.  First, corruption tends to thrive in times of crisis.  Weaknesses in governmental systems become exposed, and those with nefarious intent, or just too much aggressiveness, seize on the opportunity to exploit the panic, fear and suffering that accompanies disasters.  Increased corruption, in turn, often results in increased enforcement.  The financial crisis of 2008, for example, increased FCPA enforcement.  As companies faced pressure to obtain business and even maintain operational status during the crisis, their focus on FCPA compliance decreased.  The global economy came to a halt, and many companies decided to quickly merge and consolidate.  The speed of these consolidations resulted in the discovery by some acquiring companies of questionable payments and accounting practices both pre- and post-merger, resulting in increased FCPA compliance risks.  The DOJ and SEC were alerted and brought more FCPA enforcement actions and imposed higher civil fines from 2008 to 2011 than ever before.

Second, although the current administration has not directly addressed whether and to what extent it will pursue FCPA enforcement actions as a result of the COVID-19 pandemic, the DOJ and SEC have announced their intent to prioritize coronavirus-related fraud schemes.  For example, on March 20, 2020, the DOJ issued a press release announcing that Attorney General William P. Barr “is urging the public to report suspected fraud schemes related to COVID-19” and directing all U.S. Attorneys to prioritize investigating and prosecuting such schemes.  Four days later, the DOJ established the COVID-19 Hoarding and Price Gouging Task Force “to address COVID-19-related market manipulation, hoarding, and price gouging.”  Given the global supply chain pressure points and implications of the COVID-19 crisis, it would not be a stretch for the administration to extend its prioritization of such COVID-19-related fraud cases to include COVID-19-related global anti-corruption and bribery cases.

Third, the federal government is in the process of rolling out over two trillion dollars in aid and recovery funding in response to the coronavirus pandemic, and it likely will be eager to replenish its resources after such an unprecedented relief package.  The FCPA historically has generated significant revenue for the U.S. Government, and all criminal fines, civil penalties and disgorged profits resulting from FCPA violations go directly into the U.S. Treasury.  When the COVID-19 crisis curve drops in the U.S., the DOJ, SEC, and federal prosecutors could turn to the FCPA to assist the U.S. Government in bouncing back from the financial impact of the pandemic.

Finally, the current administration and others have been critical of China’s response to the COVID-19 crisis; Secretary of State Mike Pompeo, for example, remarked in a March 5, 2020 press conference that “there was information [from China] that could have been made available more quickly and data that could have been provided and shared among health professionals across the world.”  Further, on March 12, 2020, Chinese Foreign Ministry spokesman Zhao Lijian suggested, via Twitter, that the U.S. has not been transparent and that the U.S. Army may have brought the epidemic to Wuhan, China.  In the wake of a potential diplomatic fallout between the U.S. and China, the administration may be particularly vigilant of and aggressive toward U.S.-China deals implicating the FCPA.

Potential FCPA Landmines

American companies that import goods or supplies from abroad frequently rely on customs agents and third-party brokers to assist them in maneuvering the often complex customs process.  The use of such agents, however, may expose companies to FCPA compliance risks.  Numerous FCPA enforcement actions brought by the DOJ and the SEC have focused on improper payments made by third-party agents to government officials to secure customs clearance or additional business.

For example, on September 26, 2019, the SEC announced that a Wisconsin-based digital and print marketing provider agreed to pay nearly $10 million to settle charges that it violated the FCPA by engaging in multiple bribery schemes in Peru and China.  The SEC Order found that from 2010 to 2015 the company’s China-based subsidiary used sham sales agents to make and promise improper payments to employees of private and governmental customers to secure business.  Similarly, on February 28, 2020, an American communication technology provider settled FCPA charges with the SEC and DOJ for $8.8 million for using resellers and distributors in China to bribe government officials.

As companies face intense pressure to quickly obtain goods and clear them through the customs process to mitigate the healthcare and economic consequences posed by COVID-19, the risk of FCPA violations runs high.  For example, a customs official could refuse to allow the export of PPE without a bribe, and a company employee may be desperate enough to decide that the payment is worth making to preserve his or her employment at a time when company revenues are declining, non-performing employees are subject to lay-offs and furloughs, and sales expectations and revenues remain high.  Further, a company venturing into uncharted terrain by seeking to purchase high-demand and scarce products abroad to compensate for losses in traditional lines of business might face increased risks of bribery and corruption primarily due to inexperience.  Indeed, the pressure to maintain business or get back to “business as usual” may lead some employees to get dangerously close to or even cross ethical boundaries by committing bribery or other similar misconduct.

Best Practices

Companies seeking to procure goods and supplies abroad during the COVID-19 pandemic should consider the following best practices to avoid falling out of compliance with the FCPA:

  1. Maintain a Strong Compliance Presence

Company management should reinforce and reiterate the company’s commitment to its anti-corruption and anti-fraud compliance programs. Many companies are taking proactive steps to ensure the safety and well-being of their employees, cope with new “Work From Home” policies, and brace for the financial impact of the pandemic.  While a heightened focus on these critical areas right now is understandable, it is important now more than ever for companies and their compliance officers to remind employees, especially those responsible for facilitating the acquisition and importation of goods and supplies from abroad, of the company’s commitment to ethical business practices.

  1. Emphasize Reporting Procedures for Suspected FCPA Violations

Company management should conduct anti-corruption training for employees to ensure they are capable of recognizing unethical and potentially illegal conduct, and their responsibilities for reporting it according to company policies and procedures.  Compliance departments should test their reporting procedures to ensure employees are at ease in reporting any suspected FCPA violations through multiple avenues, and compliance officers should similarly test their ability to respond appropriately to reasonable suspicions of illegal activity.

  1. Increase Screenings and Transaction Review

Finally, company management should consider increasing due diligence efforts and taking a “deeper dive” when it comes to interacting with new suppliers, agents, and distributors. For example, companies should pay particular attention to whether the individual being reviewed is related to any public officials in their country of residence, has a history of employment or business dealings with the government, and whether they previously have been the subject of any corruption complaints, investigations or negative news events.  Further, companies that have instituted quantity, financial, or country of origin thresholds for reviews of transactions, expenses, and other aspects of company business for corruption risk, should consider adjusting such thresholds to include a broader and more conservative review process, at least until the COVID-19 pandemic and related equipment and supply demands substantially decrease.

Like all Blogs, this one is for information purposes only. It is not legal advice and does not form an attorney client relationship. As you are aware, things are changing quickly and there is no clear-cut authority or bright line rules in this area. This Blog does not reflect an unequivocal statement of the law, but instead represents our best interpretation of where things currently stand. This Blog does not address the potential impacts of the numerous other local, state, and federal orders that have been issued in response to the COVID-19 pandemic, including, without limitation, potential liability should an employee become ill, requirements regarding family leave, sick pay, and other issues.

Copyright © 2020, Sheppard Mullin Richter & Hampton LLP.

For more on COVID-19 & Global Trade, see the National Law Review Coronavirus News section.

Are Tech Workers Considering Unionizing In The Wake Of COVID-19?

Big tech companies by and large have remained union-free over the years unlike their peers in other industries such as retail and manufacturing. However, earlier this year – and before the COVID-19 pandemic upended workplaces across America – unions scored their first major organizing victory in the tech sector when employees at Kickstarter voted to form a union. According to at least one recent report, more tech company workers may soon be following suit.

The Teamsters, Communications Workers of America, and the Office and Professional Employees International Union all reported an uptick in inquiries from non-union employees about prospects of unionizing the companies they work for, including in the tech and gig economy sectors. One of the reasons cited by these workers was a feeling that not enough is being done to protect employees against the spread of COVID-19, particularly those who work in e-commerce fulfillment centers or drive for ride-sharing apps. There also was concern by employees who were, at least at one point, denied remote work arrangements when they believed their jobs were suited for such an arrangement.

It remains to be seen whether organized labor will be able to augment its numbers based on these workers’ concerns. Several things may complicate any such efforts, including unprecedented layoffs and an almost singular focus by people across the nation on the ongoing pandemic itself.

To the extent unions try to capitalize on the unrest, there are many reasons employers facing organizing attempts should be concerned. For example, one of the most effective tools a company can consider to stave off a unionization attempt are large, all-employee meetings where leaders of the organization communicate directly to the workforce why forming a union isn’t in the company’s or employees’ best interests. In an era where social distancing is a necessity, such meeting – at least in-person – likely won’t be a viable option. In addition, mail-in ballot union elections may become the standard as long as social distancing requirements remain in effect, which are less preferred than live secret-ballot voting booths.

Accordingly, employers desiring to remain union-free should give thought to what talking points, materials, and strategies – as well as communications channels – they have available to them now around this issue. Waiting to do so until after a union petition hits may place them at a significant disadvantage.

© 2020 BARNES & THORNBURG LLP

For more industries impacted by COVID-19, see the National Law Review Coronavirus News section.

Price Gouging and Deceptive Advertising Practices Amidst COVID-19 Pandemic

The Federal Trade Commission, the Food and Drug Administration and state Attorneys General have bumped the protection of consumers in the midst of the COVID-19 crisis to the top of their respective lists, including, but not limited to, price gouging and unsubstantiated product efficacy claims.  The U.S. Department of Justice has also issued a broad mandate regarding criminal enforcement of deceptive, fraudulent and predatory practices.

 State Attorneys General

State Attorney General have actively been policing the advertising of claims related to products that purport to cure, treat or prevent COVID-19.  This includes both express and implied claims (e.g., immunity-based claims).

Currently are no vaccines, pills, potions, lotions, lozenges or other prescription or over-the-counter products to treat or cure.

By way of example, a group of thirty-two state attorneys general recently sent letters to executives at prominent online retailers, urging them to help police price gouging.  Additionally, the New York Attorney General has asked GoDaddy and other online registrars to halt and de-list domain names used for Coronavirus-related scams and fake remedies designed to unlawfully and fraudulently profit off consumers’ fears around the coronavirus disease.

The NY AG has also recently contacted Craigslist.com, calling on the company to immediately remove posts that attempt to price gouge users, or otherwise purport to sell items that provide “immunity” to the coronavirus or allow individuals to test for the disease.  For example, the AG’s letter referred to posts that promoted an “immunity pack,” a fake coronavirus testing kit, and face masks that are not even proven to provide coronavirus-related protection.  The AG also asked Craigslist to remove an advertisement for a bottle of Purell that was priced at over $200.

Price gouging on disinfectant products is also a priority.

State AGs and other federal agencies are actively investigating potential price gouging violations, filing enforcement lawsuits, issuing civil investigative demands (CIDs), and serving cease-and-desist warnings.  The NYC Department of Consumer and Worker Protection (DCWP) – formerly the New York City Department of Consumer Affairs (DCA) – has also been policing local business that it believes are selling necessary products (e.g., cleaning products, diagnostic products and services, disinfectants [wipes, liquids, sprays], face masks, gloves, hand sanitizers, medicines, paper towels, rubbing alcohol, soap, tissues and basic food supplies).

The State of New York’s price gouging statute prohibits the sale of goods and services necessary for the health, safety and welfare of consumers at unconscionably excessive prices during any abnormal disruption of the market.  During any abnormal disruption of the market for consumer goods and services vital and necessary for the health, safety and welfare of consumers, no party within the chain of distribution of such consumer goods or services or both shall sell or offer to sell any such goods or services or both for an amount which represents an unconscionably excessive price.

In the State of New York, whether a price is unconscionably excessive is a question of law for the court.  The court’s determination that a violation has occurred shall be based on any of the following factors:  (i) that the amount of the excess in price is unconscionably extreme;  or (ii) that there was an exercise of unfair leverage or unconscionable means;  or (iii) a combination of both factors in subparagraphs (i) and (ii).

Proof that a violation of has occurred can include, for example, evidence that:  (i) the amount charged represents a gross disparity between the price of the goods or services which were the subject of the transaction and their value measured by the price at which such consumer goods or services were sold or offered for sale by the defendant in the usual course of business immediately prior to the onset of the abnormal disruption of the market; or (ii) the amount charged grossly exceeded the price at which the same or similar goods or services were readily obtainable by other consumers in the trade area.  A defendant may be able to rebut such evidence by establishing that additional costs not within its control were imposed on the defendant for the goods or services.

Where a violation is alleged to have occurred, the AG may seek an injunctions, civil penalties and restitution.

Under the Rules of the City of New York, stores are prohibited from selling items that have been declared in short supply at excessively increased prices.  NYC has recently issued an emergency rule prohibiting price increases above 10% on various products necessary to combat the coronavirus.  New York State has now proposed legislation concerning medical supplies that includes a presumption that a price exceeding 10% of its price immediately prior to a public health emergency is to be considered unconscionably excessive.

Other states also utilize percentage-drive formulas when assessing excessive or unconscionable price increases, such as, without limitation, Arkansas, Florida, Michigan, Missouri, New Jersey, North Carolina, Ohio, Oklahoma, Pennsylvania, Tennessee, Texas, Utah, West Virginia, and Wisconsin.  Some states impose liability upon manufacturers and distributors.  Some states also impose civil fines and penalties for violations, in addition to potential criminal liability.

Any entity charged with price gouging during a public health emergency would be entitled to rebut an alleged violation of this new law with evidence that the additional costs not within the control of the defendant were imposed on the defendant for the consumer medical supplies.

FTC and FDA

The Federal Trade Commission and the Food and Drug Administration recently announced that it has issued joint warning letters to companies that allegedly had been disseminating unsubstantiated product advertising claims related to the coronavirus.  The letters cite efficacy claims that are not supported by competent and reliable scientific evidence, as well as issues relating to unapproved and misbranded drugs.

On March 26, 2020, FTC lawyer and Chairman Joe Simons issued a statement setting forth the agency’s enforcement efforts to protect consumers from unfair and deceptive commercial practices and to educate the public.  The FTC “will not tolerate businesses seeking to take advantage of consumers’ concerns and fears regarding coronavirus disease, exigent circumstances, or financial distress,” FTC lawyer Simons stated.

The FTC has also issued a press release calling attention to business-to-business scams that seek to exploit companies’ concerns about COVID-19, and sent letters to VoIP service providers and other companies warning them that “assisting and facilitating” illegal telemarketing or robocalls related to the coronavirus or COVID-19 pandemic is against the law.

“It’s never good business for VoIP providers and others to help telemarketers make illegal robocalls that scam people,” said FTC attorney Andrew Smith, Bureau of Consumer Protection Director.  “But it’s especially bad when your company is helping telemarketers exploiting fears about the coronavirus to spread disinformation and perpetrate scams,” Smith stated.

Department of Justice

The U.S. DoJ has issued a broad mandate with respect coronavirus-related fraud, price gouging and product hoarding.  In fact, it recently filed a number of federal criminal actions to combat fraud and other offenses related to the coronavirus pandemic.

Two of the actions were filed in California.  One involving allegations that an individual solicited investments in a company he claimed would be used to market pills that would prevent coronavirus infections, as well as market an injectable cure for those who had already contracted the virus.  The other, involving allegations that an individual mislabeled drugs that were purported to be a miracle cure for COVID-19.

Another two actions were filed in New Jersey.  One involving charges of violating the federal Anti-Kickback Statute and conspiracy to commit health care fraud.  The other, involving allegations of assault resulting from an individual who represented to have tested positive for COVID-19 that coughed on FBI agents, lied to them about his accumulation and sale of surgical masks, medical gowns and other medical supplies, and selling supplies to doctors and nurses at inflated prices.           .

The DoJ also recently filed a civil wire fraud lawsuit in a Texas federal district court against a website (coronavirusmedicalkit.com) that was purportedly offering access to bogus World Health Organization vaccines.

Digital marketers, consumer-facing businesses and others in the supply chain should consider consulting with experienced FTC defense counsel to avoid unsupported efficacy claims and inadvertently charging unlawful prices for goods and services necessary for the health, safety and welfare of consumers.

© 2020 Hinch Newman LLP

For more on FTC COVID-Actions, see the National Law Review Coronavirus News section.

Emergency Paid Leave — Making it Work

The Families First Corona Virus Response Act creates a new entitlement – for workers – to receive paid sick leave and paid FMLA between April 1 and December 31, 2020.[i]  If the virus is contained in the next six to eight weeks as hoped, we can expect the economic impact on workers to be most severe in April, May and June 2020.  The Families First Act is intended to help as many individuals as possible to avoid financial exigency, job loss and loss of health insurance during this critical window. Emergency paid leave is funded at 100 percent by a federal tax offset and rebate.

This is not an employer v. employee situation.  Employers do not want to lay off their employees.  Layoffs create instability and have a significant economic domino effect.  Employees lose their income and benefits and, possibly, accept other employment in the short term out of necessity.  Employers may struggle to regroup and regain their markets if their trained workers are unavailable.  The ramifications of sudden mass unemployment are passed along through landlords and mortgage lenders, unpaid service providers and the emergency rooms that replace health insurance.

As clients adapt to the new normal, lawyers need to do the same.  Risk mitigation in the current environment requires thoughtful legal analysis supported by the capacity for change.  Two recent questions under the Families First Act illustrate the paradigm shift –

Emergency Paid Sick Leave – is a state shelter at home order a “State … quarantine or isolation order related to COVID-19”?

The Families First Act created temporary emergency paid sick leave accessible under six circumstances.[ii]  The first is when the employee is “subject to a Federal, State or local quarantine or isolation order related to COVID-19.”[iii]  Last month, as states rapidly issued shelter at home orders, employers and employees wanted to know whether a shelter at home order was a quarantine or isolation order entitling employees to paid sick leave.

The Wage and Hour Division published sub-regulatory guidance on March 23, 2020, (since updated several times) called Families First Coronavirus Response Act: Questions and Answers.  The WHD’s guidance did not initially answer the quarantine order question.  Questions 23-27 explained that emergency paid sick leave is not available when an employer has “closed” the employee’s worksite or furloughed the employee. [iv] The employee’s worksite is “closed” when the employer “sends the employee home” and “stops paying” the employee because the employer does not have work for the employee to do.  Under these circumstances, the employee is not entitled to take emergency paid sick leave.

A shelter at home order requires all individuals present within the state or local government’s boundaries to “stay at home or in their place of residence” with exceptions described in the order.[v] 

According to the common wisdom, although the Families First Act made no reference to it, the Centers for Disease Control and Prevention’s definition of quarantine applied.  The CDC’s definition of quarantine — separating and restricting the movement of people who were exposed to a contagious disease to see if they become sick — is discussed on the CDC’s webpage regarding ports of entry and land border crossings.[vi]  Using the CDC’s definition precludes the use of emergency paid sick leave for employees unable to work due to a state or local shelter at home order.

The legal analysis did not support the more restrictive reading.  The Emergency Paid Sick Leave Act does not make any reference to the CDC’s definition.  The related Congressional Record does not mention the CDC’s definition.  The Congressional Record for the compressed time during which Congress debated and then passed the Families First Act is explicit in its bipartisan emphasis on using taxpayer funded emergency paid leave to mitigate hardship for employees and employers.

The rules of statutory construction would not allow a court or administrative agency to read the CDC’s definition into the legislation.  The U.S. Supreme Court recently reiterated that courts are to enforce plain and unambiguous statutory language according to its terms.  In Intel Corporation Investment Policy Committee v. Sulyma, the Court relied on the dictionary definition of the word “actual” (“existing in fact or reality”) to confirm the meaning of the ERISA notice requirement of “actual knowledge.”[vii]

The Merriam-Webster Dictionary defines “quarantine” as “a restraint upon the activities or communication of persons or the transport of goods designed to prevent the spread of disease or pests.” [viii]  Shelter at home orders clearly qualify.

On April 3, 2020, the WHD confirmed that a state or local shelter at home order is a quarantine order for the purposes of the Emergency Paid Sick Leave Act.  With this context in mind, rather than looking for ways to avoid it, affected employers and employees should be encouraged to use an expansive view of Emergency Paid Sick Leave.

Emergency Family and Medical Leave Expansion Act – is it reasonable for the WHD to limit or prevent employees who recently used FMLA leave from the full use of Emergency Family and Medical Leave?

In contrast to the WHD’s initial silence on shelter at home orders, the guidelines clearly advised that FMLA time is limited to 12 weeks regardless of the entitlement.  The WHD’s guidance on this question does not seem reasonable when considered in light of the intent of the Families First Act and the likely consequences of applying it as advised.

An argument could be made that the WHD is creating, rather than interpreting, legislation by adding a limitation to the Families First Act that Congress did not intend.

Section 2612(a)(1) of the Family and Medical Leave Act entitles eligible employees to a total of twelve workweeks of unpaid leave during any 12-month period when the employee experiences “one or more” of five situations.[ix]  The same definitions of eligible employee and covered employer apply for each category of unpaid leave.

The Emergency Family and Medical Leave Expansion Act adds a fifth entitlement.  Section (F) creates a temporary nine month right to federally-financed paid childcare leave.[x]  A completely different eligible employee is entitled to a total of 12 workweeks from a completely different covered employer between April 1 and December 31, 2020, for a completely different reason, “because of a qualifying need related to a public health emergency in accordance with section 2620 [i.e., loss of access to child care or school].”

Although it is a new entitlement that is temporary, limited in time and applicable to a different set of employees and employers, the WHD restricted access to Emergency Family and Medical Leave.  Employees cannot take more than twelve total weeks of any FMLA leave during the employer’s 12-month unpaid leave administrative period.[xi]

This means employees who took unpaid FMLA leave in the first quarter of 2020 or earlier in their employer’s administrative period are partially or fully excluded from taking Emergency Family and Medical Leave.  These employees, by definition, are now at a much higher risk of job loss through no fault of their own.  Sudden job loss in the current environment is more likely to cause these families to lose their health insurance because they may experience longer periods of unemployment.  Loss of health insurance and the inability to pay medical bills is the most significant contributor to financial hardship and bankruptcy with all of the related economic reverberations.

It could be argued that the WHD has legislated an unintended restriction into the EFML Expansion Act.  Consistent with its decision in King v. Burwell, the U.S. Supreme Court recently limited Chevron deference in similar cases where agency guidance created prescriptive limits that do not exist in the legislation.  In Smith v. Berryhill, the Court noted, “[a]lthough agency determinations within the scope of delegated authority are entitled to deference, it is fundamental ‘that an agency may not bootstrap itself into an area in which it has no jurisdiction.’”[xii]

The Emergency Family and Medical Leave Expansion Act entitlement is unique.  It applies to small employers with fewer than 500 employees who will receive tax credits for the leave payments.  The twelve-month availability period in the original FMLA is replaced by the quick start and hard stop nine-month Emergency Family and Medical Leave Expansion Act period of April 1 to December 31, 2020, after which the paid child care leave entitlement (hopefully) ends.  The standard FMLA eligibility requirements are replaced with the 30-day employment eligibility period.  The reason for the leave, to care for children because schools and daycare centers are closed, is situationally unique.

Most importantly, the EFML Expansion Act is a paid leave.  It is a significant, and significantly enhanced, entitlement for the people it is intended to help.  The legislative history clearly addresses the limited emergency parameters of this legislation and emphasizes that it is intended to be applied to workers as inclusively as possible.[xiii] Wages paid for EFML are reimbursed by the federal government at 100 percent.

Employees who used FMLA time in Q1 2020 (or within their FMLA administrative year) are, arguably, most in need of Emergency Family and Medical Leave.  They may suffer the most extreme consequences without it.

Employees who used FMLA time in 1Q 2020/admin year gave birth or welcomed an adopted or foster child into their home, received treatment for their own serious health condition or cared for a family member.  They are much more likely to need continuation of their employer-sponsored health insurance at this time.  If they are now home-schooling their children or unable to access daycare, they have no resources.  Loss of income and health insurance through a layoff or furlough would be a disaster that will affect the family well into the future.

It is difficult to understand how the WHD would not consider the effect of the guidance on overburdened hospitals, clinics and emergency rooms.  What possible rationale could support an interpretation of the Emergency Family and Medical Leave Expansion Act that will force employers to deny paid Emergency Family and Medical Leave to the employees who may need it the most and push families into the ER for their health care because they have lost their health insurance?[xiv]

There is a workaround.  Section 2653 of the FMLA, titled “Encouragement of more generous leave policies”, says “[n]othing in this Act or any amendment made by this Act shall be construed to discourage employers from adopting or retaining leave policies more generous than any policies that comply with the requirements under this Act or any amendment made by this Act.”[xv]

In response to specific Congressional encouragement, employers covered under the Emergency Family and Medical Leave Expansion Act could reset their FMLA administrative period to April 1, 2020.  The reset would allow all eligible employees to receive up to 12 weeks of paid EFML between April 1 and December 31, 2020, when they may need it most.

Although the FMLA regulations require 60 day notice of an administrative period date change, they also re-emphasize that the employer should take every precaution to avoid reducing the employee’s FMLA entitlement and do everything possible to preserve the greatest benefit to the employee.[xvi]  As long as the employer is enhancing the FMLA entitlement for employees, the 60 day notice period should be waived.

To contribute at a higher level, lawyers should guard against assuming a reflexive defensive crouch and help employers and employees use the emergency legislation to mitigate economic distress.

[i] FAMILIES FIRST CORONAVIRUS RESPONSE ACT, PL 116-127, March 18, 2020, 134 Stat 178

[ii] SEC. 5102. PAID SICK TIME REQUIREMENT.

(a) IN GENERAL.—An employer shall provide to each employee employed by the employer paid sick time to the extent that the employee is unable to work (or telework) due to a need for leave because:

(1) The employee is subject to a Federal, State, or local quarantine or isolation order related to COVID–19.

(2) The employee has been advised by a health care provider to self-quarantine due to concerns related to COVID–19.

(3) The employee is experiencing symptoms of COVID–19 and seeking a medical diagnosis.

(4) The employee is caring for an individual who is subject to an order as described in subparagraph (1) or has been advised as described in paragraph (2).

(5) The employee is caring for a son or daughter of such employee if the school or place of care of the son or daughter *196 has been closed, or the child care provider of such son or daughter is unavailable, due to COVID–19 precautions.

(6) The employee is experiencing any other substantially similar condition specified by the Secretary of Health and Human Services in consultation with the Secretary of the Treasury and the Secretary of Labor.

FAMILIES FIRST CORONAVIRUS RESPONSE ACT, PL 116-127, March 18, 2020, 134 Stat 178

[iii] Id

[iv] Questions 23-27, https://www.dol.gov/agencies/whd/pandemic/ffcra-questions (accessed 04/14/2020)

[v] State of Wisconsin Department of Health Services Emergency Order #12 Safer at Home Order https://evers.wi.gov/Documents/COVID19/EMO12-SaferAtHome.pdf

NOW THEREFORE, under the authority of Wis. Stat. § 252.02(3) and (6) and all powers vested in me through Executive Order #72, and at the direction of Governor Tony Evers, I, Andrea Palm, Secretary-designee of the Wisconsin Department of Health Services, order the following:

1. Stay at home or place of residence. All individuals present within the State of Wisconsin are ordered to stay at home or at their place of residence, with exceptions outlined below.

[vi] See, https://www.cdc.gov/quarantine/. 

[vii] Intel Corp. Inv. Policy Comm. v. Sulyma, 140 S. Ct. 768 (2020)

[viii] https://www.merriam-webster.com/dictionary/quarantine

[ix] (a) In general

(1) Entitlement to leave

Subject to section 2613 of this title and subsection (d)(3), an eligible employee shall be entitled to a total of 12 workweeks of leave during any 12-month period for one or more of the following:

(A) Because of the birth of a son or daughter of the employee and in order to care for such son or daughter.

(B) Because of the placement of a son or daughter with the employee for adoption or foster care.

(C) In order to care for the spouse, or a son, daughter, or parent, of the employee, if such spouse, son, daughter, or parent has a serious health condition.

(D) Because of a serious health condition that makes the employee unable to perform the functions of the position of such employee.

(E) Because of any qualifying exigency (as the Secretary shall, by regulation, determine) arising out of the fact that the spouse, or a son, daughter, or parent of the employee is on covered active duty (or has been notified of an impending call or order to covered active duty) in the Armed Forces.

29 U.S.C.A. § 2612 (West)

[x] (F) During the period beginning on the date the Emergency Family and Medical Leave Expansion Act takes effect, and ending on December 31, 2020, because of a qualifying need related to a public health emergency in accordance with section 2620 of this title.

29 U.S.C.A. § 2612 (West)

[xi] Questions 44 and 45, https://www.dol.gov/agencies/whd/pandemic/ffcra-questions (accessed 04/14/2020)

[xii] Rather, “[a]lthough agency determinations within the scope of delegated authority are entitled to deference, it is fundamental ‘that an agency may not bootstrap itself into an area in which it has no jurisdiction.’”

Smith v. Berryhill, 139 S. Ct. 1765, 1778, 204 L. Ed. 2d 62 (2019) quoting Adams Fruit Co. v. Barrett, 494 U.S. 638, 649–650, 110 S.Ct. 1384, 108 L.Ed.2d 585 (1990).

[xiii] https://www.congress.gov/116/crec/2020/03/18/CREC-2020-03-18.pdf

[xiv] The issue of aggregating FMLA and EFML time is different than the question, not yet directly answered, of whether regular FMLA and EFML Expansion Act time runs concurrently after April 1, 2020.  The WHD did clarify that the EFML entitlement is limited to a total of 12 weeks.  In a temporary rule published April 10, 2020, the WHD explained that an eligible employee is entitled to no more than 12 weeks of EFML between April 1 and December 31, 2020, even if the employer’s FMLA administrative period runs from July 1 to June 30.  See, 29 CFR 826.70.

[xv] 29 U.S.C.A. § 2653 (West)

[xvi] 29 C.F.R. § 825.200(d)(1) says:

(d)(1) Employers will be allowed to choose any one of the alternatives in paragraph (b) of this section for the leave entitlements described in paragraph (a) of this section provided the alternative chosen is applied consistently and uniformly to all employees. An employer wishing to change to another alternative is required to give at least 60 days notice to all employees, and the transition must take place in such a way that the employees retain the full benefit of 12 weeks of leave under whichever method affords the greatest benefit to the employee. Under no circumstances may a new method be implemented in order to avoid the Act’s leave requirements.

Lewis Law Office, LLC copyright 2020. All rights reserved.

For more on the Emergency Paid Sick Leave law, see the National Law Review Coronavirus News section.

Regulators Provide No Meaningful Relief or Guidance to Financial Institutions Struggling with Bank Secrecy Act and Compliance Due to COVID-19

While many disclosure and reporting requirements imposed on regulated entities are being relaxed in response to the COVID-19 pandemic, the Financial Crimes Enforcement Network (FinCEN) has taken a different approach with respect to financial institutions’ duties to comply with the Bank Secrecy Act (“BSA”). In an April 3, 2020, release – one of just two issued by the agency in response to COVID-19 – FinCEN recognized that “financial institutions face challenges related to the COVID-19 pandemic,” but confirmed that it “expects financial institutions to continue following a risk-based approach” to combat money laundering and related crimes and “to diligently adhere to their BSA obligations.” 1

Thus, even as financial institutions reduce personnel to attempt to weather the economic downturn caused by the COVID-19 and limit in-office personnel to comply with state quarantine orders, financial institutions must maintain adequate staff and resources to ensure BSA compliance. In the world of broker-dealers in securities, these BSA obligations generally revolve around complying with anti-money laundering (AML) compliance program requirements, analyzing transactions for potentially suspicious activity and preparing and timely filing suspicious activity reports (SARs).

As detailed below, with very limited exceptions, regulators have offered broker-dealers no relief from these obligations as a result of business disruptions caused by COVID-19.  Indeed, these already onerous burdens may be heightened by the increased risks of fraud, insider trading and other unusual financial activity by customers in these times of financial uncertainty. This “business as usual” attitude denies the reality that companies are coping with stay-at-home orders in the best-case scenarios and employees at home infected and unable to work in the worse-case scenarios.

FinCEN Requires Broker-Dealers to Implement Anti-Money Laundering (AML) Programs and SAR Reporting

In the PATRIOT Act of 2001, Congress required that all broker-dealers establish and implement AML programs designed to achieve compliance with the Bank Security Act (BSA) and the regulations promulgated thereunder, including the requirement that broker-dealers file Suspicious Activity Reports (SARs) with FinCEN.2

Under FinCEN’s regulation, a broker-dealer “shall be deemed” to satisfy the requirements of Section 5318(h) if it, inter alia, “implements and maintains a written anti-money laundering program approved by senior management” that complies with any applicable regulations and requirements of the U.S. Securities and Exchange Commission (SEC) and Financial Industry Regulatory Authority (FINRA) for anti-money laundering programs.3 Required program requirements include the implementation of “policies, procedures and internal controls reasonably designed to achieve compliance with the BSA,” independent testing, ongoing training, and risk-based procedures for conducting ongoing customer due diligence.4  FinCEN also required broker-dealers to establish and maintain a “customer identification program” (CIP) designed to help broker-dealers avoid illicit transactions through “know your customer” directives.5  FINRA largely duplicated these requirements in FINRA Rule 3310.

FinCEN also promulgated broker-dealer SAR filing requirements that largely mirror those applicable to banks. In short, a broker dealer is required to file a SAR on any transaction “conducted or attempted by, at or through a broker-dealer,” involving an aggregate of at least $5,000, where the broker-dealer “knows, suspects or has reason to suspect that the transaction” or “a pattern of transactions” involves money laundering, structuring, unusual and unexplained customer activity or the use of the broker-dealer to “facilitate criminal activity.”6  Broker-dealers must file SARs within “30 calendar days after the date of the initial detection” by the broker-dealer “of facts that may constitute a basis for filing a SAR.”7

These requirements are strictly enforced and sanctions for noncompliance can be extreme for both broker-dealers and their responsible officers and employees. Enforcement actions for “willful” noncompliance frequently result in civil money penalties against firms exceeding $10 million. In December of 2018, the U.S. Attorney’s Office for the Southern District of New York brought the first ever criminal action against a U.S. broker-dealer for a willful failure to file a SAR to report the illicit activities of one of its customers.8 In addition, because the primary purpose of an AML program is to detect and report suspicious activity, a failure to file SARs frequently gives rise to separate claims for violations of both the SAR filing and AML compliance program requirements.

Regulators Offer No Meaningful Relief from BSA Obligations Regardless of the Logistical issues Resulting from the COVID-19 Crisis

Despite recognizing the challenges broker-dealers and other financial institutions face in responding to the COVID-19 pandemic, to date regulators have offered no meaningful relief from the regulatory burdens imposed by the SAR and AML program requirements of the BSA. These steps are currently limited to:

  • FinCEN has created an “online contact mechanism” for “financial institutions to communicate to FinCEN COVID-19 related concerns while adhering to their BSA obligations,” but indicated that volume constraints may limit it to responding “via an automated message confirming receipt to communications regarding delays in filing of BSA reports due to COVID-19.”9

  • FinCEN also opaquely encouraged “financial institutions to consider, evaluate and, where appropriate, responsibly implement innovative approaches to meet their BSA/anti-money laundering compliance obligations.”10

  • FINRA “reminded” broker-dealer members that they have until December 31, 2020 to perform the annual independent testing of the member’s AML compliance program.11

The creation of a hotline and a directionless suggestion to “innovat[e],” at the risk that doing so incorrectly may expose a firm to criminal charges or regulatory enforcement actions, are of little practical use or comfort to firms. In short, it is business as usual for broker-dealers and other financial institutions with respect to their AML and SAR obligations under the BSA, even as they grapple with heightened compliance challenges because of COVID-19.

Heightened BSA Compliance Challenges Surrounding COVID-19

The AML program and SAR reporting requirements under the BSA create substantial compliance burdens even in the best of times. These obligations are resource-heavy, requiring yearly testing, ongoing monitoring of customers and transactions at the broker-dealer for potentially suspicious activity and dedicated personnel and systems to review transactional and customer information and to prepare SARs.

In addition, determining when a SAR filing is required is no easy task. The SAR regulation, as detailed above, is both expansive and vague, equally applying to transactions that may be criminal in any respect, may involve funds from other illegal activity or that may simply be unusual for a customer. Most broker-dealer compliance personnel are not trained in law enforcement, and yet are expected to analyze a host of characteristics about a particular customer and a particular trade to determine whether the transaction crosses an ill-defined threshold of suspiciousness, and to do so within 30 days. Law enforcement and regulators, such as the SEC, by contrast, frequently take years to investigate potentially illicit activity. While guidance issued by regulators has identified a number of “red flags” designed to help compliance personnel identify suspicious transactions, any of these red flags may seem innocuous or explainable in a given transaction, particularly in the limited time provided for review, leaving firms and compliance personnel open to regulatory second-guessing, with the benefit of hindsight, and at the risk of significant sanctions for interpreting the situation incorrectly.

A recent GAO report from August 2019, evaluating the effectiveness of BSA reporting, indicated that affected industry participants have raised questions about “the lack of a feedback loop or clear communication from FinCEN, law enforcement and supervisory agencies on how to most effectively comply with BSA/AML requirements, especially BSA reporting requirements.”12  Representatives from the securities industry in particular raised concerns that “compliance expectations are communicated through enforcement actions rather than through rulemaking or guidance.13

Of course, these are not the best of times. On March 16, 2020, FinCEN warned financial institutions to “remain alert about malicious or fraudulent transactions similar to those that occur in the wake of natural disasters.”14 As relevant to broker-dealers, FinCEN warned about an increase in insider trading, imposter scams, and COVID-19 related “investment scams,” such as promotions that falsely claim the products or services of publicly traded companies can prevent, detect or cure coronavirus.15

While this conduct, if occurring, is undoubtedly criminal, it is often unclear what steps a broker-dealer must take and what indicia of suspicion it must find before it is required to identify a trade as sufficiently suspicious for SAR reporting.  For example, with respect to the COVID-19 related “investment scams,” at what point does the broker-dealer, in the exercise of due diligence, unearth enough indicia that this issuer may be misrepresenting the efficacy of its product or services in preventing or treating COVID-19 to create at least a “reasonable suspicion” of fraud?  The signs may be very subtle and overlooked by compliance personnel at the time, but characterized as glaring red flags by regulators after the fact.

Similarly, a sudden spike in trading volume and price could be indicative of a pump-and-dump scheme, particularly where media coverage and a microcap stock are involved. However, with the current volatility of this market, large volume and price swings are increasingly common. And, the media is adding to the frenzy, and following the lead of the administration, by rushing to report any and all potential COVID-19 treatments.  Such developments can make it difficult for firms to separate suspicious trading activity from innocuous activity, causing them to either fail to file a SAR where they should or filing a SAR where they should not.

Compounding the difficulty of the analysis, the broker-dealer’s customer – and the putative subject of the SAR – will not be the issuer, but generally someone who is trading in the stock.  Accordingly, even if the there is a reason to suspect that the issuer or persons associated with the issuer are involved in an “investment scam,” this does not necessarily mean that the transaction at issue is suspicious within the meaning of the SAR regulation. The trading customer may simply be reacting to the news in buying or selling the securities at issue, as either an opportunistic trader or a victim of a potential issuer fraud, neither of which would appear to raise any indicia of suspicion for SAR reporting.

An examination of the totality of the circumstances of a transaction can help firms make the crucial distinctions between transactions that warrant a SAR and those that do not.  For example, determining the source of the publicity –is it a CNN article or a paid newsletter – or whether the customer is affiliated in some way with the issuer or the promotion are questions, among many others, that must be investigated.

It is unfortunate that FinCEN has failed to provide any meaningful or practical guidance for financial institutions dealing with these heightened risks of fraud during a period when they may have difficulty in even staffing their offices. Performing this work remotely creates its own challenges, given high level of confidentiality of SAR filings under Section 5318(g)(2), and the consequences – including criminal liability – for violating these confidentiality provisions.

Nonetheless, that is the situation broker-dealers are in, and this is likely the point:  FinCEN, law enforcement and regulatory agencies do not want to relax these requirements because of the heightened risks of financial crime during the pandemic and the government has become accustomed to this front-line reporting from private businesses. Even in these unprecedented times of economic disruption, broker-dealers must protect themselves from regulatory criticism and enforcement actions by continuing to follow their AML compliance programs and conducting the necessary due diligence on each transaction they process.

1  https://www.fincen.gov/news/news-releases/financial-crimes-enforcement-network-provides-further-information-financial

2  31 U.S.C. §5318(h), (g)

3  31 C.F.R. § 1023.210

4  Id.

5  31 C.F.R. § 1023.220

6  31 C.F.R. § 1023.320(a)(2)

7 31 C.F.R. § 1023.320(b)(3)

8 https://www.justice.gov/usao-sdny/pr/manhattan-us-attorney-announces-bank-secrecy-act-charges-against-kansas-broker-dealer.

9 https://www.fincen.gov/news/news-releases/financial-crimes-enforcement-network-provides-further-information-financial

10  Id.

11  https://www.finra.org/rules-guidance/key-topics/covid-19/faq#aml

12   See GAO-19-583, Agencies and Financial Institutions Share Information but Metrics and Feedback Not Regularly Provided (August 2019), at pp. 3-4.

13   Id. at 24

14  https://www.fincen.gov/news/news-releases/financial-crimes-enforcement-network-fincen-encourages-financial-institutions.

 15  Id.

Copyright © 2020 by Parsons Behle & Latimer. All rights reserved.

For more on COVID-19’s financial implications, see the National Law Review Coronavirus News section.

Brazil and India Act to Protect Employers and Employees During the COVID-19 Pandemic

The COVID-19 pandemic has altered the global workplace and international employer-employee relations in profound ways. As COVID-19 continues to spread, countries are enacting legislation and issuing guidance to support employers and employees as they confront the global crisis. In particular, Brazil, with a population of over 211 million, and India, with a population of approximately 1.3 billion, each has enacted measures to combat the ongoing economic and financial troubles caused by the COVID-19 pandemic.

Specifically, Brazil has issued federal provisional measures, including Provisional Measure No. 936 (“MP-936”) and Provisional Measure No. 927 (“MP-927”), to socialize the idea that employers may seek to reduce employees’ pay in exchange for greater job security. MP-936 provides for an Emergency Employment and Income Maintenance Program, including an Emergency Employment and Income Preservation Benefit (the “Benefit”), as well as policies for reducing salary and working hours and suspending employment agreements, and provisions for collective bargaining agreement (“CBAs”) meetings by virtual means. In particular, MP-936 and MP-927 provide for the following:

  • Salary and Hourly Reductions: MP-936 allows salary and hours reductions for up to a 90-day period. Each employee’s pay rate, hours and tenure must be preserved and reinstated upon the employee’s return to work. In the event of a reduction in salary and/or hours, the government is responsible for paying the Benefit. Employees who receive the Benefit still may receive unemployment insurance benefits. The amount of the Benefit that employees receive is based upon the amount of unemployment insurance to which they are entitled. For employees who earn less than R$3,135 or more than R$12,202.12 there is no obligation to have collective negotiations. There are various notice requirements for any salary and hours reduction, and an employer’s failure to comply may result in legal sanctions or fines. The presence of a CBA may provide for different reduction and notice requirements.
  • Suspension of Employment: MP-936 provides for suspension of employment agreements (e.g., furlough) for a period of up to 60 days, with the government paying a Benefit of 100% of the unemployment insurance to which employees are entitled. Employers are required to preserve employees’ current pay rate, hours and tenure, and employees are entitled to all employer-provided benefits. For employers who earned a gross revenue exceeding R$4,800,000 in 2019, the government will pay a Benefit of 70% of the employment insurance that employees are entitled to, provided that during the suspension period, employers pay to employeesfinancial support equal to 30% of employees’ salary. There are various notice requirements for any reduction. If employees work during a suspension, including engaging in any telework, then the suspension will be deemed not to have occurred, and legal sanctions and fines may be imposed upon employers. For employers whose income tax is calculated on the basis of actual income, financial support is deductible from the net revenue for purposes of calculating employers’ income tax. Note that redundancy terminations are considered terminations without cause, and employers have the sole discretion to determine selection criteria and severance packages.
  • Use of Accrued, Unused Paid Leave: MP-927 authorizes not only the use of accrued but unused paid leave, but also the use of holidays still being accrued, as well as holidays for which the accruing period has not even started.

India has imposed even broader employee protections that require employers to bear the heavy economic burden to support employees during the national lockdown. In response to the COVID-19 pandemic, the Indian government invoked special provisions of the Disaster Management Act, 2005 (the “DMA”) to implement a series of orders under the DMA (“Orders”) to impose a 21-day nationwide lockdown, effective March 25, 2020.

To counter the negative impact of the COVID-19 pandemic on India’s labor force, the Orders include strict directives for employers. The Orders prohibit employers from terminating any employees or contract labor during the lockdown, except for disciplinary reasons. In addition, the Orders bar employers from reducing employees’ wages. In addition, the Indian government has addressed the following issues that affect employers and employees:

  • Maintaining the Workforce: During the lockdown, employers should not reduce or stop salary payments or terminate employees. Similarly, employers may not reduce work hours and wages during the lockdown. Employers, however, may temporarily halt non-statutory benefits and postpone incentives until the business normalizes, provided that such measures adhere to employers’ internal policies, employee handbook provisions and/or employment agreements. In addition, employers may defer or suspend bonuses and annual increments for employees, subject to some narrow exceptions.
  • Paid Leave: Employers are prohibited from requiring employees to use paid time off during the lockdown. Employees, however, are entitled to use their accrued annual leave at their discretion, subject to internal policies. Employers cannot mandate that employees take unpaid leave.
  • Medical Checks: Employers may take steps to verify employees’ health, as long as such measures protect the health, safety and well-being of other employees. Such steps include, for example, requiring medical check-ups for employees who have travelled internationally. If employers pursue such measures, they must ensure that they have systems in place to ensure that employees’ medical records remain confidential and secure. Employers should be mindful not to discriminate against employees by selecting employees for medical checks based upon race or nationality.
  • Sick Time for Employees with COVID-19: Certain state governments have issued notifications/orders requiring employers to grant 28 days of paid leave to employees who have been infected with COVID-19. Employers may encourage, but not require, employees who have contracted COVID-19 to use their accrued sick leave. If necessary, employers may require COVID-19-positive employees to continue to take leave until such employees medically certify that they may return to work, during which time employers should continue to pay employees’ full wages and benefits.

©2020 Epstein Becker & Green, P.C. All rights reserved.

For more employment considerations amid the COVID-19 pandemic, see the National Law Review Coronavirus News section.

Class Actions Follow Universities’ Moves to Online Learning

After switching to online learning in response to the COVID-19 pandemic and sending students home, colleges and universities are beginning to face class action lawsuits seeking refunds of tuition, housing costs, meal plans, and fees. One such lawsuit is Church v. Purdue University, No. 4:20-CV-0025, in the U.S. District Court for the Northern District of Indiana.

The lawsuit asserts contract and unjust enrichment claims for three general classes, seeking partial reimbursement for: (1) tuition; (2) housing; and (3) meals and fees. Among the many important issues will be whether the damages are so individualized that they are not susceptible to class-wide proof. If so, they would predominate over common, class-wide issues and prevent class certification. The Church complaint, for example, acknowledges that the diminished value may vary for each student. It alleges that academic performance drops from online learning and the adverse effects hit lower ranked students progressively more harshly. Also, the named plaintiff is an engineering senior who is missing out on his senior project of building an airplane. Many other students will have similar stories, but they each will be unique. These and other problems will be a struggle for plaintiffs as they seek to find a class-wide damages model for some or all of the sub-classes they seek to represent.

These suits also may entail issues arising from recent federal legislation enacted to combat the economic fallout from COVID-19, as well as issues regarding financial aid.

These damage issues will be hotly litigated as these cases face motions to dismiss and oppositions to class certification.

© 2020, Ogletree, Deakins, Nash, Smoak & Stewart, P.C., All Rights Reserved.

For more litigation resulting from COVID-19, see the National Law Review Coronavirus News page.

CMS Waives Certain Penalties Classes of the Stark Law

On March 30, 2020, the Centers for Medicare and Medicaid Services (CMS) announced it will waive certain penalties classes of violations of the Physician Self-Referral Law, known as the Stark Law. The affected penalties are those listed under Section 1877(g) of the Social Security Act (42 U.S.C. 1877). These blanket waivers are effective retroactively to March 1, 2020.

The Stark Law is a strict liability statute generally prohibiting a physician from making referrals of Medicare- and Medicaid-designated health services to an entity with which the physician or an immediate family member has a financial relationship. Typically, if such a relationship exists between a physician and an entity, then the arrangement must satisfy an express Stark Law exception for the physician to bill for the referred services.

The blanket waivers temporarily allow payments and referrals between physicians and covered entities if the relationship falls into one of the express categories during the COVID-19 pandemic, even if such an arrangement would otherwise not meet a Stark Law exception. The blanket waivers apply to payments and referrals between an entity covered under the Stark Law and (1) a physician, (2) the physician’s organization defined under 42 C.F.R. 411.354(c) or (3) the physician’s immediate family member.

The blanket waivers must relate to one of the explicitly defined COVID-19 purposes and meet the following conditions:

  1. The providers are acting in good faith to provide care in response to the COVID-19 pandemic.
  2. The financial relationship or referral is protected by one of CMS’s 18 permitted relationships (discussed below).
  3. The government does not determine that the financial relationship creates fraud and abuse concerns.

Defined COVID-19 Purposes

To apply, the blanket waivers must be related to COVID-19 purposes. Such purposes include:

  • “Diagnosis or medically necessary treatment of COVID-19 for any patient or individual, whether or not the patient or individual is diagnosed with a confirmed case of COVID-19;
  • Securing the services of physicians and other health care practitioners and professionals to furnish medically necessary patient care services, including services not related to the diagnosis and treatment of COVID-19, in response to the COVID-19 outbreak in the United States;
  • Ensuring the ability of health care providers to address patient and community needs due to the COVID-19 outbreak in the United States;
  • Expanding the capacity of health care providers to address patient and community needs due to the COVID-19 outbreak in the United States;
  • Shifting the diagnosis and care of patients to appropriate alternative settings due to the COVID-19 outbreak in the United States; or
  • Addressing medical practice or business interruption due to the COVID-19 outbreak in the United States in order to maintain the availability of medical care and related services for patients and the community.”

Those wishing to use the blanket waivers need not provide advance notice to or receive approval from CMS. Those who rely on a blanket waiver, however, must retain records relating to its use, and the records must be available for the U.S. Department of Health and Human Services to review upon request.

The Blanket Waivers

The blanket waivers do not suspend the entire Stark Law. Rather, they apply only to 18 expressly enumerated relationships. These relationships can be divided into two classes: those that address payments and those that address referrals.

Allowed Payments

  1. Personally Performed Services: Remuneration paid by an entity to a physician above or below the fair market value (FMV) for the physician’s personally performed services to the entity is permitted.
  2. Office Space and Equipment Rental Payments: Remuneration paid by an entity to a physician or by a physician to an entity below FMV for rental of office space or equipment is permitted by the waivers. Rental payments exceeding FMV are not covered.
  3. Purchase of Items or Services: Remuneration paid by an entity to a physician or by a physician to an entity below FMV for the purchased items or services, including use of the entity’s premises, is permitted by the purchase waivers. The purpose of these waivers is to permit parties to rapidly source critical items or services without overpaying for the service.
  4. Additional Incidental Benefits to Medical Staff: Remuneration from a hospital to a physician in the form of medical staff incidental benefits that exceed the $36-per-item limit set forth in 42 CFR § 411.357(m)(5) is protected. This waiver permits a hospital to offer a range of benefits to its medical staff members to facilitate participation in the health care workforce, such as childcare services or clean clothing for the physician while at the hospital.
  5. Nonmonetary Compensation: Remuneration from an entity to a physician in the form of nonmonetary compensation that exceeds the $423 annual limit set forth in 42 CFR § 411.357(k)(1) is permitted. Similar to the medical staff benefit waiver, this waiver allows an entity to provide additional services that would otherwise exceed the limits established by the regulations to facilitate participation in the health care workforce during the COVID-19 pandemic. Currently, it is unclear how this waiver will be assessed when the blanket waiver period ends because the public emergency declaration caused by the COVID-19 pandemic is terminated. More guidance from CMS on the application of this waiver may be issued.
  6. Low-Interest or Interest-Free Loans: Remuneration among individuals and entities in the healthcare industry in the form of a loan, with an interest rate below FMV or on terms that are unavailable from another independent lender, is allowed. Essentially, CMS is attempting to increase cash liquidity within the health care industry to mitigate potential cash flow problems among health care workers and providers during the COVID-19 pandemic.

Allowed Referrals

  1. Referrals by Physician-Owner of a Hospital: Referrals by a physician-owner of a hospital that temporarily expands its facility capacity above the number of operating rooms, procedure rooms and beds for which the hospital was licensed on March 23, 2010 without prior application and approval of the expansion of facility capacity will temporarily not be prohibited by the Stark Law. (In the case of a hospital that did not have a provider agreement in effect as of March 23, 2010, but did have a provider agreement in effect on December 31, 2010, the effective date of such provider agreement applies.)
  2. Referrals by Physician-Owner of Ambulatory Surgical Centers that Temporarily Convert to Hospitals: Referrals by a physician-owner of a hospital that converted from a physician-owned ambulatory surgical center to a hospital on or after March 1, 2020 are permitted provided that:
  • The hospital does not satisfy one or more of the requirements of Section 1877(i)(1)(A) through (E) of the Act.
  • The hospital enrolled in Medicare as a hospital during the period of the public health emergency described in Section II.A of this blanket waiver document.
  • The hospital meets the Medicare conditions of participation and other requirements not waived by CMS during the period of the public health emergency described in section II.A of this blanket waiver document.
  • The hospital’s Medicare enrollment is not inconsistent with the Emergency Preparedness or Pandemic Plan of the state in which it is located.
  1. Referrals by Owners to a Home Health Agency: Referrals are now permitted by a physician of a Medicare beneficiary for the provision of designated health services to a home health agency (1) that does not qualify as a rural provider under 42 CFR 411.356(c)(1) and (2) in which the physician (or an immediate family member of the physician) has an ownership or investment interest.
  2. Referrals for Services at Locations Other than the Health Care Facility: Referrals are now permitted by a physician in a group practice for medically necessary designated health services furnished by the group practice in a location that does not qualify as a “same building” or “centralized building” for purposes of 42 CFR 411.355(b)(2). Also, referrals by a physician in a group practice for medically necessary designated health services furnished by the group practice to a patient in his or her private home, an assisted living facility, or independent living facility where the referring physician’s principal medical practice does not consist of treating patients in their private homes will not violate the Stark Law.
  3. Referrals to Immediate Family Members in Rural Areas: Referrals are now permitted by a physician to an entity with which the physician’s immediate family member has a financial relationship if the patient who is referred resides in a rural area.
  4. Relaxing Compensation Arrangement Written Requirements: Stark Law compensation arrangement exceptions frequently require the arrangement to be in writing. However, referrals are now permitted by a physician to an entity that the physician (or an immediate family member of the physician) has a compensation arrangement that does not satisfy the writing requirements of an applicable exception but satisfies all other requirements of the applicable exception, unless that requirement is waived under one or more of the blanket waivers above.

CMS encourages providers to contact CMS with questions regarding the applicability of the blanket waivers. Providers should send any requests to 1877CallCenter@cms.hhs.gov and include the words “Request for 1877(g) Waiver” in the subject line. All requests should include the following minimum information:

  • the name and address of requesting entity
  • the name, phone number and email address of the person designated to represent the entity
  • the CMS Certification Number (CCN) or Taxpayer Identification Number (TIN) of the requesting entity; and
  • the nature of the request.

The contours and applications of these blanket waivers are complex and often require a nuanced understanding of how they are couched into the existing regulatory framework addressing the provision of health care services under the Social Security Act, the Stark Law, and a number of other statutes and regulations.

© 2020 Much Shelist, P.C.

For more on healthcare blanket waivers amidst COVID-19, see the National Law Review Coronavirus News section.

Physicians Face Regulatory Exposure for Prescribing COVID-19 Drugs Cited by President Trump

Physicians and medical professionals throughout the world are facing and attempting to treat one of the most serious and deadly viruses that has affected the world in our lifetime. Medical professionals are on the front lines and in a position, despite their best efforts to protect themselves, to contract the disease. Medical professionals do not only fear for their own lives but also for the lives of their family members if they unintentionally bring this disease home.

In light of safety concerns for their family members, over the past few weeks, there have been reports claiming physicians throughout Ohio have prescribed chloroquine and hydroxychloroquine, frequently cited by President Donald Trump, to family members and friends. In some reported instances, prescriptions were issued even when such individuals did not exhibit signs or symptoms of the coronavirus.

In order to preserve the stockpile of medications for patients, on March 22, 2020, the Ohio Board of Pharmacy issued an emergency rule (OAC 4729-5-30.2) that prohibits a pharmacist from filling prescriptions for chloroquine or hydroxychloroquine without a valid COVID-19 diagnosis and positive test result.

On March 30, 2020, the Ohio Attorney General’s Office issued the following statement, which highlighted the Pharmacy Board’s new emergency rule and advised physicians to self-report to the State Medical Board of Ohio if they prescribed these medications improperly:

“It has come to my attention that physicians may be abusing their privilege to prescribe medications by writing prescriptions for chloroquine and hydroxychloroquine for themselves, their friends and their families without any legitimate medical need for the medication. As Attorney General, I am very concerned with these reports and will work vigorously with Ohio’s regulatory boards and agencies to address any illegal or prohibited conduct. I encourage anyone who has written a prescription of this type improperly to self-report to their respective regulatory authority.”

The State Medical Board of Ohio is also on record stating that it takes allegations of inappropriate prescribing very seriously, and that it will be actively investigating complaints as they come in and working with the Ohio Attorney General on any necessary enforcement actions for bad prescribing.[i]

In addition to state regulators, the U.S. Attorney’s Office for the Northern and Southern Districts of Ohio have set up a COVID-19 Task Force. One of its responsibilities is to investigate and criminally prosecute physicians who have egregiously prescribed chloroquine and hydroxychloroquine to themselves, family members, or friends without a legitimate medical purpose. The Task Force is comprised of representatives of the United States Attorney’s Office, Ohio Attorney General’s Office, State Medical Board, and the Pharmacy Board.[ii]

Physicians who recently prescribed chloroquine and hydroxychloroquine and who are considering whether they should self-report to the Medical Board should first contact experienced legal counsel to determine the implications of a possible self-report, including the potentiality of license discipline and/or criminal charges.

[i] See:  https://clt945532.bmeurl.co/A27E486

[ii] See: https://www.dispatch.com/news/20200324/feds-yost-will-prosecute-doctors-who-abuse-power-with-personal-coronavirus-prescriptions

© 2020 Dinsmore & Shohl LLP. All rights reserved.

For more COVID-19 developments, see the dedicated National Law Review Coronavirus News page.