Category: Health

Small Business Administration Announces Access to Emergency Relief Loans (Updated April 6, 2020)

The Small Business Administration (SBA) announced on March 31, 2020, that small businesses and sole proprietorships may apply for Paycheck Protection Program (PPP) loans authorized by the Coronavirus Aid, Relief, and Economic Security (CARES) Act starting Friday, April 3, 2020. Independent contractors and self-employed individuals may begin to apply for such loans starting Friday, April 10, 2020.

The CARES Act was passed by Congress and signed into law last week to provide emergency relief to American businesses in the wake of the disruptions caused by the COVID-19 pandemic. Among its most notable provisions, the CARES Act establishes the PPP, which will:

  • Enable small businesses to borrow up to $10 million that may subsequently qualify for forgiveness

  • Provide additional funding for the Economic Injury Disaster Loan (EIDL) program, pursuant to which certain businesses may qualify for loans of up to $2 million

  • Authorize grants of up to $10,000 for EIDL loan applicants.

UPDATE:

The interim final rules contain two changes to the information provided in the original alert. The SBA:

  • Announced that the interest rate on PPP loans would be 1.0% per annum (not the 0.5% per annum previously reported).
  • Clarified that repayments on such loans would be deferred for six months.

PPP Loans

Businesses and individuals may apply for PPP loans through any existing SBA lender or through any federally insured depository institution, federally insured credit union, Farm Credit institution or other regulated lender that is participating in the program. The SBA recommends consulting with local lenders to determine whether they are participating. A list of SBA lenders can be found at www.sba.gov.

A form application for PPP loans can be found at https://www.sba.gov/document/sba-form–paycheck-protection-program-ppp-sample-application-form. Applications must be submitted to a participating lender, not the SBA. Loan applications must be submitted and processed prior to June 30, 2020.

Eligibility

Businesses with 500 or fewer employees generally will be eligible to apply for PPP loans (with some exceptions for businesses with more employees in the hospitality and foodservice industries). The 500-employee threshold applies to all employees whether full-time, part-time or any other status, and SBA affiliation rules typically apply when counting employees. Passive business investments, gambling businesses, private clubs or businesses that limit membership for reasons other than capacity, religious organizations and other businesses listed in 13 CFR § 120.110 generally are not eligible for PPP loans.

Requirements

As part of the application, borrowers will be required to certify in good faith the following:

  • Current economic uncertainty makes the loan necessary to support ongoing operations.

  • Borrowed funds will be used to retain workers and maintain payroll or make mortgage, lease or utility payments.

  • Borrower will provide lender with documentation verifying the number of employees, payroll costs, and covered mortgage, lease or utility payments for eight weeks after receipt of the loan.

Loan forgiveness will be provided for the sum of documented payroll costs, covered mortgage, lease or utility payments. However, the SBA advised that due to expected subscription, it anticipates that no more than 25% of the amount of forgiven loan principal may be allocated to non-payroll costs.

No collateral and no personal guarantees will be required in connection with PPP loans.

Terms and Amount

PPP loans will mature after two years and accrue interest at an annual rate of 0.5%. Proceeds of the loans may be used to cover “payroll costs,” group health care benefit costs and insurance premiums, mortgage interest payments, rent, utilities and interest on debt existing prior to February 15, 2020 (Qualifying Expenses). Payroll costs include wages, commissions, salaries and similar compensation (provided that prorated compensation in excess of $100,000 annual salary will not be included as a payroll cost), federal payroll and income taxes, and certain sick leave and family leave wages.

The maximum total principal amount of a PPP loan will be the lesser of (a) $10 million or (b) the sum of two and one-half (2.5) times the business’s average monthly “payroll costs” during the year prior to the closing of the loan (subject to adjustment for seasonal workers) plus EIDL loans received after January 31, 2020, that are refinanced as PPP loans.

Extension and Forgiveness

The CARES Act provides for a possible deferment of repayment of PPP loans for a period of at least six months but not more than one year. The Act also provides for the forgiveness of a portion of the principal of PPP loans on a tax-free basis for federal income tax purposes (states have not yet announced whether they will offer a similar exemption). The amount forgivable will equal the sum of Qualifying Expenses paid with loan proceeds during the eight-week period following the date of the loan less 25% of the amount that payroll expenses were reduced during that eight-week period as the result of wage or salary cuts or the layoff or furlough of employees. However, the SBA has advised that due to expected subscription, it anticipates that no more than 25% of the amount of forgiven loan principal may be allocated to non-payroll costs.

EIDL Loans and Grants

EIDL loans, like the PPP loans, are generally available for businesses with 500 or fewer employees and the proceeds of such loans may generally be used for similar purposes. However, EIDL loans differ from PPP loans in several important ways. The maximum amount of EIDL loans is $2 million with a maximum term of 30 years. Borrowers apply directly to the SBA for such loans, for which the interest rate was 3.75% as of March 12, 2020. There is no provision for forgiveness of principal of EIDL loans. However, businesses that have secured EIDL loans may refinance such loans with PPP loans.

Businesses that apply for EIDL loans also may request a grant of up to $10,000 from the SBA. Such funds must be used to maintain payroll to retain employees or pay sick leave resulting from the COVID-19 pandemic, make rent, lease or mortgage interest payments, repay obligations that cannot be met due to revenue loss or satisfy increased materials costs resulting from supply chain interruption. Award of the grant is not dependent on approval of the loan.

© 2020 Wilson Elser

For more on PPP provisions in the CARES Act, please see the Coronavirus News section on the National Law Review.

Rent Relief Considerations in the Time of COVID-19

“In any moment of decision the best thing you can do is the right thing, the next best thing is the wrong thing, and the worst thing you can do is nothing,” said Theodore Roosevelt.

By now, everyone recognizes the havoc and uncertainty of the Coronavirus’s impact on almost every aspect of the commercial real estate sector – e.g., 630,000 US retail locations have closed, with the office and other sectors experiencing similar impacts. The duration of this crisis is uncertain, but in this evolving situation, every landlord, tenant, lender, and investor is processing and planning next steps with respect to their real estate relationship counterparties (while at the same time determining the applicability, if any, of insurance coverages; the applicability, timing, and requirements of government stimulus programs, such as the CARES Act; and countless other business continuity challenges). As April rents and debt payments come due or past due, many have already reached out to their counterparties (or their lawyers) to discuss short term solutions. These conversations are important to have.

While each situation may have unique aspects, and the lease language and overall relationship between the parties play a significant role in the outcome, there are some possible approaches for landlords and tenants to consider at this time including the following:

Rent Deferral: An agreement to defer all or a portion of rent (be it fixed or basic rent and some or all of the additional rent components – operating costs, taxes, insurance, etc. – due under the lease) for a defined period – say 60, 90 or 120 days. Deferred rent would then be repaid at some later date either in a lump sum or amortized (with or without an interest component) and repaid over a defined period once full rent commences – ideally, from a landlord’s perspective, quickly following full rent commencement, but this may vary based on many factors, including the tenant’s business operations and the landlord’s asset “hold” period. Restructured short-term repayment agreements deliver some immediate structure and “certainty” while providing tenant rent relief and maintaining the landlord’s cash flow under the lease, albeit restructured and extended, without adding defaulting tenants to the rent roll.

Rent Abatement/Tolling: An agreement to simply abate or “toll” rent (again, all or a portion of the various rent components) for a fixed period. After the abatement period, rent would recommence. This abatement approach provides tenant breathing room and cash flow relief but does not address the landlord’s on-going obligations – debt service, taxes and operating costs (although the landlord may be seeking similar relief from some of these). Accordingly, a landlord may resist this or add the abatement or tolling period to the end of the lease term (at what may then be higher rents).

Rent Reduction: An agreement to simply reduce rent for a short period of time to get tenant over the “hump” of the crisis while maintaining some level of cash flow to the landlord. While more economically favorable to the tenant than the landlord, this approach may provide other relationship benefits when coupled with other factors, such as an agreement to exercise (or not exercise) an extension or other option, future rent restructuring or other agreement.

Tapping the Security Deposit: An agreement or understanding that a landlord can apply some or all of the cash security deposit to rent shortfalls may provide a liquidity solution for both parties during the short term. The agreement could include replenishing of the security deposit at a later date or over time, or treat the reduction as a burn-down or burn-off.

Hardline: Some landlords and tenants will elect a more aggressive approach – exercising defaults and further remedies based on non-performance, or asserting that non-performance is excused or extended during the current Coronavirus pandemic based on lease language or legal doctrines (e.g., force majeure, impossibility or impracticability, frustration of purpose, etc.). In some situations, this approach may be appropriate. For instance, non-performance where a tenant is clearly not impacted or where the lease documents unambiguously prohibit such non-performance (e.g., a fully-net ground lease). It is also likely that a few will use this situation as a pretext for unrelated non-performance. Regardless of merit, these positions may simply set a difficult tone during and after the resolution, and the current court closures and restrictions (and likely backlog when those abate) won’t easily or quickly allow for a judicial determination.

Other considerations include the following:

Realistic Expectations: Set and seek goals that are practical and reasonable in terms of economics and duration and workable for all parties to the extent discernible and practical. While unilateral actions may be or become necessary, a mutually agreeable short term solution to span this crisis will likely leave parties in better positions post-Coronavirus impact.

Transparency: In order to seek and obtain relief, the requesting party should be willing to provide some level of transparency and evidence of hardship if requested. At the same time, while a showing of need may be important, requests for this information should be realistic and practical given the situation and fit the scope of the tenant and situation – rather than an exhaustive list difficult to quickly provide in current circumstances. This shouldn’t simply be a hurdle landlords use to reject requests, but landlords may need to explain, share or at least attest to tenant restructurings in order to obtain lender approval or latitude under loan documents to grant relief. Similarly, landlords may want to explain the limitations they face due to underlying financing or other restrictions.

Competent Planning: While difficult to assess the duration of the current situation, any request for relief should be accompanied by a competent and professional showing that there is a current plan to bridge the crisis based on realistic assumptions and that relevant stakeholders are putting skin in the game.

Lender (or Other) Approval: Parties should keep in mind that third party (e.g., lender) approvals may be necessary to restructure or amend leases. Consider seeking programmatic approval for parameters to restructuring/relief deals now to cut down on individual approvals.

Other Issues or Concerns: This may be an opportunity to address other outstanding issues or concerns providing the benefit to the other party and allowing relief to go forward – such as extending the term, waiving rights, acknowledging facts, etc. The degree of leveraging these issues during a crisis, however, should be prudently and strategically applied.

Documentation: Any agreement to modify, restructure or affect a lease should be in writing. This step is essential to ensure there’s an actual agreement to actual terms and conditions – even stripped-down writing is better than none.

This crisis has placed significant stress on both sides of the landlord-tenant equation. Both sides have suddenly found their operations interrupted, cash flow jeopardized, business continuity models upended, and have had their ability to perform their obligations to their lenders, investors, employees, and clients and customers severely strained. To the extent practical, each party should seek the mutually shared goal in this time to outlast the crisis impact in a manner that allows as quick a recovery as possible.

© 2020 SHERIN AND LODGEN LLP

For more on rent considerations among the COVID-19 pandemic crisis, see the National Law Review Coronavirus News section.

Is a Pandemic a Material Adverse Event or Change in M&A?

Question already casting clouds over corporate deals.

Reuters has reported that Gray Television Inc. has withdrawn its $8.5 billion offer to buy Tegna Inc. due to the potential impact of the COVID-19 outbreak on regional TV stations like those operated by Tegna. The news agency also reported that Volkswagen’s CFO cited the “curveball” the outbreak has thrown at its liquidity in stating that, while the automaker remains interested in buying U.S. truck-maker Navistar, it must first “conserve cash as it shuts down plants and throttles back production.” The New York Times, meanwhile, has reported that Japan’s SoftBank is threatening to withdraw an offer to purchase as much as $3 billion of WeWork stock due to government investigations, but at a time when the outbreak has reduced the value of WeWork’s “shared office space” business model.

There is no question that the coronavirus pandemic – in addition to the devastating human toll – will deeply disrupt business. That includes mergers and acquisitions. For deals not yet consummated, the validity of withdrawing from a deal comes down to the “material adverse effects” or “material adverse conditions” clauses (MAE/MAC) in deal agreements.

Depending on the negotiated terms of an agreement, the MAE/MAC clause may pertain to a company’s financial condition, operations, properties, prospects, tangible or intangible assets, the ability to repay debt, capitalization, products, intellectual property, or liabilities.

The clause may have exceptions, excluding changes such as those:

• Resulting from actions one party takes at the direction or request of the other;
• Affecting the relevant industry, assuming the changes do not disproportionately affect the parties;
• Triggering the loss of value a company may suffer when the market, suppliers or employees learn of the deal;
• Impacting economic, market or political conditions, including those arising out of war, terrorism or, in this case, a pandemic.

These clauses vary as they are negotiated by the parties. So close examination of the clause is required to determine if pulling out of a deal is a viable option. Buyers will want to see if pandemics are included or specifically excluded.

Merging companies will also want to anticipate the slowing down of necessary approvals and antitrust reviews. For example, the DOJ Antitrust Division announced that for pending mergers or those that may be proposed, it may take an additional 30 days to complete its review of transactions after parties comply with document requests.

What’s the impact on “long-term earnings power over a commercially reasonable period”?

One of the leading cases cited in answering questions surrounding MAE/MACs outside of the pandemic context is the Delaware Chancery Court’s 2018 decision in Akorn, Inc. v. Fresenius Kabi AG (2018 Del. Ch. LEXIS 325). A healthcare company terminated a merger with a drug company, because the drug company, as a whistleblower revealed, misrepresented that it was compliant with important government regulations. The drug company tried to enforce the merger agreement, but the court found the misrepresentations had a material adverse effect on the company’s value. The healthcare company’s termination of the deal was valid, the court found. It went on to discuss the high bar set for determining the existence of a MAE/MAC.

“The ‘reasonably be expected to’ standard used in merger agreements to evaluate the deviation between a target business’s as-represented condition and its actual condition is an objective one,” the court held. “When this phrase is used, future occurrences qualify as material adverse effects (MAE). As a result, an MAE can have occurred without the effect on the target’s business being felt yet. Even under this standard, a mere risk of an MAE cannot be enough.”

In the case of a merger, the court said, whether a material adverse change occurred depends on “the long-term impact of the event,” which the court said required a “somewhat speculative analysis.” “The ‘would reasonably be expected’ formulation is best thought of as meaning likely to happen, with likely, in turn, meaning a degree of probability greater than five on a scale of one to ten. In other words, it means more likely than not.” The court said the context of the transaction and the words of the agreement must be examined.

To kill a deal by invoking a MAE clause, the court said, buyers face a heavy burden. “A short-term hiccup in earnings should not suffice; rather the MAE should be material when viewed from the longer-term perspective of a reasonable acquiror. In the absence of evidence to the contrary, a corporate acquirer may be assumed to be purchasing the target as part of a long-term strategy. The important consideration therefore is whether there has been an adverse change in the target’s business that is consequential to the company’s long-term earnings power over a commercially reasonable period, which one would expect to be measured in years rather than months.”

The Delaware court said judges must not rewrite contracts to appease a parties who suddenly believe they have agreed to a bad deal. Parties have a right to enter into good and bad contracts and the law enforces both, the court said. However, turning to the facts presented in Akorn, and given all that needed to be established, the court concluded that “any second thoughts” the healthcare company about purchasing the drug company were “justified by unexpected events” at the drug company.

A justifiable question.

A typical MAE/MAC provision addresses material adverse changes in a company generally. Also, as we have discussed, the clause may delineate specific types of events that constitute adverse changes and list exceptions that would preclude bidders from leaving a deal or seeking a renegotiation.

Surveys, like the Nixon Peabody MAC Survey 2015, have shown that the most common MAE/MAC element is a change in the financial condition of the business, however some of the most common exceptions include changes in the economy and acts of God. Understanding those elements and exceptions, which differ from deal to deal, are key to any determination or litigation over whether financial turmoil facing a business as a result of COVID-19 means that a MAC/MAE has occurred.

Whether a pandemic and its related business effects will constitute a MAE/MAC remains an open question and certainly one which will be repeatedly litigated. However, in light of the various government mandates surrounding the COVID-19 crisis, the dire predictions for the economy from both official sources and highly credible non-official sources, and the recent stock market downside volatility, parties that invoke MAE/MAC clauses at this time appear to have supportable justifications.

© MoginRubin LLP

ARTICLE WRITTEN BY Dan Mogin and Jennifer M. Oliver  & Edited by Tom Hagy of MoginRubin.

DOT Issues Notice of Enforcement Discretion Regarding the Transportation of Hand Sanitizers to Address COVID-19

On April 2, 2020, the U.S. Department of Transportation (DOT) Pipeline and Hazardous Materials Safety Administration (PHMSA) issued a Notice of Enforcement Discretion (Notice) that provides temporary relief from certain aspects of the DOT Hazardous Materials Regulations (HMR) that normally apply to the transportation of ethyl alcohol or isopropyl alcohol-based hand sanitizers. [1]

Due to the Coronavirus Disease 2019 (COVID-19) public health emergency, demand for hand sanitizer has reached unprecedented levels. Many of these sanitizers are classified as Class 3 flammable liquids due to the alcohol content, which would trigger certain marking, labeling, packaging, documentation, and other compliance obligations for shippers (and carriers) under the DOT HMR. Although the DOT HMR already provide some regulatory relief for certain ethyl alcohol products in 49 CFR 173.150(g), this does not cover isopropyl alcohol products and it does not cover ethyl alcohol products in larger containers. To facilitate the availability of these products, PHMSA is providing temporary relief from certain HMR requirements.

The Notice indicates that the relief applies to companies producing hand sanitizer under a recently issued Food and Drug Administration (FDA) Guidance document and to those who subsequently transport the hand sanitizer. [2]

Importantly, it applies only to highway shipments (by private, common, or contract carriers by motor vehicle) and not shipments by air, vessel, or rail.

If parties follow the procedures for preparing hand sanitizer for shipment set forth in the Notice (as compared to all of the requirements specified in the HMR), PHMSA will not take enforcement action for violations of the HMR. The Notice provides separate procedures for shipping small quantities (< 1 gallon/container or 8 gallons/package) and for larger quantities (> 8 gallons to 119 gallons/package) of hand sanitizer.

© 2020 Keller and Heckman LLP

For more on manufacture & transportation of emergency medical supplies for the COVID-19 pandemic, see the National Law Review Coronavirus News section.

EEOC Issues ADA and Title VII Guidance for Employers on COVID-19

The Equal Employment Opportunity Commission (EEOC) recently hosted a webinar in which the agency answered questions about the applicability of the Americans with Disabilities Act (ADA) and Title VII to COVID-19-related employment actions.  This Q&A supplemented earlier guidance posted by the EEOC.

This post summarizes the guidance and takeaways from the EEOC webinar.

  • The EEOC updated its previously published guidance entitled “Pandemic Preparedness in the Workplace and the Americans With Disabilities Act” to provide information and examples regarding COVID-19. This new guidance confirms that COVID-19 constitutes a “direct threat” and a significant risk of substantial harm would be posed by having someone with COVID-19, or symptoms of it, present in the workplace.
  • Employers should follow the EEOC guidance in conjunction with the guidelines and suggestions made by the CDC and state/local health authorities.
  • The guidance also answers common employer questions about the COVID-19 pandemic, such as:

Q:     How much information may an employer request from an employee who calls in sick in order to protect the rest of its workforce during the COVID-19 pandemic?

A:    ADA-covered employers may ask such employees if they are experiencing symptoms of the pandemic virus such as fever, chills, cough, shortness of breath, or sore throat. Employers must maintain all information about employee illness as a confidential medical record in compliance with the ADA. Employers generally may not ask these questions of employees who are teleworking since they are not entering the workplace and do not pose a threat to others.

We note, however, that if an employee recently started teleworking, employers may want to ask the employee if they exhibited symptoms of COVID-19 before starting telework, so the employer can inform those with whom the employee had been in close contact about the potential exposure.

Q:     What if an employee refuses to answer COVID-19 related questions by the employer?

A:    The ADA allows employers to bar an employee’s physical presence in the workplace if he or she poses a threat to others. Employers should ask for the reason behind the employee’s refusal and reassure the employee if the employee is hesitant to provide this information.

Q:    When may an employer take an employee’s temperature during the COVID-19 pandemic?

A:    Generally, taking an employee’s temperature is a medical examination under the ADA. Because the CDC and state/local health authorities have acknowledged community spread of COVID-19, employers may take employees’ temperature. However, employers should be aware that some people with COVID-19 do not have a fever, while some people with a fever do not have COVID-19.

Employers, however, are well-advised to first consult with counsel to ensure the administration of these tests stays within the guidance and does not otherwise violate applicable law.

Q:    Can an employer ask COVID-19 related questions about an employee’s family members? 

A:    This unnecessarily limits the inquiry. A better question is whether the employee has had contact with anyone diagnosed with COVID-19 or who was showing symptoms of COVID. A general question like this is more sound. The Genetic Information Nondiscrimination Act (GINA) prohibits employers from asking employees medical questions about an employee’s family members.

Q:    How are employers supposed to keep medical information of employees confidential while teleworking?

A:     The ADA requires that medical information be stored separately away from other personnel files and employee information. A supervisor who receives this information while teleworking should follow normal company procedures to store this information. If they cannot follow the procedures for whatever reason, they should make every effort to safeguard the information from disclosure (for example, do not leave a laptop open or accessible to others; do not leave notepads with information around the home, etc.).

Q:    What are an employer’s ADA obligations when an employee says he has a disability that puts him at a greater risk of severe illness if he contracts COVID and therefore asks for a reasonable accommodation?

A:    The CDC has identified certain conditions (for example, lung disease) that put certain people at a higher risk for severe illness if COVID-19 is contracted. Thus, this is clearly a request for a reasonable accommodation and a request for a change in the workplace. Because employers cannot grant employees reasonable accommodations for disabilities that they do not have, employers may verify that the employee has a disability, what the disability is, and that the reasonable accommodation is necessary because the disability may potentially put the individual at a higher risk for severe illness due to COVID-19.

There may also be a situation in which the employee’s disability is exacerbated by the current situation. The employer may verify this as well. Aside from requesting a doctor’s note, other options to verify an employee’s disability may be to request insurance documents or their prescription. An employer may want to provide a temporary reasonable accommodation pending receipt of the documentation.

Q:    If an employer grants telework to employees with the purpose of slowing down/stopping COVID-19 – after the public health measures are no longer necessary, does the employer automatically have to grant telework as a reasonable accommodation to every employee with a disability who wishes to continue this arrangement?

A:    No. Anytime an employee requests a reasonable accommodation, the employer has the right to understand and evaluate the disability related limitation and make a determination on the request. After the pandemic, a request to telework does not have to be granted if working at the worksite is an essential function of the job in normal circumstances (i.e. not during a pandemic). The ADA never requires an employer to limit the essential functions of a position, and just because an employer did this during the pandemic does not mean an employer has to permanently change the essential functions of a position, and is not an admission that telework is a feasible accommodation or that telework does not place an undue hardship on the employer.

The guidance further addresses common questions related to discrimination and harassment under Title VII, such as:

Q:     May an employer decide to layoff or furlough a pregnant employee who does not have COVID-19 or symptoms solely based on the CDC guidance that pregnant women are more likely to experience severe symptoms and should be monitored?

A:     No, because pregnant employees are protected under the Pregnancy Discrimination Act of Title VII.

Q:    May an employer exclude from the workplace an employee who is 65 or older and who does not have COVID, solely because he or she is in an age group that is at higher risk for severe illness as a result of COVID?

A:    No, age based actions are not permitted. The Age Discrimination in Employment Act prohibits discrimination against those who are 40 or older.

Q:    May an employer single out employees based on national origin and exclude them from the workplace due to concerns about possible COVID-19 transmission? May employers tolerate a hostile work environment based on an employee’s national origin or religion because others link it to the transmission of COVID-19?

A:    No, because Title VII prohibits national origin discrimination. It does not matter that it is linked to COVID-19. Employers should remind employees of anti-discrimination and anti-harassment policies and also should ensure that they are not taking employment actions based on an employee’s protected class(es).

  • An employer may make inquiries that are non-disability related to identify potential non-medical reasons for an employee’s absence or future absence. For example, an employer may ask a “yes” or “no” question that asks if the employee or someone in his or her household falls within the categories identified by the CDC for being at higher risk for severe illness if COVID-19 is contracted (such as pregnancy or being over the age of 65).
  • An employer may also screen job applicants for symptoms of COVID-19 after making a conditional job offer, as long as it does so for all entering employees in the same type of job.
  • While employers may require doctors’ notes certifying their fitness for duty before returning to work, as a practical matter, doctors and other health care professionals may be too busy during the pandemic outbreak to provide fitness-for-duty documentation. Therefore, new approaches, such as requesting an employee’s prescription, may be necessary.

This is a challenging time and events are changing rapidly. EEOC guidance and interpretation of what is permissible under the ADA and Title VII is evolving and may change as circumstances develop.

©1994-2020 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. All Rights Reserved.

For more employer guidance from Gov’t Agencies amid the COVID-19 pandemic, see the National Law Review dedicated Coronavirus News section.

The COVID-19 Pandemic and Your Company’s Corporate Disclosures: Key Takeaways from the SEC’s Recently Issued Guidance

The SEC Division of Corporation Finance (the “Division”) recently issued guidance to highlight some of the COVID-19 pandemic-related considerations companies need to bear in mind as they prepare their corporate disclosures. The guidance included three main topics: (1) disclosing the ways COVID-19 may affect the company, both now and in the future; (2) refraining from trading on material, non-public information about the company until that information is publicly disclosed; and (3) reporting company financial information when GAAP financial measures are unavailable. The guidance emphasizes that health and safety are the first priority and should not be compromised to meet reporting requirements.

Takeaways from each topic are outlined below. The full guidance is available here on the SEC website.

Assessing and Disclosing the Evolving Impact of COVID-19

Companies should disclose the effects and risks of COVID-19 as part of their upcoming disclosures. Disclosure of COVID-19-related effects and risks could be included in management’s discussion and analysis, the business section, risk factors, legal proceedings, disclosure controls and procedures, internal control over financial reporting, and the financial statements.

The guidance includes questions designed to encourage companies to consider all the possible ways COVID-19 affects their current and future operations. Generally, companies are asked to assess and disclose the effects COVID-19 has had on a company, what management expects its future impact will be, how it is responding to evolving events, and how it is planning for COVID-19-related uncertainties. A company should disclose if COVID-19 is expected to impact future operations differently than how it affected the current period.

Before assembling COVID-19-related disclosures, management should read through and analyze the full set of questions included in the guidance. Companies are encouraged to provide disclosures that allow investors to evaluate the current and expected impact of COVID-19 through the eyes of management.  Additionally, companies should proactively revise and update disclosures as facts and circumstances change.

Need to Refrain from Trading Prior to Dissemination of Material Non-Public Information

Where COVID-19 has affected a company in a way that would be material to investors or where a company has become aware of a risk related to COVID-19 that would be material to investors, the company, its directors and officers, and other corporate insiders who are aware of these matters should refrain from trading in the company’s securities until such information is disclosed to the public. Further, companies need to consider whether they may need to revisit, refresh, or update previous disclosures to the extent that the information has become materially inaccurate.

Reporting Earnings and Financial Results

The Division recognizes that the impact of COVID-19 may present a number of novel or complex accounting issues that may take time to resolve. These complexities may make it necessary to present a non-GAAP financial measure in company reporting. Companies should not use non-GAAP financial measures or metrics to present a more favorable view of the company. Disclosures should only include those non-GAAP financial measures a company is using to report financial results to the Board of Directors.

Companies should reconcile any non-GAAP financial measures to preliminary GAAP results that either include provisional figures based on a reasonable estimate, or a reasonable range of GAAP results. A non-GAAP financial measure should not be disclosed more prominently than the most directly comparable GAAP financial measure or range of GAAP measures. Companies should additionally disclose why the line item or accounting is incomplete, and what additional information or analysis may be needed to complete the accounting. In filings where GAAP financial statements are required, such as filings on Form 10-K or 10-Q, companies should reconcile to GAAP results and not include provisional amounts or a range of estimated results.

Copyright © 2020 Ryley Carlock & Applewhite. A Professional Association. All Rights Reserved.

For more on the SEC’s COVID-19 response, please see the National Law Review Coronavirus News page.

EPA Announces Additional Action to Assure Availability of Disinfectant Products for Use Against the Novel Coronavirus

On March 31, 2020, the U.S. Environmental Protection Agency (EPA) announced it is taking further action to help ease the production and availability of EPA-registered disinfectants by temporarily allowing manufacturers of certain already-registered EPA disinfectant products to obtain certain active ingredients from any source without prior approval from EPA.  This only applies to products on EPA’s List N: Disinfectants for Use Against SARS-CoV-2 (List N).  EPA announced on March 26, 2020, similar action on certain inert ingredients.

EPA typically requires disinfectant manufacturers to first apply for and receive EPA approval prior to making a change in the source of the active ingredient.  Under this temporary amendment, however, manufacturers can source certain active ingredients from alternate suppliers by informing EPA.  Once EPA has been notified, the registrant can immediately distribute or sell a product modified according to this temporary amendment, provided that the resulting formulation is chemically similar to the current formulation (i.e., the purity of resulting product from the alternate source falls within the certified limits of the currently registered formulation for which they are making the source change).  EPA states that by allowing manufacturers to obtain certain active ingredients from any source it will help alleviate reports of supply chain disruptions by pesticide registrants who manufacture disinfectant products on List N.

The eligible active ingredients are:

  • Citric Acid, Chemical Abstracts Service Registry Number (CASRN) 77-92-9;
  • Ethanol, CASRN 64-17-5;
  • Glycolic Acid, CASRN 79-14-1;
  • Hydrochloric Acid, CASRN 7647-01-0;
  • Hypochlorous Acid, CASRN 7790-92-3;
  • Hydrogen Peroxide, CASRN 7722-84-1;
  • L-Lactic Acid, CASRN 79-33-4; and
  • Sodium Hypochlorite, CASRN 7681-52-9.

EPA will assess the continued need for and scope of this temporary amendment on a regular basis and will update it if EPA determines modifications are necessary.  EPA will notify the public at least seven days prior to terminating this temporary amendment at www.epa.gov/pesticides.

After the termination date of the temporary amendment, registrants will not be able to release for shipment new registered product unless that product is produced using a source of active ingredient identified in the product’s approved Confidential Statement of Formula (CSF) or otherwise would have complied with relevant requirements in the absence of this temporary amendment.

EPA states in its temporary amendment to Pesticide Registration (PR) Notice 98-10, the following procedures to submit a notification for currently registered disinfectant products listed on EPA’s List N:

  • A cover letter with a subject line that clearly indicates that this is a “notification per TEMPORARY AMENDMENT TO PR NOTICE 98-10 (Insert date or other citation) for EPA Registration No. XXXXXX and [insert product name]”;
  • The active ingredient; and
  • The following statement:

[Name of Registrant] is notifying EPA of its intent to use one or more alternate, unregistered sources of active ingredient listed in the TEMPORARY AMENDMENT TO PESTICIDE REGISTRATION (PR) NOTICE 98-10 (Insert date or other citation) in the formulation of EPA Registration No. [xxx-xx].  Each source is chemically identical to (i.e., within the certified limits of) the active ingredients in the Confidential Statements of Formula previously accepted by EPA [insert CSF date(s)]. This self-certification is consistent with the provisions of PR Notice 98-10 and no other changes have been made to the Confidential Statement of Formula or labeling of this product.  Further, I confirm that the ingredients statement of this label remains truthful.  I understand that it is a violation of 18 U.S.C. Section 1001 to willfully make any false statement to EPA.  I further understand that if this self-certification is not consistent with the terms of PR Notice 98-10 and 40 C.F.R. 152.46, this product may be in violation of FIFRA and I may be subject to enforcement actions and penalties under section 12 and 14 of FIFRA.

Applications must be submitted via the CDX portal.  At this time, EPA is not accepting paper applications.  Once an application is submitted, EPA requests that an email is sent to disinfectantslist@epa.gov with the CDX tracking number (CDX _ 2020 _ XXXXXXX).  A registrant may distribute or sell a product modified according to this temporary amendment to PR Notice 98-10 once EPA receives the notification.

©2020 Bergeson & Campbell, P.C.

For more on COVID-19 hygiene and other concerns, see the National Law Review Coronavirus News page.

OSHA Issues Guidance on Preparing for COVID-19

1) OSHA has issued a comprehensive document “Guidance on Preparing Workplaces for COVID-19.”

That Guidance categorizes employers under “Very High Risk,” “High Risk,” “Medium Risk,” and “Lower Risk,” categories.  The employer should first determine under which category the employer falls.  Then the employer should further review the Guidance to determine which “engineering,” “administrative,” “work practice,” and “Personal Protective Equipment” (PPE) measures apply to their company and implement those measures, called “controls” by OSHA.  One control is the erection of physical barriers, such as plastic sheeting to cordon off certain areas from the free flow of air typically in the hallways.

2) Many employers wonder if coronavirus cases are recordable on their 300 logs. Coronavirus, COVID-19, is not an exception to the OSHA Recordkeeping rule.  Therefore, if the coronavirus, COVID-19, diagnosis is confirmed, is work related, and results in treatment beyond first aid, lost time, modified duty, or other recordable circumstance, then it is recordable, and needs to be recorded as an illness on the OSHA 300 log.  If a work-related COVID-19 case for an employee results in in-patient hospitalization, then it is reportable within 24 hours of that in-patient hospitalization to the OSHA Area Office or the national OSHA line.

3) The EEOC has issued guidance that employers in this situation are allowed to take the temperatures of incoming employees.  Typically taking the temperature of an employee is considered a medical examination that must be justified by business necessity.  In the current pandemic situation, employers who test all employees coming to work each day have the business necessity of the pandemic to justify that examination.  Employers should take the temperature of all employees if that will be the employer’s practice, a control to protect other employees in the manufacturing plant or construction site.

4) Also, when using respiratory protection as PPE, the employer must either implement a respiratory protection program with mandatory fit testing, medical evaluation, training on usage and storage, and sufficient facilities for cleaning and storage.  Or, if the employer considers the program voluntary, the employer must provide each employee with Appendix D to inform the employees of the uses and limitations of certain types of masks.  OSHA has issued temporary guidance during the pandemic to relax the annual fit testing requirement, but the temporary guidance requires the employer to follow stringent measures, such as:

  • Perform initial fit tests for each HCP with the same model, style, and size respirator that the worker will be required to wear for protection against COVID-19 (initial fit testing is essential to determine if the respirator properly fits the worker and is capable of providing the expected level of protection), and give workers training on the suspension of annual fit testing to preserve respirators, and then explain the importance of the user seal check, then nevertheless to conduct a fit test if there are visual changes in the employee’s physical condition to affect the seal, and other training.
  • Click here to see the complete guidance before seeking to employ any such suspension, rigorously follow the criteria listed in the publication.

OSHA is out inspecting workplaces and issuing citations.  Be very careful about the use of respirators by your workforce without having the proper program, or, in a voluntary situation, providing the Appendix D.

© Steptoe & Johnson PLLC. All Rights Reserved.

More governmental agency guidance on COVID-19 on the National Law Review Coronavirus News page.

Trademark Applicant & Chinese IP Agency Fined for Malicious Registration of Coronavirus Related Trademarks

On March 26, 2020, the Shaoxing Market Supervision Bureau of Zhejiang Province fined a Chinese intellectual property firm, a trademark applicant and a trademark agent responsible for attempting to register a trademark for “Li Wenliang” (李文亮), a famous doctor that later succumbed to COVID-19 after earlier attempts to warn others of a possible new outbreak.   Specifically, the Bureau fined applicant Yang Mofang, the agency Shaoxing Intellectual Property Agency Co., Ltd. and the trademark agent Chen Mougang 2,000 RMB, 20,000 RMB and 10,000 RMB respectively. This is believed to be the first time a trademark applicant was fined for malicious filing of a trademark.  This is the second IP agency to be fined.

On March 3, 2020, the Shaoxing Market Supervision Bureau was informed that Shaoxing Intellectual Property Agency Co., Ltd.  represented the trademark applicant Yang Moufang for the trademark registration application of “Li Wenliang.”  On the 4th , the Municipal Bureau’s Trademark Advertising Office and the Comprehensive Administrative Law Enforcement Team conducted surprise inspections of relevant business establishments, conducted administrative interviews with relevant responsible persons  and required them to withdraw their applications immediately. In the afternoon, the agency quickly withdrew the trademark registration application. On the 5th, the Shaoxing Municipal Bureau filed an investigation on the applicant, agency and directly responsible person for the malicious registration of the “Li Wenliang” trademark. On March 26, administrative penalties were imposed on the relevant parties.

Per the Bureau, “Li Wenliang was a Wuhan Central Hospital ophthalmologist  unfortunately infected in the fight against new coronavirus epidemic. After his sacrifice, public opinion in the whole society was highly concerned and he had achieved a high degree of popularity and influence in the country. Several parties in the case knew or should have known these circumstances and still applied for trademarks on Dr. Li, which could easily cause significant social adverse effects.”

© 2020 Schwegman, Lundberg & Woessner, P.A. All Rights Reserved.

For more on IP and other COVID-19 affected industries, see the dedicated National Law Review Coronavirus News page.

COVID-19 Impact on Executive Compensation – Salary/Wage Reductions

Companies impacted by the COVID-19 pandemic, including the concomitant widespread shelter in place orders, may be considering pay cuts for some or all of their workforce, either in addition to or instead of furloughs and layoffs.  In implementing salary or wage reductions, companies should be mindful of federal, state and local wage and hour and labor laws, consent and notice requirements under contractual agreements with individual employees or groups of employees, tax implications on subsequent “make-whole” or “make-up” payments, impact on employee benefit plan participation, governance considerations, and disclosure requirements for public companies.

Prior to implementing salary or wage reductions, companies should:

  • IDENTIFY affected employees and applicable state or local law:
    • Who are the employees affected by potential salary or wage reductions? Are they exempt or non-exempt? Are they part-time or full-time? How many employees are affected at any single location? Will company executives be impacted?
    • Is the salary or wage reduction being undertaken in connection with a reduction in hours? If so, is the reduction proportionate?
    • What state or local law is applicable to the employee’s employment?
    • What are the state and local requirements for the notice, if any, that must be provided to employees prior to or following a wage reduction?
    • Would a reduction result in the employee’s wage falling below the threshold level for exempt classification (currently $684 per week under federal law)?
  • REVIEW the potential effects of a salary or wage reduction under applicable law, contract, agreements, offer letters, and employee benefit plans:
    • Is the employee a party to an employment agreement, offer letter, or other agreement or arrangement that sets base salary? If so, does it expressly provide that base salary cannot be reduced, such that it would need to be amended?
    • Is the employee covered by an agreement, offer letter, or plan with a “good reason” or similar definition that would trigger severance, equity award accelerated vesting, or other rights as a result of a salary reduction? Is there an exception for across-the-board salary reductions and, if so, whether a limit or such reduction applies?
    • Does the employee participate in employee benefit plans and programs (e.g., group health plans, retirement plans, 401(k) plans, severance benefits, and vacation programs) that may be impacted by a reduction in hours and/or salary or wage reduction? For example, salary reductions may reduce an employee’s severance entitlement, pension accrual or matching contribution.
    • Does the company’s employee handbook address salary or wages during a leave of absence or furlough?
  • ACT to execute waivers, deliver notices, take action with respect to employee benefit plans and, for publicly traded companies, provide disclosure of the salary reduction where necessary:
    • Obtain consents to salary or wage reductions and waivers of “good reason” from employees as needed.
    • Provide advance notice in accordance with applicable state and local requirements.
    • Take any necessary actions under employee benefit plans and programs to continue or end coverage/participation, as applicable.
    • Prepare and file disclosure if/as required for public companies (e.g., Form 8-K, press release).
    • Consider creating a working group including representatives from HR, legal, and investor relations to coordinate actions and communications to internal and external interested parties.

 

Wage and Hour considerations; Notice considerations

A number of states and some cities require companies to provide employees with notice of salary or wage reductions and/or notice of hours reductions within a certain number of days in advance of the reduction or within a certain period following the company’s decision to take such actions. Companies with operations in multiple states should confirm with labor/employment counsel whether state or local notice is required. If notice is required, the content of the notice should be reviewed by counsel to confirm that the messaging of the notice is consistent with the company’s approach for labor, employment, employee benefit plan, contract, and tax purposes.

In considering whether to reduce salary or wages of employees classified as “exempt” under the federal Fair Labor Standards Act, companies should carefully analyze applicable federal and state law (for example, exempt employees who perform any work during a work week are generally entitled to full salary, subject to limited exceptions).  Companies should also analyze whether such a reduction would be reasonably likely to result in the employee’s wage being reduced below the threshold level for exempt classification ($684 per week under federal law and $1,125 per week under New York law). If so, companies should consult labor/employment counsel with respect to the best approach with respect to such employees.  Additionally, while outside the scope of this blog post, companies that have employees represented by a union or subject to a collective bargaining agreement, should review any limitations or prohibitions under those agreements.

Contractual agreements

Compensatory arrangements entered into by companies with their employees, particularly with respect to their executive teams, and other arrangements maintained by companies (e.g., severance plans, equity plans, incentive compensation plans) often include provisions that require a specified salary to be paid and/or allow the employee to terminate his or her employment for “good reason” as a result of a salary reduction.

A common provision in good reason definitions is a reduction in the employee’s base salary and/or target bonus opportunity.  Once an employee’s good reason provision is triggered, and assuming that the wages are not reinstated within a short period of time or the employee does not consent to such reduction, the employee could terminate his or her employment and be entitled to severance, accelerated equity vesting, or other rights.  Certain agreements contain exceptions to these provisions for company-wide reductions or similar reductions across the senior-executive team, sometimes up to an overall cap.

In addition, employment agreements or offer letters may expressly provide that an employee’s base salary cannot be reduced below the stated level. If so, a reduction without the employee’s consent could result in a contractual claim. Further, amendments to or terminations of certain broad-based plans providing for specified levels of compensation may be limited or delayed by the provisions of the plan or certain advance notice requirements under the Employee Retirement Income Security Act of 1974.

Companies considering broad-based salary or wage reductions should review their employment agreements, offer letters, and any other agreements that require payment of a specified salary or that contain good reason protections, and should discuss with executive compensation and benefits counsel whether reducing wages could trigger unintentional contractual or administrative claims or severance obligations.

Tax considerations

Companies considering providing for salary, wage, or other compensation reductions in connection with the opportunity of a later guaranteed or conditional (i.e., merit or performance based) “make-whole” or “make-up” payment should be cautious, as such an arrangement could potentially result in an impermissible deferral of compensation under Internal Revenue Code Section 409A (“Section 409A”).  Generally speaking, Section 409A, which governs non-qualified deferred compensation arrangements, requires elections to defer compensation to be made no later than December 31 of the calendar year before the calendar year in which the employee performs the services to which the compensation relates (there are certain exceptions with respect to performance-based compensation that may be applicable to bonuses, but a discussion of these exceptions is beyond the scope of this blog post). If an employee’s consent is required for the compensation reduction and if in connection with such reduction, the company commits to paying additional compensation to the employee in a future taxable year, this type of arrangement could result in adverse tax consequences to the employee (including a 20% additional income tax in addition to applicable income tax). Companies should consult executive compensation and benefits counsel before implementing any program that includes a “make-whole” or “make-up” payment that could be paid in a calendar year following the calendar year of the compensation reduction.  Companies considering such programs should also consult executive compensation and benefits counsel to determine whether Congress, the Treasury Department, or the Internal Revenue Service have issued relief under Section 409A or other guidance in light of the COVID-19 pandemic and widespread salary/wage reductions.

Employee benefit plan considerations

Salary or wage reductions, especially when coupled with layoffs or furloughs, may impact employees’ participation in employee benefit plans. Companies should discuss the impact of a salary or wage reduction with their employee benefits counsel. In particular, companies should:

(1) Review their group health plan and Affordable Care Act requirements to assess requirements for continued coverage, either as an active employee or through COBRA, and the cost for that coverage;

(2) Monitor FSA and Dependent Care FSA contributions to be sure they are properly made depending on the facts; and

(3) Consider the effect of salary or wage reductions on 401(k) contributions and outstanding loans.

Governance considerations

In implementing salary or wage reductions, companies should confirm that such actions are approved at the appropriate level for corporate governance purposes. While decisions to reduce salary and wages for rank-and-file employees may in some cases be made by company management, salary and wage reductions for senior management and executive officers and director fee reductions should be approved by the Compensation Committee or the full Board, as applicable. Companies should consult executive compensation and benefits counsel to review governance documents (including Compensation Committee charter) and prepare the necessary approvals.

Public company disclosure considerations

For public companies, Form 8-K rules generally require disclosure of information that is important to security holders, including disclosure of information under Regulation FD and events material to corporate governance and management.  Broad-based or selective salary or wage reduction programs may trigger disclosure on a Form-8-K (whether under Item 2.05 as steps taken in connection with exit or disposal activities, Item 5.02 as a material amendment of a material management contract or Item 7.01 / Item 8.01 as Regulation FD disclosure or voluntary disclosure) and filing requirements should be carefully reviewed and considered by public companies with counsel. Contracts entered into in connection with salary or wage reductions may be required to be filed with the company’s next quarterly or annual report.

Our executive compensation lawyers are tracking the companies that have been implementing salary and wage reductions and are available to discuss the alternatives that other companies have been implementing.

© 2020 Proskauer Rose LLP.

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