Category: Health

California Judicial Council Adopts Emergency Rules Affecting Unlawful Detainer Actions and More

The Judicial Council of California adopted 11 temporary emergency rules in response to the COVID-19 pandemic affecting eviction proceedings, judicial foreclosures, and statutes of limitations for civil causes of actions, among other things. The rules, adopted April 6, 2020, are effective immediately and apply to all California state courts.

Rules of particular interest:

  •  Emergency Rule 1: Unlawful Detainers
    • Prohibits courts from issuing a summons on an unlawful detainer complaint until 90 days after the Governor declares the state of emergency related to the COVID-19 pandemic is lifted. This rule applies to all new unlawful detainer actions – whether or not the eviction action is related to nonpayment of rent for COVID-19 related issues. The only exception is for an unlawful detainer action necessary to protect public health and safety.
  • Emergency Rule 2: Judicial Foreclosures
    • Stays any action for judicial foreclosure and tolls any statute of limitations for filing such action until 90 days after the state of emergency is lifted.
  • Emergency Rule 9: Tolling of Statutes of Limitations for Civil Causes of Action
    • Tolls statutes of limitations for civil causes of action from April 6, 2020, until 90 days after the Governor declares the state of emergency is lifted.
  • Emergency Rule 10: Extension of 5-Year Rule for Civil Actions
    • Extends the five-year deadline to bring a civil action to trial to five years and six months for all actions filed on or before April 6, 2020.
  • Emergency Rule 11: Depositions through Remote Electronic Means
    • Allows a deponent to not be present with the deposition officer at the time of deposition.

© 2010-2020 Allen Matkins Leck Gamble Mallory & Natsis LLP

CARES Act Brings Changes to Federal Substance Use Disorder Privacy Law

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act), enacted March 27, 2020, rewrote significant portions of 42 U.S.C. § 290dd-2, the federal statute governing the confidentiality of substance use disorder (SUD) records that is more commonly known by its implementing regulations at 42 C.F.R. Part 2 (Part 2). Among other changes, the CARES Act revises the permissible uses and disclosures of SUD records to more closely align with the HIPAA Privacy Rule, 45 C.F.R. § 164.500, et seq., when a Part 2 program obtains the patient’s prior written consent.

Historically, Part 2 programs have been restricted in their ability to share SUD records by the Part 2 regulations, which require written patient consent for each disclosure of SUD records and prohibit re-disclosure of such SUD records except in limited circumstances. The CARES Act directs the Secretary of the U.S. Department of Health and Human Services (HHS), in consultation with appropriate federal agencies (which may include the Substance Abuse and Mental Health Services Administration (SAMHSA)) to revise the Part 2 regulations as necessary to implement and enforce the statutory revisions contained in the CARES Act effective March 27, 2021. The forthcoming revisions to the Part 2 regulations may be substantial given these CARES Act changes to the federal statute.

Another significant change to the federal SUD confidentiality statute addresses the ability of health care providers to use SUD records for treatment, payment, and health care operations purposes (except for certain provider fundraising activities) in a manner more consistent with the allowances provided for protected health information under HIPAA. Specifically, the CARES Act authorizes a Covered Entity or Business Associate (as those terms are defined in the HIPAA Privacy Rule) or Part 2 Program (as defined by the Part 2 regulations) to use, disclose, or re-disclose SUD records with the patient’s written consent for treatment, payment, and health care operations as permitted by the HIPAA regulations, 45 C.F.R. Parts 160, 162, and 164, and Sections 13405(a) and (c) of the Health Information Technology and Clinical Health Act (42 U.S.C. § 17935(c)) (HITECH Act). Under the revised statute, a patient can provide written consent once that will then authorize all such future uses or disclosures for purposes of treatment, payment, and health care operations until such time as the patient revokes such consent in writing.

Additionally, the CARES Act incorporates the following privacy protections for SUD records:

  • Except as otherwise authorized by court order or by written patient consent, SUD records or testimony relaying information from the SUD records may not be disclosed or used in any civil, criminal, administrative, or legislative proceedings conducted by any federal, state, or local authority.
  • Penalties applicable to HIPAA violations (42 U.S.C. §§ 1320d-5 and 6) shall apply to a violation of 42 U.S.C. § 290dd-2.
  • The breach notification provisions of Section 13402 of the HITECH Act shall apply to SUD records.
  • By March 27, 2021, HHS will update the HIPAA Privacy Rule to require that Part 2 programs provide notice of privacy practices, written in plain language, describing the patient’s rights with respect to the Part 2 records and how the patient may exercise those rights, and describing each purpose for which the Part 2 program is permitted or required to use or disclose the SUD records without the patient’s written authorization.
  • Part 2 providers can disclose information, regardless of whether the patient gives written consent, to a public health authority (as defined by HIPAA), if the content is de-identified in accordance with the HIPAA de-identification standards set forth at 45 C.F.R. § 164.514(b).
  • Patients shall have the right to request a restriction on the use or disclosure of SUD records for treatment, payment, or health care operations.
  • Patients shall have the right to request an accounting of disclosures of SUD records consistent with the HITECH Act and HIPAA.
  • Entities shall be prohibited from discriminating against an individual on the basis of information received, whether intentionally or inadvertently, from SUD records in: (a) admission, access to, or treatment for health care; (b) hiring, firing, or terms of employment, or receipt of worker’s compensation; (c) the sale, rental, or continued rental of housing; (d) access to federal, state, or local courts; or (e) access to, approval of, or maintenance of social services and benefits provided or funded by federal, state, or local governments.
  • Recipients of federal funds shall be prohibited from discriminating against an individual on the basis of information received, whether intentionally or inadvertently, from SUD records, when offering access to services provided with such funds.

The CARES Act provides that the above-summarized amendments to the federal SUD statute will apply to uses and disclosures of information on or after March 27, 2021. While these changes implement long-awaited alignment efforts to enable data sharing across providers in a manner consistent with the allowances permitted under HIPAA, the real impact of these changes will come from the forthcoming implementing agency regulations from, which are also due to be issued by March 27, 2021.

©2020 Greenberg Traurig, LLP. All rights reserved.

Restriction on PPP Loans to Insiders and Their Close Relatives

On

Friday, April 3, we posted that under the Interim Final Rule issued by the Small Business Administration (SBA) on April 2, businesses owned by an officer, director, key employee, or 20% or more shareholders of a lender are not eligible for a Paycheck Protection Program (PPP) loan from that lender. As noted at the top of page 8 of the Interim Final Rule, “[b]usinesses that are not eligible for PPP loans are identified in 13 CFR 120.110.” Section 120.110(o) says “[b]usinesses in which the Lender . . . or any of its Associates owns an equity interest” are ineligible. “Associate” of a lender is defined in 13 CFR § 120.10(1) as “[a]n officer, director, key employee, or holder of 20 percent or more of the value of the Lender’s . . . stock.” Thus, any business in which any one of those types of individuals owns any equity interest would be disqualified from a PPP loan made by that lender.

Since that alert was posted, you should be aware of one other important aspect of loans under the PPP. According to 13 CFR § 120.10(1)(ii) and the SBA’s guidance in SOP 50 10, this restriction applies not only to a lender’s officers, directors, key employees, and 20% or more shareholders, but also to businesses in which a “Close Relative” of any such individual has an interest. A “Close Relative” is defined in 13 CFR § 120.10 as “a spouse; a parent; or a child or sibling, or the spouse of any such person.”

We have been asked numerous times since our last alert whether a bank’s Associates, including directors, could obtain a PPP loan from a lender with which they are not affiliated. We have no reason to believe that they cannot participate through an unaffiliated lender since 13 CFR § 120.110(o) only prohibits loans to businesses in which Associates of the Lender have an equity interest.

© 2020 Jones Walker LLP

For more on SBA administration of the PPP loans, see the Coronavirus News section on the National Law Review.

Quick Q&A: Handling Holiday During COVID-19

As employees settle into working from home, it is important for employers to consider their approach to annual leave while the COVID-19 crisis is ongoing. Regular rest breaks help to ensure the physical and mental wellbeing of employees during a stressful period with additional work, health and family pressures. It is also important from a business continuity perspective to ensure that employees do not return work with a significant amount of holiday outstanding. With this in mind, Katten looks at common queries that have come up recently regarding holiday accrual and pay.

Does holiday entitlement continue to accrue while staff are furloughed, laid off or on short-time working?

Yes, employees continue to accrue holiday as they remain employees of the company. If an employee is entitled to more than the statutory minimum amount of 28 days’ paid holiday (inclusive of bank and public holidays) then you can, by agreement, negotiate a reduction in their contractual entitlement provided that doesn’t go below the statutory minimum.

Can I ask staff to take holiday at a specific time?

Yes, employees can be required to take holiday at a specific time, provided they are given notice of at least twice the length of the period of leave that they are being required to take (e.g., for a five day holiday they would need to be given 10 days’ notice). We would recommend that employees continue to record their holiday in your usual holiday tracker system. You can ask an employee to take holiday regardless of whether it has already been accrued.

How much should I pay staff who take holiday while furloughed?

While the guidance is not clear cut, we expect that holiday pay will be payable at an employee’s reduced furloughed rate of salary for any holiday taken while furloughed. This will be reimbursable as salary up to the Her Majesty’s Revenue & Customs (HMRC) limits under the coronavirus job retention scheme.

Can staff carry over accrued but untaken holiday?

The UK Government has amended the Working Time Regulations so that employees and workers can carry over up to 4 weeks’ paid holiday over a 2-year period, if it was not reasonably practicable to take the leave due to the coronavirus. This is a change from the current position where the ‘basic holiday’ of 4 weeks must be taken each year as a health and safety measure, meaning that it was only previously possible to carry over the balance of holiday above 20 days (which in the UK would be a minimum of 8 days). So in practice, employees can now carry forward 4 weeks as a matter of law. We recommend considering the impact of holiday accrual on the business when things return to ‘normal’ (i.e., employers should consider whether they want to require employees to take holiday even while they are furloughed).

Can I force employees to cancel a booked holiday?

Employers are still able to refuse an employee permission to take holiday on particular days (e.g., if they are critical to the business at this time and the employer needs them at work), provided that they give notice to the employee which is at least as long as the holiday requested. However, the law has changed to say that employers can only exercise this right where there is “good reason to do so”.
©2020 Katten Muchin Rosenman LLP
For more employment considerations during the COVID-19 pandemic, see the National Law Review Labor & Employment law page.

Stimulus, IRS Extended Deadline and Gifting Opportunities

Coronavirus Aid, Relief, and Economic Security Act (CARES Act)

  • President Trump signed the CARES Act on March 27, 2020, a $2 trillion stimulus package providing $560 billion of relief for individuals, including:
    • Cash Payments: $1,200 per individual ($2,400 for couples); plus $500 per qualifying child1
    • Retirement Funds: Early withdrawal penalties waived for distributions of up to $100,000, if withdrawal is for coronavirus related purposes
    • 401(k) Loans: Loan limit increased from $50,000 to $100,000
    • Required Minimum Distributions: Suspended in 2020 for IRA/401(k) plans, including inherited IRAs
    • Charitable Deduction: Up to $300 charitable deduction for 2020 taxpayers who utilize the standard deduction

Extension of filing and payment deadlines

  • The federal and Wisconsin income tax return filing and payment deadline for the 2019 tax year was automatically extended to July 15, 2020
  • The federal gift tax return filing and payment deadline for the 2019 tax year was automatically extended to July 15, 2020

Gifting opportunities

  • Low valuations, low interest rates, and the anticipated reduction in the federal estate/gift tax exemption from $11.58 million to approximately $6.5 million on January 1, 2026 have created many planning opportunities, including:
    • Gifts and/or sales to existing or newly established Trusts to take advantage of low valuations and use the $11.58 million exemption while it is still available;
    • Amending intra-family loans to take advantage of low interest rates; and
    • Creation of charitable lead trusts, grantor retained annuity trusts, and other estate planning techniques that benefit from low interest rates are particularly attractive right now.

Now may also be a good time for clients to review their existing estate plans to make certain that their plans are up to date and consistent with their wishes.

1Amounts are phased down for individuals making more than $75,000 ($150,000 for couples) and phased out for individuals making more than $99,000 ($198,000 for couples)

Copyright © 2020 Godfrey & Kahn S.C.

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.