Tag: COVID-19

Temperature Checks: Three Things to Know Before Screening Employees and Customers

As businesses begin the calculated process of re-opening their doors to employees and customers, many are considering implementing temperature checks to monitor for at least one known COVID-19 symptom – the fever.

Beyond nailing down the logistics of temperature checks (e.g., who will perform them, has that person been trained, do employees need to be paid while waiting in line, how will social distancing be maintained, etc.) there are several significant legal considerations that should be evaluated before implementation.

The Illinois Biometric Privacy Act

Some temperature screening devices utilize facial-recognition technology to quickly identify those with fever so that they can be promptly tracked down and removed from the facility. While these systems provide logistical advantages, especially to large employers and retailers, they likely implicate provisions of the Illinois Biometric Privacy Act (BIPA) which can lead to costly litigation and result in stiff penalties for anyone who violates the statute, even unwittingly.

According to BIPA, businesses utilizing this type of facial-recognition technology must obtain advance, written consent from the individuals to be scanned, and must also maintain a publicly available policy that specifies information regarding the collection, use, storage, and destruction of individuals’ biometric information. And, again, these policies and consents must be executed and implemented before temperature screenings begin. It is, therefore, critical to determine whether your temperature screening devices perform facial recognition scans or capture other biometric information.

Confidentiality of Employee Information

Employers screening employee temperatures must also remember they are conducting a “medical examination,” as defined by the Equal Employment Opportunity Commission (EEOC) and would be wise to adhere to the EEOC’s guidance on the issue. This means information collected about employees’ temperature, such as the temperature readings themselves, or the fact that an employee had or has a fever, must be treated as confidential medication information and maintained in a confidential file separate from an employee’s personnel file. Employers should also take care to not divulge the identity of any employee sent home with fever, absent consent from the employee to share that information with other personnel, or a strict need-to-know among involved supervisor(s) or members of human resources.

The California Consumer Privacy Act

California’s sweeping new privacy law, the California Consumer Privacy Act (CCPA), contains broad protection of consumers’ “personal information,” and requires businesses subject to the statute to, among other things, notify consumers when their personal information is being collected. Though body temperature is not explicitly mentioned in the statute, the definition of “personal information” is broad, and includes information that “identifies, relates to, describes, is capable of being associated with, or could reasonably be linked, directly or indirectly, with a particular consumer …” It includes biometric information. Whether an individual’s temperature constitutes personal information is up for some debate, but debates often lead to costly litigation, and it is easy enough to amend CCPA notices to include temperature until that debate is resolved in an effort to avoid litigation altogether.

So, if a business is subject to the CCPA and intends to collect employee or customer temperatures (whether or not with the use of biometric technology), it should consider updating its CCPA notices to include “temperature” (and, if applicable, scans of face geometry) to the list of personal information collected.

© 2020 Much Shelist, P.C.

For more employer COVID-19 guidance, see the National Law Review Coronavirus News section.

PPP Loan – Will You Be Forgiven?

The United States Department of the Treasury (Treasury) and the Small Business Administration (SBA) began issuing information, guidance and rules with respect to the forgiveness piece of the Paycheck Protection Program (PPP) and the loans available under it by the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). These have been much anticipated, especially for those early borrowers in the PPP whose covered period is coming to an end. The SBA recently released the PPP Loan Forgiveness Application (this or the lender’s equivalent is the Application) which provides guidance and instruction on the calculation of the forgivable portion of a PPP loan. The Treasury and the SBA followed the Application up with interim rules “Loan Forgiveness” and “SBA Loan Review Procedures and Related Borrower and Lender Responsibilities” (collectively, First Forgiveness Interim Rules). The Application and the First Forgiveness Interim Rules shed light on a number of the issues surrounding the loan forgiveness process, calculations related to the same and the potential review of PPP loans by the SBA.

A. Loan Forgiveness Process

In order for a borrower to receive forgiveness on all or a portion of its loan amount, the borrower must complete the Application and submit it to its lender. After the lender has determined what portion, if any, of the borrower’s loan is entitled to forgiveness, the lender will advise the SBA of that determination. The SBA will remit the forgiveness amount to the lender (plus any accrued interest) no later than 90 days after receipt of the lender’s determination of the forgiveness amount; provided, however, that such 90 days is subject to extension if the SBA is reviewing the loan, the loan application or forgiveness calculation. The more material aspects of the submission and determination process include:

  • The lender has 60 days after its receipt of the Application to issue its determination to the SBA. That determination can be in the form of: (a) approval in whole or part; (b) denial; or (c) if directed by the SBA, a denial without prejudice due to a pending SBA review of the underlying PPP loan.
  • The SBA may review any PPP loan that it deems appropriate, and the review may include evaluation of: (i) the borrower’s eligibility (i.e., size of employees, accuracy of certifications, etc.); (ii) calculation of the loan amount and use of the proceeds; and (iii) the loan forgiveness determination.
  • The SBA may undertake a review of a PPP loan at any time, including within a 6 year period after the later of: (1) forgiveness of the loan; and (2) the date of repayment in full.  A borrower will be permitted to respond to questions raised by the SBA in its review of such borrower’s PPP loan. If the borrower fails to respond to an inquiry by the SBA, it risks being deemed ineligible for the loan in general or ineligible for forgiveness. A borrower will be able to appeal determinations of the SBA, and further rules will be issued on this process.
  • A borrower that is not eligible for a PPP loan will not receive forgiveness on any portion of the loan, and the SBA may pursue repayment of the loan and other remedies available to it.

Prior to the issuance of the First Forgiveness Interim Rules, it was unclear what role the lender would have in the forgiveness process. The lender is charged with confirming that: (A) borrower has completed the Application; (B) borrower has submitted all other required documentation (see Section C. below for more details); (C) the calculations for loan forgiveness match the supporting documentation; and (D) borrower correctly calculated what percentage of the requested loan forgiveness was used for payroll costs. The lender’s confirmations and review are to be done in good faith, and the lender may rely on the borrower’s representations and documents in conducting such review.

Key Takeaway – The SBA’s ability to review a borrower’s PPP loan will extend well past the forgiveness period process, and a borrower’s lender will be active in the review and submission of the Application. We expect many lenders to include certifications or attestations made by the borrower for the benefit of the lender with respect to the accuracy and completeness of the information and supporting documents provided with the Application.

B. Certifications

The Application requires a borrower to make additional certifications at the time of the loan forgiveness request.

Key Takeaway – The borrower is not recertifying that the economic uncertainty made the loan request necessary to support the ongoing operations of the borrower. The certifications, however, do include:

  • The dollar amount for which forgiveness is requested (a) was used to pay costs that are eligible for forgiveness; (b) includes all applicable reductions due to decreases in the number of FTE employees and salary/hourly wage reductions; (c) does not include non-payroll costs in excess of 25% of the amount requested; and (d) does not exceed 8 weeks’ worth of 2019 compensation for any owner-employee or self-employed individual/general partner, capped at $15,385 per individual. Key Takeaway – Although “owner-employee” is not defined in the Application, this limitation comes in previously issued rules, and more specifically as set forth in 85 CFR 21747, 21749 (April 20, 2020), and we believe it is limited to those employees that are self-employed for federal income tax purposes and file Form 1040, Schedule C, and not to employees who are also shareholders of corporations taxed as C-corporations or S-corporations for federal income tax purposes.
  • If the loan proceeds were knowingly used for unauthorized purposes, the government may pursue recovery of loan amounts and/or civil or criminal fraud charges.
  • Borrower accurately verified the payments for the eligible payroll and non-payroll costs for which forgiveness is requested.
  • The documentation required to verify payrolls costs, the existence of obligations and service (as applicable) prior to February 15, 2020, and eligible business mortgage interest payments, business rent or lease payments and business utility payments were submitted to the lender.
  • The information provided in the Application and information provided in all supporting documents and forms is true and correct in all material respects. The certifying party also certifies that it understands that knowingly making a false statement to obtain forgiveness is punishable under law, including by imprisonment and/or fine.
  • The tax documents submitted to the lender are consistent with those borrower submitted or will submit to the IRS and/or state tax or workforce agency.

C. Documentation

Borrowers are required to submit certain documents and information to its lender along with the Application. This includes the loan forgiveness calculation form and the PPP Schedule A that are part of the Application. In addition, borrowers must provide the following:

  • Documentation necessary to verify the cash compensation and non-cash benefit payments for the payroll costs paid or incurred, including:
    • Bank statements or third party payroll service provider reports documenting the compensation paid to employees.
    • Tax forms (or equivalent reports from third party payroll service providers) for the periods in question, such as (a) payroll tax filings (e.g., Form 941), and (b) state quarterly business or individual employee wage reporting and unemployment insurance tax filings.
    • Payment receipts, cancelled checks or account statements documenting borrower’s contributions to employee health insurance and retirement plans that are included in the forgiveness amount.
  • Documents showing the average number of FTE employees on the payroll per month employed by borrower between either (i) February 15, 2019 and June 30, 2019, or (ii) January 1, 2020 and February 29, 2020, as selected by borrower. A borrower that is a seasonal employer will use the time period it selected, which can be different than the two options above.
  • Documents verifying that existence of the obligations or services prior to February 15, 2020, and the eligible payments of those non-payroll costs included in the forgiveness amount, including where applicable:
    • Business mortgage interest payments, such as lender amortization schedules and receipts or cancelled checks verifying payments, or lender account statements for the relevant periods of time.
    • Business rent or lease payments, such as current lease agreement and receipts or cancelled checks verifying payments.
    • Business utility payments, such as copies of invoices and receipts or cancelled checks, or account statements verifying the payments for the relevant periods of time.

Each borrower should also have available, but it is not required to submit to the lender, such borrower’s PPP Schedule A Worksheet or equivalent, along with (1) documents supporting the listing of each employee in that worksheet, whether the listing is done for salary/hourly wage reduction or exclusion of individuals receiving an annualize rate of compensation of more than $100,000, (2) documents regarding any job offers and refusal, firings for cause, voluntary resignations and written requests by employee for reduction, if applicable, (3) documents supporting the FTE Reduction Safe Harbor calculation on such worksheet. Further, all records related to the borrower’s PPP Loan, such as its application, support for its certifications, its eligibility and support for forgiveness must be retained for 6 years after the later of the date of its loan forgiveness, and its repayment of the loan.

Key Takeaway – The documentation to be submitted to the lender for forgiveness is relatively light. However, the amount of supporting documents and backup that the borrower should have at the ready for a six year plus period is quite extensive.

D. Forgivable Expenses

The Application and the First Forgiveness Interim Rules set forth in greater detail than the CARES Act itself the expenses that a borrower pays or incurs that are eligible for forgiveness. Those expenses are grouped into two categories: (1) payroll costs, and (2) non-payroll costs. In general, to be forgiven, the enumerated expenses must be paid or incurred during the applicable 8-week period.

  1. Covered Period and Paid/Incurred. In general, payroll costs and non-payroll costs are eligible for forgiveness only if they are paid or incurred in the applicable covered period. The Application and new rules provide very meaningful guidance in this area.
    1. Covered Period. First, borrowers have the option of selecting which 8-week period will be used to measure the paid or incurred payroll costs. Borrowers can seek forgiveness for payroll costs for the 8-week period beginning on either: (i) the date of disbursement of the loan proceeds (Original Covered Period); or (ii) the first day of the first payroll cycle in the 8-week period in the Original Covered Period (Alternative Payroll Period). The Alternative Payroll Period provides flexibility to a borrower and helps it align the covered period better to its payroll cycle. The Alternative Payroll Period is not available for non-payroll costs.
    2. Paid/Incurred. The CARES Act indicated that the forgivable expenses of the borrower had to be paid and incurred in the covered period. This created questions surrounding how to measure the same, and whether or not the use of “and” was intended to be conjunctive or disjunctive in nature. The Application and rules greatly simplify the analysis on this front. In short, a borrower can seek forgiveness for appropriate payroll and non-payroll expenses that are paid during the applicable covered period, and for those 5 expenses incurred during the applicable covered period that are paid on the next regular payroll date, or for non-payroll costs on the next regular billing cycle. Payroll costs are considered paid on the day that paychecks are distributed or the day borrower originates an ACH credit transaction. Payroll costs are incurred on the day the employee’s pay is earned (i.e., the day the employee worked).

Key Takeaway – A borrower can submit expenses either paid or incurred in the applicable period so long as they are not double counted. And, unless changed by supplemental rules, a borrower gets the benefit of more than 8 weeks of payroll paid or incurred during the Original Covered Period or the Alternative Payroll Period, as applicable.

  1. Payroll Costs. The new guidance reiterates that forgivable payroll costs is the compensation to employees whose principal place of residence is in the United States during the applicable 8-week period. Compensation includes (a) salary, wages, commissions or similar compensation; (b) cash tips or equivalent (based on borrower’s records of tips or, if no such records, a reasonable good-faith estimate); (c) payment for vacation, parental, family, medical or sick leave; (d) allowance of separation or dismissal; (e) payment for the provision of employee benefits consisting of group health coverage, including insurance premiums, and retirement; (f) payment of state and local taxes assessed on compensation of employees; and (g) for an independent contractor or sole proprietor, wages, commissions, income or net earnings from self-employment or similar compensation. Key Takeaway – The First Forgiveness Interim Rules clarify that compensation payments to furloughed employees in the applicable 8-week period are eligible for forgiveness (subject to the $100,000 annualized cash compensation limitation). In addition, if an employee’s total cash compensation does not exceed $100,000 on annualized basis, the employee’s hazard pay and bonuses are eligible for forgiveness. Finally, the amount of forgiveness requested for owneremployees and self-employed individuals’ payroll compensation can be no more than the lesser of 8/52 of 2019 compensation or $15,385 per individual in total across the business (see commentary in Section B. on the definition of “owneremployee”).
  2. Non-Payroll Costs. While the Application and latest rules do not define payroll costs and non-payroll costs specifically, they do shed light on a few questions surrounding the items includable in those categories. Generally, the Application and the rules reiterate that non-payroll costs that are potentially forgivable are (a) interest payments on business mortgage obligations on real or personal property that were incurred before February 25, 2020 (but not any prepayment or payment of principal); (b) payments on business rent obligations on real or personal property under a lease agreement in force before February 15, 2020; and (c) business utility payments for the distribution of electricity, gas, water, transportation, telephone or internet access for which service began before February 15, 2020.

Key Takeaway – Payments under rental or lease agreements for personal property are eligible for forgiveness. And, the SBA confirmed prepayment of interest is not a forgivable use of PPP loan proceeds.

E. Reduction in Forgiveness Mechanics

The SBA also addressed and answered several outstanding questions related to the reductions for forgiveness required under the CARES Act and the rules promulgated thereunder, including those for reduction in work force (including furloughs and reduction in hours) or employees’ wages. Additionally, the SBA created several borrower-friendly exemptions in the process, relying on “administrative convenience” and the statutory authority to grant de minimis exemptions. Several of the First Forgiveness Interim Rule’s questions and answers are worthy of note, but with guidance still ever-changing and regulations still to follow, we advise seeking counsel and reviewing the most up-to-date guidance before calculating whether a PPP loan is subject to a reduction in forgiveness.

  1. Order of Application. There are specific instances where the amount of forgiveness can be reduced. Those instances are when there is a reduction in employee pay level, a reduction in the number of FTEEs, and more than 25% of the amount sought to be forgiven is related to non-payroll costs. Before issuance of the Application, it was not clear in what order these potential reductions were to apply, and how they would interact. Key Takeaway – The reductions are to be applied by first addressing the reduction in employee pay level, then the reduction for any decrease in FTEEs, and finally calculation of any reduction needed because more than 25% of the amount applied for forgiveness is attributable to non-payroll costs.
  2. Employees Who Refuse to Come Back to Work. Prior guidance indicated that if a borrower offered to restore an employee to its prior wage/hours/employment status and the employee refused, that employee would not be counted against the borrower in calculating forgiveness. This was codified in the First Forgiveness Interim Rules, which also applied this exemption to situations where the borrower had previously reduced the hours of the employee and offered to restore the employee to the same salary or wages. Key Takeaway – The First Forgiveness Interim Rules provided a five-part test for borrowers to qualify for the exemption. The test includes that the borrower must make a good faith offer to rehire or restore the reduced hours to the same salary or wages and same number of hours as earned by the employee in the last pay period prior to the separation or reduction in hours. The offer must be rejected by the employee, and the offer and rejection must be documented. The borrower must inform the state unemployment office of the rejected offer within 30 days of the employee’s rejection of the offer.
  3. Effect of a Reduction in Full-Time Equivalent Employees (FTEEs). When calculating a reduction in forgiveness based on a reduction in FTEEs, the borrower is to divide the average number of FTEEs during the Original Covered Period or the Alternative Payroll Period by the average number of FTEEs during the “reference period,” with the total eligible expenses available for forgiveness reduced proportionally by the percentage of reduction in FTEEs. In prior publications, the SBA had suggested that the borrower may not be able to choose the reference period (as had initially been suggested by the language of the CARES Act) and that borrowers that were in business prior to February 15, 2019 had to use February 15 to June 30, 2019 as the reference period.  Key Takeaway –The SBA made clear that the borrower will have a choice in selecting the reference period, which should allow most borrowers to choose the reference period that minimizes any reduction to forgiveness based on a reduction in workforce. Most borrows have two choices in determining the reference period to calculate any reduction of forgiveness due to a reduction in FTEEs: (a) February 15-June 30, 2019, or (b) January 1-February 29, 2020. Seasonal employers, however, could also choose any consecutive 12-week period between May 1 and September 15, 2019.
  4. Calculating FTEEs. FTEE calculations are determined on a 40 hour work week. Any employee who works 40 hours or more is considered one FTEE. However, the SBA creates two options for calculating FTEEs when it comes to employees who work less than 40 hours per week. The borrower must apply the option it selects consistently for calculating both the reference period and the Original Covered Period (or the Alternative Payroll Period), and for all employees. The first option is to calculate the actual numbers a part-time employee was paid per week and divide that number by 40. The second, alternative option—created for administrative convenience—is to use a full-time equivalency of 0.5 for each part-time employee, without concern to the actual hours the employee worked. Key Takeaway – The second option for calculating FTEEs will be significant for certain borrowers, like those in retail and restaurant industries, who are slowly re-opening at reduced capacity, and often have a significant portion of the staff working less than 40 hours a week. While we advise seeking counsel prior to making a choice between the two options provided, the creation of the second option may allow some borrowers to mask small reductions in hours for individual employees that are likely to occur as the borrower is reopening at reduced capacity. Of note, this option does not exempt these part-time employees from calculating a reduction in forgiveness due to a reduction in salary, nor does it change the requirement that at least 75% of the forgivable amount be actually spent on payroll costs.
  5. Effect of a Reduction in Employees’ Wages on Forgiveness. The SBA made clear that the reference period for calculation in wage-reduction was January 1 through March 31, 2020 and that the reduction is based on a per employee basis (not in the aggregate). Key Takeaway – Borrowers will not be doubly penalized for a reduction in FTEEs when calculating reductions in forgiveness. If a borrower merely reduces hours but does not change the salary/wage of the employee, the SBA indicates that the borrower will not also suffer a reduction in forgiveness for a reduction in wages. Likewise, terminating an employee should not also count as a reduction in wages to that employee. 
  6. Safe Harbor for Rehiring. The CARES Act provides for a safe harbor period for any borrower who saw a reduction in FTEEs or employee wages from February 15 through April 26 (30 days after the Act was enacted), but cures those reductions by June 30, 2020. Key Takeaway – The rules provide that a borrower who saw reductions to FTEEs or wages during the safe harbor period, but cures such reduction by June 30 will suffer no reduction in forgiveness for that employee. However, even with this 8 effort for clarity, borrowers should seek counsel before calculating safe harbor exemptions to reductions in forgiveness, as, for example, an employee who was laid off on February 14 is treated differently than one laid off on February 15, and an employee who had wages reduced on April 26 is treated differently than one whose wages were reduced on April 27.
  7. Employees fired for cause or voluntarily causes reduction in hours. The First Forgiveness Interim Rules give a borrower a better understanding of what employees or former employees count in the FTEE calculations, and certain terminations of employment will not be counted against the borrower. Key Takeaway – The SBA created an exemption not contemplated by the CARES Act. Specifically, when an employee is fired for cause, voluntarily resigns, or voluntarily requests a reduction of hours during the covered period, the borrower may count such employee as the same FTEE level as before the event when calculating the FTEE penalty. This would likely include employees who abandoned positions after being offered to return to work, even if the employee did not formally reject the offer as otherwise required in Section E.2 above. However, the SBA cautioned borrowers that the borrower must maintain records (for up to six years) demonstrating the employee was fired for cause, voluntarily resigned or requested a reduced schedule, and must provide the records upon request of the SBA.

F. Questions that Remain Unanswered.

While the Application and the First Forgiveness Rules addressed several issues surrounding the forgiveness aspects of the PPP, borrowers will be waiting and watching for further issuances by the Treasury and the SBA on questions not yet addressed. Some of those items are:

  • Will lenders be able to extend the 6 month deferment on the repayment of the PPP loan so as to allow the forgiveness process to be completed, or will a borrower need to start making payments based on the lender’s determination of forgiveness?
  • If a borrower has multiple payroll cycles (e.g., bi-weekly and monthly), does it only get to use the Alternative Payroll Period once, or can it elect to change the Original Covered Period for each payroll cycle?
  • Are retirement plan contributions, which are not monthly payroll cycle matches, but instead discretionary in nature, a forgivable expense if paid during the applicable covered period?
  • Is there a deadline for a borrower to make the request for forgiveness?
  • Can PPP loan proceeds be used for permissible purposes after June 30, 2020, or if not spent by then do they need to be returned to the lender? We expect even more guidance and interim rules on the loan forgiveness aspects of the PPP to be forthcoming.

© 2007-2020 Hill Ward Henderson, All Rights Reserved

For more on SBA’s PPP loan see the National Law Review Coronavirus News section.

CDC’s Detailed Guidance to Reopen Businesses

The Center for Disease Control (“CDC”) has issued 60 pages of detailed guidance to reopen businesses, health care facilities and providers, schools, transit, and other industries. This guidance also provides information regarding testing and data to assist with exposure and risk concerns for those industries. The following is an overview of the topics addressed in the newly released guidance.

  • High Risk Employees: Employers with workers at high risk are recommended that they self-identify and employers should avoid making unnecessary medical inquiries. Employers are encouraged to offer options to telework if possible, or duties that minimize their contact with customers and other employees.
  • Restaurants and Bars: Restaurants and bars may reopen utilizing social distancing and reduced capacity. The CDC also recommends formal policies in place to enforce proper hygiene, including the use of cloth facemasks and encourage employees to stay at home if ill. Employers are advised to follow applicable OSHA guidance as well.
  • Surveillance Systems: The CDC sets forth sample surveillance systems to assist with capturing all parameters of the pandemic, including testing, contract tracing and other guidance regarding limiting exposure. This guidance offers details for local and state health departments related to testing efforts and best practices to assist with controlling the spread of the disease and gating criteria.
  • Schools: The CDC recommends that schools remain closed and continue virtual learning. Schools may slowly reopen pursuant to the reopening guidelines, including recommendations for spacing students six feet apart and staggering lunch periods, along with increased social distancing for students and staff. If an individual is diagnosed with COVID-19 schools may consider closing for a short time (1-2 days) for cleaning and disinfection.
  • Summer Camps: At this time, the CDC recommends that summer camps provide services only to children of essential workers and those who live in local geographical area.
  • Child Care: Child care programs should be gearing up to reopen and the guidance sets forth interim guidance to assist with the gradual scale up for operations. Step one restricts daycares to children of essential workers; step two expands daycare services to all children with enhanced social distancing measures; Step three remaining open for all children with social distancing measures.
  • Mass Transit: Mass transit is recommended to consider revising its routes based on local virus spread and advised to coordinate with local health officials.

The list above is not exhaustive, and the latest guidance provides roadmaps for businesses in various industries as they navigate this new normal. Specific to businesses, the CDC’s May 21, 2020 changes include:

  • Updated cleaning and disinfection guidance
  • Updated best practices for conducting social distancing
  • Updated strategies and recommendations that can be implemented now to respond to COVID-19

Related CDC links for businesses include:

For guidance on reopening within Wisconsin, review the Wisconsin Economic Development Corporation’s (WEDC) Reopen Guidelines linked here. WEDC offered general guidelines as well as customized guidance for each industry.

© 2020 Davis|Kuelthau, s.c. All Rights Reserved

For more on business reopening, see the National Law Review Coronavirus News section.

Legislation Enabling Policyholders to Obtain Insurance Coverage for Coronavirus Claims is Constitutional Part 1

On top of its human toll, the coronavirus pandemic has had massive economic effects.  Stay-at-home orders, which remain in place in much of the United States, have resulted in massive layoffs, spiraling claims for unemployment compensation, and unprecedented federal aid.

Many businesses affected by the pandemic have turned to their insurers seeking “business interruption” coverage.  As its name suggests, this coverage typically reimburses the policyholder for costs incurred when the business is unable to open.  Insurers have denied policyholders’ pandemic-related claims, contending that they only have to cover business interruption that results from a “physical injury” and that the damage that results from infestation with the coronavirus or a governmental shutdown order does not constitute “physical injury.”  Insurers have also cited the exclusions in many of their policies that purport to bar coverage for virus-related injuries.

Legislative Responses to the Crisis

One response to the insurance industry’s position has been introduction of legislation voiding virus exclusions and/or defining physical injury to include coronavirus.  New Jersey, Massachusetts, Ohio, New York, Pennsylvania, and South Carolina are all considering such legislation.  The proposed bills generally provide that, notwithstanding any other law or policy language to the contrary, every insurance policy that insures against loss or damage to property which includes the loss of use and occupancy and business interruption shall be construed to include coverage for business interruption resulting from COVID-19.  The bills typically provide mechanisms for insurers to seek reimbursement from a state established and managed fund for losses paid related to COVID-19.

Insurance Industry Responses to the Proposed Legislation

Predictably, the insurance industry has objected to this legislation.  For example, in a recent interview, Evan Greenberg, CEO of Chubb, said in an interview on CNBC state governments can’t force insurance companies to cover incidents not included in the policy.  “You can’t just retroactively change a contract. That is plainly unconstitutional,” Greenberg told “Mad Money” host Jim Cramer.  See https://www.cnbc.com/2020/04/16/chubb-ceo-making-insurers-cover-pandemic-losses-is-unconstitutional.html.

Law firms that defend insurers have similarly argued that “This proposed legislation …., is unfair and is likely unconstitutional, as it appears to run afoul of the Contracts Clause of the Constitution.”   That Clause prohibits States from “pass[ing] any . . .  Law impairing the Obligation of Contracts . . . .”  U. S. Const., Art. I, Sec. 10.  The insurer lawyers contend that “the proposed legislation would substantially impair insurance policies, as [it] would operate to rewrite policies to cause them to cover a risk they do not currently cover.…”   While acknowledging that the Supreme Court has upheld state laws that impair contracts, so long as they are reasonably tailored to fulfill a legitimate interest, insurer counsel contend that such laws are still unconstitutional.  Counsel claim that the proposed laws do not fulfill a legitimate interest because they “arguably benefit[] only a narrow class of businesses; the public at-large is only an indirect beneficiary.”  Id.  And counsel assert that the proposed laws are not “appropriate and reasonable” because they “attempt[] to shift the responsibility of providing financial assistance to small businesses from the government to certain insurance companies. . . .” Id.

Why the Insurance Industry Is Wrong about the Contracts Clause

This analysis is simply mistaken.  The case law interpreting the Contracts Clause demonstrates that legislation designed to provide relief to policyholders is constitutional.

As discussed below, under the cases, courts have established a balancing test that weighs the extent to which the challenged legislation contravenes contractual expectations against the purpose of the legislation and the means used to achieve that purpose.  Under that test, the proposed legislation is constitutional.

Basic Principles

The range of state legislative actions that can affect contractual relationships is broad. For instance, a state statute may render a contract wholly illegal.  See Stone v. Mississippi, 101 U.S. 814, 819 (1879) (upholding state statute outlawing lottery against claim that it violated contract rights of lottery company).  Or a statute may directly change the term of a contract.  E.g., United States Trust Co. v. New Jersey, 431 U.S. 1, 3 (1977) (state law abrogated covenant in contract with holders of state bonds); Home Bldg. & Loan Ass’n v. Blaisdell, 290 U.S. 398, 416 (1934) (state law modified foreclosure provisions in mortgages).  Even a law that has nothing to do with either the express terms of the contract or its subject matter can affect the parties’ allocation of risk, such as a law that changes the statute of limitations for contract actions.  See J. Ely, Jr., Whatever Happened to the Contract Clause?, 4 Charleston L. Rev. 371, 377 & n.48 (2010) (discussing Contracts Clause cases involving statutes of limitations).

Yet, as the Supreme Court has made clear, “it is not every modification of a contractual promise that impairs the obligation of contract under federal law.”  City of El Paso v. Simmons, 379 U.S. 497, 506–07 (1965).  Even though the language of the Contracts Clause is  “facially absolute,” Energy Reserves Group v. Kansas Power & Light Co., 459 U.S. 400, 410 (1983), “the prohibition against impairing the obligation of contracts is not to be read literally,” Keystone Bituminous Coal Ass’n v. DeBenedictis, 480 U.S. at 502.  Rather, “[t]he States must possess broad power to adopt general regulatory measures without being concerned the private contracts will be impaired, or even destroyed, as a result.”  United States Trust Co. v. New Jersey, 431 U.S. at 22.  In other words, the ban on impairment of contracts “must be accommodated to the inherent police power of the State ‘to safeguard the vital interests of its people.’’’  Energy Reserves Group, 459 U.S. at 410, quoting Home Bldg. & Loan Ass’n v. Blaisdell, 290 U.S. at 434.

Though not specifically referenced in the Constitution, the “police power” gives state legislatures broad leeway to pass laws to protect the public health, safety, and welfare.  The classic case is Stone v. Mississippi, 101 U.S. 814 (1879).  There, a state statute outlawing lotteries was challenged by a company that had previously obtained a charter from the state to run a lottery.  Rejecting the challenge, the Court held that the state’s power to shield the public from the evils of gambling trumped the contract rights of the lottery company.  Id. at 819.  Over time, the definition of the police power expanded to include a wide variety of laws designed to protect the public.  See, e.g., Home Building & Loan Association v. Blaisdell, 290 U.S. 398, 444 (1934) (Great Depression “furnished a proper occasion for the exercise of the reserved power of the State to protect the vital interests of the community” by providing for mortgage relief for financially strapped homeowners); Manigault v. Springs, 199 U.S. 473, 480 (1905) (even if contract for sale of alcohol was permissible when made, state could later prohibit such sales without violating Contracts Clause).

As we’ll discuss in the next part of this post, since the New Deal, the Supreme Court has generally applied these principles to uphold state legislation against challenges brought under the Contracts Clause.  We’ll also discuss how these basic principles have been applied by lower courts in insurance coverage cases and why we think the proposed legislation passes muster under the Constitution.

© 2020 Gilbert LLP

ARTICLE BY Mark A. Packman of Gilbert LLP.
For more business policies & the coronavirus, see the National Law Review Insurance, Reinsurance, and Surety law section.

How Outdoor Sports and Recreation Operations Can Legally Protect Themselves in a Post COVID-19 Environment

There is a world history of pandemics that, at one point or another, crippled civilizations or dynasties.  In America’s more recent history, our country has experienced the Spanish Flu (1918 – 1920), the Asian Flu (1957 – 1958), and the H1N1 Swine Flu (2009 – 2010).  Though the Swine Flu is in our society’s most recent memory, the current Coronavirus infection and death numbers have already surpassed the total Swine Flu infection and death numbers.  The Coronavirus (COVID-19) has wreaked havoc on Americans and their interactions with each other because of the rapid rate at which the virus spreads.  Businesses have been impacted due to governmental orders to temporarily close or greatly reduce their services.  But with proper action, the spread of the virus will slow, the economy will rebound, and people will return to the extracurricular activities they enjoy.

As our country presses forward, the Coronavirus will change the way business owners conduct business – including operators in the outdoor sports and recreation business.

On May 5, 2020, North Carolina Governor Roy Cooper signed Executive Order No. 138 (the “Order”), which modifies Executive Order No. 121 (also known as The North Carolina “Stay at Home” Order).  The Order signaled the beginning of Phase 1, effective 5:00 p.m. on May 8, 2020, and the gradual reopening of North Carolina.  On May 20, 2020, Governor Cooper signed Executive Order No. 141, which outlines “Phase 2” of reopening North Carolina and will begin on May 22, 2020, at 5:00 p.m. (also known as the North Carolina “Safer at Home” Order).  The Order removes the distinction between essential and non-essential businesses, which were defined in Executive Order No. 121, thus allowing many businesses originally deemed non-essential to reopen.  Additionally, the Order explicitly provides that outdoor activities are allowed and that day camps and programs for children and teens are permitted to resume if they are able to adhere to certain guidelines and social distancing requirements.  Phase 2 allows for overnight camps for children and teens to resume, also as long as requirements are met.  As North Carolina moves through Phase 1 and into Phase 2, several state parks will reopen to the public.  Phase 2 does not permit Mass Gatherings of more than ten people indoors or more than twenty-five people outdoors nor does it allow for indoor fitness facilities to reopen.  Please click HERE for a summary of what Phase 2 allows and does not allow.

As outdoor sports and recreation businesses prepare to eventually reopen, business owners should evaluate their legal documents to determine if the business is adequately protected in the event of this continuing pandemic or another pandemic.  Two items to consider are the contractual language in event contracts and liability waivers.

Update Contractual Language Regarding Event Cancellation or Postponement

Outdoor sports and recreation businesses that provide services such as race organization, adventure vacations, guided excursions, exhibition management, or outdoor recreation conference organization have been forced to cancel or postpone events if the event was scheduled to take place during one of the many state or local government orders to shut down.

Businesses that plan these events often expend costs associated with the event as the planning progresses.  In light of the Coronavirus, most businesses should revise their contractual language involving event production, especially in cases where there is a “no refund” policy.

If the current contractual language does not address governmental orders related to government-ordered shutdowns, pandemics, or does not contain a force majeure provision, then the contract likely should be revised to include such provisions.

The contractual language that addresses pandemics and governmental orders to shut down can help limit the business’s financial liability in the event of event cancellation or postponement due to a future pandemic or governmental order to shut down.

Update Liability Waivers

Outdoor sports and recreational activities come with inherent risks for participants and sometimes even for event spectators.  When a participant or spectator gets injured during the activity, there is potential liability exposure to the other participants, the event organizers, and the activity providers.  Liability exposure is greatly reduced with a proper liability waiver signed by the participant or agreed to by the spectator before the activity begins.

There are several key components to an effective liability waiver.  One such component is the assumption of risk provision.  This provision identifies (1) the activity at hand, (2) the inherent risks associated with engaging in or observing such activity, and (3) that these risks cannot be eliminated no matter the level of care taken to avoid injury.

In light of the Coronavirus, outdoor sports and recreation business owners should examine the assumption of risk provision in their liability waivers.  They should seek legal guidance in adding language to provide that participants are at risk of coming into contact with certain communicable diseases or viruses similar to COVID-19.  The waiver should also be updated to reflect that participants agree to waive claims arising from injury, illness, or death associated with these assumed risks.

Many runners and tri-athletes are looking eagerly to the day when they will once again be allowed to sign up for and compete in races and events. Others are awaiting the return of guided white-water rafting trips, lazy days floating on a tube down a local river, or visiting an adventure center to challenge themselves on a ropes or zip line course.  Owners of these outdoor sports and recreation operations should use this time to get their documents in order to protect themselves against potential future lost revenue or liability in the event of another pandemic or if a government order to shut down occurs.

© 2020 Ward and Smith, P.A.. All Rights Reserved.

For more on the return of sports, see the National Law Review Entertainment, Art & Sports law section.

Sweeping Executive Order on Deregulation Seeks to Spur Post-Pandemic Economy

President Trump signed an Executive Order (Order) this week to alter or eliminate regulations that the Administration maintains hamper economic recovery as the nation emerges from the COVID-19 pandemic.

The Regulatory Relief to Support Economic Recovery Order calls on agencies across the federal government to use emergency authorities provided under the Administrative Procedures Act to swiftly rescind, modify, waive or provide exemptions from regulations and other requirements that inhibit job creation and economic growth.  It further calls on agencies to consider permanently rescinding or modifying any regulations that were temporarily halted in response to COVID-19. The Order notes that it does not change agencies’ statutory obligations.

The Order also directs enforcement discretion by agencies for businesses that make good-faith attempts to follow agency guidance and regulations during the pandemic.  It establishes the following “principles of fairness” that are to be followed in enforcement and adjudication:

  • The Government should bear the burden of proving an alleged violation of law; the subject of enforcement should not bear the burden of proving compliance.
  • Administrative enforcement should be prompt and fair.
  • Administrative adjudicators should be independent of enforcement staff.
  • Consistent with any executive branch confidentiality interests, the Government should provide favorable relevant evidence in possession of the agency to the subject of an administrative enforcement action.
  • All rules of evidence and procedure should be public, clear, and effective.
  • Penalties should be proportionate, transparent, and imposed in adherence to consistent standards and only as authorized by law.
  • Administrative enforcement should be free of improper Government coercion.
  • Liability should be imposed only for violations of statutes or duly issued regulations, after notice and an opportunity to respond.
  • Administrative enforcement should be free of unfair surprise.
  • Agencies must be accountable for their administrative enforcement decisions.

Finally, the Order instructs agencies to provide pre-enforcement rulings, permitting businesses to ask an agency for a determination on whether some proposed conduct in the business’s response to COVID-19 is allowable.

IMPLICATIONS AND OUTLOOK

The Order is consistent with the longstanding stated desire by the Administration to reduce regulatory burdens.  It has the potential to alter the regulatory landscape across a wide array of industries. The Order could impact virtually any regulation from the numerous government agencies that promulgate rules, including financial regulations, environmental protections, and agricultural production and distribution guidelines, among many others.

In addition to ordering the rescission or modification of current regulations, the White House is calling on agencies to speed up the rulemaking process, including moving proposed rulemakings to interim final rules with immediate effect. This will likely draw resistance and possibly litigation from organizations that have already opposed the Administration’s approach on regulatory reforms.

The Order’s provisions on pre-enforcement rulings supersedes the provisions contained in Section 6 of Executive Order 13892, which establishes principles for using guidance in civil administrative enforcement, in an effort to provide faster compliance feedback to companies looking to reopen so they can proceed with the confidence that doing so will not trigger violations of the governing laws or regulations.

The “principles of fairness” detailed above seek to provide another level of legal cover for regulated entities. However, the extent to which the Order would provide protection for businesses against pandemic-related liability would be limited.  This has been a particularly challenging issue among lawmakers as the next legislative response package is developed.  While Senate Majority Leader Mitch McConnell (R-KY) has stated that liability protections for business must be included in the next relief bill, House Speaker Nancy Pelosi (D-CA) opposes such provisions.

Although it remains to be seen how agencies will respond to the Order, it is likely that they will look to the businesses and industries they regulate to assist them in identifying regulations that should be rescinded or modified.

© 2020 Van Ness Feldman LLP

For more on government regulations, see the National Law Review Administrative and Regulatory law section.

Michigan Ramps Up Workplace Safety Regulations and Enforcement Powers Under New Executive Order

Gov. Whitmer released detailed new workplace safety regulations on Monday, May 18, 2020 through Executive Order 2020-91 (Order). The Order also provides the State of Michigan with enhanced enforcement capabilities and greater consequences for employers who disregard the rules. The Order does not identify an expiration date for the new workplace rules.

New Workplace Safety Rules

The Order sets out 17 general workplace safety rules that apply to all employers who are conducting in-person operations during the coronavirus pandemic, pursuant to Executive Order 2020-92. While some of these workplace safety rules are restated from previous executive orders, others – such as the requirement that employers designate one or more workplace supervisors to oversee COVID-19 control strategies – are new. New rules include mandated COVID-19 employee training and the development of a daily entry self-screening protocol for all employers.

In addition to the general workplace safety rules, the Order identifies numerous industry-specific workplace safety rules to combat the spread of COVID-19. Industries that must comply with these specific rules are: employers whose work is performed outdoors; construction; manufacturing; research laboratories (excluding labs that perform diagnostic testing); retail stores that are open for in person sales; offices; and restaurants and bars.

Enhanced Enforcement Powers

Previously, employers who failed to follow COVID-19 workplace safety rules were subject to a misdemeanor punishable by up to a $500 fine and/or 90 days in jail. The Order now provides two new routes for enforcement. First, the workplace safety rules are given the force and effect of regulations adopted by the state agencies that oversee workplace health and safety. Such agencies are given full authority to enforce the rules, and any challenges to penalties must move through the agencies’ administrative appeals process. Second, the Order states that violations of the workplace safety rules are also violations of the Michigan Occupational Health and Safety Act (MIOSHA). As a result, Michigan’s Occupational Safety and Health Administration will have the authority to conduct investigations into violations, issue penalties and distribute cease operation orders.

In addition, because the Order mandates employee training on how to report unsafe working conditions, employers should anticipate the possibility of such internal reports or MIOSHA investigations. Employers should also be mindful not to retaliate against employees who file such complaints.

© 2020 Varnum LLP

For more on worker safety measures in states and federally, see the National Law Review Labor & Employment Law section.

WEDC Small Business Grant Programs

Wisconsin Gov. Evers announced a new $75 million grant program for small businesses that will provide $2,500 grants to assist with the costs of business interruption, health and safety improvements, salaries, rent, mortgages, or inventory. The grants will be available to businesses impacted by COVID-19 with 20 or fewer full-time employees who have not already received COVID-19 assistance from the Wisconsin Economic Development Corporation (WEDC).

The grant program will be administered by the WEDC as part of its its “We’re All In” initiative, and will begin taking applications in June. Grant recipients will also commit to using safety protocols for their customers and employees. WEDC will provide additional guidance on the program later this month. The grant program is primarily funded by the federal government through the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).

WEDC has also created the Ethnic Minority Emergency Grant (EMEG) initiative to award grants of $2,000 to ethnic-minority owned businesses with five or fewer full-time employees in the retail, service, or hospitality sectors. Eligible businesses must not have received funds through WEDC’s Small Business 20/20 program, the CARES Act, or the Paycheck Protection Program (PPP). The business must also have started before 2020, and will need to provide proof of being in business as of February 29, 2020.

The EMEG initiative will accept applications from May 18-24, 2020. A total of $2 million will be available to 1,000 Wisconsin micro-businesses. If the applications received exceed the funds available, companies that meet the program criterial will be selected at random. For more information on this program and a link to the application page, please see WEDC’s Minority Business Development page.

©2020 von Briesen & Roper, s.c

For more on small business loans amid the COVID-19 pandemic, see the National Law Review Coronavirus News section.

Reporters Are Pushing to Reveal CARES Act Beneficiaries. Is Your Firm Prepared for Tough Questions?

As law firms continue to announce restructuring, furloughs and layoffs in response to the economic emergency caused by the coronavirus, CMOs and marketing directors of small to midsize firms are quickly realizing they may have to contend with a corresponding PR crisis: their firms’ financials are under increased media scrutiny.

That’s because reporters across the legal and mainstream media are pushing the Small Business Administration and Treasury Department to make public the names of companies that accepted assistance through the various programs created through the Coronavirus Aid, Relief, and Economic Security (CARES) Act, including the Payroll Protection Program and Economic Injury Disaster Loans.

We all saw the stories back in March of billion-dollar-plus companies whose bailouts depleted the PPP fund within days, only to be forced, sheepishly, to return the money after the public outcry. Obviously, midmarket firms are far smaller than those companies in both staff and revenue, but seeing so many powerful corporations take advantage of government support that was intended to help the little guy has made the public skeptical and even hostile toward any business larger than the corner hardware store who received government help.

Add to this inhospitable climate the lack of clear guidance for borrowers and grant recipients on how the money can be used, and all law firms who participated, even those working in good faith to stay well within the bounds of eligibility requirements, could face damage to their reputations. This is particularly true for law firms that predominantly serve small business clients. How will those clients respond if they learn their lawyers received the funding when they themselves struggled to secure it to protect their own business?

One thing we know for sure: this information eventually will be made public, whether the government releases it or it is leaked to reporters at the Washington Post or ALM. Therefore it is critical for CMOs and marketing directors to create a plan for how they will respond if their firm’s name is likely to show up on the list.

Anytime negative media coverage hits, firms have a few options:

  1. Say nothing. Hope for the best. Maybe your firm will show up so far down the list that no one will notice?
  2. Wait for the information to become public and then issue a statement confirming the barest set of facts.
  3. Confirm the facts and make a spokesperson available for interviews.
  4. Proactively disclose your participation in CARES Act programs, explaining why you did so, focusing on the jobs you’re protecting and describing your firm’s plans for weathering the coming months.

While many firms are banking on option #1 and hoping to benefit from chaotic news cycles and short attention spans, there is a risk that they could be underestimating the blowback they may face. If you remain silent while reporters write stories about your firm, your clients and prospects will tend to fill the information vacuum with their own speculation.

The smarter play is to deploy some combination of the other three options, and what that plan looks like will depend on strategic coordination with firm leadership and your answers to a few key questions, such as:

How will your most important clients react to the news that your firm received CARES Act support? Some clients will be relieved to know their law firm is on solid ground and can continue to provide uninterrupted service. Others might question the firm’s underlying financials or, as mentioned above, react with resentment that a business with revenue in the nine figures is displacing a small business. Predicting key clients’ responses to the news will allow you to create a media strategy that defuses criticism and shapes a more positive narrative about why the firm accepted the government support. Think about all the messages you’ve sent over the years about who you are and what you value as a firm. If leadership’s decision-making here was consistent with those messages and values, you’re in good shape.

Has your firm eliminated jobs, and does it plan to? One of the most important and well publicized terms of the PPP is that, in order for the loans to be forgivable, 75% of the funding must be used to cover payroll. This is intended to protect as many jobs as possible. That doesn’t necessarily mean that moving ahead with job eliminations violates the terms of the loan, which can be repaid, in full or in part, at a 1% interest rate. But taking PPP funds and cutting jobs will raise eyebrows. Timing here is key. Did your firm lay people off and then take the funding? Could that be perceived as funneling the benefits to members of the firm who already receive the highest compensation? These are the kinds of questions reporters will be asking; leaders need to be prepared to answer them.

Has your managing partner and other members of the c-suite agreed to sacrifice some of their own compensation? If your firm decides to take the most proactive course and disclose its status, it’s crucial to use that opportunity to tell the most compelling story of why you did so. Of course, every managing partner has sent out a reassuring email to the firm in the past few weeks that says some version of “We’re all in this together,” but this message is a lot more meaningful when leadership can point to actual sacrifices they’ve made to try to save people’s jobs.

One positive development around the CARES Act programs is that now, some weeks after the disastrous rollout and the better-managed second round of PPP loans, businesses are no longer in competition with each other to get needed support. The sense that this is a zero-sum game has subsided, and that’s good news for midsize law firms that may need to disclose their participation. Still, marketers must think carefully about how to engage with the media on this sensitive and still-evolving issue. Don’t wait until a reporter calls to decide what you’re going to say.

© 2020 Page2 Communications. All rights reserved.

For more on the SBA PPP Loan, see the National Law Review Coronavirus News section.

IMS Insights Episode 11: COVID-19 Analysts Briefing on Litigation Impacts

To better understand how the COVID-19 pandemic is impacting the commercial litigation community, IMS ExpertServices conducted analysis and gathered input during the first half of April from more than 400 attorneys, in-house counsel, experts, and stakeholders throughout the commercial litigation community.

In this special podcast feature, you’ll hear commentary from the April 30 Analysts Briefing hosted by IMS on the study’s top findings and other key trends for commercial litigators, with discussion from a panel of thought leaders including:·

·         James Crane, Chief Revenue Officer at IMS ExpertServices

·         Rudhir Krishtel, Certified Co-Active Coach and Facilitator with Krishtel Coaching, Former Senior Patent Counsel at Apple, Former Partner at Fish & Richardson, and IMS Thought Leader and Contributor

·         Nate Robson, Litigation Editor at The American Lawyer

·         Eilene Spear, Operations and Project Manager at The National Law Review

·         Ty Sagalow, Commercial insurance expert and IMS thought leader and contributor

© Copyright 2002-2020 IMS ExpertServices, All Rights Reserved.

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