Tag: COVID-19

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Reuters has reported that Gray Television Inc. has withdrawn its $8.5 billion offer to buy Tegna Inc. due to the potential impact of the COVID-19 outbreak on regional TV stations like those operated by Tegna.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.

NLRB Ends Suspension of Union Representation Elections

Amid the ever-increasing impact of the COVID-19 crisis across the country, the National Labor Relations Board (“NLRB” or “Board”) announced on Wednesday that the two-week freeze on representation elections currently in effect would end on April 3, 2020.  In the weeks leading up to the nationwide postponement of elections, which included both manual and mail ballot elections, the Board implemented an agency-wide telework policy and announced the closure of several Regional Offices.  According to the Board’s website, at least six Regional Offices remained closed as of March 30, 2020, with another 14 Regional and Subregional Offices closed to the public.

In the press release announcing the moratorium on elections, the Board stated that the two-week suspension was “necessary to ensure the health and safety of our employees, as well as those members of the public who are involved in the election process.”

Concerning the resumption of elections, NLRB Chairman John Ring stated on Wednesday that the Board’s “General Counsel now has advised that appropriate measures are available to permit elections to resume in a safe and effective manner, which will be determined by Regional Directors.” Neither that announcement nor any other documents made public by the NLRB to date have explained those measures, though most observers anticipate that the NLRB will move to a greater if not exclusive reliance on employees voting by mail ballots.

In a letter to Chairman Ring the day before the NRLB announced that it would resume elections, Representative Bobby Scott (D-VA) urged the Board “to permit Regional Directors to direct elections to take place as soon as practicable if, in their discretion, the elections can safely be done, especially when considering the possibility of mail ballots.”  The announcement the Board issued the following day, however, does not require that forthcoming elections be conducted by mail ballot only, or provide any specific parameters for conducting elections as the effects of the COVID-19 crisis continue to mount.

As a practical matter, mail ballot elections appear to be the most likely manner of conducting elections in the immediate future given the growing restrictions implemented by the Federal, state, and local governments to curb the spread of COVID-19 cases.  Informally, some NLRB Regional Offices have indicated that they are preparing guidance regarding procedures for the resumption of elections, and will release such guidance once finalized.  Other Regional Offices have indicated that they are not presently scheduling any elections, even as the two-week suspension of elections concludes.   At least one Regional office has begun informing parties that the ballots will be counted via Skype conferences and not in person following the voting by mail.

Given the differing routes that Regional Offices currently appear to be taking, as well as the varying impact of the COVID-19 crisis in different areas of the country, it appears that Regional Offices will evaluate local conditions and resume elections based on pertinent circumstances.

Employers and advocates should remain up to date on the legal restrictions applicable to the areas in which workforces are located, as well as any guidance issued by Regional Offices, and be prepared to navigate the Board’s representation procedures, implement communication strategies, and monitor the election process without the in-person interactions normally accompanying election proceedings.

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

For more from the NLRB, see the National Law Review Employment Law section.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Assessing and Disclosing the Evolving Impact of COVID-19

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

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

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

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

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

Reporting Earnings and Financial Results

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

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

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

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

SBA Loans Under the CARES Act

The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), signed into law on Friday March 27, 2020, introduces the Paycheck Protection Program (the “PPP”) with $349 billion in funding and the goal of preventing job loss and small businesses failure due to losses caused by the COVID-19 pandemic.  The new PPP loan program is available for eligible small businesses, including sole proprietors, and non-profits, veterans organizations and tribal business concerns, to provide a forgivable loan to cover payroll and other costs.  Additionally, the CARES Act greatly expands the Economic Injury Disaster Loan Program (the “EIDL” Program) with $10 billion of additional funding for the SBA.

Businesses need to understand both programs as well as the additional financial and other relief that may be available under the CARES Act in order to make short- and long-term planning decisions.  The CARES Act provides assistance to many businesses that may not meet the customary small business thresholds.  Given the various qualification criteria, the programs and incentives enacted under the CARES Act must be evaluated separately for each business, considering industry, legal requirements and financial and other contractual commitments during this challenging time.

Paycheck Protection Program (“PPP”)

PPP loans are 100% federally guaranteed loans for small businesses intended for companies to maintain their payroll levels and allow partial loan forgiveness, as described below.  The loans are available until June 30, 2020 for eligible companies to cover the cost of:

  • Payroll
  • Health care benefits and related insurance premiums
  • Employee compensation (with some limitations for employees with salaries over $100,000 and exclusions for employees based outside the U.S.)
  • Mortgage interest obligations (but not principal)
  • Rent and utilities
  • Interest on debt incurred prior to the loan

The maximum amount of a PPP loan available to each borrower is equal to the lesser of: (a) $10 million, or (b) 2.5 x its average total monthly payroll costs, as defined in the Act.  Unlike most typical SBA loans, the PPP Loans are unsecured loans requiring no collateral, no personal guarantee, and no showing that credit is unavailable elsewhere.  The PPP loan, to the extent not forgiven, has a maximum 10-year term and the interest rate may not exceed 4%.  PPP loans will be made available through SBA-approved lenders, who must offer a 6-12 month deferment on payment of principal, interest, and fees.

A borrower of a PPP loan is eligible for loan forgiveness for amounts spent during the 8-week period after the origination date, subject to proper documentation, on (i) rent, (ii) defined payroll costs, (iii) mortgage interest, and (iv) utilities, not to exceed the principal of the loan.  The amount of the PPP loan forgiveness may be reduced if the borrower reduces the number of employees or salaries and wages (for employees with annual salaries less than $100,000) during the 8-week period following the origination of the loan.  However, this reduction penalty doesn’t apply to the extent the borrower restores their workforce count and salaries/wages by June 30, 2020.

To be eligible for a PPP loan, a company must be either (i) a small business concern under the SBA regulations, or (ii) a business concern, nonprofit organization, veterans’ organization, or Tribal business concern that employs not more than 500 employees (or the number of employees in the size standard applicable to the borrower’s industry, which for some industries is up to 1500 employees).  Businesses in the Accommodation and Food Services Industry with more than 500 employees in multiple locations can avail themselves of the PPP loan program as long as they have 500 or fewer employees per location.

Notably, the CARES Act waives the SBA’s affiliation rules for determining PPP program eligibility for certain specific categories of businesses, including businesses in the Accommodation and Food Services Industry, businesses operating as a franchise that are assigned a franchise identifier code in the SBA Franchise Directory (available here), and businesses that receive financial assistance from a licensed Small Business Investment Company.  Given this limited waiver, subject to guidance expected from the SBA, the remainder of eligible businesses appear to be subject to the SBA’s affiliation rules.  These SBA rules would aggregate the number of an applicant’s full-time and part-time employees with those of their domestic and foreign affiliates.  Identifying which companies qualify as “affiliates” can be a fact-intensive inquiry under the SBA’s regulations, but the touchstone of affiliation is the ability to control a business concern.  Forthcoming guidance from the SBA will hopefully clarify the application of the SBA’s affiliation rules to PPP loan applicants.

Eligible companies must have been in operation on February 15, 2020 and must have, as of that date, had employees for whom the entity paid salaries and payroll taxes, or paid independent contractors. Additionally, when applying for a PPP loan, a borrower must certify that the uncertainty of current economic conditions makes necessary the loan request to support the ongoing operations of the eligible recipient and acknowledge that the funds will be used to retain workers and maintain payroll or make mortgage payments, lease payments, and utility payments.

Economic Injury Disaster Loan (“EIDL”) Program

Another option for small businesses is the SBA’s existing EIDL Program, which was expanded by the CARES Act and provides for longer-term loans with favorable borrowing terms.  Companies in all 50 states, District of Columbia, and some U.S. territories are eligible for EDIL loans relating to economic injury caused by the COVID-19 pandemic.  While there are no loan forgiveness provisions applicable to EIDL loans, companies that have already applied for or received EIDLs due to economic injury attributable to the COVID-19 pandemic can seek to refinance their EIDL loans under the PPP to take advantage of the PPP’s loan forgiveness provisions.  Additionally, while companies may be eligible for loans under both programs, they are unable to seek recovery under the EIDL loan for the same costs that are covered by a PPP loan.

The CARES Act expanded EIDL eligibility for the period between January 31, 2020 and December 31, 2020, to include any business with not more than 500 employees, any individual operating under a sole proprietorship or as an independent contractor, and any cooperative, ESOP or tribal small business concern with not more than 500 employees. Subject to guidance from the SBA, these applicants would also appear to still be subject to the SBA’s affiliation rules governing financial assistance programs.  Entities previously eligible to receive SBA EIDLs, including small business concerns, private nonprofit organizations and small agricultural cooperatives, remain eligible for such loans under the more favorable terms authorized by the CARES Act.

To qualify for an EIDL under the CARES Act, the applicant must have suffered “substantial economic injury” from COVID-19.  EIDL loans under the CARES Act are based on a company’s actual economic injury determined by the SBA (less any recoveries such as insurance proceeds) up to $2 million.  EIDL loans may be used for payroll and other costs as well as to cover increased costs due to supply chain interruption, to pay obligations that cannot be met due to revenue loss and for other uses.  The interest rate on EIDL loans is 3.75% fixed for small businesses and 2.75% for nonprofits.  The EIDL loans have up to a 30-year term and amortization (determined on a case-by-case basis).

The CARES Act also permits applicants to request an advance of up to $10,000 to pay allowable working capital needs; the advance is expected to be paid by the SBA within 3 days.  This advance is essentially a grant and is not required to be repaid, even if the application is denied, but the amount of the advance must be deducted from any loan forgiveness amounts under a PPP loan, described above.

EIDLs under the CARES Act do not require personal guarantees for loans up to $200,000, but do require personal guarantees by owners of more the 20% of the borrower for loans in excess of that amount.  The CARES Act waives the requirement for the borrower to demonstrate that it is unable to obtain credit elsewhere.  However, unless changed by the SBA, it appears that the requirement for collateral on EIDL loans over $25,000 would still apply, and, in processing a borrower’s application, the SBA must make a determination that the applicant has the ability to repay the loan.  Further, the SBA can approve a loan based solely on the credit score of the applicant or other means of determining the applicant’s ability to repay the loan, without requiring the submission of tax returns, which should expedite approval of EIDLs during the covered period.

Given the very favorable terms of these two SBA loan programs and the potential for loan forgiveness under PPP loans, eligible small businesses who have been economically impacted by the COVID-19 pandemic should strongly consider taking advantage of these loan programs.  Applications for EIDL loans should be submitted directly to the SBA, while PPP loans will be available from SBA-approved lenders.

For additional web-based resources available to assist you in monitoring the spread of the coronavirus on a global basis, you may wish to visit the CDC and the World Health Organization.

© 2020 Foley & Lardner LLP

For more on the COVID-19 CARES Act, see the National Law Review Coronavirus News page.

Family Law and COVID-19: Alimony and Child Support

What do you do if the novel coronavirus has shut down your employer, caused a furlough or your termination, or has otherwise suddenly left you without income to pay child support and/or alimony? What do you do if you are the recipient of alimony or child support and now have to figure out how to pay bills and make ends meet without support from your child’s parent or ex-spouse?

A pandemic like this has far reaching economic consequences in these family law issues and can significantly strain both the payor and the payee.

In general, New Jersey law states that a temporary change in economic circumstances does not qualify for a change in the alimony or child support obligation of the payor, even temporarily.

However, given the worldwide attention and knowledge as to the widespread and unprecedented economic effect this pandemic has already shown, and the sudden closing of many offices and businesses through the state, a court of equity, such as the Family Court, may very well provide relief to the payor.

This is particularly likely if both the payor and the recipient of support are equally struggling. A look at the totality of each parties’ financial circumstances would be required.

Compromise may be appropriate, though you must take care to properly articulate the entire agreement to avoid interpretation or enforcement issues later, and legal counsel is strongly advised.

However, in cases where parents cannot reconcile their differences and find compromise, those parents may need to seek court intervention or some form of virtual alternate dispute resolution, and should also seek legal counsel immediately.

COPYRIGHT © 2020, STARK & STARK

For more on COVID-19 effects on Family Law & other sectors, see the dedicated National Law Review Coronavirus News section.

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

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

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

The eligible active ingredients are:

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

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

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

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

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

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

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

©2020 Bergeson & Campbell, P.C.

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

OSHA Issues Guidance on Preparing for COVID-19

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

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

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

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

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

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

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

© Steptoe & Johnson PLLC. All Rights Reserved.

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

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

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

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

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

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

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