Conkle Firm Q&A About Coronavirus Effects in Beauty Industry Report

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Conkle, Kremer & Engel attorney Eric Engel appeared in a recent Q&A concerning COVID-19’s effects and predictions for the personal care products business in Beauty Industry Report COVID-19 Special Report. Readers were reminded that, as they adapt and plan, they must remember and respect the classic issues such as correct labor and employment practices that are not changed by the crisis. If anything, the contract and labor disruptions of the emergency conditions will exaggerate those issues if they are forgotten in the rush to adapt and reopen business.

CK&E attorneys stay current on developments in the coronavirus pandemic, while being watchful for the kinds of issues that can undermine clients, to help clients adapt and thrive in challenging business environments.

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PPP Flexibility Act’s Changed Timing and Terms of Loan Forgiveness

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We have previously posted about the Paycheck Protection Program (“PPP”) that was created by the U.S. Coronavirus Aid, Relief, and Economic Security (CARES) Act. Like many rushed legislative programs, PPP had issues from the outset. Enter the Paycheck Protection Program Flexibility Act of 2020 (“PPPFA”), signed on June 5, 2020 to amend some parts of the CARES Act that pertain to the PPP. UPDATE: As of July 4, 2020, the PPP program remains open to new applications through August 8, 2020, and there were $130 Billion in funds remaining to be claimed by employers of almost all sizes. (Read on for more on that.)

The Small Business Association, in conjunction with the Treasury, issued an Interim Final Rule conforming its previous rule to the PPPFA and attempting to clarify some key points. As described below, some important questions under the PPPFA remain unanswered even by the new Interim Final Rule.

The most obvious purpose of the PPPFA is to extend the “covered period” in which PPP funds can be expended on allowed costs, such as payroll, rent and utilities. Whereas the PPP loans were limited to an 8 week “covered period” of expenses, the PPPFA extends the covered period to 24 weeks, or until December 31, 2020, whichever comes first. This extension applies to all PPP loans that originated after June 5, 2020, but employers who took loans prior to that date have an option to maintain the original 8 week period or extend to the 24 week covered period.

The election between the 8 week covered period and the 24 week covered period will have significant ramifications for earlier loan recipients. The election between an 8 week covered period or a 24 week covered period is binary, and only funds spent during the elected covered period may be counted toward loan forgiveness. A loan recipient may not, for example, choose a 16 week covered period, but there does not appear to be anything restricting a loan recipient from electing a 24 week covered period but spending all the PPP funds in 16 weeks, for example.

The text of the PPPFA does not prevent a loan recipient from applying for loan forgiveness at any time that its PPP funds have been exhausted on covered expenses, or alternatively waiting up to 10 months after the expiration of the coverage period. However, the language of the Treasury Department’s Interim Final Rule implies that a loan recipient must wait until its covered period has ended before applying for loan forgiveness. Hopefully, the Treasury Department will clarify this soon, particularly because the date of the employer’s Loan Forgiveness Application can be important.

Employers should recall from our earlier post that if employees or wages are too drastically cut, there will be a reduction of the amount of loan forgiveness the employer will receive under PPP. So the date on which that measurement is made may be very significant if the employer’s workforce or salaries have changed. At present it appears that the SBA will measure workforce and salary levels as of the date of the Loan Forgiveness Application or December 31, 2020, whichever comes first, and will compare that against the employer’s average payroll during the original measurement period of February 15 to April 26, 2020. There remains some possibility that the SBA will require that the same level of employees and wages also be maintained as of December 31, 2020, but if so exactly how that might work is not clear and should be the subject of further Treasury Department rulings.

If the employer has had layoffs or wage cuts, PPPFA extends the date by which loan recipients must rehire full time equivalent employees and eliminate salary/wage cuts from the previous deadline of June 30, 2020 to December 31, 2020. Failure to rehire and restore wages will result in a decrease of the amount of loan forgiveness for the employer. But if a loan recipient can show in good faith (a) an inability to rehire individuals who were employees of the eligible recipient, and (b) an inability to hire similarly situated qualified employees, by the December 31, 2020 deadline, there will be no corresponding reduction in loan forgiveness for failure hire/re-hire such employees. It is not yet clear whether this same exception may apply to salary/wage cuts. Whether the deadline has any impact if a loan forgiveness application was made prior to this last day has yet to be explained by the Treasury Department.

Loan recipients now have up to 10 months from the date the covered period ends to apply for loan forgiveness. Failure to do so within the 10 months allowed will result in denial of loan forgiveness and the loan recipient must repay principal, interest and fees on the loan. If the loan is not forgiven, its term is now 5 years for all loans originating on or after June 5, 2020. Earlier loans retain a 2 year term, but lenders and loan recipients are free to agree to amend the duration to 5 years.

Another prominent feature of the PPPFA is that loan recipients must use 60% of the loan amount for payroll in order to be eligible for loan forgiveness, whereas the original PPP required 75% of the proceeds to be used for payroll. The PPPFA appears to make this 60% standard absolute – if it is not met, then there will be no loan forgiveness. But the U.S. Treasury Department’s Interim Final Rule, and the revised Loan Forgiveness Application, appears to disagree and instead provides that if a loan recipient does not use at least 60% of the loan amount for payroll, then the loan forgiveness will be decreased proportionately with the shortfall of expenditures on payroll. This interpretation is more in line with the original PPP’s standard, but it remains uncertain whether the U.S. Treasury Department can effectively impose this standard over statutory language that appears to say otherwise.

As the name of the Paycheck Protection Program Flexibility Act suggests, and as the Interim Final Rule explicitly states, the goal of the PPPFA is to provide employers with more flexibility when using PPP loan funds. Because $130 Billion in allotted loan funds went unclaimed at the end of the original and once-extended application period, on July 4, 2020 President Trump signed Congress’ unanimously-approved amendment to extend the last day to apply for any PPP loan to August 8, 2020.

The updated and revised PPP loan application can be found here. Conkle, Kremer & Engel attorneys stay current on the latest amendments in order to help business clients navigate the maze and maximize the benefits available to them under PPP loans and other government COVID-19 relief programs.

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Limiting Risks When Reopening Your Business After COVID-19 Shutdown

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Many businesses are understandably eager to resume operations as the restrictions to prevent the spread of the novel coronavirus loosen. Beginning in the second week in May 2020, businesses in some sectors of California’s economy were permitted to reopen, as the state entered Stage 2 of Governor Gavin Newsom’s plan to reopen the economy.

As the state continues its efforts to slow the spread of COVID-19 pandemic, the reality is that businesses will look very different when they reopen. While taking reasonable steps to prevent illness in the workplace is always advisable practice, it is paramount now. As businesses reopen, they must ensure that they are taking all necessary precautions to protect the health and safety of their employees, customers, and visitors. In doing so, businesses may well protect themselves from exposure to liability down the road.

STAY CURRENT AND DEVELOP A PLAN FOR BUSINESS REOPENING

Businesses should closely monitor government directives related to COVID-19 at the federal, state and local level, and ensure they are in compliance. Being out of compliance with current recognized legal standards is a sure invitation to liability claims if someone can show they were injured as a result.

GUIDANCE FROM OSHA AND THE CDC

As a foundation, businesses must follow existing Occupational Safety and Health Administration (OSHA) standards during the pandemic, such as the General Duty Clause, Section 5(a)(1), of the Occupational Safety and Health Act, which states that all workers must be provided workplace that is safe and free of hazards. In addition, OSHA has released guidelines for businesses to reduce the risk of infection in the workplace posed by COVID-19.

OSHA is also closely coordinating with CDC, NIOSH and other agencies on proper safety precautions. The CDC has issued Guidance on Disinfecting the Workplace (specifically after a suspected or confirmed case of COVID-19). For instance, routine cleaning of commonly used areas is crucial to preventing the spread of COVID-19 in the workplace. However, areas that have not been used in a week or more require only routine cleaning. Employers should check the CDC and OSHA websites often for guidance to make sure their business has the most updated guidance on PPE and other safety measures.

STATE-LEVEL GUIDANCE

According the state’s guidance on Stage 2 of reopening Before reopening, all facilities must:
• Perform a detailed risk assessment and implement a site-specific protection plan
• Train employees on how to limit the spread of COVID-19, including how to screen themselves for symptoms and stay home if they have symptoms
• Implement individual control measures and screenings
• Implement disinfecting protocols
• Implement physical distancing guidelines

California has also issued industry-specific guidance relevant to the businesses of many of our clients:
“Logistics and Warehousing Facilities” –
COVID-19 INDUSTRY GUIDANCE: Logistics and Warehousing Facilities
COVID-19 General Checklist for Logistics and Warehousing Employers
“Manufacturing” –
COVID-19 INDUSTRY GUIDANCE: Manufacturing
Cal/OSHA COVID-19 General Checklist for Manufacturing Employers
“Office Workspaces” –
COVID-19 INDUSTRY GUIDANCE: Office Workspaces
Cal/OSHA COVID-19 General Checklist for Office Workspaces

LOCAL STAY-AT-HOME ORDERS

The Safer at Home order covering businesses in Los Angeles County, which remains in effect for an indeterminate time, requires that all “Essential Businesses” (and, by extrapolation, other businesses that are allowed to open in some capacity):
(1) Provide employees with, and all employees are required to wear, a cloth face covering when performing their duties requires that they be around others;
(2) Practice social distancing by requiring patrons, visitors, and employees to be separated by six feet, to the extent feasible;
(3) Provide access to hand washing facilities with soap and water and/or hand sanitizer; and
(4) Post a sign in a conspicuous place at the public entry to the venue instructing members of the public not to enter if they are experiencing symptoms of respiratory illness, including fever or cough.

CONDUCT AN INDUSTRY-SPECIFIC RISK ASSESSMENT

• Walk through the workplace and observe it in its usual state during different phases of business activity.
• Rate all risks found as high, medium, and low risk, and address the risks accordingly.
• Regularly evaluate the office workspace for compliance with the plan and document and correct deficiencies identified.
• Investigate any COVID-19 illness and determine if any work-related factors could have contributed to risk of infection. Update the plan as needed to prevent further cases.

ADAPT YOUR IDER PLAN TO SAFELY REOPEN

Business will change after reopening, and business have to adapt accordingly. While a business cannot be expected to ensure prevention of infection with COVID-19 in its workplace, it is strongly advisable to institute and follow reasonable safety measures as part of an Infectious Disease Emergency Response Plan (IDERP). Once the business has developed a plan to protect its workers, it must then be effectively communicated to employees. The employer should post a notice of these policies in a conspicuous location in the workplace.

Part of this plan entails assessing current protocols to accommodate social distancing policies, such as:
• Require those employees that can work from home to do so; Helpful to categorize jobs classified as low, medium, high, and very high exposure risk.
• Provide hand sanitizer and schedule frequent cleaning to sanitize common areas in the workplace (such as door knobs, keyboards, the break room, etc.).
• Discourage workers from using other workers’ phones, desks, offices, or other work tools and equipment, as much as possible.
• Limit non-essential visitors and establish screening policies for essential visitors

COMMUNICATE THE PLAN TO EMPLOYEES AND MAKE IT AVAILABLE TO CUSTOMERS

• Train managers and supervisors to recognize COVID-19 symptoms, the precautions that will be implemented to prevent infection, and how to response to emerging employee/customer infection.
• Inform and encourage employees to self-monitor for signs and symptoms of COVID-19 if they suspect possible exposure.
• Instruct managers, supervisors and employees on use of PPE, cleaning schedules and sanitizing techniques, and what to do if exposure is suspected.
• Have a summary of the plan posted or available to customers on request.
• Address when employees are fearful to come into work because of the risk of contracting COVID-19 by discussing the IDER Plan that has been implemented.

VERIFY ALL NEW AND RETURNING PERSONNEL’S HEALTH AND ABILITY TO WORK

• Utilize a basic Health Questionnaire each day an employee reports to work.
• Consider implementing pre and post work shift temperature checks. Employees should not be permitted to work with temperatures over 100.4°F. The EEOC has confirmed that measuring employees’ body temperatures and/or testing for COVID-19 does not run afoul of the employee privacy protections provided in the Americans with Disabilities Act (“ADA”), but the results must be kept confidential. (Note that body temperature is not completely reliable, as some carriers of the virus do not exhibit fever symptoms.) The EEOC has not addressed antibody testing to date.
• Be certain to avoid discriminatory practices in the Health Questionnaire and health screening of employees.

WHAT IF AN EMPLOYEE TESTS POSITIVE FOR COVID-19 AFTER REOPENING?

The business’ IDERP should include protocols for how the business will respond if an employee test positive for COVID-19.
• Develop policies and procedures from prompt identification and isolation of sick workers (The CDC Guidance on Disinfecting the Workplace specifically addressed safety measures after a suspected or confirmed case of COVID-19).
• Until at least July 6, 2020, California presumes a COVID-19 infection was acquired at work if it was diagnosed, or a positive test occurs, within 14 days after any worksite appearance. While the presumption can be rebutted in theory, in effect this means that active employees will almost always receive workers compensation benefits and treatment for COVID-19 infections. Be sure to follow normal workers compensation procedures as you would for any other workplace injury or illness.
• EEOC guidelines allow employers to ask if employees are experiencing recognized symptoms of COVID-19 (fever, cough, shortness of breath, sore throat). Employers must maintain that information in confidence as a medical record – information about an employee’s symptoms may be protected by ADA or HIPPA.
• Once the employer has good faith reason to believe an employee has a suspected or confirmed case of COVID-19, the employee should be required to stay out of the workplace for a 14-day period or until cleared by a doctor’s note or alternative, such as a negative COVID-19 test report. This policy must be applied in a non-discriminatory fashion, not applied only against selected individuals.
• The employer must advise other employees who may have contact with the affected person, without identifying the affected employee, to protect that employee’s privacy. The employer must take steps to prevent harassment or discrimination against those suspected of having COVID-19.

DEVELOP CONTINGENCY PLANS IN THE EVENT OF AN OUTBREAK

Businesses would be wise to develop contingency plans to prepare for scenarios which may arise as a result of outbreaks, such as:
• Increased rates of worker absenteeism.
• The need for social distancing, staggering work shifts, downsizing operations, delivering services remotely, and other exposure-reducing measures.
• Options for conducting essential operations with a reduced workforce, including cross-training workers across different jobs in order to continue operations or deliver surge services.
• Options for interrupted supply chains or delayed deliveries.
Employers who implement these safety measures and diligently adhere to them will not only improve their workplace and avoid disruptions, they will reduce their exposure to liability in the event that an employee, customer or vendor contracts COVID-19.

Conkle, Kremer & Engel attorneys will continue to monitor and advise clients about the legal implications of the COVID-19 pandemic, and how businesses can navigate these uncertain times.

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It’s the First of the Month – Is the Rent Due Under COVID-19 Eviction Moratoriums?

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To mitigate some of the effects of massive unemployment and pay reductions, and the business disruptions that have resulted from stay-at-home orders, a variety of residential and commercial tenancy eviction moratoriums have been imposed.

Much has been said about eviction moratoriums, but they are far more complex and nuanced than generally portrayed. It is clear that moratoriums are already having profound effects for both tenants and landlords. Reportedly about 69% of renters paid their April 2020 rent on time, down from 81% in March 2020. If the stay-at-home orders and closures of non-essential businesses continue, the percentage of renters failing to pay on time is almost sure to increase.

A moratorium is a legally authorized period of delay in the payment of a debt, such as rent. It is important to recognize that a moratorium is not debt forgiveness – the same rent remains owed, but the effects of nonpayment are modified. There are some who are currently demanding new rent forgiveness laws to permanently relieve tenants of obligations to pay rent that comes due during the COVID-19 emergency, but no such laws have been enacted anywhere in the U.S. at this time, to our knowledge.

Even during normal times, tenants are routinely evicted for nonpayment of rent. In California, the eviction process is normally accomplished by a speedy judicial action for “unlawful detainer” that can be initiated quickly, require a tenant to respond in court within 5 days, and in some circumstances can result in a judicial eviction order and a judgment for the amount of unpaid rent against the tenant in less than a month. In one way or another the moratoriums effectively slow down that process and give tenants more opportunities to pay the accrued rent to avoid eviction. To make matters more confusing, eviction moratoriums with varying requirements and terms have been enacted by the U.S. government, and by many states, counties and cities. Exactly how each moratorium applies does depends on where the rented property is located, and whether it is subject to a U.S., state, county or city moratorium.

Here, we’ll briefly examine the U.S., California state, Los Angeles County, and City of Los Angeles moratoriums as representative samples that give insight into how rent payment obligations and evictions have changed as a result of the COVID-19 pandemic. Broadly speaking, U.S. laws can supersede state orders, and state orders supersede county and city orders, but stricter orders will usually be enforced over broader and more general ones. For that reason, it is very important to consider where the subject property is located and which state or local order may control that location.

The U.S. rent moratorium was part of the U.S. Coronavirus Aid, Relief, and Economic Security (“CARES”) Act passed on March 27, 2020, and signed into law by President Trump on March 28, 2020. The U.S. order applies only to residential homes and apartments whose owners have federally-backed mortgages (typically Fannie Mae or Freddie Mac mortgages), and tenants in federally-subsidized low-income housing. The CARES Act imposes a 120-day eviction moratorium for tenants unable to pay rent due to COVID-19 effects. While the U.S. moratorium applies to nearly half of the residential housing market, as a practical matter tenants rarely know if they can take advantage of it, so state eviction moratoriums have a bigger impact.

The California eviction moratorium order (No. N-37-20) was signed by Governor Newsom on March 27, 2020, and applies throughout the state. The March 27 order was designed to strengthen a previous directive (No. N-28-20) that merely gave local jurisdictions authority to temporarily halt residential and commercial evictions due to financial reasons related to COVID-19. The California state order now extends the time for tenants to respond to an unlawful detainer lawsuit by another 60 days, in addition to the usual 5 days. To qualify for the extension of time, the tenant must have previously paid rent to the landlord under an agreement (typically a lease) and, within seven days of the rent becoming due, must have notified the landlord of the inability to pay rent for reasons related to COVID-19 (such as being sick, losing work, or missing work while caring for a child or family member). The tenant is required to maintain documentation proving the changed financial circumstances, but only needs to provide that documentation to the landlord by the time the tenant later pays the back-due rent.

Because the California state order is tied to the unlawful detainer statute, it appears that the statewide deadline to pay the back-due rent is in effect 65 days from an unlawful detainer lawsuit being filed, provided that the tenant qualifies for the COVID-19 related relief. This puts into the landlord’s hands when to start the clock for payment of back rent by initiating an unlawful detainer action to evict the tenant, but the tenant has just over two months to even respond to the suit. There does not appear to be an expiration date for the California state moratorium, which means that the unlawful detainer process could be slowed in this manner for the foreseeable future (though some commentators believe the May 31, 2020 expiration date in the preceding Order No. 28-20 might apply to the March 27 Order No. N-37-20 as well – that remains to be clarified).

But that is not the end of the analysis, because many cities and counties have stricter orders. On March 19, 2020 Los Angeles County enacted an order forbidding a residential or commercial property owner to file an eviction suit or otherwise evict a tenant before May 31, 2020, for non-payment of rent or any other no-fault scenario (such as a lease ending or the landlord removing the unit from the market). Like the state order, to qualify for this eviction moratorium the tenant must demonstrate an inability to pay due to financial impacts related to COVID-19 and must provide notice to the landlord within seven days of the rent becoming due. Under the Los Angeles County order, tenants have six months following the termination of the order – currently meaning until the end of November 2020 – to pay all back rent. But if the moratorium expires as currently scheduled, the qualifying tenants must begin paying current rent starting June 1, 2020, and have six months to make up their back rent. The order encourages payment plans but permits tenants to pay in any increments as long as the back-due rent is paid in full within the six-month window.

The City of Los Angeles enacted a series of eviction moratorium orders, on March 15, 17, 23 and 31, 2020, that similarly restrict commercial and residential evictions. Los Angeles city’s moratorium now has no expiration period other than the end of the “Local Emergency Period,” whenever that may be declared by the Mayor of Los Angeles. As finally enacted by the Los Angeles City Council, Ordinance No. 20-0147-S19 extends, for residential tenants, the time to pay back rent to twelve months after the Mayor declares an end of the Local Emergency Period. Commercial tenants have the same protections, but only three months to pay the accrued back rent after the end of the Local Emergency Period.

But wait, there’s more. Recall that the state modification of the unlawful detainer notice requirement does not have a clear expiration date. If it is determined to extend past May 31, 2020, the state order will continue to allow 65 days for a tenant to respond to an unlawful detainer eviction lawsuit, if the nonpayment was due to COVID-19 related reasons. That effectively extends for another two months the tenant’s ability to not pay rent and yet retain possession of the property.

Despite the complexity of the many jurisdictions’ overlapping orders, at present all tenants remain obligated to pay all lawfully charged rent. So tenants who maximize their withholding of rent will build up a huge debt of unpaid rent, and eventual eviction will become much more likely. For all concerned, it is best for landlords and tenants to work cooperatively to agree on a payment plan, including partial payments and deadlines. These agreements should be committed to at least informal writings in case they are needed as evidence. Landlords should be careful to specify in any writing that these are temporary agreements that are a consequence of the Coronavirus pandemic and associated government orders, that the rent is not waived or reduced but rather delayed, and that the subject lease agreement is not modified or otherwise affected by the rent timing concession.

Lastly, it is very possible that the moratoriums will be extended if stay-at-home orders and workforce reductions continue, which could cause significant concerns for property owners who have mortgage payments due. Many lenders have instituted some kind of mortgage payment delay option – but caution is advisable because they too have pitfalls. Some jurisdictions have enacted limited moratoriums on mortgage payments, so it is advisable to investigate those for your areas and speak with lenders regarding mortgages. And stay tuned as popular pressure builds for new laws to provide some form of mortgage and rent forgiveness.

Conkle, Kremer & Engel attorneys stay abreast of Coronavirus-related issues affecting business clients, including their landlord-tenant relations. CK&E has published blogs about the Paycheck Protection Program (PPP), the Families First Coronavirus Response Act (FFCRA), and other governmental COVID-19 responses that may be useful resources for income replacement, for the benefit of both tenants and landlords.

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U.S. Dept. of Labor Publishes FAQ Guidelines for FFCRA

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We recently posted about the U.S. Families First Coronavirus Response Act (FFCRA), including its most important components, the Emergency Paid Sick Leave Act and the Emergency Medical Leave Expansion Act. As with most of the major new enactments intended to address COVID-19 issues, there was so little lead time that widespread confusion followed. The U.S. government has provided updates and guidelines to try to clarify the application of the FFCRA.

Most recently, the Department of Labor (DOL) has provided a “FAQ” response with more specific guidance to employers about how to comply with the FFCRA. These are some of the most important takeaways for employers:

  1. The DOL cleared up ambiguity surrounding whether state and local “stay at home” orders are considered a “quarantine or isolation order” for purposes of qualifying for EPSL under the FFCRA. The DOL guidance provides that a quarantine or isolation order includes a broad range of governmental orders including orders that “advise some or all citizens to shelter in place, stay at home, quarantine, or otherwise restrict their own mobility.” However, the government order must be the “but for” cause of the inability to work. An employee subject to one of these orders may not take paid sick leave where the employer does not have work for the employee, such as due to a downturn in business related to COVID-19, because the employee would be unable to work even if he or she were not required to comply with the quarantine or isolation order.
  2. Employees are not entitled to take EPSL or Emergency Family and Medical Leave (EFML) if their employer’s business has been forced to shut down in response to a federal, state or local government directive.
  3. If an employee takes EFML, an employer may require that the employee concurrently use any leave offered under the employer’s policies that would be available for the employee to take to care for his or her child, such as vacation, personal leave, or paid time off. No such provision exists with respect to EPSL.
  4. The DOL also provided additional guidance on the specific factors a small employer, with fewer than 50 employees, must show to receive an exemption from the requirement to provide leave under the FFCRA, when doing so would “jeopardize the viability of the business as a going concern.”
  5. Employers whose employees are teleworking should bear in mind that they are still required to comply with labor laws. Employees who are teleworking for COVID-19 related reasons must always record, and be compensated for, all hours worked, including overtime.
  6. An employee’s “regular rate of pay” as that phrase is defined under the Fair Labor Standards Act is used to determine the amount an employer must pay an eligible employee who takes EPSL or EFML (after the initial two-week unpaid period). Employers need to ensure they are accurately calculating employees’ regular rate of pay when compensating employees for paid leave.

The DOL’s FAQs, available here, provide needed guidance to help employers interpret and comply with the FFCRA. Conkle, Kremer & Engel attorneys continue to monitor and advise clients about the legal events affecting businesses trying to manage the impact of the COVID-19 pandemic.

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Employers’ Duties to Maintain Employee Privacy in a COVID-19 Pandemic

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Dealing with illness in the workplace can be challenging under normal circumstances, but it is much more so in the midst of the Coronavirus pandemic. Many questions remain unanswered regarding the precise application of federal, state and local orders and their relationship with employee benefits. As COVID-19 becomes an increasing presence in California workplaces, and employers are forced to comply with government directives, it is just as important as ever for employers to take steps to maintain compliance with employee privacy regulations. Workers who suffer adverse employment decisions, such as pay reductions, furloughs and layoffs, may be particularly attuned to whether all their rights were respected in the process.

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?

According to Guidance provided by the Equal Employment Opportunity Commission (EEOC) addressing the COVID-19 pandemic, employers covered by the Americans with Disabilities Act (ADA) may ask employees if they are experiencing COVID-19 symptoms such as fever, chills, cough, shortness of breath, or sore throat, but employers must maintain all information about employee illness as a confidential medical record in compliance with the ADA.

Does an employer have a duty to inform employees that one of their colleagues has tested positive for COVID-19?

Employers may be uncertain about whether to tell employees that there has been a reported case of COVID-19 in the workplace. Depending on the particular facts involved, information regarding illness of an employee or family member may be protected under the Health Insurance Portability and Accountability Act (HIPAA), the ADA or both.

A pandemic, on the other hand, likely alters those practices. In light of the rapid spread of COVID-19, employers should promptly inform workers if one of their colleagues tests positive for the virus. However, employers typically need not divulge the identity of an employee or employee’s family member to achieve the objective of maintaining a healthy workplace.

Employers may also choose to notify employees and other relevant parties that contagious illnesses may be present in any workplace and list precautionary steps suggested by medical professionals, such as the CDC. Even when not specifically required by law, it is important for business effectiveness to maintain the privacy of individual employees. These matters are best handled carefully to prevent unnecessary disruption in the workplace.

How should the employer communicate to employees that one of their colleagues has a suspected or confirmed case of COVID-19?

Clear, effective employer communications are critical to providing employees with relevant information, maintain order in the workplace, and reduce employees’ concerns. Employers should keep the following in mind when developing employee communications:

• Inform employees that the company will take any reasonable and necessary steps to ensure a safe and healthy work environment.
• Identify typical symptoms employees should watch out for.
• Include information on how to protect against getting the illness.
• Advise employees of any changes to policies.
• Notify employees of any discontinued travel.
• Ensure HR is available and prepared to address employees’ questions

What Are Employers’ Obligations to Prevent Harassment of Those Suspected of Being Infected?

Employers must take steps to prevent discrimination and harassment against individuals who have a potential claim that they are disabled due to a COVID-19 related reason. Employers should consider reminding employees of anti-harassment and discrimination company policies. Employers must be vigilant about promptly responding to and investigating any complaints of harassment or bullying in the workplace, and be conscious to limit the spread of rumors and speculation amongst the workforce.

Under the ADA, may an employer to require employees to provide a doctors’ notes certifying their fitness for duty when they return to work?

The EEOC says yes. The ADA permits such inquiries either because they would not be disability-related or, are justified under the ADA standards for disability-related inquiries of employees given the COVID-19 outbreak. However, doctors and other health care professionals may be too busy during and immediately after a pandemic outbreak to provide fitness-for-duty documentation. Therefore, new approaches may be necessary, such as reliance on local clinics to provide a form, a stamp, or an e-mail to certify that an individual does not have the pandemic virus.

Conkle, Kremer and Engel’s attorneys follow the legal developments concerning Coronavirus issues at the federal, state and local level. We are available to assist employers navigate their rights and obligations in these difficult times.

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CARES Act Update: Application for Paycheck Protection Program Loans And Guidelines Available Here

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We recently blogged about the Paycheck Protection Program (“PPP”), and the tax free gifts it can provide to careful employers. On March 31, 2020, the U.S. Treasury Department published the Application Form for PPP loans, available here. The Application is short – just two pages.

The Application requires some basic information about the business applying for the PPP loan, including certifications that the loan is necessary to address economic uncertainty in the current circumstances, and that the loan proceeds will be used for payroll, rent and utility payments. The Application invites the borrower to insert its own calculation of its average monthly payroll, which should be calculated pursuant to the limitations noted in our prior blog post, including: (1) for most businesses, calculating payroll for the one-year period prior to the date on which the loan is made; and (2) excluding costs over $100,000 on an annualized basis for each employee. Borrowers should calculate payroll cost to include salaries, tips, payment for vacation or sick leave, health insurance premiums, retirement benefits and state and local payroll taxes. The Application notes that documentation of payroll costs will be required, but is not specific about what kind of documentation will be required or when it must be submitted.

The Treasury Department has also just published an Information Sheet for PPP Borrowers with important information, available here. The guidelines indicate that only 25 percent of the amount forgiven may consist of costs other than payroll costs (e.g., rent, utilities, etc.), which is a limitation not expressly stated in the CARES Act. Other notable points from the Treasury Department’s Information Sheet are:
• Loan applications for businesses and sole proprietorships will be available beginning April 3, 2020
• Loan applications for independent contractors and self-employed individuals will be available beginning April 10, 2020
• All payments will be deferred for 6 months
• The interest rate for PPP loans will be a fixed rate of 0.50%, and will accrue during the deferral period of the loan
• The loan term is two years.

[Despite the Treasury’s published Information Sheet, on April 2, 2020 U.S. Treasury Secretary Steven Mnuchin announced that the interest rate would be changed to 1% to help small banks. Further changes may arise, so check all loan terms carefully.]

We expect that more specific guidance about the PPP loan application process will be forthcoming over the next few days. Conkle, Kremer & Engel attorneys stay updated on legal events affecting businesses trying to manage the impact of the Coronavirus pandemic. We will update our blog as more developments occur.

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U.S. CARES Act: PPP Loans Provide Gifts for Careful Employers

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The U.S. Coronavirus Aid, Relief, and Economic Security (“CARES”) Act passed on March 27, 2020, and signed into law by President Trump on March 28, 2020, aims to address some of the economic impact of the COVID-19 crisis. The entire act is a $2 Trillion economic stimulus package – the largest ever. Aside from the well-publicized $1,200 per person payments, the CARES Act provides hundreds of billions of dollars for large and small businesses, state and local governments and public health.

Rather than try to summarize the entire CARES Act, we’d like to focus on what many of our clients should pay attention to first: The $349 billion loan fund for small businesses called the “Paycheck Protection Program” (“PPP”) administered by the Small Business Administration. The PPP is designed to be a huge tax-free gift to employers, provided that the employers are careful about how they use it.

The basic points for PPP loans under the CARES Act are:

  1. PPP loans are available to businesses with fewer than 500 employees, as well as 501(c)(3) non-profits, sole-proprietors, independent contractors and other self-employed individuals, so long as the business was operational and had paid employees on February 15, 2020. Some businesses with multiple locations, each having less than 500 employees, may also qualify (but generally, this is limited to hospitality businesses with a primary NAICS code starting with “72” – Accommodation and Food Service).
  2. Borrowers must make a good faith certification that the PPP loan is necessary due to the uncertainty of the current economic conditions caused by COVID-19.
  3. PPP loans will be issued through regular lenders who already handle SBA loans, in addition to new lenders electing to provide PPP loans. Your regular bank is likely to offer PPP loans.
  4. The amount of the PPP loan is at the borrower’s choice, but the maximum amount of a PPP loan is 2.5 times the business’ average monthly payroll expenses for the past year, up to $10 million.
  5. Most of the usual “red tape” for SBA loans has been waived, including determinations of borrower eligibility and creditworthiness. PPP loans are non-recourse, and require no personal guarantees. There are no fees, a maximum interest rate of 4%, and all payments are deferred for 6-12 months.
  6. PPP loans can be used for:
    a. “Payroll Costs” including salaries, vacation and sick leave, health insurance, retirement benefits, and state and local payroll taxes. But “Payroll Costs” does not include compensation for an employee’s annual salary in excess of $100,000. There is some uncertainty about this limitation, but indications are that for highly compensated individuals the first $100,000 in salary can be paid with PPP loan funds.
    b. Rent.
    c. Utilities.
    d. Interest on any debt obligations incurred before February 15, 2020.
  7. The total amount of the PPP loan funds that are used for these approved categories within the eight-week period following loan origination would be forgiven, and the forgiven amount is not taxable. In effect, the PPP loan turns into a tax free grant to the extent that it was used for the approved purposes.
  8. Businesses may elect to use PPP loan funds for other purposes not within the approved categories, but funds spent for “non-approved” uses will not be forgiven and the loan must be repaid with interest.
  9. There is an additional important condition that the PPP borrower must maintain the same number of full time employees, and cannot reduce salaries more than 25%, through June 2020. Otherwise portions of the PPP loan may not be forgiven. If the borrower terminated employees or made salary reductions greater than 25% between February 15, 2020 and April 26, 2020, as long as the employer hires back the same number of employees and restores salaries to sufficient levels by June 30, 2020, the PPP loan funds used for approved purposes will still be forgiven.
  10. One further cautionary note is that borrowers receiving a PPP loan are not be eligible for several of the other tax credits, refunds or deferrals available under the CARES Act, so consulting a tax professional about the value of those benefits to particular businesses would be advisable.

The PPP loan portion of the CARES Act is plainly designed to stem the layoffs and furloughs that have been rampant in the wake of the economic seizure that has been imposed by federal, state and local governments’ “stay at home” guidelines and orders intended to stem the COVID-19 outbreak. This can benefit both employees and employers who need to adapt their businesses to the unsettled conditions in which we find ourselves.

Business owners – from sole proprietors to employers of 499 employees (and some with more) should explore very seriously, very quickly, the virtual giveaway that the PPP loan program represents. If taken, PPP loans demand some care in documenting use of funds to assure compliance with the terms required to be granted forgiveness of the loan and receive the tax-free gift from the U.S. government.

Conkle, Kremer & Engel attorneys stay attuned to legal developments and the opportunities they create for our business clients. The CARES Act is a big opportunity that should be carefully considered and acted upon promptly.

June 18, 2020 Update: PPP funds remain undistributed, and PPP Loan Applications are currently due by June 30, 2020. See our updated blog posts concerning further developments in the PPP program:

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More “Essential” Changes for Personal Care Products Businesses

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On March 18, Conkle, Kremer & Engel first published an alert about the first California city and county stay-at-home orders and their “essential” business exceptions. And on March 20, CK&E updated that blog post to assess the effects of California’s March 19, 2020 statewide “stay at home” Order. But that “California State Order” was vague as to what particular businesses qualify as “essential” to be able to remain in operation at their facilities, and how its terms interacted with the city and county orders also in effect. On March 22, 2020, the California State Public Health Officer responded to the confusion by releasing a “Guidance” list of particular types of businesses that are considered “Essential Workforce” and are permitted to continue to operate at their facilities during the Coronavirus pandemic. Despite the head-spinning changes in the past several days, the California’s State Guidance list at least provides some measure of certainty – and hope – for the personal care products industry.

There are several provisions in the Guidance that appear to permit personal care products manufacturers and sellers to continue to operate, at least in particular ways: There are express exceptions for:

  • “personal care/hygiene products”
  • “cleaning [and] sanitizing supplies”
  • “services that are necessary to maintain the safety, sanitation, and essential operation of residences”
  • “support required for cleaning personnel”
  • “manufacturing [and] distribution facilities [for] consumer goods, including hand sanitizers”
  • “workers supporting the production of protective cleaning solutions”
  • as well as other general references to “sanitation” and “consumer products”

Taken together, these exceptions in the California State Order Guidance make reasonably clear that personal care products that are functional for hygiene should be among the types of products that are essential during a period when cleanliness is potentially life-saving.

While the California State Order Guidance does not include specific reference to “non-hygienic” cosmetic products, the California State Order itself refers to the Department of Homeland Security’s materials on the nation’s “Critical Infrastructure Workforce.” Among those materials, there are specific references to “soap, detergents, toothpaste, hair and skin care products, cosmetics, and perfume” in the Chemical Sector-Specific Plan (see Section A3.5) and the Chemical Sector Profile). For now, based on these materials and barring further developments, businesses appear to be permitted to continue making all personal care products, whether “hygienic” or not.

However, some caution is advisable because enforcement officials could nonetheless decide to distinguish between “hygiene”-related products (such as soaps, shampoos, cleansers and washes, body lotions, and skin creams) and products that are not as “hygiene”-oriented (like hair coloring products, nail polishes, fragrances, and cosmetics). It appears those businesses that can plan to potentially pivot to producing a larger proportion of “hygienic” products may have greater success in remaining open as the situation evolves. Having readily available concise documentation summarizing the “hygiene” products that your company is manufacturing could be helpful if you or your employees receive government inquiries. Of course, if ordered by a government agency to stop production, it is advisable to stop immediately and seek legal guidance – it is not advisable to disregard a direct government order of any kind.

As a final point, the Los Angeles County Order was also updated, and there is now a clear mandate closing barber shops and salons in Los Angeles County, which under previous versions of the order were permitted to operate as essential businesses. We know that this will create tremendous personal hardships for stylists and salon owners, and we are sorry to have to report this development. But however unfortunate this is for the stylists and salon owners (as well as customers, distributors and manufacturers), this development in itself does not alter our broader view that California currently allows continued production and sale of personal care products.

CK&E will continue to monitor developments important to our clients, in the personal care products industry and otherwise, during these uncertain and fast-changing circumstances. Our goal is to help clients continue their business in safe and socially responsible ways, within the bounds of the law as it evolves to meet the challenges of this coronavirus crisis.

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Can Coronavirus be a Force Majeure to Excuse Contract Performance?

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Businesses dealing with Coronavirus developments are suddenly faced with many pressing concerns, from whether they will be allowed to continue to operate, to employee relations and supply and delivery issues. One question that may become urgent is: What are the effects of Coronavirus and COVID-19 events on your business’ existing contracts? Can you cancel that big product order you placed, when government closure orders or other disruptions will make it difficult for you to sell it? Can you be forced to deliver products when you can no longer get the ingredients due to supply chain disruptions? Who bears those risks?

First, Does Your Contract Have a Force Majeure Clause?

All contracts are in some ways a method of allocating risks between the parties. Many (but not all) contracts contain what is commonly called a force majeure clause. These clauses explain what will happen when an unexpected and uncontrollable event disrupts performance of contractual obligations. Such a force majeure event is sometimes loosely referred to as an “Act of God,” but it is more accurately an unanticipated event that the parties could not have controlled. A key element is that the parties could not have reasonably anticipated the event at the time of contracting. As a result, the contract date becomes an important consideration: In a force majeure analysis, a contract entered into during March 2020 may well be treated differently than one entered into in March 2019.

Next, Read and Comply with the Requirements of the Force Majeure Clause

The primary purpose of a force majeure clause is to allocate the risk of such unanticipated events – effectively excusing one party’s failure to perform a contractual obligation due to such an event. It is regarded as a term that is negotiable between the parties, like price or delivery time. Whether the parties have any force majeure clause, and its specific terms, will vary from contract to contract. So it is essential to read your contracts carefully and be sure to comply with their terms.

If a contract has a force majeure clause, the first question that will arise is what kind of event can trigger it? Common events identified may be floods, earthquakes, wars and terrorism. Relatively few force majeure clauses refer to “pandemic,” “epidemic” or “state of emergency,” which seem most applicable here. But some may, and others may include events that result from such occurrences, such as “government action or order.” Others may refer to inability to obtain supplies, which could also be triggered by worldwide Coronavirus effects. And some may just generally refer to “force majeure” without identifying any specific event, or include a “catch all” term of some kind. Courts tend to apply such non-specific force majeure terms narrowly, so it is important to read and understand your specific contract and how its terms are likely to be applied.

Many force majeure terms include written notice requirements. Strict compliance with such notice requirements is often required, including giving written notice of inability to perform the contract within a specified time after the unanticipated event. Here, the Coronavirus pandemic and its effects, such as new government orders, may be viewed as a series of events that have varying effects – whether any one or more triggers the required notice will depend heavily on the contract terms and the specific circumstances.

The decision about whether and when to give the required notice can be daunting: Giving notice too early may itself be a breach of the contract – an anticipatory repudiation in legal terminology – but giving notice too late may waive the force majeure excuse. In many instances, it may be advisable to have communications with the other side about the issues, without formally giving notice.

Then, Give Consideration to the Controlling Law

Another important consideration is what jurisdiction’s laws control the contract. Many contracts include an agreement on which state or country’s law will control. But when the contract does not include such an agreement, it may become a fact question driven largely by where the parties were located, where the contract was made and where the performance was required.

The law of the controlling jurisdiction can be very important because states differ in what they require to apply a force majeure excuse for non-performance. California, for example, invokes a standard of “commercially impracticability,” which is more flexible than the standards of many other states. Some states require that actual impossibility be shown. All states require some showing of causation – meaning that the alleged disruption in fact was a cause of the inability to perform. But some states require that the force majeure be shown to be the sole cause of the inability to perform, and not just one among many causes.

Some states, including California, require substantial effort to mitigate the disruption (meaning, taking all reasonable alternative measures to eliminate or limit the effects of the force majeure), but other states are less demanding of mitigation efforts. For example, if the seller has unanticipated problems getting expected supplies of required ingredients, a court may require that the seller seek other more expensive supplies, or may even require that the seller take legal action against its suppliers. Courts may also require partial performance, if the unanticipated disruption does not preclude all performance.

Be Judicious in Your Use of the Force Majeure Clause

In all instances, the focus will be on the event that caused the disruption, not on the disruption itself. Just showing that performance has become more costly, difficult or inconvenient will not usually suffice to establish a force majeure. Courts may assume that the parties allocated ordinary risks of post-contract changes in costs and profitability, although contract terms can set different standards that could control this assessment.

Business managers should readily see that a contract’s force majeure clause can be a powerful tool in this Coronavirus emergency, but it can be double-edged if not wielded carefully. Managers may also have to face the difficult position of being on both sides of this issue – on the one hand, dealing with a business partner that is unable to perform a contractual obligation, and on the other hand, being unable to perform yourself. Conkle, Kremer & Engel attorneys routinely help clients with complex business matters, including contract terminations and force majeure disputes. In our next blog post on this subject, we will turn to what happens when your contract did not include any force majeure clause. In California, as in many states, the Uniform Commercial Code or other doctrines of Impossibility of Performance and Frustration of Purpose can come into play.

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