COVID-19: FAQs FOR BUSINESS OWNERS


The fact is, the normal rhythms and activities of your business will likely change for the next several months. The Firm stands ready to help you weather this storm by advising your business on how it can remain flexible and ready to address whatever new situation arises. To that end, here are some commonly asked questions that may help you navigate these rough waters:

What is considered an “Essential Business”?

On March 19, 2020, Governor Newsom issued Executive Order N-33-20 directing all Californians to stay home in response to the COVID-19 pandemic. There is an exemption, however, for businesses that help to maintain the continuity of operations of essential critical infrastructure sectors.

On March 22, 2020, the State Public Health Officer designated the following 13 business sectors as “Essential Critical Infrastructure Sectors:”

Healthcare/Public Health Sector: This sector includes both public and private businesses, such as publicly accessible healthcare facilities, research centers, suppliers, and manufacturers, including businesses that provide information technology systems that support the date transmission and storage needs of these other businesses.

Emergency Services Sector: While this sector is largely dominated by federal, state, local, tribal, and territorial levels of government, it also includes private sector resources, such as industrial fire departments, private security organizations, and private emergency medical services providers.

Food and Agriculture Sector: This sector consists of companies engaged in domestic production, processing, and delivery systems, as well as companies engaged in the importation of ingredients and finished products from across state and international borders.

Energy Sector: This sector includes business engaged in the production, refining, storage, and distribution of electricity, oil, and natural gas.

Water and Wastewater Sector: This sector includes businesses engaged in the testing and distribution of drinking water, as well as the collection and sanitation of wastewater. The sector includes business that repair these crucial systems and provide support products.

Transportation and Logistic Sector: This sector encompasses companies engaged in and supporting seven subsectors of transportation: (i) aviation; (ii) highway and motor carrier; (iii) maritime; (iv) mass transit and passenger rail; (v) pipeline systems; (vi) freight rail; and (vii) postal and shipping. This also includes business that provide logistical support to any of these subsectors.

Communications and Information Technology Sector: This sector includes companies that produce, install, and repair both the physical communications infrastructure, e.g., buildings, switches, towers, antennas, etc., and the cyber communications infrastructure, e.g., routing and switching software, operational support systems, user applications, etc.

Other Community-Based Government Operations and Essential Functions Sector: This sector is a bit of a “catch-all” sector that includes businesses as diverse as weather forecasting, childcare, legal services, accounting services, construction services, laundromats and laundry services, and even hotels (under certain circumstances). If your business doesn’t fall neatly within one of the other sectors, your business may fall under this exemption.

Critical Manufacturing Sector: This sector includes manufacturing businesses engaged in the manufacturing of primary metals, machinery, electrical equipment, appliances and components, and transportation equipment.

Hazardous Materials Sector: This sector includes businesses managing medical waste and waste from pharmaceuticals and medical material production, as well as laboratories that process test kits. It also includes businesses that support hazardous materials response and cleanup, and businesses that maintain digital systems that support management operations for this sector.

Financial Services Sector: This sector consists of companies such as depository institutions, investment companies, insurance companies, credit and financing organizations, and providers that support these critical financial utilities and services.

Chemical Sector: This sector includes businesses involved in the production and supply of basic chemicals, specialty chemicals, agricultural chemicals, pharmaceuticals, and consumer products.

Defense Industrial Base Sector: This sector encompasses companies that research, develop, design, produce, deliver, and perform maintenance of military weapons systems, subsystems, and components or parts, for the U.S. military. This includes companies and their subcontractors that have contracts with the Department of Defense, and companies providing incidental materials and services to the Department of Defense.

Descriptions of each sector, as well as the workers who qualify as an “Essential Critical Infrastructure Workers” within each sector, can be found here.

If you are unsure whether your business qualifies under any of these exemptions, please contact us.
(949) 421-3030

Who is an “Essential Critical Infrastructure Worker”?

On March 19, 2020, Governor Newsom issued Executive Order N-33-20 directing all Californians to stay home in response to the COVID-19 pandemic. There was, however, an important exception to the order: “Essential Critical Infrastructure Workers” are allowed to go to work.

So, who is an “Essential Critical Infrastructure Workers”?

On March 22, 2020, the State Public Health Officer provided some clarity by publishing a list of “Essential Critical Infrastructure Workers” that are exempt, as needed, from the Governor’s stay-at-home order.

The State Public Health Officer designated the following 13 categories of workers as essential to critical infrastructure:

Healthcare/Public Health;
Emergency Services Sector;
Food and Agriculture;
Energy;
Water and Wastewater;
Transportation and Logistic;
Communications and Information Technology;
Other Community-Based Government Operations and Essential Functions;
Critical Manufacturing;
Hazardous Materials;
Financial Services;
Chemical; and
Defense Industrial Base.

Descriptions of who qualifies as an “Essential Critical Infrastructure Workers” can be found here.

If you are unsure whether your job or business qualifies under any of the exemptions, please contact us:
(949) 421-3030

My company and business partners still have ongoing contractual obligations. Does the COVID-19 pandemic excuse contractual performance under the force majeure clause of my company’s contract?

The rapid development of the COVID-19 pandemic and its inevitable spread will impact companies in virtually every industry. As the pandemic develops, companies may find that they (or their business partners) are unable to perform their contractual obligations. The threshold legal question for a company faced with this uncertainty will almost certainly be whether the COVID-19 pandemic constitutes a force majeure event. While the intuitive response may tend to be yes (and that may be the answer in certain circumstances), there is no bright-line rule. As a general matter, a party seeking to invoke a force majeure clause must look to the terms of that clause in their contract, which will likely vary depending on the industry. Thus, whether COVID-19 constitutes a force majeure event that excuses the performance of contractual obligations depends on the specific force majeure language and the unique facts and circumstances of the party claiming an inability to perform.

Generally, force majeure clauses either specifically delineate a set of triggering events (e.g., “war,” “embargo,” etc.) or employ catch-all language requiring an unforeseeable event beyond the reasonable control of the parties to excuse performance. In deciding whether to invoke a force majeure clause, a contracting party should ask itself two questions:

— Does COVID-19 generally (or the parties’ particular circumstances due to the pandemic) fall within the scope of the definition of a “force majeure event” in the contract?

— How does the force majeure clause in the contract connect the triggering event (whether it is specifically delineated or a catch-all term) to the duty to perform?

As to the former, the familiar force majeure terms, such as “acts of God,” “natural disaster,” or “act of government,” would need to fit the company’s specific circumstances during the pandemic to potentially excuse performance. For instance, a local health order to close certain types of businesses could be considered an act of government under a force majeure clause. Some contracts may also specifically provide for “disease,” “epidemic,” or “quarantine.”

As to the latter, some contracts require that a force majeure event render the performance of contractual obligations illegal (e.g., performance under the circumstances would violate a legal order) or impossible, which courts typically apply strictly to exclude situations where an event merely makes performance more expensive or even significantly more difficult than originally contemplated. Said differently, unless it is not possible to perform the contractual obligation due to the force majeure event, then the force majeure clause will not excuse performance based on impossibility. Another common force majeure clause excuses performance where the force majeure event has rendered performance of the contract “commercially impractical.” But for this pandemic, there would need to be a causal connection between the specific COVID-19-related circumstances and the parties’ apparent inability to perform. Of course, every contract’s terms and the parties’ set of circumstances will need to be analyzed under the applicable law, and there could be various scenarios where a company has a strong argument that the COVID-19 constitutes a force majeure event and should excuse its performance.

My company may be required to have all employees work from home. Is there insurance available to cover lost productivity?

First-party property policies typically include business interruption coverage to defray lost net income during a period of suspended operations—but in many cases, there must be physical damage (e.g., property damage) to trigger coverage. Insurance policies also often cover contingent business interruption (e.g., a disruption to a supply chain or key vendors) and civil authority shutdowns, however, these too often require some physical damage to property to trigger coverage. If an employee contracts COVID-19 and contaminates your company’s office—from contaminated surfaces to a compromised HVAC system—that may constitute physical damage and trigger coverage. Whether COVID-19 contamination constitutes physical damage under a first-party property policy will likely be a contentious dispute between property insurers and insured businesses and is subject to change the more we learn about COVID-19. Additionally, some policies may have exclusions for bacteria and/or viruses. Thus, analyzing your coverage is vital. Depending on your company’s policy period, you may want to provide notice of a claim to your insurance carrier to preserve your rights if your policy is due to expire soon.

A related issue is whether your company’s insurance policy protects against the ramifications of one of your major supplier’s operations being slowed or shut down.

Luckily, many first-party property policies include contingent business interruption or supply chain disruption insurance coverage, but the policy will likely still require physical damage to the distributor to trigger coverage. If there is qualifying physical damage, then the policy should provide coverage for your company’s net income loss attributed to the supply chain disruption. The policy may further require that the distributor be specifically identified within the terms of the policy. The policy may also limit coverage under a bacteria and/or virus exclusion.

As a commercial tenant, what should my company do to brace for the effects of COVID-19?

If they haven’t done so already, commercial tenants should immediately check in with their landlord and/or property management company regarding what operational procedures are in place to address COVID-19 safety. Landlords may be required to clean and maintain the common spaces and surfaces (e.g., bathrooms, entrances, etc.), and commercial tenants should ensure that their landlord has a reasonable plan in place to respond to the potential effects of COVID-19. This should include procedures like regularly disinfecting joint surfaces and encouraging working from home where practicable. Tenants should also review their leases in light of any ongoing tenant improvement projects because COVID-19 may cause significant disruptions to the construction supply chains for the project. Thus, contractors may be unable to complete improvement projects on time or without cost overruns, which could result in claims for damages due to the delay.

Similarly, COVID-19 may cause delays or complications regarding various operative dates in a lease, such as move-ins, move-outs, and delivery dates. Tenants should ensure that they understand what flexibility they have in terms of timing under their contract, as well as the consequences of any missed deadlines attributable to COVID-19. Importantly, most commercial tenants also have rent payments due at the end of each month and should know their obligations under their leases and make plans with their landlord for payment if the company’s income is significantly impacted by the COVID-19 virus. Finally, landlords may elect to reduce service, shutdown, or restrict access to buildings. Accordingly, commercial tenants should communicate with their landlords to understand what precautions the landlord is taking in response to COVID-19 and review their leases to determine what rights their landlords may have to restrict access to the building, impose use restrictions, or even shutdown the building indefinitely.

As an employer, what steps should I take regarding COVID-19?

It is important as an employer for you to stay updated regarding the status of COVID-19 and the recommendations of relevant governmental agencies (e.g., OSHA, the Centers for Disease Control and Prevention, the World Health Organization, the EEOC, local public health organizations, etc.). Additionally, you should also:

— Assess business needs as it relates to any travel, paying particular attention to travel to destinations that the CDC has issued Level 2 or 3 Travel Health Notices for.

— Consider requesting that travelers who went to (or are in) destinations that have Level 2 or 3 Travel Health Notices in place self-quarantine for the incubation period (i.e., at least two weeks).

— Educate your workforce to avoid misperceptions about COVID-19 and the potential impact as that could fuel employee fear. A helpful way to do this is to prepare materials for your employees, listing relevant CDC information, and contact information.

— Reaffirm that the company is committed to protecting the wellbeing of its employees and will take all appropriate measures to the extent allowed by law. Alleviating your employees’ fears is vital. Also, offer tips for prevention, which could include: (i) receiving vaccinations; (ii) washing hands frequently; (iii) covering one’s nose and mouth when coughing/sneezing; (iv) avoiding sharing cups, utensils, water bottles, and other personal items; and (v) disposing of tissues appropriately.

— Consider designating a human resources representative to receive complaints related to COVID-19.

— Allow employees who show symptoms of any illness to leave work and telecommute during the incubation period of COVID-19. Additionally, consider allowing employees with health conditions that put them at a higher risk for complications resulting from a disease (e.g., employees with weakened immune systems or who are immune-compromised, pregnant employees, etc.) to telework to reduce their chances of infection.

— Prepare plans regarding business continuity and review your applicable policies in anticipation of a potential closure of physical locations or mandatory remote working order.

— Issue instructions for employees to follow if they show symptoms of COVID-19 or if a family member in their home has been diagnosed with coronavirus or is symptomatic.

— Evaluate your time off policies—sick leave and vacation—and determine when the company will pay for absences related to COVID-19.

— Review your workers’ compensation policies to assure your organization has adequate insurance coverage.

— Consider, if necessary, consulting a competent medical professional with experience in infection control to provide medical advice on COVID-19.

Can my company require non-employee visitors to disclose recent travel and potential exposure prior to allowing them onto our premises?

In general, there are privacy laws at various levels that put severe limits on the ability to ask these types of questions. Regarding European visitors, businesses should consider:

— Seeking limited confirmation that the individual has not traveled to countries deemed to be high risk and that the individual has not shown symptoms of COVID-19 or potentially exposed to someone who has.

— Avoiding questions regarding specific locations of travel, names of contacts, and other specific pieces of information that may unreasonably intrude into a person’s expectation of privacy.

My company is involved in an active lawsuit in federal court. How does COVID-19 impact the parties’ obligations?

Depending on which federal district court your company’s lawsuit is pending in, the impact of COVID-19 may vary. And, of course, the stated procedures of the courts is subject to change as we learn more about COVID-19.

Currently, the U.S. Central District of California has continued all jury trials scheduled to begin before April 13, 2020. Still, all courtroom proceedings and filing deadlines will remain in place unless otherwise ordered by the presiding Judge. Individual judges in the Central District may continue to hold hearings, conferences, and bench trials in the exercise of their discretion.

The U.S. Eastern District of California has continued all jury trials scheduled to begin before May 1, 2020. However, all courtroom proceedings and filing deadlines in a case will remain in place unless otherwise ordered by the Judge presiding over that case. Individual judges in the Eastern District may continue to hold hearings, conferences, and bench trials in the exercise of their discretion, including by teleconference or videoconference.

The U.S. Northern District of California has continued all jury trials scheduled to begin before May 1, 2020. Further, all civil matters in the Northern District will be decided on the papers, or if the assigned Judge believes a hearing is necessary, the hearing will be via telephone or videoconference.

The U.S. Southern District of California has restricted visitor access to all courthouses and probation and pretrial services offices in the District, but there are currently no changes to normal court operations.

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LS Carlson Law is proud to offer our clients a dynamic and effective legal team with top academic and professional credentials.  Our attorneys and support staff have extensive experience in both business transactions and litigation.  In addition to having a hard-earned reputation for being psychotically aggressive during the pendency of our litigation cases, our lawyers are also well known for their superior writing and innovative, client-centered approach.  In short, the business lawyers at LS Carlson Law excel because they are among the best at what they do.

 

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Dominic Carucci

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Paul Deese

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Linda Honey

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