COVID-19 is impacting almost all aspects of business and our community. The drastic changes are happening daily, in real time. Our Community Support & Business Response Legal Team is analyzing COVID-19 and its effect on Arizona’s businesses. We’re building on our 40+ years in Arizona to offer thoughtful guidance on how businesses can navigate this complex and fast-changing situation. We’re here to help. If the information below does not answer your pressing questions, please feel free to contact our team of professionals.
Gallagher & Kennedy’s Business Continuity Response to COVID-19, 3/18/2020
Considerations for Board and Shareholder Meetings
In-person meetings of shareholders, directors, partners, or other owners or managers may prove difficult to convene in light of governmental restrictions on the occurrence, size, time, or place of gatherings.
Obtaining signatures on legal documents may present logistical problems when people are away from business offices or in places where electronic communication is not available or reliable.
If and to the extent that certain governmental offices and private businesses might be closed from time to time, the obtaining of official certifications or other third-party confirmations might not be practical.
Terry Thompson is available to answer questions about Considerations for Board and Shareholder Meetings.
Force Majeure Clauses
Due to the Coronavirus (COVID-19) pandemic, many businesses are confronting unique and unforeseen circumstances that could either excuse or delay the obligation to perform under existing contracts as a result of the occurrence of a force majeure event. Force majeure is a contractual defense generally allowing a party to postpone, defer, or discontinue performance of its contractual obligations in certain specified circumstances. What constitutes a force majeure event is determined on a case-by-case basis and depends upon the terms of the relevant contract, applicable law, and the relevant facts and circumstances. Concerned business should be analyzing the following:
For businesses that have received a force majeure notice, they should be:
Matt Engle is available to answer questions about Contracts and the possibilities of force majeure claims.
International Chamber of Commerce Comments on Force Majeure Clauses
What are our basic legal obligations with regard to the prevention of infection in the workplace?
Employers do not have a legal duty to “guarantee” that no one in the workplace will ever be infected with COVID-19. But you definitely should take reasonable steps to reduce the risk of infection, as recommended by the CDC, OSHA, and the Arizona Department of Health Services: frequent hand-washing, sanitizing, and disinfecting of surfaces, and other proper hygiene practices. And you should follow the CDC guidelines when employees show symptoms of or test positive for COVID-19 (see below).
What should we do when an employee has symptoms or actually tests positive for COVID-19?
As Arizona businesses continue to re-open, more and more employers are beginning to see employees who are experiencing symptoms or who are actually testing positive for COVID-19. Business owners should consider the following steps to respond.
Naturally, the employer must direct the particular employee to stay home and not return to work until he or she meets the CDC’s criteria to discontinue home isolation. (“When You Can be Around Others After You Had or Likely Had COVID-19”).
Remember that “staying home” does not necessarily mean that one is unable to work. If the employee’s job is suitable for remote work, and the employee is medically able, then remote work is a viable option. If remote work is not feasible (and the business employs fewer than 500 employees), then as discussed below, the employer may have a tax-based incentive to provide up to 80 hours of “Emergency Paid Sick Leave” under the “Families First Coronavirus Response Act.”
Then the employer must do some “contact tracing” to determine whether any other employees may be required to quarantine. According to guidelines issued by the Maricopa County Department of Public Health, persons who had “close contact” with the positive individual (contact within six feet for a total of 15 minutes or more in any given 24‑hour period) should stay home for ten days after their most recent exposure to the positive individual. According to the County, persons who quarantine for seven days and who then test negative for COVID-19 may be able to return to work at that time. (As above, consider whether remote work may be a viable option. If remote work is not feasible, then as discussed below, the employer may have an incentive to provide up to 80 hours of emergency paid sick leave under the FFCRA.)
Employers in Arizona are not under a formal legal obligation to notify customers, contractors, suppliers, or other third parties that an employee has tested positive.
If an employee has to be absent because of COVID-19, is that paid time off?
Absences that are due to the employee’s own illness, the need to care for a family member who is ill, or the need to stay home with a child whose school has been ordered closed qualify for Paid Sick Time under Arizona’s Proposition 206. Employees who have PST available, therefore, must be permitted to use it to cover an absence caused by COVID‑19.
Absences caused by COVID‑19 also may qualify for “Emergency Paid Sick Leave” under the “Families First Coronavirus Response Act.” That law applies to all employers with fewer than 500 employees, and offers such employers a tax-based incentive to provide up to 80 hours of paid sick time (subject to certain caps on the rate of pay) for various absences caused by COVID-19. Employees are not legally entitled to such paid sick time; the mandatory paid leave provisions of the FFCRA expired on December 31. But covered employers who choose to offer paid leave for such absences may take a refundable tax credit for the compensation that they pay out for such leave through March 31, 2021.
Under the FFCRA, absences due to an employee’s need to stay home to care for a child whose school has been ordered closed also may qualify for emergency paid FMLA leave. The law provides covered employers with a tax-based incentive to provide up to ten weeks of paid FMLA leave (again, subject to certain caps on the rate of pay) for employees who need to stay home due to a school closure. Again, employees are not legally entitled to such paid leave; the mandatory paid leave provisions of the FFCRA expired on December 31. But covered employers who choose to offer paid FMLA leave for such absences may take a refundable tax credit for the compensation that they pay out for such leave through March 31, 2021.
Keep in mind that an employee who needs to be at home for one reason or another might still be able to work remotely. If remote work is feasible and can be productive in any given case, the employee would not be “absent,” and therefore would not need or qualify for any of these types of paid time off.
We may need to implement some layoffs to deal with the economic crisis. What are the rules concerning reductions-in-force, furloughs, layoffs, etc.?
Non‑union employers with 100 or more workers may need to consider whether a particular reduction or layoff might be subject to the federal plant closing law (the “WARN Act”) or to any state‑law version of the WARN Act.
But in the absence of the WARN Act or similar coverage, non‑union owners and managers have significant discretion to exercise their best business judgment to structure workplace adjustments, reductions, and layoffs in the manner they feel is best for the operation. Employers can use whatever business-related criteria they prefer to select personnel for a reduction or layoff: seniority, salary level, scores on most recent performance reviews, production levels, preservation of relationships, for example, and/or any combination thereof. Employers also can weight those criteria however they wish, in the exercise of their own business judgment. And employers are not legally required to provide workers with any specific “recall” or “rehire” rights.
Don Johnsen is available to answer questions about Employment & Labor issues.
How Does the Most Recent Coronavirus Relief Bill (December 2020) Affect Our Obligations when an Employee Must Miss Work Because of COVID-19?
Can We Mandate That Employees Get the COVID Vaccine?
Should Businesses Require People to Sign Waivers to Come Onto Premises?
Preparing to Re-Open the Workplace; Critical Issues for Arizona Employers
EPA Again Delays TSCA Chemical Data Reporting
EPA’s second extension of the 2020 CDR submission period will allow manufacturers, already stressed in the current COVID-19 business environment, to prioritize their environmental compliance and other obligations while attempting to navigate COVID-19 implications.
Although not directly related to the COVID-19 pandemic, in November 2020, the U.S. Environmental Protection Agency (EPA or Agency) announced a second extension of the submission deadline for 2020 Chemical Data Reporting (CDR) pursuant to the Toxic Substances Control Act (TSCA). The new reporting period is June 1, 2020 – January 29, 2021 (extended from June 1, 2020 – November 30, 2020).
What is the TSCA CDR?
The TSCA CDR is a reporting program administered by EPA wherein manufacturers (including importers) of chemical substances identified on the TSCA Inventory must report information to EPA on a four-year cycle (the last submission period was in 2016, based on 2012-2015 data).
What information must be reported?
EPA requires manufacturers to report information on their production of chemical substances, as well as information on the down-stream processing and use of the substances. The information reported for each substance includes the (a) company and plant site information, (b) chemical name and Chemical Abstracts Service number, (c) number of workers exposed to the substance during its manufacture, (d) physical form of the substance, (e) down-stream uses of the substance, (f) number of down-stream sites using the substance, (g) types of down-stream industrial sectors using the substance, (h) number of workers exposed to the substance in the down-stream operations, and (i) consumer and commercial uses of the substance (including whether the substance is used in any consumer products intended for use by children).
Are there exemptions from reporting?
Yes, EPA’s CDR regulations identify both exemptions and exclusions from reporting. However, a manufacturer should thoroughly evaluate the applicability of an exemption/exclusion and document its conclusion in the event of an EPA inspection.
How is information reported to EPA?
Information must be electronically submitted to EPA using the Agency’s Central Data Exchange (CDX).
Why did EPA extend the 2020 CDR submission period?
EPA extended the 2020 CDR submission period because of recent changes to the CDR regulations contained in a March 17, 2020 final rule. The final rule, which is effective for purposes of 2020 CDR reports, modifies a number of reporting data elements.
Chris Leason is available to answer questions about 2020 TSCA CDR obligations and Dal Moellenberg and Chris Leason are available to answer Environmental Law issues.
OMB Issues Memorandum to Federal Agencies Regarding “Best Practices” in Enforcement Actions and Adjudication
COVID-19 will affect both prosperous and already distressed businesses. Bankruptcy, moratoriums, and other tools implemented to ameliorate the disruption are initially likely to apply to all companies seeking relief. It will be necessary to understand modifications of creditor rights as companies receive an opportunity to see if they can successfully operate in a post-COVID-19 economy.
There will be indirect consequences experienced by individuals and companies as their employees, customers, borrowers, and others struggle to meet their commitments. It will be necessary to understand how defaults or delays in performance are best addressed and which transactions are no longer possible or prudent.
Below are some initial, practical steps businesses can take in evaluating their current situation and determining how to proceed in the future:
Dale Schian is available to answer questions about Financial Distress, Bankruptcy & Creditors’ Rights.
Arizona Bankruptcy Court Rulings Facilitate PPP Loans for Business in Chapter 11
CARES Act Expands Bankruptcy Relief for Small Businesses
COVID-19 Impact on Franchise Disclosure Documents
The North American Securities Administrators Association (“NASAA”), the national association of state franchise regulators, issued new guidance on Item 19 financial performance representations that several states are implementing immediately. The newly published guidelines (See Additional Resources) require certain franchisors who include historical financial results in an Item 19 financial performance representation to amend already filed Franchise Disclosure Documents that should consist of up-to-date 2020 results. These guidelines will ensure that prospective franchise buyers are aware of the impact that COVID-19 has had on those businesses and reasonably reflect current economic conditions.
In determining whether a franchisor is obligated to file an amended FDD, the franchisor should consider the following factors:
A franchisor that included actual historical sales and profits data in their 2020 FDD and whose business has been impacted by the pandemic should update their FDD to include disclosures concerning that impact. NASAA did not provide specific guidelines on the required amendments. Still, the State of Washington, which has implemented similar requirements already is requiring franchisors to acknowledge that the virus has negatively impacted their business and to include sales results for the first part of 2020 in their financial performance representation. We suspect that other states will accept similar disclosures. The sale of franchises without these disclosures might increase risk because franchisees may later claim that they would not have purchased a franchise if they knew about the impact that COVID-19 had on the franchised business.
Josh Becker is available to answer any questions about Franchising issues.
EPA’s COVID-19 Policy Terminated in Summer Shows No Sign of Returning
The U.S. Environmental Protection Agency (EPA) issued a policy during the early days of the pandemic that authorized agency personnel to exercise enforcement discretion when considering responses to environmental violations. EPA terminated that policy, effective after August 31, 2020. EPA’s decision to terminate was based on the gradual reopening of businesses and improved COVID-19 numbers witnessed during the summer. That said, in response to recently increased COIVID-19 cases during the fall, there has been no action to revive the policy. However, EPA retains its general, long-standing ability to exercise enforcement discretion:
Nothing herein limits the ability of the EPA to exercise enforcement discretion on a case-by-case basis regarding any noncompliance, including noncompliance caused by the COVID-19 public health emergency, before or after the temporary policy is terminated. This includes the situation in which a person or entity makes a reasonable attempt to comply with guidance from the Centers for Disease Control and Prevention or other agencies regarding actions suggested to stem the transmission and spread of COVID-19, which the person or entity reasonably deems applicable to its circumstances.
EPA Memorandum re: COVID-19 Implications for EPA’s Enforcement and Compliance Assurance Program: Addendum on Termination (6/19/20).
Although EPA’s COVID’s policy has been terminated, the concept of regulatory fairness and discretion lives on, at least for now, thanks to a memorandum issued by the federal Office of Management and Budget (OMB) in August. For more information, see G&K’s update above entitled: “OMB Issues Memorandum to Federal Agencies Regarding ‘Best Practices’ in Enforcement Actions and Adjudication” (9/27/2020). In addition, as discussed in prior updates under this topic in G&K’s COVID-19 guidance, businesses and citizens in Arizona continue to enjoy fairness laws that govern inspections and enforcement by administrative agencies.
Stan Curry is available to answer questions regarding Arizona state and county inspections, permitting, and compliance enforcement issues for businesses.
A Company’s Rights after the Inspection
A Company’s Rights during an Inspection
Coming Soon after COVID-19: When the State Reopens and the Regulators Return
COVID-19 continues to create significant uncertainty for companies and individuals with respect to business and contractual relationships. The impact of the pandemic on current and future litigation is dynamic, changing on a daily basis, but some of the key issues businesses are facing include:
The Federal and State courts throughout Arizona continue to balance the ongoing health risks with the necessity to remain operational. Courts have adjusted aspects of the process to minimize any potential delay while still ensuring litigants are not prejudiced in the enforcement and protection of their legal rights. With the exception of civil jury trials, most elements of the civil litigation process are moving forward, albeit with greater reliance on virtual or telephonic proceedings.
Here are some key ways in which COVID-19 has impacted Federal and Arizona State Court litigation and some of the ways in which these Courts are responding:
Mike Ross and Hannah Porter are available to answer questions about the Impact on Litigation for businesses in litigation or contemplating litigation.
Maricopa County Superior Court Establishes Late Case Fair Limits Proceeding
Maricopa County Superior Court Guidelines to Reopen
Arizona Supreme Court Authorizes Limited Court Operations
Many businesses are and will continue to be financially impacted by COVID-19. Depending on the circumstances and terms of the policy, insurance coverage may be available to defray some of the losses and additional expenses incurred as a result of the virus outbreak. Below are steps businesses can take to evaluate their potential insurance coverage.
Jennifer Cranston is available to answer questions about coverage and communicating with carriers regarding your business insurance policies.
In response to the COVID-19 crisis, the PPP authorizes up to $669 billion in forgivable loans with a fixed 1% interest rate to small businesses to assist them to continue to pay their employees during this challenging time. The payment on the loans can be deferred and businesses may be eligible for complete loan forgiveness if the funds are used only for the following purposes in the first 8 weeks after getting the loan:
The loan forgiveness is only available to businesses that maintain their staff and payroll—the amount eligible for forgiveness will be reduced if you decrease your full-time employee headcount or decrease compensation by more than 25% for any employee that made less than $100,000 annualized in 2019; but, if you restore your full-time employment and salary levels for any changes made between February 15, 2020 and April 26, 2020, eligibility for forgiveness can also be restored. Businesses that receive loans may be eligible for a portion of the loan to be forgiven if used for other costs.
If a business applies for and receives a loan under the PPP, it will not be eligible to defer the employer’s 6.2% of social security taxes nor will it be eligible for the 50% credit on the first $10,000 of wages paid to employees.
See Tax Developments guidance for a more detailed discussion of this deferral and credit.
Matt Engle is available to answer questions about the Paycheck Protection Program.
SBA Paycheck Protection Program Loans and Changes of Ownership
SBA Releases Revised PPP Loan Forgiveness Applications, Including New Streamlined EZ Application; Deadline
for New Loan Applications Fast Approaching
President Trump Signs the Paycheck Protection Program Flexibility Act
SBA Issues Additional Guidance Regarding PPP Certifications
Notice 2020-32: Deductibility of Expenses When Loan is Forgiven Under the Paycheck Protection Program
Treasury Announces Audits of PPP Loans in Excess of $2,000,000
Reminder: The Payroll Tax Credit May be Available to Businesses if the PPP is Not
Guidance from the SBA on PPP Funds and Additional Funding Appropriated
For many aspects of a real estate transaction, a pandemic, a public emergency, and perhaps (if applicable) a “stay in shelter” order, may rise to the level of “force majeure” or act of God, which in turn allows for the excuse, delay, extension or waiver of performance. Where the performance by a party to a contract is rendered impossible, or materially and adversely affected, by unforeseeable factors, then under the principles of force majeure that party may be excused.
In assessing whether an event or condition would qualify for such treatment under the concept of force majeure, often the “foreseeability” of the event is a significant factor. At its essence, a force majeure clause is an attempt to recognize that some risks are not reasonably foreseeable, and therefore, no single party should suffer the resulting consequences and losses.
COVID-19 has created significant uncertainty in the real estate industry, and we are currently sorting through numerous issues including the following:
Jim Connor is available to answer questions about the impact of the current business climate on commercial and residential Real Estate.
City of Phoenix Extends Several Permit Deadlines Due to COVID-19
Issues When Considering Lease Modifications in a COVID-19 Business Environment
Raising Capital with COVID‑19 As a Disclosure Requirement
Securities laws require disclosures of material factors that may impact among other things business operations and financial results. Disclosures are both of existing conditions and prospective impact of macroeconomic events or so called acts of God. Clients raising capital will need to consider how COVID‑19 could impact sales, result in layoffs, create supply issues if components need to be shipped from China or Italy and related logistics of reduced transport options with flight curtailments, consider whether key employees are not able to work due to illness from COVID‑19, and many other factors specific to their business.
For example, a medical facility meant to be a surgical center may need disclosure as it may be repurposed for COVID‑19 patients.
Disclosures need to be in private offering documents and public securities reports both in the form of risk factors and the narrative on the business itself. They may even be in the management discussion impacting liquidity particularly if the client has a blown covenant with a lender. There is no “one size fits all” and working with the management team and auditor will help securities counsel determine the needed disclosures.
Steve Boatwright is available to answer questions about Securities Law, Raising Capital, and Disclosure Requirements.
Legislative Tax Relief
Tim Brown is available to answer questions about the challenges in Tax Developments for businesses.
IRS Adds New FAQs on Faxing Refund Claims, NOL Carrybacks Under CARES Act
Federal Tax – Administrative Relief
The vast majority of states have extended state income tax filing deadlines commensurate with the federal extensions. A more limited number of states have recently begun providing various forms of relief for sales taxes, at least for small businesses meeting certain annual gross revenue thresholds. These forms of relief may include: extended deadlines for sales tax returns; waiving penalty and interest for late-filed sales tax returns; and granting use tax deductions for COVID-19 related donations.
The states currently offering some form of sales tax relief include: Alabama, California, Colorado, Connecticut, District of Columbia, Florida, Illinois, Indiana, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, New York, North Carolina, Pennsylvania, South Carolina, Texas, Vermont, Virginia, and Wisconsin.
Work-from-home and Nexus: Multistate businesses whose employees are required to work-from-home should be mindful of physical presence nexus and monitor guidance from states in which employees work from home. The District of Columbia, Indiana, Minnesota, and Pennsylvania have issued guidance that in general, employees required to work from home do not establish nexus for the employer while a federal, state, or local government order is in effect. Maryland has issued a notice that nexus determinations are based on the specific facts and circumstances of each taxpayer.
Information on the Arizona and New Mexico responses to COVID-19 is below.
New Mexico: New Mexico Taxation & Revenue Department (TRD) COVID-19 Response
Income Taxes and Estimated Payments:
No Other Extensions:
New Mexico Taxation and Revenue Department Bulletin 100.35
Operations and Tax Enforcement Actions:
Arizona: Arizona Department of Revenue (ADOR) COVID-19 Response
2019 Income Taxes and Estimated Payments:
ADOR GTN 20-1
Unemployment Reports and Payments:
Frank Crociata is available to answers questions about State and Local Tax Developments for businesses.
Potential Liability for Exposure to COVID-19
As the coronavirus pandemic continues to rage while businesses struggle to remain afloat, many employers and businesses have expressed concern about civil liability arising from exposure to COVID‑19. Companies are wondering about their potential liability to persons who claim they were exposed to COVID‑19 while on their property and became ill following that exposure. Such allegations will require a careful analysis of the facts and circumstances relating to the particular claim.
Indeed, in December 2020, one company and its owners were sued for wrongful death with allegations that the company failed to take reasonable COVID-19 mitigation precautions and failed to maintain a safe workplace.
Claims for sickness and injury to an employee may be subject to worker’s compensation laws, such that an employee’s exclusive remedy, with limited exceptions, would be through the worker’s compensation system (assuming the employer had worker’s compensation insurance). During that process, the employee would need to establish that the injury resulted from exposure in the workplace while performing a function in the course and scope of the employee’s work duties.
For non-employees, a company may face claims from a social guest or business invitee if the business knew or had reason to know of a dangerous condition that caused the guest or invitee harm. The elements of such a claim would include establishing (1) the existence of a legal duty owed by the company to the claimant, (2) the company’s fault, (3) injury sustained by the claimant, and (4) a causal connection between the company’s conduct and the claimant’s injury. Of these elements, fault and causation will likely be the key focus of most disputes. Specifically, claimants will bear the burden of proving that the business failed to act as a reasonably careful person would act under the circumstances, including following any industry-specific standards, and that the business’s conduct helped produce the injury and that the injury would not have happened without the business’s conduct.
Accordingly, in addition to following all requirements established by federal, state, and local authorities in connection with re-opening, businesses should research any guidelines or recommendations applicable to their industry and develop reasonable policies and practices based thereon. Likewise, businesses should carefully document all efforts to implement their adopted standards, as that documentation be used as evidence in defending future exposure claims.
Many businesses routinely require customers, guests, or other persons coming onto the premises to sign “waivers of liability” or other “assumption of risk” documents.
Businesses and property owners should be extremely wary about relying on such waivers to avoid potential liability for exposure to COVID‑19. As one might expect, judges tend to scrutinize prospective waivers very carefully, and in any given case, can be tempted to search for some way to void the waiver (and permit the injured person to proceed with his or her suit).
Under those circumstances, businesses and property owners who are considering using such waivers should not use any “pre‑coronavirus” forms but should consult with legal counsel to develop documents tailored to the particular nuances and risks of the COVID‑19 pandemic.
Arizona Proposed Legislation
Arizona legislators initially sought to protect Arizona business from tort liability a priority. HB 2912 proposed to raise the standard of liability from mere negligence to “gross negligence.” That is, a plaintiff claiming an injury related to COVID-19 caused by a business or similar educational, non-profit, or governmental entity would have to prove by clear and convincing evidence that the entity acted with reckless disregard for the safety of the plaintiff and other members of the public. That bill did not pass, and there currently are no similar bills pending. Proposed federal legislation providing restrictions on COVID-19-based claims have also failed to pass.
Shannon Clark is available to answer questions about the interaction between tort liability and workers’ compensation laws and risk management best practices.