The public health crisis caused by COVID-19 has already impacted companies’ business operations, procurement lines, and staffing resources. These short-term effects will likely have long-term implications in terms of operational uncertainty, brand, and legal risk. Now is the time to refresh and revise your existing emergency contingency plan to prepare for and mitigate against these risks. Your plan will likely have included the establishment of a designated team to manage the crisis and communicate with relevant stakeholders.  This is a time to exercise leadership, to communicate with stakeholders clearly and transparently, to build trust, and to continue to take and plan for concrete actions.

Below, we identify some of the key steps that companies with strong crisis management plans have taken, and considerations that all companies should keep in mind moving forward, to reduce business and legal exposure.

Companies are currently taking steps to protect the safety of their employees, ensure business continuity, and minimize losses caused by operational and supply chain disruption.

  1. Crisis Management Plan: Review, refresh, and implement the company’s crisis management plan.
  2. Response Team: Response teams often have representatives from each business function with a direct line to the CEO. Designated response teams should include adequate regional/time-zone coverage taking into account the geographic spread of operations. To the extent they haven’t already, companies should consider engaging outside experts, including external counsel, public relations firms, and subject matter experts, to assist and be on call as new developments unfold.
  3. Public Relations and Communications Plan: Revise and modify as needed the communications plan for employees, vendors, customers, and the public. Companies frequently designate one or more specific people with the responsibility to deliver these messages.
  4. Safety and Welfare: Employers have been responding to the crisis by taking precautions, such as instituting work-from-home policies where appropriate, to protect the health of their employees and clients. Employers should also consider whether to implement changes to their HR policies. Please refer to our client alerts on U.S. and U.K.Employment Law Considerations for Companies Responding to COVID-19 for key considerations for businesses working to reduce the risk of employment exposure and steps to take when an employee tests positive for COVID-19 or must care for someone with the disease.
  5. Finance Stress Tests and Backup Plan: Disruptions in cash flow and market volatility may contribute to covenant defaults under key lending agreements. Customers or borrowers may request accommodations, indicating that they may be distressed. Companies have been and should continue to conduct financial stress testing, modeling their financials under potential scenarios to identify events that might significantly impair liquidity. This may include evaluating current and future financial covenant compliance, the impact of a ratings downgrade, and the implications of a negative watch notice, and proactively seeking covenant relief/forbearance agreements from lenders. Companies are developing, as appropriate, contingencies designed to stabilize the organization in each scenario (e.g., seeking additional capital from external sources). Many companies are drawing on their available lines of credit to ensure liquidity. Additionally, if a company is nearing insolvency, the board should obtain a briefing on how they should take into account the interests of creditors in the exercise of the board’s fiduciary duties. Please refer to the attached presentation on fiduciary duties for financially stressed companies for more details.
  6. Contractual Obligations: Companies are currently evaluating potential supply chain disruptions, counterparty financial difficulties, and premises closures, which may affect abilities to meet contractual obligations. This involves assessing whether companies and their counterparties can continue to meet contractual obligations, adapting arrangements for procuring goods or services necessary to manage the ongoing business, and the potential application of force majeure provisions, other frustration-related contractual provisions, notification obligations, and provisions permitting suspension of performance. It also involves analyzing the implications of any suspension of performance, in particular the potential application of liquidated damages provisions and demand guarantees. These issues of course vary from one contract to another, depending on the governing law. For example, under the laws of some common law jurisdictions, force majeure provisions may be interpreted strictly and restrictively, whereas other systems may more freely permit suspension or non-performance on force majeure grounds, irrespective of whether the issue is specifically addressed in the contract.
  7. MAE/MAC Provisions: Certain companies may evaluate whether the impact of COVID-19 constitutes a material adverse effect (“MAE”) or material adverse change (“MAC”) as a basis to terminate transactions. Whether the impact of the virus will be considered an MAE/MAC will depend upon the language of the agreement and what is known at the time execution of the agreement. Disputes regarding pre-crisis MAE/MAC provisions may focus on whether (1) definitional language that typically excludes general economic or market conditions and other broad-based factors impacting the business climate or the target’s industry generally is sufficient to exclude the impact of COVID-19, (2) whether the potential impact of the virus was reasonably foreseeable, and/or (3) whether the impact of the virus is sufficiently long-lasting. Companies currently negotiating MAC/MAE provisions would be well-advised to negotiate explicit language to address the COVID-19 risk-allocation. For more information on pre- and post-crisis MAE/MAC provisions and other M&A considerations, please refer to our client alert on M&A Amid the Coronavirus (COVID-19) Crisis: A Checklist.
  8. Insurance Policies: Companies are reviewing their insurance policies to determine whether losses and expenses incurred and/or anticipated might be covered, and to identify any notification requirements that must be satisfied.
  9. Disclosure Obligations for Listed Companies: Listed companies are evaluating potential additional disclosures with respect to material risks, material disruptions or impairments to business operations or outlook, and/or material changes in plans or transactions.

Prepare Now for Ripple Effects.

1. Assess Material Risks. 

Companies should consider (1) how the public health crisis has already impacted them – such as any effects on liquidity, earnings, and continuity of services – and (2) how the crisis may continue to affect them, factoring in the uncertainty of how long the effects of the crisis will last.

2. Engagement with Government Authorities. 

Companies should have a clear plan regarding their engagement with all relevant regulators and other governmental authorities – within the U.S., at local, state and federal levels, and outside the U.S., at local, regional and national levels, as well as any relevant supranational authorities.

3. Understand the Impact of Varying Local Regulations. 

Companies should have a clear plan in place to engage with key stakeholders at the corporate level, and consider how the COVID-19 public health crisis will likely affect the need for and practicalities surrounding board and shareholder communications. Each company should consider the implications of stakeholder engagement based on the laws of the country in which it is domiciled. For example, U.S. listed companies should consider how the crisis will likely affect each of the following:

4. Engagement with Stakeholders.

Local and state governments have implemented non-uniform response measures in efforts to curb the spread of the virus, including shelter-in-place orders restricting mobility within communities. Response plans should include working with counsel to understand and interpret how varying local measures impact their business operations. For multi-jurisdictional companies, this may require tailoring response plans based on the location of their operations.

  • Financial and Public Disclosures: Companies should consider whether their disclosed risks adequately address how the COVID-19 crisis has impacted their earnings. Companies should consider the extent to which new risks – such as logistical and procurement delays and difficulties meeting production timelines or continuing provision of services due to staff being forced to work from home – necessitate revision of previous disclosures.
  • Regulation Fair Disclosure: Company executives should wisely consult with in-house and outside counsel in communicating with stakeholders regarding the current health care crisis and its impact on the company, to ensure compliance with Regulation FD by not disclosing material nonpublic information to select investors prior to any public announcement. See Final Rule: Selective Disclosure and Insider Trading, 17 C.F.R. 240, 243, 249, Release No. 33-7881 (2000), https://www.sec.gov/rules/final/33-7881.htm.
  • Earnings Guidance: Companies should consider the extent to which they want to revise forward-looking statements based on how the crisis is likely to affect revenues and plans for future operations.
  • Board Meetings: Boards should consider whether to meet (virtually, as appropriate) to assess and provide input on and monitor company management’s steps to address the crisis.
  • Annual Meetings: On March 13, 2020, the Securities and Exchange Commission (“SEC”) issued guidance for companies conducting annual meetings amid the COVID-19 crisis (https://www.sec.gov/ocr/staff-guidance-conducting-annual-meetings-light-covid-19-concerns?auHash=zrsDVFen7QmUL6Xou7EIHYov4Y6IfrRTjW3KPSVukQs). Companies that have already mailed and filed their proxy materials may consider changing the date, time, or location of their meeting. The SEC advised that it would take the position that these companies do not need to mail additional materials or amend their proxy materials if they: “issue[] a press release,” “file[] the announcement as definitive additional soliciting material on EDGAR,” and “take[] all reasonable steps necessary to inform other intermediaries in the proxy process . . . and other relevant market participants.” Companies may also consider holding virtual meetings. These companies should review with counsel their governing documents and applicable state law to confirm such meetings are permitted. If virtual meetings are permitted, the SEC has advised that companies should notify all participants in a timely manner and provide clear directions on logistics (including how to access, participate in, and vote at the meeting). Companies that have yet to mail proxy materials should include such information there; companies that have already mailed and filed proxy materials should take the same steps outlined above for companies changing the date, time, and location of their meeting. The SEC guidance also addresses issues relating to shareholder proposal presentations at these meetings.
  • 10b5-1 Plans and Other Trading in Issuer Securities: Executives should consider whether the COVID-19 crisis and its impact on the company requires the extension of blackout periods for stock trading by personnel with material nonpublic information in light of the public health crisis, and/or whether appropriate changes should be made to the blackout periods for those directors and officers who do not have possession of material, nonpublic information but wish to show support for companies in this time of need.

5. Assess and Monitor Regulatory Developments.

Companies should consider regulators’ responses to the crisis, and assess whether their regulatory requirements are affected. In the U.S.:

Companies should consider whether they qualify for the relief announced under these orders, but not take them as indication that other regulatory agencies will offer similar relief from existing obligations. Companies should also proactively engage with regulators to communicate any anticipated inability to meet existing regulatory obligations.

6. Assess Ongoing Litigations and Investigations.

Companies need to account for the impact of COVID-19 on existing litigation and investigations, which may be affected by court closures and government agencies’ institution of work-from-home policies.

  • Litigation: Courts across the world have been restricting access, adjourning or continuing trials, and postponing hearings and arguments in light of COVID-19. Companies in litigation should anticipate that trials and other case deadlines may be delayed. Counsel on any ongoing matters should monitor court updates and proactively communicate with courts and counsel for other parties as appropriate to determine the impact on existing deadlines. Companies should also assess the risk that a litigation party may be distressed and could file for bankruptcy, and consider any proactive measures that can be taken to address this risk (including, for example, structuring settlements to mitigate bankruptcy risks).
  • Investigations: The same holds for ongoing investigations by regulators and prosecuting authorities; government office closures or work-from-home policies will likely affect existing timelines for investigations, including document productions and witness interviews. Depending on the circumstances, companies may wish to consider whether to engage with responsible government officials on these issues.  Under the right set of circumstances, proactive communication with regulators builds trust and may be helpful.

7. Down the Line: Regulatory Scrutiny, Shareholder Actions? 

The risks posed by the COVID-19 crisis necessitate that companies plan now for the long-term financial, operational, and logistical effects of the crisis. Companies’ reactions to the crisis – and whether they were adequately prepared – will likely be scrutinized by regulators and/or be the subject of future shareholder actions.

  • Upcoming Earnings Calls: March/April Quarterly Earnings calls are right around the corner. Companies will be asked how the public health crisis impacted them, and how they responded.
  • Questions to Prepare for: Were you prepared? Did you have the technological capabilities available to continue to offer services with staff working remotely? Did you act appropriately and in a timely manner when the risks – of supply-chain/procurement disruption, office closures, and need for remote working – became clear? Failing to take action to mitigate against these risks now and communicate your response plan to stakeholders may expose you to future shareholder actions.

Demonstrate Leadership.

Given the prevailing climate of uncertainty and adversity posed by the COVID-19 crisis, it will be important for those in leadership positions within major companies to demonstrate clear, calm, and measured stewardship. By having an adaptable action plan to mitigate business and legal risks, address the needs of staff and customers, and proactively communicate with government authorities and key stakeholders, companies can demonstrate their reliability in a time of crisis.

Gibson Dunn’s lawyers are available to assist with any questions you may have regarding developments related to the COVID-19 outbreak. For additional information, please contact any member of the firm’s Coronavirus (COVID-19) Response Team.

Gibson Dunn lawyers regularly counsel clients on the crisis management issues raised by this pandemic, and we are working with many of our clients on their response to COVID-19. Please also feel free to contact the Gibson Dunn lawyer with whom you usually work, any member of the firm’s Crisis Management Group or Business Restructuring and Reorganization Group, or the authors:

Debra Wong Yang – Co-Chair, Crisis Management Group, Los Angeles (+1 213-229-7472, [email protected])
Reed Brodsky – Co-Chair, Crisis Management Group, New York (+1 212-351-5334, [email protected])
Penny Madden – London (+44 (0) 20 7071 4226, [email protected])
Patrick Doris – London (+44 20 7071 4276, [email protected])
Robert A. Klyman – Co-Chair, Business Restructuring Group, Los Angeles (+1 213-229-7562, [email protected])
Benno Schwarz – Munich (+49 89 189 33-110, [email protected])
Virginia S. Newman – Hong Kong (+852 2214 3729, [email protected])
Alyssa B. Kuhn – New York (+1 212-351-2653, [email protected])
Matthew G. Bouslog – Orange County, CA (+1 949-451-4030, [email protected])

© 2020 Gibson, Dunn & Crutcher LLP

Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

Whatever industry you are in, you are undoubtedly concerned about the threat of the novel coronavirus (COVID-19).[1] Below, we summarize key privacy and cybersecurity implications of collecting and sharing personal information from employees, site visitors, and other individuals to manage COVID-19 risk, as well as cybersecurity risks of these and other management and mitigation efforts.

Despite the need to take swift action in this rapidly evolving environment, we recommend that companies consider how to do so in a manner that minimizes privacy- and cybersecurity-related legal risks. Various regulatory agencies have issued guidance in the last several days indicating that privacy laws that limit the collection and disclosure of personal information remain in effect. And the implementation of work-from-home and other arrangements has increased exposure to various cybersecurity risks—risks that hackers have moved swiftly to exploit.

The United States

Though there is no federal data protection law in the United States, the Centers for Disease Control and Prevention (“CDC”) and the US Equal Employment Opportunity Commission (“EEOC”) have advised employers to keep certain personal health data confidential, and most companies have made commitments to their employees, customers, and/or users about keeping their personal health data confidential. In addition, some state laws, such as the California Consumer Privacy Act (“CCPA”), impose transparency requirements on covered businesses, and may result in additional liabilities in light of data breaches.

Generally, when implementing COVID-19 risk mitigation measures in the United States, companies may wish to consider the following privacy and cybersecurity-focused steps:

  • Provide notice before collecting and limit use of personal information. If you decide to collect additional personal information at this time, particularly sensitive personal data, such as health or medical information, whether through the use of surveillance technologies such as thermal cameras or otherwise, consider notifying employees, visitors, or any individuals prior to such collection. For example, the CCPA requires that covered businesses provide notice to California residents (including employees) regarding the categories of information collected and uses of that information at or before the time of collection; even where companies and employers have implemented CCPA-compliant privacy policies, the collections and uses of personal information for the COVID-19 pandemic may be sufficiently novel that additional notice is required.[2] Companies should, however, be cautious about the language employed to notify individuals of these data collection practices, especially being careful not to concede that the company is processing the data, if accurate (for example, information reviewed for real-time monitoring may be treated differently by regulatory authorities than health information the company chooses to store for potential further use).For companies collecting additional information, including sensitive health or medical data, consider limiting the company’s use and retention of such data to the monitoring of health and public safety conditions at work, and de-identify the data to the extent possible. Before considering any further uses or retention of such data, consider contacting outside counsel to properly weigh potential privacy risks.
  •  Implement reasonable security protocols and issue cybersecurity reminders to employees. Consider implementing reasonable security protocols and data minimization efforts that are appropriate to the sensitivity of the personal information, such as encryption, data separation, and data access controls, to collect and store data. For instance, the Genetic Information Nondiscrimination Act (“GINA”)[3] requires that information obtained pursuant to medical examinations of employees must be collected and maintained on separate systems and treated confidentially.[4] And the CCPA threatens a private right of action and/or enforcement if businesses suffer a data breach due to its “violation of the duty to implement and maintain reasonable security procedures and practices appropriate to the nature of the information.”[5] Consider also limiting collection, use, and retention of such data to what is absolutely necessary.Additionally, cybersecurity threat actors are particularly likely to exploit vulnerabilities in companies’ IT systems to gain access to sensitive personal information during these times of turmoil, particularly as companies are struggling to implement unprecedented work-from-home policies and information is less centralized. Cybersecurity firms have reported an increase in malware attacks in which threat actors have used the widespread panic related to COVID-19 to trick victims into running malware.[6] Hackers are actively targeting companies that launched a work-from-home policy in response to the COVID-19 outbreak by exploiting outdated virtual private networks, a lack of multi-factor authentication, and insecure at-home servers.[7] In light of this potential increase in the exploitation of cybersecurity vulnerabilities, consider re-evaluating your cyber-security posture and issuing reminders to employees to be on the lookout for phishing attempts, to employ secure connections, and that the company will not collect passwords or personal information relating to their online accounts, as part of the company’s coordinated COVID-19 response efforts. Indeed, in discussing the CCPA during the COVID-19 crisis, an advisor to the California Attorney General has been quoted as “encourag[ing] businesses to be particularly mindful of data security in this time of emergency.”[8]
  •  Seek counsel before implementing any preventative or reactive data collecting or sharing measures. Details and circumstances related to COVID-19 are changing constantly and the impulse to collect and share data to help stop its spread can be strong. Privacy rules and requirements, however, must also be kept in mind and considered, particularly in light of potential additional liabilities under new laws, such as the CCPA.

In the event that you learn that an employee or visitor to your facilities tests positive for COVID-19, consider taking the following steps to lessen the company’s exposure to privacy-related liability:

  • Consider how you learn about an employee’s exposure. Companies should consider having prepared responses ready for communications with affected employees. Whether the company learns directly from the affected employee or indirectly, the prepared response may notify the employee that their exposure to COVID-19 will be communicated to other employees, but that their identity will not be revealed. If the company learns directly from the employee, the company’s response may also convey appreciation for the employee’s willingness to come forward.
  • Inform potentially exposed employees without disclosing the identity of affected individuals. Consistent with the advice above, the CDC has advised employers to inform fellow employees of their possible exposure to COVID-19, but warned against disclosing the identity of the individual who tested positive.[9] Companies may also wish to advise potentially impacted customers, vendors, and visitors of their exposure, while maintaining the confidentiality of the affected individual.
  • Maintain confidentiality and promises made in Employee Handbooks and Terms of Use. A number of federal laws, including the Americans with Disabilities Act (“ADA”),[10] and GINA,[11] and regulations promulgated pursuant to the Family and Medical Leave Act of 1993 (“FMLA”),[12] impose confidentiality requirements related to medical and health data of employees. In general, the EEOC has advised that “[e]mployers must maintain all information about employee illness as a confidential medical record in compliance with the ADA.”[13] Furthermore, employers should avoid involuntary disclosure of confidential information to employees’ supervisors, although employers may share information about the specific accommodations needed by employees.[14]

Companies should also check their Employee Handbooks and Terms of Use to ensure that any promises made in those documents are carried out—or updated with clear notice to employees—before implementing data collection and sharing practices. These promises should be acknowledged in any communications with employees, visitors, vendors, customers, or others, where applicable.

Europe

On March 19, 2020, the European Data Protection Board (“EDPB”) adopted a statement on the processing of personal data in the context of COVID-19.[15] The statement emphasized that while data protection rules, including the European Union’s General Data Protection Regulation (“GDPR”) should not “hinder measures taken in the fight” against COVID-19, data controllers and processors must ensure, “even in these exceptional times,” the protection of individuals’ personal data. Specifically, the EDPB explained that any measure taken in this context should comply with general principles of law, adding that “emergency is a legal condition which may legitimize restrictions to freedom provided these restrictions are proportionate and limited to the emergency period.”

Among the core data privacy principles to be abided, the EDPB highlighted that individuals should receive transparent information on processing activities, including related purposes for processing and retention periods. Companies must adopt adequate security measures and confidentiality policies, as well as document measures implemented and underlying decision-making processes to manage the current emergency.

With respect to legal bases for processing personal data, the EDPB explained that the GDPR provides legal grounds to enable employers and competent public health authorities to process data in the context of an epidemic, in accordance with national law and within the conditions set therein. In the employment context, the processing may be necessary “for compliance with a [national] legal obligation to which the employer is subject (such as obligations relating to health and safety at the workplace) or in the public interest, such as the control of diseases and other threats to health.”[16] The EDPB also emphasized that the exceptions to the prohibition of processing of health data[17] may be available to companies “where it is necessary for reasons of substantial public interest in the area of public health”[18] or “where there is a need to protect the vital interests of the individual.”[19] However, though the EDPB provided answers to some questions about the processing of data in the employment context, it failed to offer any concrete recommendations and limited its answers primarily to restating the general data protection rules (such as proportionality and data minimization principles) and relevant national laws.

Member State Data Protection Authorities (“DPAs”) have also issued their own guidance in recent weeks with respect to the processing of personal data in this context.[20] These authorities have emphasized the general principles of lawfulness, necessity, transparency, and proportionality of the processing, as well as the principle of data minimization, set forth under the GDPR, and some have encouraged data controllers to refer to instructions and preventative measures issued by public health authorities for guidance. However, these DPAs have generally failed to adopt a unified approach.

This legal context makes it challenging for companies to ensure compliance with applicable data privacy laws throughout Europe, let alone maintain consistency with a global approach, including the United States. Companies should consider carefully, in consultation with their legal department and outside counsel, the privacy implications in each European country of engaging in data collection and sharing in the context of the COVID-19 pandemic.

The following table summarizes the developments across Europe of several key DPAs with respect to the collection and processing of personal information in the context of the COVID-19 outbreak, with further detail following.

Data Protection AuthorityProcessing Legal Basis and ExceptionsEmergency Data Collection MeasuresApplication of Data Privacy Principles and Protections
Belgium
  • Broad application of Art. 6(1)(d) not justified for prevention measures.
  • Companies cannot rely on Art. 9(2)(i) except upon express mandatory instructions from health authorities.
  • Health risk assessment may only be carried out by the workplace doctor based on Art. 6(1)(c) and 9(2)(d).
  • GDPR Principles are still applicable.
France
  • Not addressed by DPA.
  • Companies cannot implement mandatory and systematic body temperature measurement.
  • Employers may invite employees to report their potential exposure to COVID-19.
  • In the event of such employee’s reporting, employers can record the identity of affected individuals and resulting remedial measures taken, and can report elements related to the nature of the exposure to health authorities, on request.
  • GDPR Principles are still applicable.
Germany
  • Art. 9(2)(b) and 6(1) constitute relevant legal bases and exceptions to process health and other personal data.
  • Employers can ask employees/visitors for appropriate health and other personal information for the purpose of reducing the spread of COVID-19.
  • GDPR Principles are still applicable.
Spain
  • Art. 9(2)(b) might constitute relevant legal basis and exception to process health and other personal data.
  • Under Spanish labor and risk prevention laws, employers have a duty to protect employees from and prevent work risks, in consultation with Works Council.
  • GDPR Principles are still applicable.
United Kingdom
  • Not addressed by DPA.
  • DPA considers asking people if they have visited a particular country or are experiencing COVID-19 symptoms to be reasonable.
  • On the collection of employee and visitor health data by companies, DPA stressed the general data protection principles.
  • DPA will not penalize companies that might not meet usual privacy standards or deadlines to respond to data subject requests to the extent they need to prioritize other areas or adapt their usual approach during this period.
  • GDPR Principles are still applicable.
  • Statutory timescales are not to be extended, but DPA will inform data subjects that they may experience delays when making information rights requests during the pandemic.

As the table reflects, the approach taken by European DPAs has varied significantly by jurisdiction:

  • Belgium

On March 13, 2020, the Belgian DPA stated that companies should not adopt a broad application of the legal basis that allows for processing necessary to safeguard the vital interests of the individuals under Article 6(1)(c) of the GDPR[21] when implementing preventive measures.[22] The Belgian authority also explicitly noted that companies cannot rely on Article 9(2)(b), which allows for the processing of personal data when it is “necessary for reasons of public interest in the area of public health,” unless they are required to do so pursuant to explicit instructions from the Belgian health authorities. Rather, companies should rely on workplace doctors to inform employers and persons who have been in contact with the affected employee, in accordance with Articles 6(1)(c) and 9(2)(b) of the GDPR.

  • France

On March 6, 2020, the French DPA published guidance on the collection of data, and in particular employee data, in the context of COVID-19.[23] While the French authority provided that companies should refrain from implementing a mandatory body temperature measurement for employees/agents/visitors (similar to the position taken by the Belgian, Hungarian, and Luxembourgian DPAs), it indicated that employers may invite their employees to report their potential exposure to them or to the competent health authorities. In the event of such reporting, the employer is then entitled to record the date, identity of the allegedly affected individual, and the remedial measures taken (e.g., containment, remote working, contact with occupational health care resources), and to communicate information related to the nature of the exposure to health authorities, on request.

  • Germany

On March 13, 2020, and March 17, 2020, the German Conference of Federal and State Data Protection Authorities (“DSK”) and several state-level DPAs published COVID-19 guidance on the collection and processing of health data, respectively.[24] The guidance confirms that Articles 9(2)(b) and 6(1) may provide the appropriate legal bases for the processing of relevant health data and other personal data in the context of the COVID-19 pandemic. Though this guidance suggests that a company may ask both employees and visitors for health-related information relevant to reduce risks to other employees and the public, it also emphasized that companies must process this information in accordance with general GDPR principles. Permissible questions would likely include asking whether individuals have tested positive for COVID-19, have been in contact with someone who has, or have recently visited an area classified as a risk area by the German Center for Disease Control, the Robert Koch Institute. Companies will likely also be permitted to collect and process information about employees who test positive for the virus or who have been exposed to affected individuals for the purposes of informing co-workers on an anonymous basis. While doctors and other medical personnel are required by law to report COVID-19 cases, this does not seem to apply to employers. However, the guidance is ambiguous with respect to other data collection and processing practices, such as temperature testing.

  • Spain

On March 12, 2020, the Spanish DPA published a report regarding the processing of personal data in the context of the COVID-19 outbreak. Although the report is mainly applicable to the public administration, the authority stated that, in the context of employer-employee relationships, Articles 6(1)(c) and 9(2)(b) of the GDPR may constitute relevant legal bases and exceptions to process health and other personal data. Under Spanish labor and risk prevention laws, employers, in consultation with workers through Works Councils, have a duty to protect employees from and to prevent work risks, and to regularly monitor the health conditions of employees with respect to risks inherent to work, all the while respecting the right to privacy of employees and the confidentiality of the data.[25]

  • United Kingdom

On March 12, 2020, the United Kingdom DPA issued guidance that stated that it would not penalize companies that the DPA “knows need to prioritise other areas or adapt their usual approach during this extraordinary period.”[26] It described itself as a “reasonable and pragmatic regulator, one that does not operate in isolation from matters of serious public concern.”[27] The DPA stated: “Regarding compliance with data protection, we will take into account the compelling public interest in the current health emergency.”[28] Conversely, in its discussion of the collection of health data of employees and visitors, the UK authority only emphasized the GDPR principles.

The UK DPA did note, however, that it was permissible to inform staff if a colleague contracted COVID-19, noting that the affected individual should not be named and no more information than is necessary should be shared. The UK authority also noted that it would be reasonable to ask employees if they had visited a particular country, or are experiencing COVID-19 symptoms.[29]

We will continue to monitor privacy and cybersecurity developments related to COVID-19 in the United States, Europe, and around the world, and will provide further communications as developments warrant.

_____________________

   [1]   The lawyers on Gibson Dunn’s cross-functional COVID-19 Response Team—who are linked with subject-matter experts throughout the firm—are available to assist with any questions you may have regarding developments related to the COVID-19 outbreak. See https://www.gibsondunn.com/coronavirus-covid-19-resource-center/.

   [2]   Though California Attorney General Xavier Becerra cannot bring enforcement actions until July 1, 2020, the California Chamber of Commerce, the Internet Coalition, the Association of National Advertisers and approximately 30 other companies across a range of industries sent the California Attorney General a letter calling for this impending deadline to be delayed until January 2, 2021 in order to allow companies more time to respond to the unique challenges posed by the COVID-19 outbreak. See Allison Grande, COVID-19 Warrants CCPA Enforcement Delay, Calif. AG Told, Law360 (March 19, 2020), available at https://www.law360.com/articles/1255181/covid-19-warrants-ccpa-enforcement-delay-calif-ag-told.

   [3]   Pub. L. No. 110-233, 122 Stat. 881 (codified as amended in scattered sections of 29 & 42 U.S.C.).

   [4]   42 U.S.C. § 12112(d)(3).

   [5]   Cal. Civ. Code § 1798.150.

   [6]   Zack Whittaker, Hackers are jumping on the COVID-19 pandemic to spread malware, TechCrunch (March 12, 2020), available at https://techcrunch.com/2020/03/12/hackers-coronavirus-malware/.

   [7]   Anthony Schoettle, Hackers pounce as coronavirus spread triggers work-at-home movement, IBJ (March 13, 2020), https://www.ibj.com/articles/hackers-pounce-as-coronavirus-spread-triggers-work-at-home-movement.

   [8]   See Allison Grande, COVID-19 Warrants CCPA Enforcement Delay, Calif. AG Told, Law360 (March 19, 2020), available at https://www.law360.com/articles/1255181/covid-19-warrants-ccpa-enforcement-delay-calif-ag-told.

   [9]   Centers for Disease Control and Prevent, Coronavirus Disease 2019 (COVID-19), Interim Guidance for Businesses and Employers, available at https://www.cdc.gov/coronavirus/2019-ncov/community/guidance-business-response.html.

[10]   Pub. L. No. 101-336 (relevant provisions codified at 42 U.S.C. § 12112(d)(3)(B); §12112(d)(4)(C)).

[11]   Pub. L. No. 110-233, 122 Stat. 881 (codified as amended in scattered sections of 29 & 42 U.S.C.).122 Stat. 881.206(a).

[12]   Pub. L. No. 111-84, 123 Stat. 124 (codified 29 C.F.R. § 825.500 (g)).

[13]   The US Equal Employment Opportunity Commission, Pandemic Preparedness in the Workplace and the Americans with Disabilities, available at https://www.eeoc.gov/facts/pandemic_flu.html.

[14]   29 C.F.R. § 1630.14(c)(1)(i).

[15]   The European Data Protection Board, Statement of the EDPB Chair on the processing of personal data in the context of the COVID-19 outbreak (March 19, 2020), available at https://edpb.europa.eu/our-work-tools/our-documents/other/statement-processing-personal-data-context-covid-19-outbreak_en.

[16]   Id.

[17]   Under the GDPR, data regarding an individual’s health, even body temperature, may be considered as a “special category” of personal data under the GDPR. In principle, the processing of such personal data is prohibited unless one of the exceptions listed in Article 9(2) of the GDPR applies. Processing of health data should generally comply with the specific rules set forth under the GDPR, but also with the additional requirements of each Member State, where applicable (Article 9(4), GDPR).

[18]   Article 9(2)(i), GDPR.

[19]   Article 9(2)(c), GDPR and recital 46 of the GDPR explicitly referring to the control of an epidemic.

[20]   Including the following countries: Austria, Belgium, Bulgaria, Czech Republic, Denmark, Finland, France, Germany, Hungary, Iceland, Ireland, Italy, Lithuania, Luxembourg, Norway, Poland, Slovakia, Slovenia, Spain, Sweden, Switzerland, and the United Kingdom.

[21]   Article 6(1)(d), GDPR.

[22]   Belgian data protection authority (APD), “COVID-19 et traitement de données à caractère personnel sur le lieu de travail” (March 13, 2020), available at https://www.autoriteprotectiondonnees.be/covid-19-et-traitement-de-donn%C3%A9es-%C3%A0-caract%C3%A8re-personnel-sur-le-lieu-de-travail.

[23]   French data protection authority (CNIL), “Coronavirus (Covid-19) : les rappels de la CNIL sur la collecte de données personnelles” (March 6, 2020), available at https://www.cnil.fr/fr/coronavirus-covid-19-les-rappels-de-la-cnil-sur-la-collecte-de-donnees-personnelles.

[24]   Datenschutzkonferenz (DSK), “Datenschutzrechtliche Informationen zur Verarbeitung von personenbezogenen Daten durch Arbeitgeber und Dienstherren im Zusammenhang mit der Corona-Pandemie” (March 13, 2020), available at https://www.bfdi.bund.de/DE/Datenschutz/Themen/Gesundheit_Soziales/GesundheitSozialesArtikel/Datenschutz-in-Corona-Pandemie.html?nn=5217154; cf. also Landesbeauftragter für den Datenschutz und die Informationsfreiheit Baden-Württemberg, “Hinweise zum datenschutzgerechten Umgang mit Corona-Fällen” (March 13, 2020), available at https://www.baden-wuerttemberg.datenschutz.de/wp-content/uploads/2020/03/FAQ-Corona.pdf and Landesbeauftragter für den Datenschutz und die Informationsfreiheit Rheinland-Pfalz, “Beschäftigtendatenschutz in Zeiten des Corona-Virus” (March 17, 2020), available at https://www.datenschutz.rlp.de/de/themenfelder-themen/beschaeftigtendatenschutz-corona/.

[25]   Spanish data protection authority (AEPD), press release and report (March 12, 2020), available at https://www.aepd.es/es/documento/2020-0017.pdf.

[26]   United Kingdom data protection authority (ICO), “Data protection and coronavirus” (March 12, 2020), available at https://ico.org.uk/about-the-ico/news-and-events/news-and-blogs/2020/03/data-protection-and-coronavirus/ and https://ico.org.uk/for-organisations/data-protection-and-coronavirus/.

[27]   Id.

[28]   Id.

[29]   Id.

Gibson Dunn’s lawyers are available to assist with any questions you may have regarding developments related to the COVID-19 outbreak. For additional information, please contact any member of the firm’s Coronavirus (COVID-19) Response Team.

The following Gibson Dunn lawyers prepared this client update: In the US: Alexander H. Southwell, Ryan T. Bergsieker, Cassandra L. Gaedt-Sheckter, Daniel E. Rauch, and Lisa V. Zivkovic; in the EU: Ahmed Baladi, Patrick Doris, Michael Walther, Vera Lukic, Alejandro Guerrero, Kai Gesing, Selina Grun, and Clemence Pugnet. Gibson Dunn lawyers regularly counsel clients on the privacy and cybersecurity issues raised by this pandemic, and we are working with many of our clients on their response to COVID-19. Please also feel free to contact the Gibson Dunn lawyer with whom you usually work, the authors, or any member of the Privacy, Cybersecurity and Consumer Protection Group:

United States
Alexander H. Southwell – Co-Chair, PCCP Practice, New York (+1 212-351-3981, [email protected])
Debra Wong Yang – Los Angeles (+1 213-229-7472, [email protected])
Matthew Benjamin – New York (+1 212-351-4079, [email protected])
Ryan T. Bergsieker – Denver (+1 303-298-5774, [email protected])
Howard S. Hogan – Washington, D.C. (+1 202-887-3640, [email protected])
Joshua A. Jessen – Orange County/Palo Alto (+1 949-451-4114/+1 650-849-5375, [email protected])
Kristin A. Linsley – San Francisco (+1 415-393-8395, )
H. Mark Lyon – Palo Alto (+1 650-849-5307, [email protected])
Karl G. Nelson – Dallas (+1 214-698-3203, [email protected])
Deborah L. Stein (+1 213-229-7164, [email protected])
Eric D. Vandevelde – Los Angeles (+1 213-229-7186, [email protected])
Benjamin B. Wagner – Palo Alto (+1 650-849-5395, [email protected])
Michael Li-Ming Wong – San Francisco/Palo Alto (+1 415-393-8333/+1 650-849-5393, [email protected])

Europe
Ahmed Baladi – Co-Chair, PCCP Practice, Paris (+33 (0)1 56 43 13 00, [email protected])
James A. Cox – London (+44 (0)20 7071 4250, [email protected])
Patrick Doris – London (+44 (0)20 7071 4276, [email protected])
Bernard Grinspan – Paris (+33 (0)1 56 43 13 00, [email protected])
Penny Madden – London (+44 (0)20 7071 4226, [email protected])
Michael Walther – Munich (+49 89 189 33-180, [email protected])
Kai Gesing – Munich (+49 89 189 33-180, [email protected])
Alejandro Guerrero – Brussels (+32 2 554 7218, [email protected])
Vera Lukic – Paris (+33 (0)1 56 43 13 00, [email protected])
Sarah Wazen – London (+44 (0)20 7071 4203, [email protected])

Asia
Kelly Austin – Hong Kong (+852 2214 3788, [email protected])
Jai S. Pathak – Singapore (+65 6507 3683, [email protected])

© 2020 Gibson, Dunn & Crutcher LLP

Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

In Salzberg, et al. v. Sciabacucchi (“Blue Apron II”),[1] a unanimous Delaware Supreme Court, with Justice Valihura writing, confirmed the facial validity of federal-forum provisions (“FFPs”)—provisions Delaware corporations adopt in their certificates of incorporation requiring actions arising under the Securities Act of 1933 (the “1933 Act”) to be filed exclusively in federal court. The Court’s decision emphasizes the “broadly enabling” scope of both the Delaware General Corporation Law (“DGCL”) as a whole, and of Section 102(b)(1),[2] which governs the contents of a corporation’s certificate of incorporation, in particular. Rejecting facial challenges to FFPs adopted by Delaware corporations in connection with several recent IPOs, the Court held that Section 102(b)(1) authorizes corporations to adopt provisions regulating matters within an “outer band” of “intra-corporate affairs” extending beyond the “universe of internal affairs” of a Delaware corporation. In this regard, Blue Apron II may offer Delaware corporations, their boards and advisors a valuable new tool for managing complex, multidistrict litigation related to their corporate governance.

Blue Apron I and the Established Scope of “Internal Corporate Claims”

Blue Apron II reversed, on de novo review, the December 2018 decision of the Delaware Court of Chancery in Sciabacucchi v. Salzberg, et al. (“Blue Apron I”).[3] In Blue Apron I, a stockholder in each of Blue Apron, Inc., Roku Inc., and Stitch Fix, Inc. sought a declaratory judgment that FFPs adopted in each corporation’s certificate of incorporation in connection with their 2017 IPOs were facially invalid as a matter of Delaware law.

As detailed by Vice Chancellor Laster, the basic principles underlying the holding in Blue Apron I were developed in Boilermakers,[4] ATP Tour,[5] and DGCL § 115,[6] each of which addressed bylaws for disputes involving Delaware corporations. Relying upon these authorities, the Blue Apron I court held that, despite the broad scope of DGCL § 102(b)(1), the FFPs could not validly restrict a stockholder plaintiff’s choice of forum for actions arising under the 1933 Act because such claims were “external” to the corporations at issue based upon their similarity to “a tort or contract claim brought by a third-party plaintiff who was not a stockholder at the time the claim arose.” The Court of Chancery also concluded that Section 115 implicitly narrowed Section 102(b)(1) to restrict the authority of Delaware corporations to regulating only “internal corporate claims.” Additionally, the trial court also noted, but did not reach, an argument that FFPs are invalid as a matter of public policy, because they “take Delaware out of its traditional lane of corporate governance and into the federal lane of securities regulation” and could even be preempted by federal law providing forum alternatives.

The New Frontier: Intra-Corporate Affairs and the “Outer Band” of Section 102(b)(1)

In Blue Apron II, the Delaware Supreme Court reversed the Court of Chancery, holding that FFPs are facially valid because such provisions “could easily fall within either of the[] broad categories [of Section 102(b)(1)],” and “do not violate the laws or policies of this State” or “federal law or policy.” In doing so, the Supreme Court rejected the Court of Chancery’s conclusions that Section 115 implicitly narrowed Section 102(b)(1) and that, under Boilermakers and ATP Tour, “everything other than an ‘internal affairs’ claim was ‘external’ and, therefore, not the proper subject of a bylaw.”

Instead of such a “binary world,” the Supreme Court held that claims involving “intra-corporate affairs” under Section 102(b)(1), such as the federal antitrust claims underlying the fee-shifting bylaws in ATP Tour and certain 1933 Act claims considered hypothetically by the Court in Blue Apron II, sit on a “continuum” of corporate affairs. At one end of the spectrum is “the more traditional realm of ‘internal affairs,’” including “matters peculiar to the relationships among or between the corporation and its current officers, directors, and shareholders.” At the other end are “purely ‘external’ claims,” such as tort claims and commercial contract claims.  According to the Supreme Court, the scope of matters that certificates of incorporation may properly regulate under Section 102(b)(1) falls between those poles, as it set forth in Figure 1, below. The “outer band” of Section 102(b)(1), the Court explained, extends to all “[i]ntra-corporate affairs,” which is a “universe of matters” that “is greater than the universe of internal affairs matters.” This includes FFPs “regulating the fora for Section 11 claims involving at least existing stockholders [because such claims] are neither ‘external’ nor ‘internal affairs’ claims.”

Figure 1: Textual Analysis of Corporate Affairs

Notwithstanding the Supreme Court’s holding that federal-forum provisions are facially valid, the Court acknowledged that the extent to which such provisions will be respected and enforced going forward by Delaware courts, and, even more critically, by other state and federal courts, will depend in large part on the unique facts and circumstances of each case.

Key Takeaways

Blue Apron II provides valuable guidance to Delaware litigators and board advisors on best practices for adopting FFPs and other provisions governing the procedural aspects of intra-corporate litigation pursuant to Section 102(b)(1) of the DGCL:

  • In the wake of this development, Delaware corporations that have not done so already may amend their charters to require claims under the 1933 Act to be filed in federal court.[7] After Cyan was decided in 2018, the filing of 1933 Act claims in state courts increased significantly.[8] Given that such claims cannot be removed to federal court under Cyan, corporations have increasingly been mired in unnecessarily costly, and sometimes duplicative, state and federal court litigation throughout the country.
  • The Supreme Court in Blue Apron II quells “concern that if [FFPs were] upheld, the ‘next move’ might be forum provisions that require arbitration of internal corporate claims,” explicitly reasoning that “[s]uch provisions, at least from [Delaware] state law perspective, would violate Section 115 . . . .” But it is not yet clear whether practitioners will continue to push to include arbitration as an exclusive means to resolve certain intra-corporate disputes lying within the “outer bound” of Section 102(b)(1).
  • Although Delaware law prohibits Delaware corporations from adopting mandatory arbitration provisions in their certificates of incorporation or bylaws, it remains to be seen whether other states will follow suit. States competing for Delaware’s franchise might attempt to attract corporations by authorizing such arbitration provisions to minimize the burden and cost of litigation.
  • FFPs clearly benefit stockholders by minimizing wasteful multi-jurisdictional litigation over many disputes involving the corporations they own. Nonetheless, corporate directors and officers should anticipate that some stockholders may be wary of the provisions, including broader FFPs adopted or approved under Blue Apron II. This decision should serve as a reminder that corporations may be well advised to engage with key stockholders to discuss the benefits these provisions provide before their adoption.

____________________

      [1]     Salzberg, et al. v. Sciabacucchi, No. 346, 2019 (Del. Mar. 18, 2020) [hereinafter “Blue Apron II”)].

      [2]    8 Del. C. § 102(b)(1) (“[T]he certificate of incorporation may also contain . . . [a]ny provision for the management of the business and for the conduct of the affairs of the corporation , and any provision creating, defining, limiting and regulating the powers of the corporation, the directors, and the stockholders . . . .”).

      [3]   Sciabacucchi v. Salzberg, et al., 2018 WL 6719718 (Del. Ch. Dec. 19, 2018) [hereinafter “Blue Apron I”].

      [4]   Boilermakers Local 154 Retirement Fund v. Chevron, 73 A.3d 934, 942, 952 (Del. Ch. 2013).

      [5]    ATP Tour, Inc. v. Deutscher Tennis Bund, 91 A.3d 554 (Del. 2014).

      [6]   8 Del. C. § 115 (“‘Internal corporate claims’ means claims, including claims in the right of the corporation, (i) that are based upon a violation of a duty by a current or former director or officer or stockholder in such capacity, or (ii) as to which this title confers jurisdiction upon the Court of Chancery.”).

      [7]   Blue Apron II does not address the applicability of an FFP to claims arising under the Securities Exchange Act of 1934 (the “1934 Act”), which unlike the 1933 Act vests exclusive jurisdiction with federal courts and does not include a bar to removing claims improperly filed in state court.  Compare 15 U.S.C. 78aa(a) (1934 Act), with 15 U.S.C. 77v (1933 Act).

      [8]   Stanford L. Sch. Sec. Class Action Clearinghouse & Cornerstone Research, Sec. Class Action Filings 2019 Year in Review 4 (2020).

The following Gibson Dunn lawyers assisted in the preparation of this client update: James Hallowell, Jason J. Mendro, Brian M. Lutz,
Mark H. Mixon, Jr., Sam Berman and Andrew Kuntz.

Gibson Dunn lawyers are available to assist in addressing any questions you may have regarding these developments. Please contact the Gibson Dunn lawyer with whom you usually work, any of the following practice group leaders and members, or the authors:

James L. Hallowell – New York (+1 212-351-3804, [email protected])
Jason J. Mendro – Washington, D.C. (+1 202-887-3726, [email protected])
Brian M. Lutz – San Francisco/New York (+1 415-393-8379/+1 212-351-3881, [email protected])
Mark H. Mixon, Jr. – New York (+1 212-351-2394, [email protected])

Securities Litigation Group:
Brian M. Lutz – Co-Chair, San Francisco/New York (+1 415-393-8379/+1 212-351-3881, [email protected])
Robert F. Serio – Co-Chair, New York (+1 212-351-3917, [email protected])
Jefferson Bell – New York (+1 212-351-2395, [email protected])
Paul J. Collins – Palo Alto (+1 650-849-5309, [email protected])
Jennifer L. Conn – New York (+1 212-351-4086, [email protected])
Ethan Dettmer – San Francisco (+1 415-393-8292, [email protected])
Mark A. Kirsch – New York (+1 212-351-2662, [email protected])
Monica K. Loseman – Denver (+1 303-298-5784, [email protected])
Jason J. Mendro – Washington, D.C. (+1 202-887-3726, [email protected])
Alex Mircheff – Los Angeles (+1 213-229-7307, [email protected])
Robert C. Walters – Dallas (+1 214-698-3114, [email protected])
Aric H. Wu – New York (+1 212-351-3820, [email protected])

Securities Enforcement Group:
Richard W. Grime – Washington, D.C. (+1 202-955-8219, [email protected])
Barry R. Goldsmith – New York (+1 212-351-2440, [email protected])
Mark K. Schonfeld – New York (+1 212-351-2433, [email protected])

Securities Regulation and Corporate Governance Group:
Elizabeth Ising – Washington, D.C. (+1 202-955-8287, [email protected])
James J. Moloney – Orange County, CA (+ 949-451-4343, [email protected])

© 2020 Gibson, Dunn & Crutcher LLP

Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

In a press conference held on the morning of March 20, 2020, New York Governor Andrew Cuomo announced that he would be signing an executive order requiring businesses—with the exception of those providing “essential” services—to keep 100 percent of their workforce at home, effectively shuttering any non-essential business whose workforce cannot work from home.  The executive order is expected to take effect at 8 p.m. on Sunday, March 22, 2020.  Businesses that do not comply with the order may be required to pay civil fines and/or face mandatory closure.

The Governor’s executive order is the latest in a series of recent executive orders restricting “non-essential” business activity in New York State.  These orders include a now-superseded mandate requiring non-essential employers to reduce their in-person workforce by 75 percent and an order requiring the closure of all barbershops, hair salons, and related personal care services, both of which come into effect at 8 p.m. on March 21, 2020.

The Governor’s latest in-person workforce restrictions, in addition to excluding all state and local governments and authorities, do not apply to businesses providing “essential” services.  The New York State Empire State Development Corporation (“ESD”) has prepared guidance available online, which is intended to assist businesses in determining whether or not the services they provide qualify as “essential” and are therefore exempted from in-person workforce restrictions.  As of the time of this alert, the ESD’s guidance excludes the following operations from the Governor’s restrictions, so long as the operations are related to the provision of essential services, supplies, or support:

(1) Essential health care operations, such as hospitals, walk-in care facilities, emergency dental services, and medical supplies and equipment providers;

(2) Essential infrastructure, including public utilities, data centers, and transportation;

(3) Essential manufacturing, including food processing and manufacturing agents, pharmaceuticals, and telecommunications;

(4) Essential retail, including all food and beverage stores, pharmacies, and hardware stores;

(5) Essential services, including trash and recycling collection and mail and shipping services;

(6) News media;

(7) Financial institutions, including banks, insurance, payroll, accounting, and services relating to financial markets;

(8) Providers of basic necessities to economically disadvantaged populations, including homeless shelters and food banks;

(9) Construction, including skilled trades such as electricians and plumbers and other related construction firms and professionals for essential infrastructure or for emergency repair and safety;

(10) Defense and national security-related operations supporting the U.S. government or its contractors;

(11) Essential services necessary to maintain the safety, sanitation and essential operations of residences or other essential businesses, such as law enforcement; and

(12) Vendors that provide essential services or products, including logistics and technology support, child care, and essential government services.

Businesses that operate or provide non-essential services in addition to essential services, support, or supplies, are currently exempt from in-person workforce restrictions only in relation to business operations needed to provide essential services, supplies, or support.  Businesses whose functions are not covered in ESD’s guidance but may qualify as essential may request designation as an essential business via ESD’s website.

Gibson Dunn’s lawyers are available to assist with any questions you may have regarding developments related to the COVID-19 outbreak. For additional information, please contact any member of the firm’s Coronavirus (COVID-19) Response Team.

Gibson Dunn lawyers regularly counsel clients on the issues raised by this pandemic, and we are working with many of our clients on their response to COVID-19. Please also feel free to contact the Gibson Dunn lawyer with whom you usually work, any member of the firm’s Public Policy Group, or the authors:

Mylan L. Denerstein – Co-Chair, Public Policy Practice, New York (+1 212-351-3850, [email protected])
Lee R. Crain – New York (+1 212-351-2454, [email protected])
Stella Cernak – New York (+1 212-351-3898, [email protected])

© 2020 Gibson, Dunn & Crutcher LLP

Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

In the wake of the coronavirus crisis (COVID-19), Congress continues to work on legislation to deliver critical aid to U.S. businesses and the American public. Yesterday, Senate Majority Leader Mitch McConnell (R-KY) released legislation responding to the economic impact of the coronavirus. The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) is a $1 trillion stimulus package providing aid for individuals, small businesses, and businesses operating in impacted industries, such as the hotel industry, as well as providing increased resources for the health care industry.

This is a Republican-only bill; it has not been supported to date by any Democrats. We understand, however, that Republican and Democratic leadership are negotiating over a stimulus package, which is likely to include at least some provisions from the CARES Act.

I. Key Provisions in the CARES Act

The key provisions of the bill as drafted are summarized below:

A. Individuals: Direct Rebates and Other Relief

The legislation provides direct aid in the form of a refundable tax credit rebate of up to $1,200 for individuals, $2,400 for married couples, with an extra $500 for every child, for individuals and households that earn $99,000 or less and $198,000 or less, respectively. The legislation is structured such that individuals and married couples that earn greater than $75,000 and $150,000, respectively, are eligible for a lesser amount—reduced by $5 for each additional $100—up until the cut-off earnings.

For most individuals, moves the filing deadline for income taxes from April to July 15, 2020 and defers estimated tax payments until October 15, 2020.

The bill would also relax the 10% penalty for draws upon retirement savings by individuals affected by the virus up to $100,000.

Further, the legislation guarantees loan forgiveness for federal student loans for a period of up to three months.

B. Businesses: Loan Guarantees and Other Relief

The legislation provides loan guarantees to businesses eligible on either the basis of size or the basis of industry.

1. Loan Guarantees for Approved Small-Business Applicants

The legislation provides a loan guarantee of $300 billion for approved small businesses. A business that employs 500 employees or less—for whom the business paid salaries and payroll taxes—from March 1, 2020 through December 31, 2020, is eligible to receive a fee-free loan of up $10 million. For non-seasonal employers, the loan would be tied to the business’s average total monthly payroll, mortgage, rent, and any other debt obligations incurred during the previous year before the date on which the loan is made. For seasonal employers, the loan would be tied to such debt obligations incurred from March 1 through June 30, 2019. We understand that at least the eligibility provisions are likely to change as a bipartisan package is negotiated.

2. Loan Guarantees for Industry-Specific Businesses

The legislation provides loan guarantees for air carriers—$50 billion for passenger air carriers and $8 billion for cargo air carriers. The bill provides $300 billion in federally guaranteed loans for small businesses and $150 billion for other large businesses in industries that have been hardest hit by the coronavirus if the bill does not provide them loans or loan guarantees. The bill has limits on when companies can receive relief. For example, the bill makes clear that large business loans are contingent on certain officers and employees receiving less than a specified compensation amount and the bill bans severance pay over a specified amount for a two-year period beginning March 1, 2020. Additionally, the federal government is authorized to take an equity stake in the business of a loan recipient (to the extent the loan recipient incurs a gain).

3. Relaxation of Tax Treatment of Losses

The legislation amends the treatment of net operating losses under the tax code by temporarily relaxing applicable limitations on the use of 2018 and later losses and allowing businesses to carry back net operating losses incurred in 2018 and 2019 up to five years. Further, the proposed legislation allows businesses to avoid estimated tax payments until October 15, 2020 and to defer certain 2020 payroll tax payments, in some circumstances. Futher, the bill would suspend certain aviation kerosene excise taxes for the remainder of 2020.

The bill provides for other tax relief as well, such as relaxation of certain interest deductibility limits; we will be issuing a more detailed client alert on the tax provisions as the bill undergoes amendments.

C. Health Care Industry: Funding and Other Resources

In an effort to ensure that sufficient medical resources are available, the legislation requires certain federal agencies to assess and evaluate the medical product supply chain; mandates drug and medical device manufacturers to increase certain reporting on supplies; and prioritizes the federal government review of drug applications. Furthermore, the legislation requires insurers to cover “preventive services” for coronavirus and authorizes funding up to $1.32 billion for the prevention, diagnosis and treatment of coronavirus.

II. Next Steps For CARES Act

As for next steps, negotiations between Senator Majority Leader Mitch McConnell (R-KY) and Senate Minority Leader Chuck Schumer (D-NY) are expected to continue over the weekend. The legislation requires 60 votes to pass the Senate, meaning that at least 7 Democratic Senators need to vote in favor of the legislation for it to pass. The Senate is expected to vote on the stimulus package expeditiously – possibly early next week.

The bill faces a number of challenges. Senate Democrats have complained that they were not brought into the negotiations until after the bill was introduced. Senate Democrats have outlined their own $750 billion emergency plan. And House Democrats have signaled they want a broader stimulus package than the Senate Republican package. These challenges mean changes to the CARES Act almost certainly will be made. But Senator McConnell’s bill—which has the support of the Senate Republican Caucus—sets the stage for negotiations between House and Senate and Democrats and Republicans to kick into high gear over the size and direction of the legislation, which is the third bill Congress has considered this month aimed at coronavirus relief. 

III. Opportunities to Shape Assistance

Gibson Dunn’s COVID 19 Task Force and its Public Policy Practice Group stands ready to assist companies promote and protect their interests before Congress or the Executive Branch during the coronavirus crisis. We can help clients receive timely, in-depth information on potential government action that may affect their business. Our services include:

  • Advocacy before the legislative and executive branches of government’
  • Assistance with general legislative, committee, and floor strategy;
  • Analysis and drafting of legislation, including legislative amendments;
  • Advocacy with agencies and branches (like the IRS) to craft regulatory or administrative relief;
  • Establishment and running of coalitions to amplify advocacy efforts;
  • Preparation prior to congressional testimony;
  • Representation in congressional and Executive Branch investigations;
  • Assistance in securing appropriations and other government benefits;
  • Assistance with products and capabilities marketing to federal government agencies; and
  • Ongoing regulatory counsel.

Gibson Dunn’s lawyers are available to assist with any questions you may have regarding developments related to the COVID-19 outbreak. For additional information, please contact any member of the firm’s Coronavirus (COVID-19) Response Team.

Gibson Dunn lawyers regularly counsel clients on issues raised by this pandemic, and we are working with many of our clients on their response to COVID-19. Please also feel free to contact the Gibson Dunn lawyers with whom you usually work in the firm’s Public Policy Group or Tax Group, or the authors:

Public Policy Group:
Michael D. Bopp – Washington, D.C. (+1 202-955-8256, [email protected])
Mylan L. Denerstein – New York (+1 212-351-3850, [email protected])
Roscoe Jones, Jr.* – Washington, D.C. (+1 202-887-3530, [email protected])
JeanAnn Tabbaa – Washington, D.C. (+1 202-955-8690; [email protected])

Tax Group:
James Chenoweth – Houston (+1 346-718-6718, [email protected])
Eric B. Sloan – New York (+1 212-351-2340, [email protected])
Lorna Wilson – Los Angeles (+1 213-229-7547, [email protected])

* Not admitted to practice in Washington, D.C.; currently practicing under the supervision of Gibson, Dunn & Crutcher LLP.

© 2020 Gibson, Dunn & Crutcher LLP

Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

Whatever industry you are in, you are undoubtedly concerned about preparing your business to face the threat of the novel coronavirus (COVID-19).

In our alert of 17 March 2020, we identified some of the key considerations for UK-based businesses working to reduce the risk of employee exposure. We also outlined key steps to take when an employee tests positive for COVID-19 or must care for someone with the virus.

The UK government response to the outbreak evolves daily, and we encourage employers in the UK to monitor UK government and National Health Service guidance and legislative developments over the coming days and weeks.

UK Government introduces the Coronavirus Job Retention Scheme

In a television address on 20 March 2020, the UK government has outlined a number of support measures for UK businesses impacted by the virus, including cafes, pubs, restaurants, theatres, cinemas, gyms, nightclubs and leisure centres which have been forced to close with effect from today.

Following discussions with both the Trade Union Congress and employer organisations, the UK government has established a Coronavirus Job Retention Scheme to be administered by HM Revenue & Customs.

The scheme will make available grants to those employers who elect to furlough, rather than lay off, employees who are without work during the current crisis. The grant will cover 80% of the wages of furloughed employees up to a maximum of £2,500 per month. The scheme will cover wages payable from 1 March 2020 and will remain in place for a minimum of three months. The government’s comments appear to suggest that grants would not cover the wages of those employees working a reduced schedule due to the virus.

The Coronavirus Job Retention Scheme sits alongside other measures introduced by the UK Government to support businesses, including the provision of government-backed loans which will be interest free for 12 months and a deferral of Value Added Tax payments for the next quarter.

Gibson Dunn’s lawyers are available to assist with any questions you may have regarding developments related to the COVID-19 outbreak. For additional information, please contact any member of the firm’s Coronavirus (COVID-19) Response Team.

This client update was prepared by James Cox and Charlotte Fuscone. Gibson Dunn attorneys regularly counsel clients on the compliance issues raised by this pandemic, and we are working with many of our clients on their response to COVID-19. Please also feel free to contact the Gibson Dunn attorney with whom you work in the Employment Group, or the following lawyers in the firm’s London office:

James A. Cox (+44 (0)20 7071 4250, [email protected])

Sarika Rabheru (+44 (0)20 7071 4267, [email protected])

Heather Gibbons (+44 (0)20 7071 4127, [email protected])

Georgia Derbyshire (+44 (0)20 7071 4013, [email protected])

Charlotte Fuscone (+44 (0)20 7071 4036, [email protected])

© 2020 Gibson, Dunn & Crutcher LLP

Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

Public life in Germany – as most recently in many places in Europe and the U.S. – is coming to a halt. Even production plants in the automotive industry employers or sources of business for every seventh German workplace have shut down this week. All this is based on the provisions of scarcely known law that has never been applied in such a broad and vigorous way.

The Infectious Diseases Protection Act (Infektionsschutzgesetz, ‘IfSG’) provides the state[1] with strong executive powers to prevent diseases, pathogens etc. from spreading. Such powers have already been made use of and might further be made use of in the near future due to the Coronavirus (COVID-19).

These measures now affect almost any businesses with regard to further operation, possible prohibitions of employing, and opening times. Here are the essentials you need to know about the IfSG to avoid risks and possibly predict further curtailment that may lie ahead:

1.  General obligations under the IfSG

The IfSG primarily regulates the interaction between state institutions. It is further relevant to doctors, animal doctors and companies engaging in medical businesses as well as operators of community institutions or of collective accommodation units. Above all, it stipulates reporting obligations pursuant to sec. 6-10 of the IfSG, if a suspicion of or an actual incident of a disease/pathogen arises. In addition, the IfSG attributes special tasks of collecting, analyzing and distributing information on diseases and pathogens to the Robert Koch Institute, a Federal government agency in the field of medicine. COVID-19 has recently been added to the list of pathogens by way of an urgent executive regulation (Eilverordnung) of the Federal Ministry of Health (Sec. 6(1) n. 1 and sec. 15 of the IfSG).[2]

2.  Obligations upon administrative orders

The IfSG grants certain powers to the state administration for the purpose of preventing the further spreading of a pathogen such as COVID-19. Of particular relevance is sec. 28 of the IfSG which allows for certain “protective measures”.

  • This provision particularly empowers the competent authority to prohibit or curtail events and gatherings, shut down swimming baths and other community facilities such as school and child daycares.[3] Furthermore, people may be prohibited from leaving or entering certain locations, i.e. it arguably[4] contains the legal basis of a curfew (Sec. 28(1) sentence 2 and 1 of the IfSG).
  • The provision also contains a general clause for the competent authority to take necessary protective measures to prevent an infectious disease from spreading (Sec. 28(1) sentence 1 of the IfSG).[5]
  • The law further permits ordering a quarantine (Sec. 30(1) sentence 2 of the IfSG).
  • The competent authority may order an infected person, or a person suspected to be infected, to refrain from practicing in certain professions (Sec. 31 of the IfSG). According to sec. 56(1) and (5), the employer has to pay a compensation for six weeks but will be reimbursed by the state.

3.  Risks in case of non-compliance

Non-compliance with legislative obligations of or administrative orders upon the IfSG can, depending on the particular infringement, be punished by an administrative fine, a criminal fine, or even by imprisonment. Above all, Sec. 75 of the IfSG sets out that intentional infringing upon an enforceable order pursuant to Sec. 28(1) sentence 2 of the IfSG can be punished by imprisonment up to two years (five years, if the perpetrator further spread the disease/the pathogen). In connection with sec. 30, 130 of the Act on Regulatory Offenses (Gesetz über Ordnungswidrigkeiten), a legal entity might be subjected to an administrative fine and a confiscation of the profit gained through the illegal act, if the perpetrator acted on its behalf.

4.  Case Study Bavaria and Checklist to comply with the IfSG

Generally, to avoid running risks in connection with the IfSG, we strongly advise to strictly follow the general orders that have been made under sec. 28(1). Orders can vary from each of the Federal states and are published by them.[6] By way of illustration, the following rules will now have to be put in place for the State of Bavaria:

  • Everybody is encouraged to reduce physical and social contacts with other people to an absolute minimum (save for members of your own household). A minimum distance to other people of at least 1.5 meters has to be kept wherever possible;[7]
  • People may not leave their home, unless they have a good cause (exercising their profession, medical reasons, running errands for daily life etc.);[8]
  • Nobody may visit certain places where people are taken cared of who would particularly put in danger by COVID-19.[9]
  • If you run a retail business, you have to shut down, unless your business is specifically allowed to carry on;[10]
  • If your business concerns or includes leisure activities not strictly necessary for daily life, you need to stop it, too;[11]
  • If you run a catering business, you are not permitted to operate further. If you sell take-away food or if you deliver food, you may however carry on to that extent.[12]
  • If you are engaged in the medical business such as a hospital, a community institution, or a unit of collective accommodation, special provisions apply with regard to reporting (sec. 8(1) of the IfSG).

As the general orders are of a temporary nature and further measures may likely be taken soon, you should regularly update your respective policies implementing these orders. Because the situation is developing in a dynamic way, we recommend reviewing and updating the respective orders currently on a daily basis. Here is a checklist that we would recommend running to ensure prompt, but also sustainable, compliance with a dynamically changing landscape for businesses in these days:

  • Tone from the top. Sensitize through senior management your entire organization by way of a general communication on the fact that each employee and third party engaging in business with the company must comply with the binding orders applicable from time to time.
  • Create a knowledge network. Provide a contact that will be the resource for any information of the business relating to specific orders potentially applicable to your local work force or business.
  • Keep up to date. Appoint a person to regularly (daily) check the applicable orders at all places where your business is operating.
  • Document your diligence. Collect relevant orders for your business in a central data base to keep due record. There should be one source of truth for your business that is diligently kept and regularly updated.
  • Avoid silos. Create a cross-functional group ensuring that the business leaders are aware of the local orders that are applicable in the relevant jurisdiction they cover.
  • Be efficient and nimble. Provide a template to the business in which the business can easily update communicate new orders by way of an internal policy implementing the order to their respective work force and business partners when the situation changes.
  • Create a record. Ensure that all such internal policies are centrally collected for record keeping purposes. If complaints arise later, you need to ensure you have a track record of your diligent efforts to comply with the law.
  • Communicate. Have regular calls to reinforce the message and ensure that all local businesses comply with the respective orders and can raise questions. Document the questions on these calls and follow-up with answers.
  • Share knowledge. Collect questions in a central list to see whether they raise topics of general interest or concern that require a more general approach.
  • Stay healthy and keep up your good spirits. Encourage your employees to keep up with good practices that keep them healthy and to share experiences that helped maintaining good spirits in the team and their communities. It’s a marathon, not a sprint.

This list is not exhaustive and does not aspire to cover all points, but it is a starting point for you to put an initial light organizational set-up around the day-to-day crisis management that we will be facing in the next few months.

______________________

   [1]   As it also is the general rule in Germany (see Articles 30, 83 of the German Federal Constitution), the executive powers under the IfSG lie with the Federal state governments (see Sec. 54 of the IfSG), unless the law specifically assigns tasks to the Federal level. Under the IfSG, the Federal Government and the Federal Ministry of Health may enact executive regulations such as the regulation that has included COVID-19 to the list of pathogens.

   [2]   Verordnung über die Ausdehnung der Meldepflicht nach § 6 Absatz 1 Satz 1 Nummer 1 und § 7 Absatz 1 Satz 1 des Infektionsschutzgesetzes auf Infektionen mit dem erstmals im Dezember 2019 in Wuhan/Volksrepublik China aufgetretenen neuartigen Coronavirus („2019-nCoV“), in force since February 1, 2020.

   [3]   For example, the Bavarian state government has issued such an administrative order on March 16, 2020.

   [4]   While some academics have recently raised doubt (see e.g. Thiele, Ausgangssperren wegen Corona – Im Katastrophenfall geht das, LTO online, March 20, 2020), the state administration appears to regard Sec. 28(1) sentence 1 and 2 of the IfSG as the applicable legal basis because the curfews imposed so far have been grounded on this provision.

   [5]   For example, the Bavarian Ministry of Health has issued such an administrative order on March 13, 2020. Based on this order, school lessons have been cancelled.

   [6]   See, by way of example, the website of the Bavarian Ministry of Health, https://www.stmgp.bayern.de/ (in German, last visited March 20, 2020).

   [7]   Order n. 1 of the executive order of the Bavarian Ministry of Health dated March 20, 2020. Effective until April 3, 2020.

   [8]   Order n. 5 of the executive order of the Bavarian Ministry of Health dated March 20, 2020. Effective until April 3, 2020. Effective until April 3, 2020.

   [9]   N. 3 of the executive order of Bavarian Ministry of Health dated March 20, 2020. Effective until April 3, 2020.

[10]   Pursuant to n. 4 of the executive order of the Bavarian Ministries of Health and of Family Affairs dated March 16, 2020, grocery trades, beverage markets, banks, pharmacies, drug stores, medical stores, opticians, hearing aid specialists, branches of Deutsche Post AG, pet supplies stores, building and garden supplies stores, gas stations, cleaners, and online trades are exempted. Further exceptions can be made upon application if deemed absolutely necessary to supply the population and justifiable under infectious diseases protection law. This part of the order has come into force on March 18, 2020 and is currently effective until March 30, 2020.

[11]   Pursuant to n. 2 of the executive order of the Bavarian Ministries of Health and of Family Affairs dated March 16, 2020, in particular saunas, swimming baths, movie theaters, convention centers, clubs, bars, discos, gambling casinos, theaters, club rooms, brothels, museums, guided city tours, sports halls, sports fields, playgrounds, fitness centers, libraries, wellness centers, thermal baths, dancing schools, zoos, entertainment venues, further education centers, community colleges, music schools, and youth centers. This part of the order has come into force on March 17, 2020 and is currently effective until April 19, 2020.

[12]   Order n. 2 of the executive order of the Bavarian government dated March 20, 2020. Such places include e.g. hospitals and retirements homes. Effective until April 3, 2020. The order includes exceptions for births, visits to children by close relatives, and imminent deaths.

Gibson Dunn’s lawyers are available to assist with any questions you may have regarding developments related to the COVID-19 outbreak. For additional information, please contact any member of the firm’s Coronavirus (COVID-19) Response Team.

The following Gibson Dunn lawyers prepared this client update: Benno Schwarz and Andreas Dürr. Gibson Dunn lawyers regularly counsel clients on the issues raised by this pandemic, and we are working with many of our clients on their response to COVID-19. Please also feel free to contact the Gibson Dunn lawyer with whom you usually work in the firm’s German offices or the White Collar Defense and Investigations Group, or any of the following:

Gibson Dunn in Germany:

Corporate Compliance / White Collar Matters
Benno Schwarz (+49 89 189 33 110, [email protected])
Michael Walther (+49 89 189 33 180, [email protected])
Mark Zimmer (+49 89 189 33 130, [email protected])
Finn Zeidler (+49 69 247 411 504, [email protected])
Markus Rieder (+49 89189 33 170, [email protected])
Ralf van Ermingen-Marbach (+49 89 18933 130, [email protected])

Litigation
Michael Walther (+49 89 189 33 180, [email protected])
Mark Zimmer (+49 89 189 33 130, [email protected])
Finn Zeidler (+49 69 247 411 504, [email protected])
Markus Rieder (+49 89189 33 170, [email protected])
Kai Gesing (+49 89 189 33 180, [email protected])
Ralf van Ermingen-Marbach (+49 89 18933 130, [email protected])

Antitrust
Michael Walther (+49 89 189 33 180, [email protected])
Jens-Olrik Murach (+32 2 554 7240, [email protected])
Kai Gesing (+49 89 189 33 180, [email protected])

International Trade, Sanctions and Export Control
Michael Walther (+49 89 189 33 180, [email protected])
Richard Roeder (+49 89 189 33 122, [email protected])

General Corporate, Corporate Transactions and Capital Markets
Lutz Englisch (+49 89 189 33 150), [email protected])
Markus Nauheim (+49 89 189 33 122, [email protected])
Ferdinand Fromholzer (+49 89 189 33 170, [email protected])
Dirk Oberbracht (+49 69 247 411 503, [email protected])
Wilhelm Reinhardt (+49 69 247 411 502, [email protected])
Birgit Friedl (+49 89 189 33 122, [email protected])
Silke Beiter (+49 89 189 33 170, [email protected])
Annekatrin Pelster (+49 69 247 411 502, [email protected])
Marcus Geiss (+49 89 189 33 122, [email protected])

Finance, Restructuring and Insolvency
Sebastian Schoon (+49 69 247 411 505, [email protected])
Birgit Friedl (+49 89 189 33 122, [email protected])
Alexander Klein (+49 69 247 411 505, [email protected])
Marcus Geiss (+49 89 189 33 122, [email protected])

Tax
Hans Martin Schmid (+49 89 189 33 110, [email protected])

Labor Law
Mark Zimmer (+49 89 189 33 130, [email protected])

Real Estate
Peter Decker (+49 89 189 33 115, [email protected])
Daniel Gebauer (+49 89 189 33 115, [email protected])

Technology Transactions / Intellectual Property / Data Privacy
Michael Walther (+49 89 189 33 180, [email protected])
Kai Gesing (+49 89 189 33 180, [email protected])

© 2020 Gibson, Dunn & Crutcher LLP

Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

The COVID-19 outbreak has already had dramatic effects on the real economy and many European-based companies are scrambling for State support, such as the transport sector, the hotel and restaurant sector and SMEs more generally. In fact, some Member States have already taken steps to adopt schemes to bail out businesses (e.g. Denmark will subsidise companies with up to 75% of employees’ salaries for COVID-19 induced losses) while others are planning to do so in the next few weeks e.g. France, Italy, Spain and Greece.

However, before implementation, the grant of any subsidy must first be notified to, and approved by, the European Commission. This means that Member States cannot just go ahead and grant financial aid to companies suffering from damages due to the COVID-19 outbreak, without first having gone through the European Commission authorization process. Failure to comply with this requirement would subject the national authorities that granted the obligation to recover it from the beneficiary with compound interest as of the day the aid was granted.

Given that the EU has gone through many crises before, most notably the 2008 financial crisis, the European Commission already has vast experience with taking urgent measures and has thus already started issuing new rules for authorizing State aid in the context of the COVID-19 outbreak.

First, in a one page document published on 13 March the Commission has reminded EU Member States that, based on the already existing State aid rules, national authorities may grant aid to ensure that companies have sufficient liquidity. Second, on 20 March the Commission adopted a State aid Temporary Framework based on Article 107(3)(b) TFEU regarding aid to “remedy a serious disturbance in the economy of a Member State”. Third, on 13 March the Commission also recalled that it may authorize aid directly under Article 107(2)(b) TFEU “to make good the damage caused by exceptional occurrences” such as a COVID-19 pandemic outbreak. Altogether, these steps signal a high degree of willingness from the European Commission to allow the use of State aid to salvage the European economy.

The conditions for using these instruments and their practical use are briefly reviewed in the following.

I.   State aid to repair companies’ liquidity problems

On 13 March the Commission reminded EU Member States that State support to solve companies’ liquidity problems may be granted without it constituting notifiable State aid, and that, even if such State support would constitute aid, various existing State aid rules allow liquidity aid to be authorized.

First, the Commission noted that EU Member States may simply postpone tax and social security payments for all companies nation-wide, because, if support is offered to all nationally-based companies on the same terms, it would not involve State aid. However, since this type of measure cannot be targeted to the companies and individuals who need the aid and must be granted to all companies or individuals (in order to be free of State aid), it is unlikely that many Member States will have sufficient resources to adopt it.

Second, the Commission also noted that EU Member States may grant another type of non-State aid support, consisting of the granting of State loans and State guarantees at market rates. However, this option is subject to significant risk and may not be viable. In particular, if companies are unable to receive loans and guarantees from commercial banks because they are in financial difficulties, any State loan or State guarantee would, in fact, constitute State aid – even if they are granted at what would be considered as market rates.

Instead, the best way to provide support in a non-State aid form would probably be to grant de minimis aid consisting in the grant to companies of (i) € 200,000 over 3 years; (ii) below market interest for loans of a value of up to € 1 million over 5 years; or (iii) below market rate premiums for State guarantees with a value of up to €1.5 million over 5 years. However, it should be noted that de minimis aid is time dependent in the sense that companies may not receive any other aid during the indicated time limits – otherwise the support will be considered as State aid. Therefore, even the grant of de minimis aid may be a path that involves risk for the future.

The Commission also highlighted that if the grant of support to solve companies’ liquidity would involve aid, it is possible to authorize that kind of aid. Indeed, Member States may grant rescue aid to both SMEs and large companies in difficulty in the form of State loans or guarantees covering cash flow shortfalls for up to 6 months (large companies) and 18 months (SMEs). Member States may also adopt across the board schemes for granting State aid to SMEs (that are not in difficulty) under the SME guidelines. While such aid must, however, be notified and approved by the European Commission, the latter has committed to work on a fast track procedure implying that approvals may be granted within two or three days of receiving the notification (as opposed to the normal 1 to 2 year deadline).

II.   New State aid Temporary Framework for the real economy

On 20 March the European Commission sent Member States a draft proposal for a State aid Temporary Framework in order to compensate the real economy from losses suffered from the COVID-19 outbreak, on the basis of 107(3)(b) TFEU regarding aid to remedy a serious disturbance across the EU economy. Just like the temporary State aid banking framework that was set up during the 2008 financial crisis, this new framework includes rules and guidance on how crisis aid may be granted swiftly and without substantial difficulties. This Framework is applicable for companies that entered into difficulty after 31 December 2019 .

Under the Framework, the Commission will authorize aid schemes allowing the grant of: (i) lump sums or tax advantages for up to €500,000 per company; (ii) below market rate premiums for State guarantees, and below market interest rates for bank loans; and (iii) below market rate interest rates for loans issued by both public and private financial institutions. In addition, aid to companies – especially to SMEs – may also be channeled through banks and other institutions based on conditions that ensure that the banks do not receive any residual benefits of increasing their customer base or their range of business with a single customer.

III.   Compensation for damages caused by an exceptional occurrence

Last but not least the Treaty already provides that State aid may be approved for companies that suffered damages due to a serious disturbance of the economy under Article 107(2)(b) TFEU and on 13 March, the Commission announced that it considers the COVID-19 outbreak a serious disturbance qualifying for aid under this provision. Thus, the Commission will authorize State aid for COVID-19 related damages under this provision, especially to airline companies. This applies even if a company has already received State aid in the last ten years – something which is normally not possible under the State aid rules.

The Commission has even taken the practical step of adopting a communication informing Member States of the kind of information it requires (e.g. description of the measures, damages suffered as a result of COVID-19, and the extent of the requested support, etc.) in order to authorise aid notifications quickly under Article 107(2)(b) TFEU.

This opportunity is very real as is also evidenced by the fact that on 12 March 2020, the Commission already authorised aid to large-scale event companies in Denmark under Article 107(2)(b) TFEU. The authorisation was granted within 24 hours of the receipt of the Danish notification of the scheme.

IV.   Compensation to the financial sector

Finally, it is very likely that the adverse impact of the COVID-19 outbreak on the real economy combined with the dramatic impact the outbreak has had on the stock markets, means that financial institutions will be negatively impacted as well. On 18 March, the European Central Bank announced a €750 billion asset-purchase programme (lasting until the end of 2020), which targets in particular public- and private-sector assets. However, over time this may be insufficient. To this end the European Commission already has in place guidelines allowing Member States to bail out financial institutions (dating back to the 2008 financial crisis), although they may need to be adapted in order to address circumstances unique to the COVID-19 outbreak.

_________________

We are available to advise companies on how they may benefit from any type of support in the EU in response to COVID-19. Given that State aid grants may not distort competition unduly, we can also assist companies that are worried about competitors receiving support which does not comply with State aid rules in the context of COVID-19.

Gibson Dunn’s lawyers are available to assist with any questions you may have regarding developments related to the COVID-19 outbreak. For additional information, please contact any member of the firm’s Coronavirus (COVID-19) Response Team.

The following Gibson Dunn lawyers prepared this client update: Lena Sandberg and Yannis Ioannidis. Gibson Dunn lawyers regularly counsel clients on the issues raised by this pandemic, and we are working with many of our clients on their response to COVID-19. Please also feel free to contact the Gibson Dunn lawyer with whom you usually work, the authors, or any member of the firm’s Antitrust and Competition Practice Group:

Antitrust and Competition Group:

Brussels
Peter Alexiadis (+32 2 554 7200, [email protected])
Attila Borsos (+32 2 554 72 11, [email protected])
Jens-Olrik Murach (+32 2 554 7240, [email protected])
Christian Riis-Madsen (+32 2 554 72 05, [email protected])
Lena Sandberg (+32 2 554 72 60, [email protected])
David Wood (+32 2 554 7210, [email protected])

Munich
Michael Walther (+49 89 189 33 180, [email protected])
Kai Gesing (+49 89 189 33 180, [email protected])

London
Patrick Doris (+44 20 7071 4276, [email protected])
Charles Falconer (+44 20 7071 4270, [email protected])
Ali Nikpay (+44 20 7071 4273, [email protected])
Philip Rocher (+44 20 7071 4202, [email protected])
Deirdre Taylor (+44 20 7071 4274, [email protected])

Hong Kong
Kelly Austin (+852 2214 3788, [email protected])
Sébastien Evrard (+852 2214 3798, [email protected])

Washington, D.C.
D. Jarrett Arp (+1 202-955-8678, [email protected])
Adam Di Vincenzo (+1 202-887-3704, [email protected])
Scott D. Hammond (+1 202-887-3684, [email protected])
Kristen C. Limarzi (+1 202-887-3518, [email protected])
Joshua Lipton (+1 202-955-8226, [email protected])
Richard G. Parker (+1 202-955-8503, [email protected])
Cynthia Richman (+1 202-955-8234, [email protected])
Jeremy Robison (+1 202-955-8518, [email protected])
Andrew Cline (+1 202-887-3698, [email protected])

New York
Eric J. Stock (+1 212-351-2301, [email protected])

Los Angeles
Daniel G. Swanson (+1 213-229-7430, [email protected])
Samuel G. Liversidge (+1 213-229-7420, [email protected])
Jay P. Srinivasan (+1 213-229-7296, [email protected])
Rod J. Stone (+1 213-229-7256, [email protected])

San Francisco
Rachel S. Brass (+1 415-393-8293, [email protected])

Dallas
Veronica S. Lewis (+1 214-698-3320, [email protected])
Mike Raiff (+1 214-698-3350, [email protected])
Brian Robison (+1 214-698-3370, [email protected])
Robert C. Walters (+1 214-698-3114, [email protected])

© 2020 Gibson, Dunn & Crutcher LLP

Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

Orange County partner Blaine Evanson and Washington, D.C. associates Lochlan Shelfer and Jeremy Christiansen are the authors of “Arguments shed light on justices’ thinking in Seila v. CFPB,” [PDF] published by the Daily Journal on March 16, 2020.

On March 16 and 17, 2020, the U.S. Department of Justice, Antitrust Division (“DOJ”) and the Federal Trade Commission (“FTC”) announced additional temporary changes to their civil merger investigation processes in response to COVID-19.[1] The agencies stated that the changes will enable them to continue reviewing transactions “efficiently and effectively” while complying with mass telework directives.[2]

DOJ’s new policy states that for mergers that are subject to a Second Request and a negotiated timing agreement, it will request that merging parties agree to delay closing for an additional 30 days to allow it to complete its investigation before making an enforcement decision.[3]  Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (“HSR Act”), if the agency issues a Second Request—typically a small percentage (2-4%) of all HSR-reportable transactions—the parties must delay closing until 30 days (or 10 days in the case of a cash tender offer or bankruptcy) after the parties are in substantial compliance with the Second Request. After the Second Request is issued, the agencies normally will request the parties enter into a timing agreement, in which the parties agree not to consummate the transaction for a period of time after the HSR waiting period expires.

Under DOJ’s most recent “Model Timing Agreement,” this period of time is typically 60 days or less.[4] Under this temporary process change, however, DOJ will request an additional 30 day delay, or up to 90 days total, after the parties comply with their Second Requests. DOJ cautioned it might seek further revisions to existing timing agreements in the future, depending on further developments.

The FTC’s announcement does not specify changes to its approach to timing agreements, but cautions that it is conducting a “matter-by-matter review” of its investigations and litigations to consider whether modifications are needed to timing agreements.[5] As with DOJ, parties with transactions that are subject to an FTC Second Request investigation should expect requests to delay closing.

The agencies also announced that all meetings are being handled by phone or, where possible, video conference, absent extenuating circumstances, and DOJ has temporarily postponed all scheduled depositions until they may be rescheduled using secure videoconferencing capabilities.

These announcements come on the heels of the FTC’s announcement that it is implementing new e-filing procedures for HSR Act premerger notification filings. As noted in an earlier Client Alert, the FTC announced that the agencies (both FTC and DOJ) will not grant early termination of HSR Act waiting periods while e-filing procedures are in effect.[6]

Clients with transactions subject to a Second Request issued by either agency should be prepared for an extended review and a request for an extension under any existing or pending timing agreement. HSR Act-reportable deals not subject to a Second Request may also face delays because the FTC has suspended granting Early Termination.

We will continue to monitor the situation and provide any additional updates regarding DOJ or FTC merger enforcement decisions or procedures.

____________________

     [1]    DOJ, Justice Department Announces Antitrust Civil Process Changes for Pendency of COVID-19 Event (Mar. 17, 2020), https://www.justice.gov/opa/pr/justice-department-announces-antitrust-civil-process-changes-pendency-covid-19-event (hereinafter “DOJ Announcement”); FTC, Changes in Bureau Procedure During COVD-19 Coronavirus Pandemic (Mar. 16, 2010), https://www.ftc.gov/news-events/blogs/competition-matters/2020/03/changes-bureau-procedure-during-covid-19-coronavirus (hereinafter “FTC Announcement”).

     [2]    DOJ Announcement.

     [3]    Id.

     [4]    DOJ, Model Timing Agreement, https://www.justice.gov/atr/page/file/1111336/download.

     [5]    FTC Announcement.

     [6]    Gibson Dunn, U.S. Federal Trade Commission and DG COMP Implement Changes to U.S. and EU Merger Filing Procedures in Response to COVID-19 (Mar. 16, 2010), https://www.gibsondunn.com/us-ftc-and-dg-comp-implement-changes-to-us-and-eu-merger-filing-procedures-in-response-to-covid-19/.

Gibson Dunn’s lawyers are available to assist with any questions you may have regarding developments related to the COVID-19 outbreak. For additional information, please contact any member of the firm’s Coronavirus (COVID-19) Response Team.

The following Gibson Dunn lawyers prepared this client update: Kristen Limarzi, Adam Di Vincenzo, Chris Wilson and Kaitlin Zumwalt. Please also feel free to contact the authors or any of the following leaders and members of the Antitrust and Competition Practice Group:

Washington, D.C.
D. Jarrett Arp (+1 202-955-8678, [email protected])
Adam Di Vincenzo (+1 202-887-3704, [email protected])
Scott D. Hammond (+1 202-887-3684, [email protected])
Kristen C. Limarzi (+1 202-887-3518, [email protected])
Joshua Lipton (+1 202-955-8226, [email protected])
Richard G. Parker (+1 202-955-8503, [email protected])
Cynthia Richman (+1 202-955-8234, [email protected])
Jeremy Robison (+1 202-955-8518, [email protected])
Andrew Cline (+1 202-887-3698, [email protected])

New York
Eric J. Stock (+1 212-351-2301, [email protected])
Lawrence J. Zweifach (+1 212-351-2625, [email protected])

Los Angeles
Daniel G. Swanson (+1 213-229-7430, [email protected])
Samuel G. Liversidge (+1 213-229-7420, [email protected])
Jay P. Srinivasan (+1 213-229-7296, [email protected])
Rod J. Stone (+1 213-229-7256, [email protected])

San Francisco
Rachel S. Brass (+1 415-393-8293, [email protected])

Dallas
Veronica S. Lewis (+1 214-698-3320, [email protected])
Mike Raiff (+1 214-698-3350, [email protected])
Brian Robison (+1 214-698-3370, [email protected])
Robert C. Walters (+1 214-698-3114, [email protected])

Brussels
Peter Alexiadis (+32 2 554 7200, [email protected])
Attila Borsos (+32 2 554 72 11, [email protected])
Jens-Olrik Murach (+32 2 554 7240, [email protected])
Christian Riis-Madsen (+32 2 554 72 05, [email protected])
Lena Sandberg (+32 2 554 72 60, [email protected])
David Wood (+32 2 554 7210, [email protected])

Munich
Michael Walther (+49 89 189 33 180, [email protected])
Kai Gesing (+49 89 189 33 180, [email protected])

London
Patrick Doris (+44 20 7071 4276, [email protected])
Charles Falconer (+44 20 7071 4270, [email protected])
Ali Nikpay (+44 20 7071 4273, [email protected])
Philip Rocher (+44 20 7071 4202, [email protected])
Deirdre Taylor (+44 20 7071 4274, [email protected])

Hong Kong
Kelly Austin (+852 2214 3788, [email protected])
Sébastien Evrard (+852 2214 3798, [email protected])

© 2020 Gibson, Dunn & Crutcher LLP

Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

On March 18, 2020, President Trump announced that he was invoking the Defense Production Act (“DPA”) in order to allow the administration to marshal American industry to prioritize production of medical supplies and pharmaceuticals that are in short supply to fight the coronavirus pandemic. Notably, the President stated that he was invoking the DPA authority “just in case we need it,” but did not say whether he planned to issue orders pursuant to that authority for the time being. The President’s announcement on Wednesday followed public urging by Senate Democrats to invoke the authority granted by the DPA to address medical supply shortages.[1] The powers granted to the Government under the DPA are unique and broad. In this Client Alert, we summarize the requirements of the DPA and its implications for contractors performing under contracts issued pursuant to the Government’s authority under this statute, or private industry companies that may be directed to prioritize production based on the same authority. Below, we address the scope of the DPA, contractors’ rights and responsibilities under it, and special actions that the Government may direct industry and businesses to take in order to support the national interest.

Scope of the Defense Production Act

Enacted in 1950 in response to the start of the Korean War,[2] the DPA, 50 U.S.C. §§ 4501 et seq., ensures that the domestic industrial base is mobilized and prepared to support the national defense both during national emergencies and peacetime. Since its enactment, the DPA has been reauthorized over 50 times, most recently in 2018.[3] The term “national defense” as defined in the DPA has been expanded over time, and currently includes:

programs for military and energy production or construction, military or critical infrastructure assistance to any foreign nation, homeland security, stockpiling, space, and any directly related activity. Such term includes emergency preparedness activities conducted pursuant to title VI of The Robert T. Stafford Disaster Relief and Emergency Assistance Act [42 U.S.C. §§5195 et seq.] and critical infrastructure protection and restoration.[4]

The Stafford Act, in turn, states that “emergency preparedness”:

means all those activities and measures designed or undertaken to prepare for or minimize the effects of a hazard upon the civilian population, to deal with the immediate emergency conditions which would be created by the hazard, and to effectuate emergency repairs to, or the emergency restoration of, vital utilities and facilities destroyed or damaged by the hazard.[5]

Given the breadth of “national defense” activities, the DPA can apply to a wide variety of companies providing goods or services deemed essential to the national interest. The authorities granted by the DPA are generally afforded to the President, who has in turn delegated these authorities to department and agency heads by Executive Order.[6]

The DPA empowers the Government to ensure availability of essential items by: (1) requiring contractors to accept and perform high priority contracts, or be subject to civil or criminal penalties or an injunction requiring performance; (2) requiring contracts issued pursuant to the DPA (called “rated orders”) deemed necessary to the national defense be prioritized over other contracts that are not essential to the national defense, subject to certain limited exceptions; (3) allocating the distribution of essential items;[7] (4) guaranteeing loans from contractors or their subcontractors performing contracts deemed necessary to the national defense; and (5) establishing special action plans to ensure the sufficiency of the defense industrial base during national emergencies.[8]

Contractor Rights and Responsibilities Under Rated Orders

The Department of Commerce, which is delegated authority through Executive Order 13603 to implement the DPA’s priorities and allocations provisions for industrial resources, established a priority allocation system known as the Defense Priorities and Allocations System (“DPAS”) to prioritize national defense-related contracts and orders throughout the U.S. supply chain in order to support military, energy, homeland security, emergency preparedness, and critical infrastructure requirements.[9] Commerce, in turn, has delegated authority to the Department of Defense, the Department of Energy, the Department of Homeland Security, and the General Services Administration to place priority ratings on contracts or orders necessary or appropriate to promote the national defense.[10]

The DPAS includes two priority allocations for rated orders. DX is the highest priority rated order, and all DX orders are of equal priority with each other and take priority over DO rated orders or non-rated orders. DO rated orders are of equal priority with each other, and take priority over non-rated orders. Every rated order contract must reflect: (1) the appropriate priority ranking; (2) required delivery date(s); (3) the signature of an authorized customer representative; and (4) a statement reflecting the substance that “this is a rated order certified for national defense use, and you are required to follow the provisions of the DPAS regulation.” Contractors must accept or reject a DX or DO rated order within 10 working days or 15 working days after receipt of the request, respectively.[11]

With limited exception, contractors must accept and perform contracts as directed under the DPA.[12] Contractors must offer a similar price and terms and conditions for rated orders as they would offer for comparable non-rated orders,[13] and must flow down to their subcontractors and suppliers the requirement to grant similar priority to necessary components throughout the acquisition supply chain[14]. Failure to adhere to these requirements could result in civil or criminal liability, or an injunction requiring specific performance.[15]

There are exceptions where a contractor may, and in some cases must, nonetheless reject a rated order. A contractor must reject a rated order if it is unable to fill the order by the requested delivery date. If a contractor is required to reject a rated order, the contractor must notify the customer of the earliest date on which delivery can be made, and offer to accept the order based on that delivery date. A contractor is also required to reject a DX rated order where acceptance would conflict with performance of any previously accepted DX rated order, and to reject a DO rated order that would conflict with performance of any previously accepted DO or DX rated order. In each instance, the contractor must offer to accept the conflicting order as of the earliest practicable date on which delivery could be made.[16] Where a contractor receives two or more requests for rated orders of equal priority on the same day, the contractor must accept, on the basis of the earliest delivery dates, only those orders it can fill and must reject the others.[17]

A contractor may reject a rated order under the following five circumstances: (1) the customer is unwilling or unable to meet regularly established terms of sale or payment; (2) the order is for an item not supplied or for a service not performed; (3) the order is for an item produced, acquired, or provided only for the supplier’s own use for which no orders have been filled for two years prior to the date of receipt of the rated order; (4) the person placing the rated order, other than the U.S. Government, makes the item or performs the service being ordered (e.g., if a contractor in receipt of a rated order is placing a rated order with a subcontractor); or (5) acceptance of a rated order or performance against a rated order would violate any other regulation, official action, or order of the DPAS.[18] Any rejection of an order, whether mandatory or permissive, must provide the reason for rejection in writing.[19]

Performance of DPA contracts and rated orders can have significant impacts on the non-priority work – unrated Government contracts or private industry commitments – that contractors may be required to back-burner in the interest of the national defense. Neither the DPA nor the standard DPAS rated order contract provision compensates contractors for potential lost profits associated with abandoning lower priority, but higher profit, work during fulfillment of priority contracts and orders. However, in circumstances where the contractor’s financial stability becomes jeopardized as a result of complying with the DPA, contractors may request that the Government invoke its authority to grant extraordinary relief to contractors providing goods and services essential to the national interest when needed to keep the contractor operational.[20] And although the DPA excuses contractors and businesses from breach of contract (whether government or commercial) or other claims involving failure to perform other contracts because it was required to prioritize a rated order or DPA contract, the protection does not indemnify against claims relating to products manufactured or services provided under a DPA contract.[21]

Industry Rapid Response, Voluntary Agreements & Special Action Plans

In the event of a national emergency, including the current novel coronavirus pandemic, the President is authorized to establish special rules to ensure a rapid response from domestic industry to meet the critical needs of the country. For example, the President could direct industry to focus on production of scarce or critical materials.[22] In the context of the current novel coronavirus pandemic, non-medical product manufacturers may be asked or required to shift production to medical supplies. Former FDA Commissioner Robert Califf is urging U.S. manufacturers, regardless of industry, to do so,[23] and the UK Prime Minister has requested that non-medical manufacturers shift production to the manufacturing of ventilators.[24] French conglomerate LVMH, the company behind Louis Vuitton and other luxury brands, announced this week that it is converting its cosmetics factories to produce hand sanitizer.[25] The DPA authorizes the President to create, maintain, protect, expand, or restore domestic industrial base capabilities essential to the national defense through a variety of mechanisms, such as purchasing or making purchase commitments of industrial resources or critical technology items, and making subsidy payments for domestically produced materials.[26] The Act also authorizes the President to issue loan guarantees and direct loans to reduce current or projected shortfalls for essential materials necessary for national defense purposes.[27] Although the Government has not used the DPA loan authorities in more than 30 years, the Government has used purchases and purchase commitments with relative frequency.[28] For example, the Department of Defense used DPA authorized funding for a portfolio of 32 projects as of the end of 2018, including to address key industrial base shortfalls in the production of metal castings for critical rotorcraft applications and trusted advanced photomasks for microelectronics.[29]

The DPA also authorizes the President, upon a determination that a “condition exists which may pose a direct threat to the national defense or its preparedness programs,” to consult with industry and business representatives and establish voluntary agreements, preparedness programs, and plans of action to provide for the national defense and expand production capacity of essential resources.[30] Although voluntary agreements or plans of action between competing private industry entities could be subject to legal ramifications under the antitrust statutes or by contract, the DPA affords such parties a special legal defense if their actions under such a voluntary agreement or plan would otherwise violate antitrust or contract laws – but they do not grant blanket immunity.[31] It remains to be seen to what extent the Administration will invoke these provisions of the DPA.

For example, Section 708 of the DPA creates a defense to any civil or criminal action brought under federal antitrust laws or any similar law of any state.[32] The requirements to invoke the defense are stringent, and its coverage is narrow. Only actions taken in the course of developing or carrying out agreements or plans of action initiated by the President or by individuals to whom he has delegated his power to initiate such agreements are within the scope of the defense.[33] Moreover, the party invoking the defense must prove that it complied with all statutory and regulatory requirements of Section 708 and acted in accordance with the terms of the voluntary agreement or plan of action at issue. The defense further requires that, except for actions taken to develop a voluntary agreement or plan of action, the defendant must prove that the action taken was specified in, or within the scope of, an approved voluntary agreement initiated by the President or a plan of action adopted under such an agreement, and that the President or his designee authorized and actively supervised the agreement or plan of action.

It remains to be seen to what extent the Administration will invoke these provisions of the DPA. Absent express Presidential or governmental approval of collaborative agreements to respond to orders issued under the DPA, companies responding to such orders should exercise caution and seek advice about any business practice in advance to minimize risk.

Impact on Foreign Corporate Mergers, Acquisitions, or Takeovers

Critically, the U.S. Committee on Foreign Investment in the United States (“CFIUS”) also operates pursuant to the DPA. CFIUS is an inter-agency committee authorized to review the national security implications of investments made by foreign companies and persons in U.S. businesses and to block transactions or impose measures to mitigate any threats to U.S. national security. National security and supply chain issues—including with respect to DPAS priority contracts—are considered by CFIUS in the course of a review. On February 13, 2020, final regulations were implemented to expand the scope of inbound foreign investment subject to CFIUS review to include the unique risks posed by foreign investments in U.S. businesses involved in critical technologies, critical infrastructure, or sensitive personal data of U.S. citizens. Supply chain risks associated with the coronavirus crisis are likely to shift the immediate focus of the Committee with respect to foreign investments in U.S. businesses involved in key sectors.

Current Government contractors, as well as companies in a position to assist with the production of essential materials necessary for the national defense in light of the current novel coronavirus national emergency, should be aware of the Government’s authorities and industry’s responsibilities under the DPA.

_____________________

   [1]   See, e.g., https://www.nytimes.com/2020/03/17/us/politics/trump-coronavirus-plan.html.

   [2]   Congressional Research Service, The Defense Production Act of 1950: History, Authorities, and Considerations for Congress, updated March 2, 2020, available at https://fas.org/sgp/crs/natsec/R43767.pdf (last accessed March 18, 2020).

   [3]   Sec. 791 of P.L. 115-232.

   [4]   50 U.S.C. § 4552(14).

   [5]   42 U.S.C. § 5195(a)(3).

   [6]   Executive Order 13603, National Defense Resource Preparedness (2012).

   [7]   Although the DPA allows the President to allocate the distribution of materials, services, and facilities, no allocation action has been taken pursuant to the DPA since the end of the Cold War. Congressional Research Service, supra, n.2 (citing Department of Homeland Security, The Defense Production Act Committee Report to Congress, Calendar Year 2017 Report to Congress, June 18, 2019, p. 11).

   [8]   50 U.S.C. §§ 4501 et seq.

   [9]   .https://www.bis.doc.gov/index.php/other-areas/strategic-industries-and-economic-security-sies/defense-priorities-a-allocations-system-program-dpas; see also generally DPAS Regulations, 15 C.F.R. Part 700.

[10]   Id.

[11]   15 C.F.R. § 700.13(d).

[12]   15 C.F.R. § 700.13(a).

[13]   Id.

[14]   15 C.F.R. § 700.15.

[15]   15 C.F.R. § 700.74.

[16]   15 C.F.R. § 700.14(c).

[17]   15 C.F.R. § 700.13(b).

[18]   15 C.F.R. § 700.13(c).

[19]   15 C.F.R. § 700.13(d).

[20]   50 U.S.C. §§ 1431-36

[21]   50 U.S.C. § 4557.

[22]   See 50 U.S.C. § 4517

[23]   See Twitter, Robert M. Califf, @califf001, Mar. 16, 2020, “The Defense Production Act gives FEMA the power to immediately rev up the production and distribution system for PPE. This should be done now” available at https://twitter.com/califf001/status/1239684030980751360. See also https://medtech.pharmaintelligence.informa.com/MT126396/Former-FDA-Chief-Urges-Manufacturers-To-Shift-Gears-In-Coronavirus-Efforts.

[24]   See BBC News, “Coronavirus: PM urges industry to help make NHS ventilators,” Mar. 16, 2020, available at https://medtech.pharmaintelligence.informa.com/MT126396/Former-FDA-Chief-Urges-Manufacturers-To-Shift-Gears-In-Coronavirus-Efforts.

[25]   CBSNews, “LVMH, which owns luxury brands like Louis Vuitton and Christian Dior, will use perfume production lines to make hand sanitizer,” Mar. 16, 2020, available at https://www.cbsnews.com/news/lvmh-hand-sanitizer-french-luxury-brands-perfume-production-lines-france-louis-vuitton-company/.

[26]   50 U.S.C. §4533.

[27]   50 U.S.C. §4531(a)(1).

[28]   See Department of Homeland Security, The Defense Production Act Committee: Report to Congress, Calendar Year 2010 Report, August 2011, p. 10; Department of Defense, Annual Industrial Capabilities, Fiscal Year 2017 Report to Congress, March 2018, p. 33, at https://www.businessdefense.gov/Portals/51/Documents/Resources/2017%20AIC%20RTC%2005-17-2018%20-%20Public%20Release.pdf?ver=2018-05-17-224631-340.

[29]   Department of Defense, Annual Industrial Capabilities, Fiscal Year 2018 Report to Congress, May 2019, p. 8, available at https://www.businessdefense.gov/Portals/51/Documents/Resources/2018%20AIC%20RTC%2005-23-2019%20-%20Public%20Release.pdf?ver=2019-06-07-111121-457.

[30]   50 U.S.C. § 4558(c)(1).

[31]   50 U.S.C. §4558.

[32]   50 U.S.C. § 4558(j).

[33]   For an example of a voluntary agreement initiated and approved under Section 708 of the Defense Production Act, see generally Renewal of the Voluntary Tanker Agreement Program, 84 Fed. Reg. 58824, 58825 (Nov. 1, 2019).

Gibson Dunn’s lawyers are available to assist with any questions you may have regarding developments related to the COVID-19 outbreak. For additional information, please contact any member of the firm’s Coronavirus (COVID-19) Response Team.

The following Gibson Dunn lawyers prepared this client update: Joseph West, Lindsay Paulin, Stephanie Connor, Michael Bopp, Stuart Delery, Kristen Limarzi, and Charlotte Lawson. Gibson Dunn’s lawyers have hands-on experience with DPA issues and are available to assist with any questions you may have regarding developments related to the COVID-19 outbreak. Please also feel free to contact the Gibson Dunn lawyer with whom you usually work, the authors, or any of the following leaders and members of the Government Contracts, National Security or Antitrust and Competition practice groups:

Government Contracts Group:  
Joseph D. West – Washington, D.C. (+1 202-955-8658, [email protected])
Karen L. Manos – Washington, D.C. (+1 202-955-8536, [email protected])
Lindsay M. Paulin – Washington, D.C. (+1 202-887-3701, [email protected])
Erin N. Rankin – Washington, D.C. (+1 202-955-8246, [email protected])

National Security Group:
Michael D. Bopp – Washington, D.C. (+1 202-955-8256, [email protected])
Stuart F. Delery – Washington, D.C. (+1 202-887-3650, [email protected])
Judith Alison Lee – Washington, D.C. (+1 202-887-3591, [email protected])
Christopher T. Timura – Washington, D.C. (+1 202-887-3690, [email protected])
Stephanie L. Connor – Washington, D.C. (+1 202-955-8586, [email protected])

Antitrust and Competition Group:
Kristen C. Limarzi – Washington, D.C. (+1 202-887-3518, [email protected])
Daniel G. Swanson – Los Angeles (+1 213-229-7430, [email protected])
Rachel S. Brass – San Francisco (+1 415-393-8293, [email protected])
Scott D. Hammond – Washington, D.C. (+1 202-887-3684, [email protected])
Charlotte A. Lawson – Washington, D.C. (+1 202-887-3568, [email protected])

© 2020 Gibson, Dunn & Crutcher LLP

Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

The emergence and rapid escalation of COVID-19 continues to alter every facet of daily life across the globe. For businesses, challenges range from protecting and supporting employees and customers, to contributing to evolving efforts to battle COVID-19, to fighting for survival by preserving liquidity and adapting to new and dramatically different operating conditions. Against this backdrop, the outlook for M&A activity is—understandably—highly uncertain. Assessing value and marshalling necessary financial and human resources are already challenging, and ongoing market volatility may well exacerbate this. Nevertheless, for various reasons, including strategy, opportunity and necessity, both companies and financial sponsors will continue to consider—and where appropriate pursue—transactions. In addition, they will need to address pending transactions that were signed pre-crisis and that now may or may not close.

To assist companies in navigating the M&A process in this unprecedented environment, we have prepared a checklist of key considerations, focusing on areas of particular risk and uncertainty. This checklist is intended as a starting point, as the analysis of each deal making situation will be highly fact-specific. We encourage you to reach out to your Gibson Dunn contact to discuss specific questions or issues that may arise.

1.   MAE/MAC provisions. Relying on a material adverse effect or material adverse change (MAE or MAC) as a basis to terminate a transaction has long been extremely difficult under the laws of many states. As a general matter, an MAE or MAC is intended to capture unforeseen events or consequences that have a long-term, dramatic adverse impact on the value of the target. The impact of COVID-19 and its consequences continue to evolve. Whether the impact of the virus will be considered an MAE/MAC will depend upon both what is known at the time a transaction is signed and what the relevant agreement’s MAE/MAC definition says about the inclusion or exclusion of the virus. A pre-crisis MAE/MAC definition that makes no reference to COVID-19 (or even to pandemics or epidemics generally) may or may not be found to include the effects of COVID-19 in determining whether an MAE/MAC has occurred. In such cases, disputes may focus on whether definitional language that typically excludes general economic or market conditions and other broad based factors impacting the business climate or the target’s industry generally is sufficient to exclude the impact of COVID-19. Parties also may debate whether the potential impact of the virus was reasonably foreseeable at the time the agreement was signed or whether the impact is sufficiently long-lasting to be considered an MAE/MAC under applicable state law.

At this point, though, both buyers and sellers would be well-advised to negotiate explicit language to address COVID-19 risk-allocation in the context of an MAE/MAC provision. We have seen this practice followed in response to past crises. We have already seen a fair number of more recent agreements that specifically exclude the impact of COVID-19 (most often building on an exclusion for any “pandemic” or “epidemic,” and sometimes only if it does not disproportionately affect a party) from the scope of an MAE/MAC definition. Whether excluding it completely or specifying a quantitative or qualitative level of financial or operational impact from COVID-19 that, if reached, would give rise to an MAE/MAC, specificity will guard against unexpected results.

2.   Termination rights and fees. Always a heavily negotiated deal term, these provisions merit particular attention in the current environment. Aside from MAE/MAC termination rights, parties should give extra attention to the seemingly routine “outside date” termination provision, since requirements for third-party consents and/or government approvals and other closing conditions may be substantially more difficult or take far longer to achieve under current conditions. Who bears the risk of delay, and for what period? How long can buyer and seller wait between signing and closing, and what degree of change in the target’s financial results and operations will be allowed if the pre-closing period is particularly long? Deals that require shareholder approvals and filings with (and clearances from) the Securities and Exchange Commission may face particular delays, as these implicate risks of slower governmental action and potential challenges of obtaining stockholder approvals. In the U.S., the government has already suspended the early termination option for Hart-Scott-Rodino Act antitrust review (meaning that clearance will take at least 30 days in all circumstances), and other agency review and clearance processes may be delayed or uncertain, due to staffing shortages, teleworking and prioritization of resources to crisis demands.

With continued volatility in the financing markets, transactions that depend on third-party debt financing can present particular challenges. Providers of both long-term and bridge financing options may offer less certainty, and well-established norms for the terms of financing commitments and definitive agreements may be changing. Both buyers and sellers will want to explore and understand the added risk and volatility in order to address these factors appropriately in decisions about whether, and on what terms, to proceed. The private equity M&A market has a well-established and often used construct to address what is generally viewed as a fairly remote risk of a “financing failure”—including payment by the buyer of a reverse termination fee and limiting the seller’s specific performance rights where the debt provider is refusing to fund. In the current environment, buyers and sellers may want to consider whether this risk is greater and whether the “standard” financing-failure arrangements fairly allocate that risk between the parties. We expect that both buyers and sellers will argue as to which one is facing greater risk from financing market volatility at present and what “reallocation” of risk—if any—is “fair.” In addition, with the judicial system and other dispute resolution forums increasingly shutting down and consequent delays in the adjudication and enforcement of remedies such as specific performance, the parties’ view of the relative value and utility of different types of remedies may change over the near term.

3.   Due diligence and representations and warranties. Due diligence in the COVID-19 context confronts both buyers and sellers with marked challenges. Some of the information that a buyer would seek—such as how a target has weathered similar conditions in the past—may simply not be available, even from the most well-intentioned seller. Projections, which always carry a fair element of uncertainty, will be particularly difficult to prepare and assess. Also, site visits and in-person meetings may be inadvisable or impermissible, particularly in a cross-border deal or where the target business has multi-national operations.

COVID-19-specific representations may help inject some greater degree of certainty and promote additional information-sharing, though crafting appropriate representations amid a constantly changing environment could present new hurdles. Moreover, addressing the appropriateness and adequacy of remedies for breaches may be challenging. Would any material breach give rise to a termination right? If, by contrast, breaches would be subject to an overall MAE/MAC standard for termination, how would the MAE/MAC definition apply (as discussed above)? Would a post-closing indemnity right be sufficient? If the post-closing remedy is for the buyer to make a claim against a representation and warranty insurance policy, and if, as discussed below, COVID-19-related claims are likely to be excluded from coverage, will traditional seller-funded indemnities (in deals where they are feasible) experience a level of re-emergence—at least for COVID-19-related claims? Where a seller’s sole exposure for post-closing damage claims is for “fraud,” should sellers react to fast-changing conditions by providing more extensive pre-closing disclosure updates?

4.   Interim operating covenants. Between signing and closing of an M&A transaction, buyers generally want sellers to operate the target business in the “ordinary course” to protect the value of the business they have agreed to purchase (with any deviations requiring buyer’s consent). However, interim operating covenants do not constitute an obligation to maintain the financial condition of the target, only to operate the target consistent with the ordinary course of business. Buyers should consider drafting with specificity if they want to have additional protections as to the virus.

Liquidity maintenance, debt refinancing, and working capital management will all require special attention in the interim operating covenants. With a heightened risk of closing failure or delay, the impact of tight interim operating covenants on a business should be considered carefully. Risks exist both pre-termination (with too-tight interim operating covenants potentially laying the groundwork for breach instead of compliance) and, from the seller’s perspective, post-termination in terms of potential impact on the target in the event the transaction does not close. The “ordinary course” interim operating covenants also may be tested by operational exigencies resulting from COVID-19 and necessitating an injection of additional working capital or liquidity. “Customary” exceptions for changes required by law or regulation also may take on new meaning and significance in the current environment. Fiduciary duties may push a seller to take actions arguably in breach of an interim operating covenant and risk exposing itself to a breach claim, despite the seller believing its actions are in the best interests of the target, its employees and possibly the public. Parties should consider whether and how to account for all of these factors. Interim financial reporting and specially crafted termination rights if pre-closing performance falls below extreme levels may be relevant in certain circumstances.

5.   Representation and warranty and business interruption insurance. If either the seller or the buyer is seeking to obtain representation and warranty insurance as a source of post-closing indemnity on a deal, they will need to focus on how exclusions and limitations will apply to the impact of the virus. Because COVID-19 is a known risk, expect insurers to specifically exclude coronavirus-related losses from their policy coverage, and for pending deals signed prior to the COVID-19 outbreak, to insist on a blanket exclusion of COVID-19 impact when the representations made as of the signing date are “brought down” to closing. In addition, the scope of virus-specific or ancillary diligence, as well as any requirement for post-signing “updates” from a seller, and their effect on the insured party’s knowledge should be carefully addressed with counsel in the context of representation and warranty insurance, since an insured’s “knowledge” of a situation typically excludes that situation from policy coverage. Business interruption insurance also may be worth considering—if it is available at a reasonable cost. However, the definition of a covered “business interruption” within the scope of the policy must be carefully reviewed.

6.   Purchase price adjustments. The impact of the COVID-19 crisis may necessitate a deviation from the customary approach to purchase price adjustments. As discussed above in terms of interim operating covenants, what constitutes “normalized” working capital may need to be adjusted given the impact of the virus. Sellers may need to take drastic measures to maintain acceptable liquidity at the target company level and may want to seek floors or collars in their purchase price adjustment mechanisms to avoid being unduly penalized during the crisis. Conversely, buyers will be understandably focused on ensuring they will be acquiring a business with levels of working capital and liquidity that are within defined parameters.

Gibson Dunn’s lawyers are available to assist with any questions you may have regarding developments related to the COVID-19 outbreak. For additional information, please contact any member of the firm’s Coronavirus (COVID-19) Response Team.

Gibson Dunn’s lawyers regularly counsel strategic and private equity buyers and sellers on the legal issues raised by this pandemic in the M&A context. Please also feel free to contact the Gibson Dunn lawyer with whom you usually work, any member of the firm’s Mergers and Acquisitions or Private Equity practice groups, or the authors:

Barbara L. Becker – New York (+1 212-351-4062, [email protected])
Jeffrey A. Chapman – Dallas (+1 214-698-3120, [email protected])
Mark D. Director – Washington, D.C./New York (+1 202-955-8508/+1 212-351-5308, [email protected])
Stephen I. Glover – Washington, D.C. (+1 202-955-8593, [email protected])
John M. Pollack – New York (+1 212-351-3903, [email protected])
Steven R. Shoemate – New York (+1 212-351-3879, [email protected])
George P. Stamas – Washington, D.C./New York (+1 202-955-8280/+1 212-351-5300, [email protected])
Pavel A. Shaitanoff – New York (+1 212-351-2446, [email protected])
Marina Szteinbok – New York (+1 212-351-4075, [email protected])

Please also feel free to contact any of the following practice leaders and members:

Mergers and Acquisitions Group:
Barbara L. Becker – New York (+1 212-351-4062, [email protected])
Richard J. Birns – New York (+1 212-351-4032, [email protected])
Jeffrey A. Chapman – Dallas (+1 214.698.3120, [email protected])
Mark D. Director – Washington, D.C./New York (+1 202-955-8508/+1 212-351-5308, [email protected])
Eduardo Gallardo – New York (+1 212.351.3847, [email protected])
Stephen I. Glover – Washington, D.C. (+1 202.955.8593, [email protected])
Jonathan K. Layne – Los Angeles (+1 310.552.8641, [email protected])
Saee Muzumdar – New York (+1 212.351.3966, [email protected])
George P. Stamas – Washington, D.C./New York (+1 202-955-8280/+1 212-351-5300, [email protected])

Private Equity Group:
Richard J. Birns – New York (+1 212-351-4032, [email protected])
Mark D. Director – Washington, D.C./New York (+1 202-955-8508/+1 212-351-5308, [email protected])
John Fadely – Hong Kong (+852 2214 3810, [email protected])
Sean P. Griffiths – New York (+1 212-351-3872, [email protected])
Scott Jalowayski – Hong Kong (+852 2214 3727, [email protected])
Ari Lanin – Los Angeles (+1 310-552-8581, [email protected])
John M. Pollack – New York (+1 212-351-3903, [email protected])
Brian Schwarzwalder – Hong Kong (+852 2214 3712, [email protected])
Steven R. Shoemate – New York (+1 212-351-3879, [email protected])
George P. Stamas – Washington, D.C./New York (+1 202-955-8280/+1 212-351-5300, [email protected])

© 2020 Gibson, Dunn & Crutcher LLP

Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

To Our Clients and Friends:

Companies around the world are facing unprecedented challenges and market uncertainties following the coronavirus (COVID-19) public health crisis, which spiraled financial markets, restricts travel, and threatens global economic decline. Facility and store closures, a quarantined labor force, and shortages in goods and services disrupt businesses globally. Cancelled or deferred events and mounting fear threaten to slow consumer spending. Experts speculate that the major outbreak could spiral the nation – if not the world – into a recession. Indeed, Treasury Secretary Steven Mnuchin warned Republican senators that the unemployment rate could hit 20 percent without action on an economic stimulus package.[1]

To address this economic peril, the United States government—Congress, the Executive Branch, and the Federal Reserve—have moved to respond to the crisis and restore public faith in the market. The speed at which the government is moving, especially during a bitterly divided election year, underscores how serious the threat is both to individuals and to the global market and the necessity to follow developments in real time.

I.   Congressional Response to Coronavirus

As detailed below, Congress, the Executive Branch, and the Federal Reserve have taken aggressive action in recent weeks to respond to the coronavirus crisis and prevent further harm, including harm to the U.S. economic sector.

A.   Emergency Supplemental Funding Package

On February 24, 2020, the Trump Administration sent a letter to Congress requesting $1.25 billion in new funds, with additional money moved from other parts of the federal budget, for a total of $2.25 billion. The aim of the requested funds was to combat the spread of the coronavirus, calm public anxiety, and accelerate the federal government’s response to the virus.

In early March 2020, Congress passed a $8.3 billion appropriations measure to combat the coronavirus pandemic, which was more than three times the amount the White House originally requested. Representative Nita Lowey (D-NY-17), the Chairwoman of the House Appropriations Committee, introduced the Coronavirus Preparedness and Response Supplemental Appropriations Act of 2020 (P.L. No. 116-123) (“coronavirus emergency bill”), an emergency supplemental appropriations bill for the fiscal year ending September 30, 2020.

The $8.3 billion bill provides federal public health agencies funds for vaccines, tests, isolation and quarantine costs, sanitization of public areas, tracking the virus, and potential treatments, including:

  • $7.8 billion in discretionary appropriations for:
    • $3.1 billion to the Secretary of Health and Human Services for research and development of vaccines and other treatments for the coronavirus, including $100 million to community health centers for under-served areas and $300 million for the purchase of drug treatments and eventually vaccines;
    • $2.2 billion for the Centers for Disease Control and Prevention to respond to the coronavirus threat, of which at least $950 million must be granted to state, tribal, and local governments to carry out surveillance, epidemiology, laboratory capacity, infection control, mitigation, communications, and other preparedness and response activities;
    • $1.7 billion for international public health programs and humanitarian aid to protect the health of Americans living abroad and to prevent the global spread of the coronavirus;
    • $836 million for the National Institute of Allergy and Infectious Diseases to prevent and reduce exposure of hospital employees and first-responders to coronavirus; and
    • $20 million for the Small Business Administration and up to $7 billion in low-interest disaster loans to help small businesses impacted by this public health crisis.
  • An additional $500 million in mandatory Medicare spending for telehealth consultations, where seniors can access telemedicine services without visiting a doctor.

The bill contains a contentiously negotiated drug price compromise that seeks to prevent price gauging by drug manufacturers for vaccines and other medicines developed with taxpayer funds. Under the compromise, the Secretary of Health and Human Services has the authority to ensure federal contracting prices are “fair and reasonable.” Democratic Members of Congress were unsuccessful in negotiating the application of the “fair and reasonable” standard to the commercial market.

On March 4, 2020, just hours after the coronavirus emergency bill was introduced, the measure passed the U.S. House of Representatives by an overwhelming margin, with a 415-2 vote. The following day, on March 5, 2020, the U.S. Senate passed the coronavirus emergency bill in a nearly unanimous vote of 96-1. On March 6, 2020, President Trump signed the coronavirus emergency bill into law at the same time as worldwide cases of the coronavirus surpassed 100,000.[2]

B.   Coronavirus Stimulus/Relief Bills

On March 14, 2020, the U.S. House of Representatives passed an emergency relief package to financially support individual Americans during the public health crisis caused by COVID-19.[3] Representative Nita Lowey (D-NY-17) again introduced the legislation, known as the Families First Coronavirus Response Act, H.R. 6201. With the intent to bolster the safety net for workers whose livelihoods and health are affected by the coronavirus, the bill would ensure working Americans have access to paid leave should they become infected or need to serve as caregivers. It also strengthens existing unemployment insurance and food assistance programs, and would provide free diagnostic testing for the coronavirus.

Specifically, the legislation includes the following provisions:

  • Free coronavirus testing: The legislation would make coronavirus testing free by requiring private health insurers (and Medicare and Medicaid) to cover the cost of testing, including emergency room visits and doctor fees. This provision also covers uninsured people.
  • Emergency paid leave: The legislation would require employers to provide certain workers with 14 days of sick leave paid at their usual pay rate and up to three months of paid family and medical leave equal to no less than two-thirds of their pay (capped at $4,000). Employers would recover this amount through a refundable tax credit. Self-employed individuals (such as those in the gig economy) are eligible for a refundable tax credit of up to $4,000. The benefits apply to employees of businesses with fewer than 500 employees[4] or the government who are unable to work because they are infected by coronavirus, quarantined, or care for a sick family member or a child due to coronavirus-related school or day-care center closings. Only employees caring for a child whose school or day care has been closed are eligible for the additional 10 weeks of paid leave.[5] [6] The bill’s mandated sick leave program expires at the end of 2020.
  • Unemployment insurance access: The legislation would provide $1 billion in 2020 for emergency grants to states for processing and paying unemployment insurance, including:
    • $500 million for administrative costs for states who require employers to provide laid-off workers notice of unemployment insurance eligibility during the crisis; and
    • $500 million for emergency grants to states that experience at least a 10 percent increase in unemployment during the crisis.
  • Food and Nutrition Service: The legislation would direct $1.15 billion to expand access to domestic nutrition assistance programs during the coronavirus pandemic, including for:
    • The Special Supplemental Nutrition Program for Women Infants and Children (“WIC”): The bill provides $500 million for access to nutrition funds to low-income pregnant women or mothers with young children who lose their jobs due to the COVID-19 crisis.
    • Emergency Food Assistance Program (“TEFAP”): The bill provides $400 million to assist local food banks to meet increased demand for low-income Americans during the COVID-19 crisis.
    • Supplemental Nutrition Assistance Program (“SNAP”): If a child’s school has been closed for at least five consecutive days, then the bill allows the Department of Agriculture (“USDA”) to approve state plans to provide emergency SNAP assistance to children who would otherwise receive free or reduced-price meals if their schools were not closed due to the COVID-19 crisis. In addition, the bill suspends the work and work training requirements for SNAP during the crisis.
    • Nutrition Assistance for U.S. Territories: The bill provides $100 million for USDA to provide nutrition assistance grants to Puerto Rico, American Samoa, and the Northern Mariana Islands in response to the COVID-19 public health crisis.
    • Senior Nutrition Programs: The bill provides $250 million for the Senior Nutrition program in the Administration for Community Living (“ACL”), which would allow 25 million additional home-delivered meals to low-income seniors. Seniors who qualify must be home-bound, have disabilities, have multiple chronic illnesses, or be caregivers for home-bound seniors.

Republicans objected to a proposal by House Democrats to create a permanent paid sick leave benefit for workers. House Democrats rejected President Trump’s advocacy for a payroll tax cut. Following negotiations between House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin, legislation was introduced in its final form on March 12, 2020.

On March 14, 2020, the Families First Coronavirus Response Act passed the House on a bipartisan 363-40 vote, and the Senate passed the bill on March 18, 2020, by a vote of 90-8.  The bill now heads to the President for final approval.

American companies have been harmed by the coronavirus pandemic, with most facing reduced profits and many struggling to keep their operations going. If companies are unable to finance their activities, workers may be laid off and some business may end up bankrupt.

To prevent these harms, the White House and Congress are currently considering an economic stimulus package (“stimulus package”). President Trump has requested more than $1 trillion in economic stimulus aid, including two rounds of direct payments to individual taxpayers totaling $500 billion, a $50 billion secured lending facility for the airline industry, $150 billion for secured lending or loan guarantees to assist other severely distressed sectors of the economy, and $300 billion in loans for small businesses. However, Senate Republicans have not yet found consensus on how to structure a stimulus package. For example, Senators Susan Collins (R-ME) and Marco Rubio (R-FL) have proposed a $300 billion small business emergency economic relief plan.

Senate Democrats have proposed their own options for a stimulus package. For example, Senate Minority Leader Chuck Schumer (D-NY) has proposed a $750 billion spending package, including $400 billion in emergency appropriations and $350 billion in benefit increases and changes to federal safety net programs. The bill would fund medical care and equipment, child care costs, small business loans, federal housing assistance, broadband connectivity, public transportation relief, and food assistance for seniors and students who are out of school. Senator Schumer’s proposal would also increase unemployment, Medicaid and food stamp benefits, cancel monthly student loan payments, and defer federally backed mortgage payments for six months.

Senator Sherrod Brown (D-OH) has introduced legislation that would halt foreclosures for six months, offer borrowers at least six months forbearance on their loan payments, extend loans by the length of the forbearance without fees or accrued interest, and require servicers to evaluate homeowners for a loan modification at no cost and with no penalties for the borrower. House Democrats also have their own demands for a stimulus package, with Speaker Pelosi calling for an expansion of paid family and medical leave.

President Trump has also sent lawmakers a $45.8 billion emergency funding request (“emergency funding package”) to ensure that federal agencies maintain full operational capacity and meet resource needs created by the pandemic response. The request includes more than $11.5 billion for the Department of Health and Human Services, $2 billion for the Federal Emergency Management Agency, $8.3 billion for the Department of Defense, $150 million for the Department of Education, $21 million for the Department of Energy, and $17 million for the Department of the Interior.

A stimulus package and an emergency funding package could pass the Senate this week. It is currently anticipated that the Senate will pass some combination of a stimulus package and an emergency funding package. However, the situation remains fluid as Congress acts in a remarkably tight time frame. Additionally, the ultimate path to passage is unclear. Even if the Senate were to pass some combination of a stimulus package and an emergency funding package, the House would have to come back into town (it is in recess currently) to pass the same bill and send it to the President. While the Senate is controlled by Republicans, passage of any bill would have to be bipartisan because it will need at least 60 votes to overcome a filibuster and pass the Senate.

II.   Executive Branch and Federal Reserve Response

The Executive Branch has taken aggressive action to restore public confidence in our financial markets during the crisis and prevent an economic downturn. On March 15, 2020, the Federal Reserve (“Fed”) took the unusual step of cutting interest rates to nearly zero. The Fed also announced it would buy at least $500 billion in Treasury bonds and $200 billion in mortgage-backed securities to stimulate the economy.[7] On March 17, 2020, the Fed invoked its emergency authorities to establish a lending facility to extend credit and support short-term commercial debt markets. The Commercial Paper Funding Facility aims to encourage investors to reengage in commercial paper lending amid the coronavirus crisis.

On March 17, 2020, the Fed announced the establishment of a Primary Dealer Credit Facility (the “PDCF”), which will provide overnight and term funding with maturities up to 90 days to primary dealers. Credit extended to primary dealers under the PDCF can be collateralized by a broad range of investment grade debt securities and equity securities. The PDCF will be available on March 20, 2020.

In another unprecedented step, President Trump asked for $50 billion in loans from the Small Business Administration (“SBA”). The White House’s intent behind the massive funding request is to help small businesses stay afloat during this economic downturn caused by the coronavirus crisis. To put that request in context, the SBA’s annual average disaster-relief authorizations from Congress do not reach near $1 billion. From 2005 to 2015, the average annual appropriation to the SBA Disaster Loan Program was $120 million and the average supplemental appropriation for the same time period was $623 million.

The SBA typically issues loans in emergency situations such as hurricanes, fires, or tornadoes, not economic emergencies driven by public health crises. While SBA loans offer low interest rates, the application process can often be lengthy and unpredictable. In addition, the SBA loans are usually term loans, which means interest on the full balance is due immediately.

On March 17, 2020, Treasury Secretary Steven Mnuchin announced that individuals will be able to defer up to $1 million in tax payments to the IRS for 90 days. Note the Internal Revenue Code allows the Treasury Secretary the authority to delay such taxpaying deadlines up to one year in the event of a federally declared national disaster like the coronavirus. Corporate filers will be able to defer up to $10 million in tax payments. During this three-month deferral period, taxpayers will not be subject to interest and penalties, but filing obligations remain the same.

On March 18, 2020, President Trump announced that he will invoke the Defense Production Act, which will provide the President with authority to expedite and expand the production of medical supplies like masks and ventilators. President Trump also announced other federal agency action, including the Department of Housing and Urban Development will suspend all foreclosures and evictions until the end of April, and the Department of Health and Human Services will issue a regulation to allow medical professionals to practice across state lines. The President also announced that the border between Canada and the United States will be closed for non-essential travel.

III.   Opportunities to Shape Assistance

The federal government is still in the early stages in responding to the crisis, and opportunities exist to seek assistance, both from Congress and the Executive Branch. If the House and Senate coalesce around family relief and economic stimulus packages, it will not happen overnight. And if they do, chances are good that there will be other legislative vehicles relating to COVID-19 to follow.

Gibson Dunn’s COVID 19 Task Force and its Public Policy Practice Group stands ready to assist companies promote and protect their interests before Congress or the Executive Branch during the coronavirus crisis. We can help clients receive timely, in-depth information on potential government action that may affect their business. We can advocate for your interests before the legislative and executive branches of government, on both substantive legislation and appropriations. Our services include:

  • Assistance with general legislative, committee, and floor strategy;
  • Analysis and drafting of legislation, including legislative amendments;
  • Advocacy with agencies and branches (like the IRS) to craft regulatory or administrative relief;
  • Establishment and running of coalitions to amplify advocacy efforts;
  • Preparation prior to congressional testimony;
  • Representation in congressional and Executive Branch investigations;
  • Assistance in securing appropriations and other government benefits;
  • Assistance with products and capabilities marketing to federal government agencies; and
  • Ongoing regulatory counsel.

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[1] See Jeremy Diamond, “Mnuchin warns senators lack of action could result in 20% unemployment rate, source says” at CNN (Mar. 17, 2010), available at https://www.cnn.com/2020/03/17/politics/steven-mnuchin-unemployment-warning-coronavirus/index.html.

[2] According to data compiled by Johns Hopkins University, at the time that coronavirus emergency bill became law there were at least 101,587 infected persons and 3,460 deaths globally and at least 245 infected persons and at least 14 deaths in the United States. See William Feuer and Berkley Lovelace, Jr., “NY Coronavirus cases quadruple in 48 hours,” at CNBC (Mar. 6, 2020), available at https://www.cnbc.com/2020/03/06/coronavirus-latest-updates-outbreak.html, citing Johns Hopkins University of Medicine, Coronavirus Resource Center, available at https://coronavirus.jhu.edu/.

[3] On March 16, 2020, the House passed by unanimous consent a revised coronavirus emergency bill with technical corrections.

[4] Employers with more than 500 employees are excluded from the bill. In addition, the Department of Labor has discretion to exempt workers of companies with fewer than 50 employees, if the company finds that providing paid leave would jeopardize the viability of the business.

[5] The Secretary of Labor has discretion to exclude health-care workers from the initial 14 days of paid sick leave and to determine if health-care workers are eligible for the additional 10 weeks of paid leave.

[6] Approximately 19.3 million workers could be ineligible for paid leave under the legislation. An additional 2.5 million workers would be ineligible for paid leave if health-care workers are exempted. See Heather Long, “Paid sick leave: Who gets it during the coronavirus outbreak” at The Washington Post (Mar. 17, 2020) available at https://www.washingtonpost.com/business/2020/03/16/paid-sick-leave-coronavirus-house-bill/.

[7] That same day, the United States Chamber of Commerce sent a letter to President Trump and congressional leaders seeking substantial changes at the Federal Reserve to allow businesses with more than 500 employees to borrow directly from the Federal Reserve’s discount window, a lending facility open only to banks. If implemented, the change would ease a credit burden for companies that rely on borrowing to function.

Gibson Dunn’s lawyers are available to assist with any questions you may have regarding developments related to the COVID-19 outbreak. For additional information, please contact any member of the firm’s Coronavirus (COVID-19) Response Team.

Gibson Dunn lawyers regularly counsel clients on issues raised by this pandemic, and we are working with many of our clients on their response to COVID-19. Please also feel free to contact the Gibson Dunn lawyers with whom you usually work in the firm’s Public Policy Group, or the authors:

Michael D. Bopp – Washington, D.C. (+1 202-955-8256, [email protected])
Mylan L. Denerstein – New York (+1 212-351-3850, [email protected])
Winston Y. Chan – San Francisco (+1 415-393-8362, [email protected])
Roscoe Jones, Jr.* – Washington, D.C. (+1 202-887-3530, [email protected])
Samantha Ostrom – Washington, D.C. (+1 202-955-8249, [email protected])

* Not admitted to practice in Washington, D.C.; currently practicing under the supervision of Gibson, Dunn & Crutcher LLP.

© 2020 Gibson, Dunn & Crutcher LLP

Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

Yesterday, in response to the COVID-19 crisis, the Federal Reserve Board invoked its emergency lending authority under Section 13(3) of the Federal Reserve Act to shore up liquidity in important financial markets. It announced two facilities, the Commercial Paper Funding Facility (CPFF), and the Primary Dealer Credit Facility (PDCF). Similar facilities were used in the 2008 Financial Crisis to stem seizing in the financial markets.

Commercial Paper Funding Facility

The CPFF will fund purchases of highly rated, U.S. dollar denominated, three-month, unsecured or asset-backed commercial paper (ABCP) issued by U.S. issuers, including U.S. issuers with a foreign parent company. It will thus act as a liquidity backstop to “Tier 1” commercial paper issuers, given the Federal Reserve’s recognition that the commercial paper markets directly finance a wide range of economic activity.

The facility will operate through an SPV, which will purchase the commercial paper from Federal Reserve primary dealers, using financing from the Federal Reserve Bank of New York (FRBNY).

The SPV will purchase commercial paper rated at least A-1/P-1/F1, and the maximum amount of a single issuer’s commercial paper that the SPV may own at any time will be the greatest amount of commercial paper the issuer had outstanding on any day between March 16, 2019 and March 16, 2020. The SPV will not purchase additional commercial paper from an issuer whose total commercial paper outstanding to all investors (including the SPV) equals or exceeds this limit. In addition, the SPV will make one-time purchases of commercial paper (up to the amount outstanding on March 17, 2020) from issuers that met these ratings criteria as of March 17, 2020 but had been downgraded to A-2/P-2/F-2 as of the purchase date. These purchases will be subject to separate pricing. The Federal Reserve stated that it “reserve[d] the right to review and make adjustments to the terms and conditions” of the CPFF, including its eligibility requirements.

Pricing will be based on the 3-month overnight index swap (OIS) rate plus 200 basis points, and issuers will be required to pay a one-time facility fee of 10 basis points of the maximum amount of its commercial paper the SPV may own. Purchases are scheduled to cease on March 17, 2021.

Significantly, the Treasury Department will provide $10 billion of credit protection to the Federal Reserve system in connection with the CPFF from the Treasury’s Exchange Stabilization Fund (ESF).

A brief description of the CPFF provided by the Federal Reserve is available here. More detailed terms and conditions of the CPFF are expected to be published later.

Primary Dealer Credit Facility

In addition, the Federal Reserve announced the creation of the PDCF. Under this facility, the FRBNY will offer overnight and term funding with maturities up to 90 days to primary dealers (generally broker-dealers that act as dealers in U.S. government securities); the funding will be available on March 20, 2020. The PDCF will be in place for at least six months and may be extended as conditions warrant.

PDCF credit may be collateralized by a broad range of securities. Commercial mortgage-backed securities (CMBS), collateralized loan obligations (CLOs), and collateralized debt obligations (CDOs) are acceptable collateral only if AAA rated. Corporate debt, municipal securities, and commercial paper is acceptable if rated investment grade (BBB- securities and above), including both A1/P1 and A2/P2 commercial paper. Equity securities are also eligible collateral, except for exchange traded funds (ETFs), unit investment trusts, mutual funds, rights and warrants.

The interest rate charged will be the FRBNY’s primary credit rate, or discount rate. The PDCF thus makes the equivalent of discount window funding available to broker-dealers, entities that in normal times are not eligible for such funding as the discount window is limited to banking institutions. By providing this emergency liquidity to broker-dealers, it will aid them in maintaining liquidity in the markets for the securities that may be pledged as collateral.

A brief description of the PDCF provided by the Federal Reserve is available here. More detailed terms and conditions of the PDCF are expected to be published later.

Conclusion

In the Financial Crisis, the Federal Reserve made use of both a CPFF and PDCF. The CPFF’s size peaked in early 2009 at approximately $350 billion, and the PDCF aided broker-dealers substantially when they were having difficulty financing through normal means. It is reasonable to assume additional facilities will be created as necessary. The rapid creation of the facilities demonstrates the Federal Reserve’s commitment to act as appropriate in its lender of last resort function, consistent with the constraints placed on its Section 13(3) powers by the Dodd-Frank Act.

Importantly, both the CPFF and PDCF are programs of broad-based eligibility. “Broad-based eligibility” is one of the principal constraints that the Dodd-Frank Act placed on the Federal Reserve’s Section 13(3) powers, which previously permitted loans to any corporation or partnership. See Arthur S. Long, Revised Section 13(3) of the Federal Reserve Act. Although it is commendable that the Federal Reserve has so rapidly made use of its Section 13(3) powers, now is the time to look closely at all of the numerous Dodd-Frank requirements for Section 13(3) lending and determine whether they are appropriate given current events.

Gibson Dunn’s lawyers are available to assist with any questions you may have regarding developments related to the COVID-19 outbreak. For additional information, please contact any member of the firm’s Coronavirus (COVID-19) Response Team.

Gibson Dunn’s Capital Markets and Financial Institutions practice groups also are available to answer questions about the CPFF and the PDCF. Please contact any member of the Gibson Dunn team, the Gibson Dunn lawyer with whom you usually work, or the authors:

Andrew L. Fabens – New York (+1 212-351-4034, [email protected])
Arthur S. Long – New York (+1 212-351-2426, [email protected])
John McDonnell – New York (+1 212-351-4004, [email protected])

Please also feel free to contact any of the following practice leaders:

Capital Markets Group:
Andrew L. Fabens – New York (+1 212-351-4034, [email protected])
Hillary H. Holmes – Houston (+1 346-718-6602, [email protected])
Stewart L. McDowell – San Francisco (+1 415-393-8322, [email protected])
Peter W. Wardle – Los Angeles (+1 213-229-7242, [email protected])

Financial Institutions Group:
Matthew L. Biben – New York (+1 212-351-6300, [email protected])
Stephanie Brooker – Washington, D.C. (+1 202-887-3502, [email protected])
Arthur S. Long – New York (+1 212-351-2426, [email protected])
M. Kendall Day – Washington, D.C. (+1 202-955-8220, [email protected])
Michelle M. Kirschner – London (+44 20 7071 4212, [email protected])
Jeffrey L. Steiner – Washington, D.C. (+1 202-887-3632, [email protected])

© 2020 Gibson, Dunn & Crutcher LLP

Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

While we recognize the COVID-19 coronavirus and its impact are top of mind for all of us,[1] we also want to keep you informed of time-sensitive developments that, as of this writing, are still moving forward: On March 11, 2020, California Attorney General Xavier Becerra released another set of revisions to the proposed regulations implementing the California Consumer Privacy Act of 2018 (“CCPA”).[2] As Gibson Dunn noted last month, Attorney General Becerra previously released an initial set of proposed CCPA regulations on October 10, 2019; a first revised set of proposed regulations on February 7, 2020; and an additional amendment on February 10, 2020.[3] This latest set of changes was promulgated in response to comments received on the February modifications. Under California’s regulatory process, the public must have at least 15 days to comment on these changes, meaning, in this case, comments must be submitted by March 27, 2020.[4] After that point, if no other changes are made to the regulations, the Attorney General’s office will prepare a summary and response for each comment submitted. California’s Office of Administrative Law will then have 30 working days to approve the regulations, at which point, they would be finalized. Note, however, that the Attorney General is empowered to enforce the CCPA as of July 1, 2020, whether or not final regulations are in place before then.

Below, we briefly summarize the most impactful of the March changes.

Deletion of guidance on definition of “personal information”

Perhaps the most significant change in the March revisions is the removal of February’s guidance for interpreting the definition of “personal information” under the CCPA.[5] Last month, Attorney General Becerra proposed adding guidance that whether data constituted “personal information” depended on the manner in which a business maintained that data. Specifically, data such as IP addresses would only constitute “personal information” if it reasonably could be linked to an identifiable consumer or household. The March revisions, however, have deleted this guidance, raising concerns regarding the breadth of what might encompass “personal information” for CCPA purposes.

Change in the definition of “financial incentive”

Under the February revisions, language was added further confirming that offering a “financial incentive” to consumers related to the value of that consumer’s data does not run afoul of California’s statutory ban on discriminatory pricing.[6] The March revisions, in turn, redefine such a “financial incentive” as a benefit “related to the collection, retention, or sale” of personal information, as opposed to “compensation for the disclosure, deletion, or sale” of personal information (the February definition).[7] This change is cross-referenced throughout the March revisions.[8] Notably, however, while the CCPA’s statutory text refers to “compensation” for the collection, sale, or deletion of personal information,[9] the regulations, as noted, refer to the potentially broader concept of a benefit “related to” such activities, and no longer mention “deletion” or “disclosure,” creating a potential ambiguity.

Removal of the optional “opt-out” button

The March revisions have also removed draft provisions suggesting an “opt-out” button go alongside the “Do Not Sell My Personal Information” link on businesses’ websites.[10] This does not change February’s operative modification that allowed companies to obtain user consent to sell data that the business collected from that individual during a time in which it did not provide a notice of the right to opt-out, a change from the total ban of the sale of such data present in earlier versions of the proposed regulations.[11]

Relaxation of notice requirement for companies not selling consumer data

The March revisions state that businesses that do not collect personal information “directly” from a consumer do not need to provide notice at the time of collection to the consumer, so long as that company “does not sell the consumer’s personal information.”[12] This change should ease the burden on certain companies, although the term “directly” is not defined, creating some potential ambiguity.

Additional requirements for privacy policies

One significant change in the March revisions is the reintroduction of the requirement to list in privacy policies “the categories of sources from which the personal information is collected,”[13] and the “business or commercial purpose for collecting or selling personal information.”[14]

Additionally, if a company has “actual knowledge” that it sells the personal information of minors under 16 years of age, then its privacy policy must include a description of the special rules and processes for providing the right to opt-in to the sale of personal information of minors.[15] Recall that businesses must gain affirmative authorization before selling the personal information of minors under 13 years of age and consent from consumers at least 13 and less than 16 years of age before selling their personal information.[16]

Responding to requests to know and requests to delete

  • Consumers must be informed if sensitive data categories have been collected, even if such information itself is not to be disclosed to the consumer

Under the February revisions and earlier versions of the proposed regulations, businesses were forbidden, in response to “requests to know,” from disclosing certain sensitive categories of information, including biometric data, Social Security numbers and financial account numbers.[17] The March revisions clarify that businesses “shall, however, inform the consumer with sufficient particularity that it has collected the type of information.”[18] For instance, a business should disclose, in response to a request to know, that it “collects unique biometric data including a fingerprint scan,”[19] without disclosing the actual fingerprint scan itself.

  • Businesses must provide consumers denied deletion with option to opt-out of sale of their personal information

Adopting a provision that was previously only salient for “unverified” requests for deletion, the March revisions make clear that any time a company denies a request for deletion, it must inform the requestor that they also have a right to request the alternative relief of “opting out” of the sale of data (unless that consumer has already made such an opt-out request).[20]

Conclusion

The March revisions of the CCPA regulations provide additional clarification on certain ambiguities in the CCPA and previous iterations of the regulations. Moreover, the fact that this latest round of changes was less far-reaching than the February revisions suggests the regulations are nearing their final form. However, as the reversals from February’s amendments make clear, further change is still possible, and there remain important questions (such as, for instance, the meaning of a “sale” under the regulations) that have yet to be addressed with sufficient particularity for many impacted businesses.

Businesses subject to the CCPA should continue to monitor the proposed regulations as they evolve. It is also important to provide comments and weigh in by March 27, 2020 on issues of interest to particular companies that remain unclear. We are available to assist with your inquiries as needed.

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   [1]   Gibson Dunn will continue to prepare updates regarding the impact of the COVID-19 coronavirus on a wide range of issues, including data privacy and cybersecurity, during this unprecedented moment. We also remain available to assist with these issues as our clients continue to navigate various legal and business challenges posed by COVID-19. See https://www.gibsondunn.com/coronavirus-covid-19-resource-center/.

   [2]   The entire text of the draft regulations, including the most recent revisions, is available at https://www.oag.ca.gov/sites/all/files/agweb/pdfs/privacy/ccpa-text-of-second-set-mod-031120.pdf?.

   [3]   California Consumer Privacy Act Update: Attorney General Proposes Regulations Version 2.0, Gibson Dunn (Feb. 19, 2020) available at https://www.gibsondunn.com/california-consumer-privacy-act-update-attorney-general-proposes-regulations-version-2-0/.

   [4]   Department of Justice, Title 11, Division 1, Chapter 20. California Consumer Privacy Act Regulations (March 11, 2020), available at https://www.oag.ca.gov/sites/all/files/agweb/pdfs/privacy/ccpa-notice-of-second-mod-031120.pdf?.

   [5]   Draft Regulations § 999.302 [DELETED].

   [6]   Draft Regulations § 999.336(b).

   [7]   Draft Regulations § 999.301(j).

   [8]   See, e.g., Draft Regulations § 999.301(o); § 999.307(a)(1).

   [9]   Cal. Civil Code § 1798.125(b)(1).

[10]   Draft Regulations § 999.306(f) [DELETED].

[11]   Draft Regulations § 999.306(e).

[12]   Draft Regulations § 999.305(d).

[13]   Draft Regulations § 999.308(c)(1)(e).

[14]   Draft Regulations § 999.308(c)(1)(f).

[15]   Draft Regulations § 999.308(c)(9).

[16]   See Draft Regulations §§ 999.330-32.

[17]   Draft Regulations § 999.313(c)(4).

[18]   Id.

[19]   Id. (internal quotation omitted).

[20]   Draft Regulations § 999.313(d)(7).

The following Gibson Dunn lawyers assisted in the preparation of this client update: Alexander Southwell, Ryan Bergsieker, Cassandra Gaedt-Sheckter, Dan Rauch, and Lisa Zivkovic.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments.  Please contact the Gibson Dunn lawyer with whom you usually work, or any member of the firm’s California Consumer Privacy Act Task Force or its Privacy, Cybersecurity and Consumer Protection practice group:

California Consumer Privacy Act Task Force:
Ryan T. Bergsieker – Denver (+1 303-298-5774, [email protected])
Cassandra L. Gaedt-Sheckter – Palo Alto (+1 650-849-5203, [email protected])
Joshua A. Jessen – Orange County/Palo Alto (+1 949-451-4114/+1 650-849-5375, [email protected])
H. Mark Lyon – Palo Alto (+1 650-849-5307, [email protected])
Alexander H. Southwell – New York (+1 212-351-3981, [email protected])
Deborah L. Stein (+1 213-229-7164, [email protected])
Eric D. Vandevelde – Los Angeles (+1 213-229-7186, [email protected])
Benjamin B. Wagner – Palo Alto (+1 650-849-5395, [email protected])

Please also feel free to contact any member of the Privacy, Cybersecurity and Consumer Protection practice group:

United States
Alexander H. Southwell – Co-Chair, PCCP Practice, New York (+1 212-351-3981, [email protected])
Debra Wong Yang – Los Angeles (+1 213-229-7472, [email protected])
Matthew Benjamin – New York (+1 212-351-4079, [email protected])
Ryan T. Bergsieker – Denver (+1 303-298-5774, [email protected])
Howard S. Hogan – Washington, D.C. (+1 202-887-3640, [email protected])
Joshua A. Jessen – Orange County/Palo Alto (+1 949-451-4114/+1 650-849-5375, [email protected])
Kristin A. Linsley – San Francisco (+1 415-393-8395, )
H. Mark Lyon – Palo Alto (+1 650-849-5307, [email protected])
Karl G. Nelson – Dallas (+1 214-698-3203, [email protected])
Deborah L. Stein (+1 213-229-7164, [email protected])
Eric D. Vandevelde – Los Angeles (+1 213-229-7186, [email protected])
Benjamin B. Wagner – Palo Alto (+1 650-849-5395, [email protected])
Michael Li-Ming Wong – San Francisco/Palo Alto (+1 415-393-8333/+1 650-849-5393, [email protected])

Europe
Ahmed Baladi – Co-Chair, PCCP Practice, Paris (+33 (0)1 56 43 13 00, [email protected])
James A. Cox – London (+44 (0)20 7071 4250, [email protected])
Patrick Doris – London (+44 (0)20 7071 4276, [email protected])
Bernard Grinspan – Paris (+33 (0)1 56 43 13 00, [email protected])
Penny Madden – London (+44 (0)20 7071 4226, [email protected])
Michael Walther – Munich (+49 89 189 33-180, [email protected])
Kai Gesing – Munich (+49 89 189 33-180, [email protected])
Alejandro Guerrero – Brussels (+32 2 554 7218, [email protected])
Vera Lukic – Paris (+33 (0)1 56 43 13 00, [email protected])
Sarah Wazen – London (+44 (0)20 7071 4203, [email protected])

Asia
Kelly Austin – Hong Kong (+852 2214 3788, [email protected])
Jai S. Pathak – Singapore (+65 6507 3683, [email protected])

© 2020 Gibson, Dunn & Crutcher LLP

Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

Hong Kong partner Michael Nicklin and Singapore partner Jamie Thomas are the authors of “Coronavirus: Time for Companies to have a Financing Check-up whilst the Black Swan is Circling,” [PDF] published by Asian Legal Business on March 13, 2020.

Whatever industry you are in, you are undoubtedly concerned about preparing your business to face the threat of the novel coronavirus (COVID-19).[1]

Below, we identify some of the key considerations for UK-based businesses working to reduce the risk of employee exposure. We also outline key steps to take when an employee tests positive for COVID-19 or must care for someone with the virus.

The UK government response to the outbreak evolves daily, and we encourage employers in the UK to monitor UK government and National Health Service Guidance and legislative developments over the coming days and weeks. In a television address of 16 March 2020, the UK government said the population should now avoid “non-essential” travel and contact with others, and everyone should work from home where possible. Meanwhile if one person in any household starts to display symptoms (a new continuous cough and/or high fever), the entire household must stay at home for 14 days.

Options for Reducing the Risk of Employee Exposure to COVID-19

Employers in the UK have many options for reducing the risk of employee exposure but each comes with its own risks that should be managed carefully. The list below is not intended to be exhaustive, and is also focused on managing employee exposure to the virus. Additional considerations may apply to customers, vendors, contractors and others with whom you interact.

Workplace Practices: The UK government and the World Health Organisation (WHO) have recommended a number of ways to prevent the spread of infections in the workplace, including promoting handwashing by providing a place for employees to wash their hands thoroughly with soap, displaying posters promoting handwashing and putting sanitizing hand rub dispensers in prominent places around the workplace and regularly re-filling them. Offering guidance from occupational health and safety officers, briefings at meetings and providing information on the intranet to encourage frequent handwashing has also been recommended.

WHO has published guidance on ensuring workplaces are kept clean and hygienic, recommending regularly cleaning surfaces and objects with disinfectant. In some workplaces, it may be appropriate to install high-efficiency air filters and increase ventilation rates and employers in the UK have been recommended to ensure paper tissues are available along with closed bins for hygienically disposing of them.

WHO has also recommended advising employees and contractors to stay home when they are unwell, even with a mild cough or low-grade fever, and promoting remote working to allow employees to avoid public transport and crowded places (see below).

Restricting Travel: Many employers in the UK are restricting business travel and it would be advisable for employees and contractors to consult national travel advice before going on any business trips. Views regarding the appropriate level of travel restrictions may vary by industry.

Employees may also be exposed to COVID-19 through personal travel. Employers in the UK may decide to require employees to notify Human Resources if they or their close relatives travel to affected areas and, if their travel indicates an elevated risk, employers in the UK may consider excluding them from the workplace for an appropriate period of time.

Restricting Visitors: Employers in the UK may also wish to restrict visitors to the workplace and to make it clear that individuals who have travelled to high-risk countries, are ill, are being quarantined or have been instructed to self-isolate under NHS or other medical guidance will not be allowed to visit the office.

Instituting Work-from-Home/Telecommuting Policies:

As noted above, the UK government has advised that the population should now avoid “non-essential” travel and should avoid unnecessary contact with others, recommending that employees and contractors in the UK should work from home where possible. Accordingly, where some or all of an employee’s work may be performed remotely, employers in the UK should permit or require employees to work from home until the UK government guidance has been relaxed.

In the absence of an express power to do so, formally requiring employees to work from home, particularly on a long-term basis, may constitute a variation of the employment contract and require employee consent. It is, however, unlikely that employees would object to a request to work from home in the circumstances, given the alternatives.

For many employers in the UK, although a short-term home working policy may be feasible in these pandemic conditions, permanent changes would pose an undue hardship on the business. Therefore, when implementing a new work-from-home/telecommuting policy or expanding an existing one, employers should take steps to mitigate the risk that these temporary changes create an unworkable precedent for the future. Communicating the short-term and emergency nature of policy changes when requesting consent/informing employees of implementation of the policy is one way to limit risk. Furthermore, employers should retain the right to monitor, modify or withdraw the policy at any time.

Employers in the UK should be mindful that when employees work from home, doing so may raise its own exposure to potential liability for employment law violations. Key considerations include:

  • Ensuring employee health and safety: Employers are responsible for an employee’s welfare, health and safety so far as is reasonably practicable. When implementing a home working policy for the first time, or expanding a current policy, employers should consider the health and safety implications and ensure that the required infrastructure is in place to fulfil its obligations towards its employees, including conducting a suitable risk assessment of all work activities to identify hazards and assess the degree of risk to home workers. In particular, employers should consider the impact on employees on reasonable adjustments who may, for example, require the provision of additional equipment to enable them to comfortably work from home.
  • Working hours and rest period compliance: Employers should establish the boundaries of working time and when employees are required to be available, whether this is entirely flexible or they wish employees to strictly observe office hours. Where an employee has not opted out of the Working Time Regulations 1998, the employer should make clear to them that the employee is responsible for regulating their own working time and taking breaks as appropriate.
  • Time off for dependants and childcare commitments: Normally it would be inappropriate for an employee to work from home whilst also providing childcare. However, employers should take a pragmatic approach in the event that more schools and nurseries close as the COVID-19 pandemic escalates. Employers may consider allowing employees to work part-time around their childcare responsibilities. Employees may also assert their statutory right to time off to care for a dependant; a right which is unpaid in the absence of agreement to the contrary.
  • Business expense reimbursements: For some employees, remote work may result in increased expenses. Employers should make clear which expenses an employee can claim during this period.
  • Fair implementation of policy: Employers should ensure any remote working policies are implemented fairly and consistently, in order to avoid accusations of unlawful discrimination.

Employers in the UK should separately consider the increased cybersecurity risk of a large proportion of the workforce working remotely and ensure that their networks are prepared for the increased traffic and security risk. Employees should be warned against use of unauthorised software should they be required to use their own electronic equipment.

Instructing Employees Not to Work:

Given the most recent televised UK government guidance, employers in the UK should instruct employees to work from home where possible. Where it is not possible to work from home, some employers may conclude that entire facilities should be temporarily shut down, in which case the primary concern will be the question of payment during the shut-down; that is addressed below. In the event that COVID-19 requires a long term or potentially permanent closure of any facilities or layoffs of workers, employers should ensure that employees and their appropriate representatives are consulted in accordance with UK redundancy laws[2].

Employers in the UK may identify specific people or groups of people who should stay home on a temporary basis. For these employers, additional considerations include:

  • Asking employees to disclose symptoms of COVID-19: Many employers may wish to ask employees whether they are experiencing a fever, cough, or other COVID-19 symptoms. UK government guidance focuses on action to take once it becomes clear that an employee is experiencing symptoms[3] – see section “What to do if an employee tests positive…”, below.  Should employers in the UK wish to ask their employees whether they are experiencing symptoms, they should avoid being selective; making assumptions about who is most likely to have the disease could increase the risk of discrimination claims. Employers who retain and process employee health records and related information must ensure that they comply with the General Data Protection Regulation (“GDPR”) and Data Protection Act 2018 – see section “What to do if an employee tests positive…”, below.
  •  Screening employees based on body temperature: Employers cannot conduct health checks (including temperature checks) on employees, workers or visitors without their consent although may consider refusing access to those who refuse. From a data protection perspective, the results of any screening or health checks would need to be handled in accordance with the GDPR and Data Protection Act 2018, which may necessitate the involvement of an occupational health professional. See section “What to do if an employee tests positive…”, below, for further details.
  •  Restricting discussions of underlying conditions or comorbidities: Some populations are more vulnerable to COVID-19; UK government guidance mentions the elderly and those with underlying health conditions as examples.[4]
    Employers should take care when seeking details of an employee’s underlying medical conditions, in order to ensure compliance with UK disability discrimination laws. However, as the COVID-19 pandemic develops, and if contracting it poses a “direct threat,” the justification for making such enquiries becomes stronger. In the event that an employee “voluntarily discloses” a vulnerability to COVID-19, the employer may ask what accommodations the employee needs and should be as flexible as possible in response, but the employer should keep the medical information confidential.
  •  Anti-discrimination laws: As always, employers in the UK should avoid taking into account—or appearing to take into account—protected status when deciding who to send home. For example, employers should not affirmatively send home only those who are above a certain age, nor should employers appear to discriminate against people who are or appear to be of a particular national origin. Any guidelines developed by the employer should be uniformly applied.

Employers in the UK will also need to decide whether to pay employees for unexpected time off due to COVID-19. In so doing, employers in the UK should be mindful of the following:

  • Statutory sick pay (“SSP”):  SSP is payable when an employee is absent from work due to incapacity – including disease which renders them incapable of doing work – and so an employee who exhibits symptoms or having a diagnosis of COVID-19 may well qualify. New regulations have recently been imposed to extend the meaning of “incapacity” in connection with isolation for reasons of the virus; they refer to UK government guidance (which is still evolving, and which employers in the UK should monitor). However, in most cases, an employee in quarantine or self-isolation will now be regarded as incapable of work for SSP purposes, therefore entitled to SSP and potentially company sick pay, even if he or she is asymptomatic. At present, guidance tells those suffering from even mild symptoms of the virus, and particularly a new continuous cough and/or high temperature, to self-isolate.[5] Recent televised guidance advised those sharing a household with someone exhibiting COVID-19 symptoms also to stay at home for 14 days. The Prime Minister Boris Johnson has stated that this means, “if possible you should not go out, even to buy food or essentials, other than for exercise and in that case at a safe distance from others”[6]. The government has announced that it will make SSP payable from the first day of sickness absence and employers in the UK with fewer than 250 employees will be reimbursed for SSP paid in respect of the first 14 days of sickness related to COVID-19. Meanwhile, a temporary alternative to the “fit note” is being devised, so employees can support their absence from work without burdening GPs.
  • Other pay considerations: Absent any contrary contractual provision: (i) employees who work from home will be entitled to their normal rate of pay; (ii) employees who are suspended by their employer on health and safety grounds, but not within self-isolation advice from UK government, may nevertheless remain entitled to receive full pay during suspension; (iii) however, employees who refuse to attend work due to fears about COVID-19, and cannot work from home, may lose the right to be paid during any period of related absence. However, employers should consider current public health guidance and whether refusing home working, imposing disciplinary action, or withholding pay would be discriminatory. Employees may wish to opt to take annual leave rather than SSP or nil pay; employers in the UK cannot compel workers on sick leave to take annual leave, but can instruct others to do so given the correct notice.
  • Temporary lay-offs and short time working:  An employer in the UK may neither implement a period of unpaid leave for employees (known as a temporary lay-off) nor impose reduced hours and pay in order to deal with temporary interruptions to demand without the agreement of those employees who are affected. Such agreement may be found in the terms of a collective agreement or contract or employment or may be the subject of an ad hoc agreement.
  • Risks of making exceptions to standard policy: In addition to ordinary holiday, sick pay or other paid time off policies, some employers in the UK may elect to provide extra paid leave, permit no-penalty absences, or allow employees to use PTO or sick-pay outside of regular policies on a temporary basis during the pandemic. As with new or expanded telecommuting policies, it will be helpful to communicate both the exceptional nature of these policies and the fact that the pandemic is the motivating factor behind them. Furthermore, these policies should be implemented fairly and consistently.
  • Staggering Shifts and Split Shifts: An employer may agree with employees to work staggered or split shifts in order to reduce the risk of a virus spreading. Such agreement may be found in the terms of a collective agreement or contract or employment or may be the subject of an ad hoc agreement. Even so, care will be needed to ensure that the revised working hours/shift pattern complies with UK rules on working hours and rest breaks.[7]

What to Do If an Employee Tests Positive or Needs to Care for an Ill Family Member:

If a staff member or member of the public becomes unwell in the workplace: the government’s COVID-19: guidance for employers includes: they should be removed to an area at least 2 metres away from other people, isolated behind a closed door if possible and a window opened there for ventilation. They should avoid touching people, surfaces and objects and should use a separate bathroom, if available, whilst waiting for medical assistance. They should call NHS 111 (or 999 if they are seriously ill/injured or their life is at risk) and outline their symptoms.

If a staff member or member of the public with confirmed COVID-19 has recently been in the workplace: A local Health Protection Team from Public Health England will contact the management team to discuss the case, identify people who have had contact with them, advise on actions/precautions to take, and conduct a risk assessment. Closure of the workplace is not recommended. The team will advise staff who have had close contact with the case or bodily fluids. Those people will be asked to self-isolate for 14 days, following an advice sheet,[8] and the team will follow up with them. If they develop new or worse symptoms, they should call NHS 111; if they become unwell with cough, fever or shortness of breath they will be tested; if they test positive, they will be treated. Staff who have not had close contact with the confirmed case can attend work and need take no precautions. The team will also contact the case and their contacts to advise[9].

Cleaning and waste disposal: All surfaces with which the symptomatic case has come into contact must be cleaned. Public areas through which the person passed briefly need not be specially cleaned/disinfected. If someone becomes ill in a shared space, it should be cleaned; details of how to clean and how to dispose of waste are available in the government’s COVID-19: guidance for employers.

Suspected cases and returns from overseas travel: There are no restrictions or special control measures required while test results are awaited, in particular there is no need to close the workplace or send staff home. Although, as noted above, the list of specified countries/areas has been withdrawn, UK government guidance to employers in the UK still states that people who have returned in the last 14 days from Hubei Province (including Wuhan), Iran, Daegu or Cheongdo in the Republic of Korea, and any area within Italy under containment measures, should avoid attending work, call NHS 111 and stay at home. Under the withdrawn list, people returning from a number of other countries should self-isolate and call NHS 111 if they develop symptoms; as noted above, this instruction now applies to anyone with symptoms, whether they have travelled or not.

Certifying absence: UK government guidance strongly suggests that employers in the UK use their discretion regarding evidence of medical reason for absence from work where an employee has been advised to stay at home due to suspected COVID-19. By law, medical evidence is not required for the first 7 days of sickness; thereafter, the employer decides what evidence is needed – this does not have to be a “fit note” from a doctor.[10]

Caring for dependants: Acas guidance notes that employees are entitled to time off to care for dependants in an unexpected event or emergency, which would apply to the COVID-19 pandemic, for example if they need to care for a child or other dependant who is sick or needs to self-isolate or be hospitalized. There is no statutory right to pay for this time, but employers in the UK should check for contractual rights or policy statements they have made. The amount of time off must be reasonable in the situation, and employees might take some time as holiday.[11]

Data protection: Data regarding an individual’s health is “special category” personal data under the GDPR and Data Protection Act 2018. Employers in the UK may only process it if they have proper grounds to do so. The health exemption enables occupational health professionals who have confidentiality obligations to process data relating to health if necessary for e.g. assessing the employee’s working capacity, medical diagnosis, and treatment. Employers may consider it possible to conduct e.g. temperature checks if such a professional were used and consent obtained although we are not aware of this having been tested with data protection authorities to date. A generic consent to health checks in employment contracts is unlikely to satisfy GDPR requirements. The ICO has stated it will “take into account the compelling public interest in” the pandemic[12] and employers in the UK can disclose to colleagues that an employee has contracted COVID-19 if give no more information than necessary and, mostly, it will not be necessary to name the person; staff information can be shared with health authorities for public health purposes if necessary; and it is reasonable to ask people if they have visited certain countries or are experiencing symptoms – advising staff to call NHS 111 will minimize the information that the employer processes.[13]

Gibson Dunn’s lawyers are available to assist with any questions you may have regarding developments related to the COVID-19 outbreak. For additional information, please contact any member of the firm’s Coronavirus (COVID-19) Response Team.

This client update was prepared by James Cox, Heather Gibbons, Georgia Derbyshire, Charlotte Fuscone and Harriet Codd. Gibson Dunn attorneys regularly counsel clients on the compliance issues raised by this pandemic, and we are working with many of our clients on their response to COVID-19. Please also feel free to contact the Gibson Dunn attorney with whom you work in the Employment Group, or the following lawyers in the firm’s London office:

James A. Cox (+44 (0)20 7071 4250, [email protected])

Sarika Rabheru (+44 (0)20 7071 4267, [email protected])

Heather Gibbons (+44 (0)20 7071 4127, [email protected])

Georgia Derbyshire (+44 (0)20 7071 4013, [email protected])

Charlotte Fuscone (+44 (0)20 7071 4036, [email protected])

____________________________________________________________________

            [1]      We refer throughout to “COVID-19” instead of coronavirus because many of the cited guidance materials are specific to this pandemic.

             [2]      Sections 188 et seq. of the Trade Union and Labour Relations (Consolidation) Act 1992 requires an employer who is proposing to lay off 20 or more employees at one establishment within a period of 90 days or less to consult appropriate representatives of affected employees up to 45 days in advance.

             [3]      www.gov.uk website, BEIS and Public Health England, Coronavirus (COVID-19): guidance for health professionals and other organisations, 10 March 2002, available at https://www.gov.uk/government/collections/coronavirus-covid-19-list-of-guidance (“COVID-19 Guidance”)

             [4]      www.gov.uk website, Public Health England, Stay at home: guidance for people with confirmed or possible coronavirus (COVID-19) infection, 12 March 2020, available at https://www.gov.uk/government/publications/covid-19-stay-at-home-guidance/stay-at-home-guidance-for-people-with-confirmed-or-possible-coronavirus-covid-19-infection (“ ‘Stay at home’ Guidance”)

             [5]       See ‘Stay at home’ Guidance

             [6]      BBC News, Coronavirus: PM says everyone should avoid office, pubs and travelling, 16 March 2020, available at https://www.bbc.co.uk/news/uk-51917562

             [7]      See Working Time Regulations 1998, available at http://www.legislation.gov.uk/uksi/1998/1833/contents/made

             [8]      See ‘Stay at home’ Guidance

             [9]      COVID-19 Guidance

            [10]      See COVID-19 Guidance

            [11]      See Acas, Coronavirus: advice for employers and employees, available at https://www.acas.org.uk/coronavirus

            [12]      ICO, Data protection and coronavirus, 12 March 2020, available at https://ico.org.uk/about-the-ico/news-and-events/news-and-blogs/2020/03/data-protection-and-coronavirus/

            [13]      ICO, Data Protection and Coronavirus: what you need to know, undated, available at https://ico.org.uk/for-organisations/data-protection-and-coronavirus/

Gibson Dunn attorneys are available to assist with any questions related to these developments. Please feel free to contact any of the Gibson Dunn lawyers listed above.

© 2020 Gibson, Dunn & Crutcher LLP

Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

To Our Clients and Colleagues,

Like all businesses, schools, health care providers and governments in the world, we are closely monitoring the rapidly evolving concerns regarding the spread of the coronavirus (COVID-19) in our respective communities.  The situation is changing rapidly and is likely to continue to change in the days, weeks and months ahead.  The COVID-19 pandemic has been challenging for everyone, changing day-to-day life in unprecedented ways.

As we seek to safeguard the health of our families and communities while also continuing to provide uninterrupted, top quality, legal services to our clients, we recognize that temporary adjustments to the way we work are necessary.  In order to slow the spread of the virus, global health authorities have recommended “social distancing.”  Accordingly, we have implemented a temporary work-from-home protocol for our lawyers and staff.  While our offices remain open, we have strongly encouraged our lawyers and staff to work from home, and our robust information technology and communication systems will facilitate seamless service to our clients.  Whether we are working in the office or remotely, we remain committed to providing superior client service.

Our firm stands ready to advise clients on how to best approach issues raised by this public health crisis.  We have created a Coronavirus (COVID-19) Resource Center on our website, featuring a multi-disciplinary task force to address our clients’ concerns.

We will also be providing regular communications to our clients and friends addressing the many issues outlined at our Resource Center.  If you have any questions or concerns arising from the COVID-19 situation, please contact your relationship partner or any of the partners listed at our Resource Center.

Our thoughts are with those currently impacted directly by the coronavirus.  We hope that you remain safe and healthy, and we thank you for your trust as we all work through this uncertain and unsettling period.

Kenneth M. Doran
Chairman and Managing Partner
Gibson, Dunn & Crutcher LLP

Gibson Dunn’s lawyers are available to assist with any questions you may have regarding developments related to the COVID-19 outbreak. For additional information, please contact any member of the firm or its Coronavirus (COVID-19) Response Team.

Antitrust and competition enforcers in the United States and Europe have announced adjustments to how they will process and review reportable transactions in light of COVID-19 mandatory remote working requirements affecting the agencies and industry participants.  As work-from-home protocols are stress-tested in the coming week, additional changes in the filing procedures and review timelines may be announced. Gibson Dunn will continue to monitor these changes and update clients with any important new developments.

United States (Hart-Scott-Rodino)

On Friday, March 13, 2020, the Federal Trade Commission’s Premerger Notification Office announced new e-filing procedures for Hart-Scott-Rodino Antitrust Improvements Act of 1976 (“HSR Act”) premerger notification filing submissions, which will become effective on Tuesday, March 17.[1] Although the new procedures involve only logistical changes that will impact how filings are made, the Premerger Notification Office has stated that early termination of HSR Act waiting periods will not be granted while the e-filing procedures are in effect.  Because early termination is granted at the discretion of the agencies, and is occasionally not granted even for deals raising no substantive issues, parties should always account for the possibility that early termination will not be granted. Parties to transactions subject to the HSR Act, therefore, must be prepared to wait at least the full 30 days (or 15 days for certain transactions) before the initial HSR Act waiting period expires.[2]

For the time being, the only material change for parties to a transaction subject to HSR Act review is that, at least for the foreseeable future, early termination will not be granted.  Until further notice from the FTC, this change applies to all future and pending HSR Act filings, including filings submitted prior to Friday’s announcement.

It remains to be seen whether other merger enforcement decisions or procedures at the FTC or its sister agency, the U.S. Department of Justice, Antitrust Division are affected by COVID-19-related protocols.

The European Union

As of 16 March 2020, the European Commission’s Directorate-General for Competition (DG COMP) has implemented remote working measures in response to the COVID-19 situation. While DG COMP has put in place measures to ensure continuity of its merger enforcement activities, the authority encourages companies to delay, where possible, merger notifications until further notice.[3]

DG Comp has reminded companies that intend to notify a merger that it might face difficulties in collecting information from third parties (e.g., customers, competitors and suppliers) in the coming weeks. DG COMP’s services might also face limitations with regard to access to information and databases and with regard to information exchanges.

Given that DG COMP is expecting more of its staff to work remotely, the authority also encourages companies to make submissions in digital format for the time being. For example, DG COMP recommends that companies use eTrustEx (Trusted Document Exchange), a software tool that DG COMP has been operating since February 2019 to ensure secure transmission of documents between DG Competition and external stakeholders. The delivery of paper originals can be arranged at a later time.

In light of the special circumstances, we encourage companies that are planning a merger to contact outside counsel as early as possible and to open a dialogue with DG COMP to ensure an effective and efficient merger review process.

Other Jurisdictions

Several other authorities, like the State Administration for Market Regulation in China, the Competition and Markets Authority in the UK, the Bundeskartellamt in Germany, or the Autorité de la concurrence in France continue to attempt to operate their merger control review as “business as usual” so far. Other authorities may soon implement changes. We are monitoring the situation.

_______________________

      [1]   FTC, GUIDANCE FOR FILING PARTIES (03-13-20), https://www.ftc.gov/enforcement/premerger-notification-program/guidance-filing-parties

      [2]   See 16 C.F.R. §803.5(b).

      [3]   EUROPEAN COMMISSION – COMPETITION, SPECIAL MEASURES DUE TO CORONAVIRUS / COVID-19, https://ec.europa.eu/competition/mergers/news.html

Gibson Dunn’s lawyers are available to assist with any questions you may have regarding developments related to the COVID-19 outbreak. For additional information, please contact any member of the firm’s Coronavirus (COVID-19) Response Team.

The following Gibson Dunn lawyers prepared this client update: In the U.S.: Kristen Limarzi, Adam Di Vincenzo, Andrew Cline and Kaitlin Zumwalt. In the EU: Jens-Olrik Murach and Christian Riis-Madsen. Please also feel free to contact the authors or any of the following leaders and members of the Antitrust and Competition Practice Group:

Washington, D.C.
D. Jarrett Arp (+1 202-955-8678, [email protected])
Adam Di Vincenzo (+1 202-887-3704, [email protected])
Scott D. Hammond (+1 202-887-3684, [email protected])
Kristen C. Limarzi (+1 202-887-3518, [email protected])
Joshua Lipton (+1 202-955-8226, [email protected])
Richard G. Parker (+1 202-955-8503, [email protected])
Cynthia Richman (+1 202-955-8234, [email protected])
Jeremy Robison (+1 202-955-8518, [email protected])
Andrew Cline (+1 202-887-3698, [email protected])

New York
Eric J. Stock (+1 212-351-2301, [email protected])
Lawrence J. Zweifach (+1 212-351-2625, [email protected])

Los Angeles
Daniel G. Swanson (+1 213-229-7430, [email protected])
Samuel G. Liversidge (+1 213-229-7420, [email protected])
Jay P. Srinivasan (+1 213-229-7296, [email protected])
Rod J. Stone (+1 213-229-7256, [email protected])

San Francisco
Rachel S. Brass (+1 415-393-8293, [email protected])

Dallas
Veronica S. Lewis (+1 214-698-3320, [email protected])
Mike Raiff (+1 214-698-3350, [email protected])
Brian Robison (+1 214-698-3370, [email protected])
Robert C. Walters (+1 214-698-3114, [email protected])

Brussels
Peter Alexiadis (+32 2 554 7200, [email protected])
Attila Borsos (+32 2 554 72 11, [email protected])
Jens-Olrik Murach (+32 2 554 7240, [email protected])
Christian Riis-Madsen (+32 2 554 72 05, [email protected])
Lena Sandberg (+32 2 554 72 60, [email protected])
David Wood (+32 2 554 7210, [email protected])

Munich
Michael Walther (+49 89 189 33 180, [email protected])
Kai Gesing (+49 89 189 33 180, [email protected])

London
Patrick Doris (+44 20 7071 4276, [email protected])
Charles Falconer (+44 20 7071 4270, [email protected])
Ali Nikpay (+44 20 7071 4273, [email protected])
Philip Rocher (+44 20 7071 4202, [email protected])
Deirdre Taylor (+44 20 7071 4274, [email protected])

Hong Kong
Kelly Austin (+852 2214 3788, [email protected])
Sébastien Evrard (+852 2214 3798, [email protected])

© 2020 Gibson, Dunn & Crutcher LLP

Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

Whatever industry you are in, you are undoubtedly concerned about preparing your business to face the threat of the novel coronavirus (COVID-19).[1] Both the Centers for Disease Control (“CDC”) and the Occupational Safety and Health Administration (“OSHA”) have recently encouraged employers to develop employee protection plans.[2] OSHA’s guidance in particular cautions that “existing OSHA standards may apply to protecting workers from exposure to and infection with” the virus; among other things, the guidance invokes the “General Duty Clause” of the Occupational Safety and Health Act (which imposes certain obligations to protect employees from “recognized hazards”).[3]

Below, we identify some of the key considerations for businesses working to reduce the risk of employee exposure. We also outline key steps to take when an employee tests positive for COVID-19 or must care for someone with the disease.

The government response to the outbreak evolves daily, and we encourage employers to monitor federal, state, and local health department updates; legislative developments; executive actions; and Department of Labor guidance. Among other things, employers should monitor developments regarding paid leave for employees affected by COVID-19;[4] the bill that passed the House late Friday is addressed below.

Options for Reducing the Risk of Employee Exposure to COVID-19

Employers have many options for reducing the risk of employee exposure, and each comes with its own risks that should be managed carefully. The list below is not intended to be exhaustive, and is also focused on managing employee exposure to the virus. Additional considerations may apply to customers, vendors, contractors, and others with whom you interact.

Workplace Adjustments: Both OSHA and the CDC recommend that employers promote good hygiene and infection control practices. Employers can promote handwashing by either providing a place for employees to wash their hands thoroughly with soap or, if running water is unavailable, provide alcohol-based hand rubs containing at least 60% alcohol.[5] Both agencies encourage employers to ensure the availability of adequate tissues and trash receptacles (preferably of the “no-touch” variety).[6] Employers who operate set shifts or other fixed work schedules may want to consider (where feasible) added flexibility around employee breaks or other opportunities for employees informally to take time that may be needed to attend to increased hygiene concerns. Housekeeping practices may also need to be adjusted in light of the pandemic.[7] In some workplaces, it may be appropriate to install high-efficiency air filters, increase ventilation rates, or install physical barriers like sneeze guards.[8] OSHA has offered other recommendations depending on the expected level of exposure and hazard assessment for the particular workplace and job—for example, health care workers obviously are in a different position than office workers and may need additional protection (such as airborne infection isolation rooms).[9]

The CDC also recommends placing posters in the workplace that advocate good hand-washing practices, cough-and-sneeze etiquette, and staying home when sick.[10] Where employers are increasing the availability of telecommuting, it may be helpful to provide this information electronically as well.   

Restricting Travel: Many employers are restricting business travel, and the CDC is regularly updating its travel notices.[11] Views regarding the appropriate level of travel restrictions may vary by industry.

Employees may also be exposed to COVID-19 through personal travel. When considering creating guidelines on employees’ personal travel, employers should be mindful that some jurisdictions limit employer regulation of off-duty conduct.[12] Rather than restrict personal travel to affected areas, employers may instead elect to require that employees traveling to those areas self-report to Human Resources and, if their travel indicates an elevated risk, excluding them from the workplace for an appropriate period of time.

Restricting or Screening Visitors: Employers may also wish to restrict visitors or screen visitors for exposure to COVID-19. When doing so, employers should take into consideration visitors’ potential privacy rights (e.g., by posting clear notices of any screening policies, dealing with screening results discreetly, and storing disclosure forms securely). If employers use any screening tools that capture biometric identifiers, they should also be mindful of enhanced privacy rights under state laws such as the Illinois Biometric Information Privacy Act.[13] Many courthouses and other public buildings have banned entry by persons who have traveled to high-risk countries, are ill, or are quarantined,[14] and many employers, office buildings, and other facilities have implemented parallel restrictions for employees and visitors.

Instituting Work-from-Home/Telecommuting Policies: Where some or all of an employee’s work may be performed remotely, employers may consider permitting employees to work from home on a short-term basis.

For many employers, although short-term changes may be feasible in pandemic conditions, permanent changes would pose an undue hardship. Therefore, when implementing a new work-from-home/telecommuting policy or expanding an existing one, employers should take steps to mitigate the risk that these temporary changes create an unworkable precedent for the future.[15] Communicating the short-term and emergency nature of policy changes is one way to limit risk. Furthermore, employers should retain the right to monitor, modify, or withdraw the policy at any time.

Employers should also be mindful that when employees work from home, doing so may raise its own exposure to potential liability for employment law violations. Key considerations include:

  • Recording hours worked: The Fair Labor Standards Act (FLSA) requires that employers maintain records of hours worked by non-exempt employees. If such employees are working from home, working time may be less clearly demarcated, and employers should ensure that employees accurately record their time spent on work activities.[16]
  • Ensuring meal and rest period compliance: Even when employees work remotely, employers should ensure that they comply with state laws regarding meal and rest periods.[17]
  • Business expense reimbursements: For some workers, remote work may result in increased expenses. The FLSA mandates that, if employees pay for certain business-related expenses, those expenses cannot reduce the employees’ pay below minimum wage in a given workweek.[18] In addition, some states require that employers cover all reasonable and necessary business expenses, regardless of whether those expenses reduce pay below minimum wage.[19]
  • Fair implementation of policy: Employers should work to ensure that remote working policies are implemented fairly and consistently, in order to avoid accusations of discrimination.

Employers should separately consider the increased cybersecurity risk of remote work and ensure that their networks are prepared for increased traffic and risk.

Instructing Employees Not to Work:

Where telecommuting is not an option, employers may instruct employees to stay home and not come to work at all.

Some employers may conclude that entire facilities should be temporarily shut down, in which case the primary concern will be the question of payment during the shut-down; that is addressed below. In the event that COVID-19 requires a long term or potentially permanent closure of any facilities or layoffs of workers, employers should consult the Worker Adjustment and Retraining Notification (“WARN”) Act and its state counterparts in order to determine whether advance notice is required (and, if so, whether it is excused by the circumstances). At the federal level, temporary lay-offs, hours reductions, or shut-downs will generally only trigger WARN if they last longer than six months.[20]

Other employers may identify specific people or groups of people who should stay home on a temporary basis. For these employers, additional considerations include:

  • Asking employees about travel and other exposure to COVID-19: Employers may generally ask employees to disclose that they are returning from travel to affected areas or whether they have been exposed to COVID-19.[21]
  • Asking employees to disclose symptoms of COVID-19: Many employers may wish to ask employees whether they are experiencing a fever, cough, or other COVID-19 symptoms. In its pandemic influenza guidance, the EEOC advised that, at least as to “employees who report feeling ill at work or who call in sick,” employers may ask employees if they are experiencing symptoms of influenza.[22] Depending on the severity of the pandemic, the EEOC reasoned, inquiries about employees’ symptoms are either “not disability-related” or “disability related [but] justified by a reasonable belief based on objective evidence that the severe form of pandemic [] poses a direct threat.”[23] This same reasoning could support asking such questions even if employees have not affirmatively reported feeling ill; as long as employers are not selective about asking these questions (e.g., asking only older people or people of a specific national origin), asking these questions is likely low-risk under current conditions. However, “all information about employee illness” must be “maintain[ed]. . . as a confidential medical record in compliance with the ADA.”[24] Because COVID-19 is more severe than the seasonal flu, this guidance suggests that, currently, “employers may measure employees’ body temperature.” Furthermore, employers should avoid being selective in asking people whether they are experiencing symptoms; making assumptions about who is most likely to have the disease could increase the risk of discrimination claims.
  • Screening employees based on body temperature: Taking an employee’s temperature will generally qualify as a medical examination, which the ADA restricts. Nevertheless, because COVID-19 has become widespread and is more severe than seasonal flu, the EEOC suggests that it is likely that employers are justified in taking employees’ temperature.[25] Specifically, in the context of pandemic influenza, the EEOC states that, “If pandemic influenza symptoms become more severe than the seasonal flu or the H1N1 virus in the spring/summer of 2009, or if pandemic influenza becomes widespread in the community as assessed by state or local health authorities or the CDC, then employers may measure employees’ body temperature.”[26] Keep in mind that a regular body temperature does not ensure that a person is free of the virus.
  • Restricting discussions of underlying conditions or comorbidities: Some populations are more vulnerable to COVID-19. But in the context of pandemic H1N1 and seasonal influenza, the EEOC advised that employers may not ask asymptomatic employees to disclose whether they have a medical condition that could make them more vulnerable to complications.[27] As the COVID-19 pandemic develops, and if contracting it poses a “direct threat,” it is possible that these disability-related inquiries would be permissible, but that question is unsettled.[28] In the event that an employee “voluntarily discloses” a vulnerability to COVID-19, the employer may ask what accommodations the employee needs and should be as flexible as possible in response, but the employer should keep the medical information confidential.[29]
  • Anti-discrimination laws: As always, employers should avoid taking into account—or appearing to take into account—protected status when deciding who to send home. For example, employers should not affirmatively send home only those who are above a certain age, nor should employers appear to discriminate against people who are or appear to be of Chinese national origin. Any guidelines developed by the employer should be uniformly applied.

Employers will also need to decide whether to pay employees for unexpected time off due to COVID-19. In so doing, employers should be mindful of the following:

  • The likelihood of federal action: On Friday night, the House of Representatives passed a COVID-19 relief package by a vote of 363-40. The bill creates a complicated paid sick leave program with a matching tax credit. All of the paid leave provisions only apply to employers with fewer than 500 employees.First, the bill amends the FMLA to require that covered employers provide paid leave for certain COVID-19-related absences (self-quarantining at the direction of a doctor or public health care official, caring for a similarly-affected family member, or caring for a child whose school or daycare has been closed). The paid sick leave under the FMLA kicks in after the first 14 days of absence, although employees may elect to use other forms of paid leave during those first 14 days, but employers may not require this. Employees entitled to this leave must be paid at two-thirds of their usual pay.[30]Second, in addition to amending the FMLA to add a paid sick leave component, there is a stand-alone Emergency Paid Sick Leave Act, which may be available to employees without the 14-day waiting period. That leave is available for the same reasons as the FMLA leave, as well as other reasons, such as if an employee is experiencing COVID-19 symptoms and needs time to obtain a medical diagnosis or care. Employees entitled to this leave must be paid either at their regular rate if they are directly affected or, in the event that they need to care for a family member, at two-thirds of their regular rate.[31]Third, the bill creates a payroll tax credit for companies that have to pay for these forms of leave.[32]

    We expect that the Senate will act promptly on the bill, and there may be further changes to the bill before it is passed. In the meantime, both the CDC and OSHA encourage employers to explore flexible leave policies in response to this pandemic and many larger employers are considering programs similar to those required for smaller employers under the House bill.[33]


  •  Union employees and collective bargaining agreements: For unionized workforces, collective bargaining agreements (CBAs) may address whether the time off must be paid or may create a requirement to bargain over this issue.
  • FLSA requirements: As the Department of Labor confirmed in a recent COVID-19 Q&A, for non-exempt employees, the FLSA “generally applies to hours actually worked” and “does not require employers who are unable to provide work to non-exempt employees to pay them for hours the employees would otherwise have worked.”[34] But for overtime-exempt employees, who must be paid on a “salary basis,” the employees “must receive their full salary in any week in which they perform any work, subject to certain very limited exceptions.”[35] Employers who direct employees to use their vacation time for a week with a partial shut-down during the pandemic should ensure that employees without enough vacation time still receive the equivalent of their full salary for that week.[36]For longer-term schedule reductions, employers may consider reducing salaries of exempt salaried employees, so long as they comply with the salary basis minimums set forth in the FLSA and its implementing regulations.[37]Employers may also consider across-the-board reductions in hourly or salaried employees’ pay in order to save jobs. This is generally permissible with advance notice if applied in a nondiscriminatory manner and provided it does not reduce pay below minimum wage for hourly workers or below the salary minimum for exempt employees.
  • Predictive scheduling laws and “show-up” pay: Although federal law does not require paying hourly workers when facilities are closed or shifts are cancelled, predictive scheduling laws may come into play. Predictive scheduling or “fair scheduling” laws generally require that companies in certain industries—often food or retail, but sometimes other industries as well—provide employees with 10 to 14 days’ notice of their schedules. If employers do not do so, they may need to pay a schedule change premium or “predictability pay.”[38] Employers should consult all applicable predictive scheduling laws and determine whether premium pay is owed because of COVID-19 closures or cancellations; exigent circumstances may justify failure to make these payments.If employers send employees home after they have already shown up for the day, they may be required to pay “show up pay” or “reporting pay” under state law, although some of these laws make exceptions for “acts of God.”[39]
  • State laws and executive orders regarding paid sick leave, paid caregiver or similar leave, disability insurance, and unemployment insurance: Employers should continue to comply with the growing patchwork of state and local laws governing paid leave for illnesses and other absences. In addition to the many state laws that require sick leave, some state laws specifically provide for limited paid leave in the event of school closures.[40] Furthermore, some states, like Colorado, have implemented paid sick leave requirements specifically in response to COVID-19; Colorado’s rules require four days of sick leave but cover only specific industries (leisure and hospitality; food services; child care; education; community living facilities; nursing homes; home health).[41]Federal contractors should also ensure compliance with Executive Order 13706, which imposed paid leave requirements.In certain circumstances, state disability insurance or unemployment insurance may cover employee absences. The Department of Labor has issued guidance permitting state unemployment insurance programs significant flexibility in responding to COVID-19.[42] The pending COVID-19 relief package also makes emergency changes to unemployment insurance funding, and requires the Department of Labor to create a model notice for employers to give employees affected by COVID-19.[43]
  • Compliance issues with pay advances: Some employers may be considering pay advances for non-exempt employees. It is critical that any pay advance program be implemented in accordance with federal and state requirements. Among other things, the employee’s agreement to recoupment of the funds should be provided in writing before the advance is made. Furthermore, if the funds are recouped from future earnings, employers need to ensure that the deductions do not decrease a workweek’s total pay below the minimum wage.[44]
  • Risks of making exceptions to standard policy: In addition to ordinary vacation, sick pay or other paid time off policies, some employers may elect to provide extra paid leave, permit no-penalty absences, or allow employees to use PTO or sick-pay outside of regular policies on a temporary basis during the pandemic. As with new or expanded telecommuting policies, it will be helpful to communicate both the exceptional nature of these policies and the fact that the pandemic is the motivating factor behind them. Furthermore, these policies should be implemented fairly and consistently.[45]

Staggering Shifts and Split Shifts: Both OSHA and the CDC have suggested that employers consider staggering employee shifts to reduce the number of people on-site at any given time.[46] Employers may also consider splitting shifts, rotating who will come to the office and who will work remotely. When considering this approach, employers should check for applicable state and local laws that affect the timing of meal and rest periods.[47] If the use of staggered shifts results in longer shifts for some employees, employers should also follow state and local laws regarding payment of overtime.[48] And when staggered shifts result in some employees working late at night, employers should also consider OSHA guidance on minimizing fatigue-related injuries and preventing workplace violence.[49]

What to Do If an Employee Tests Positive or Needs to Care for an Ill Family Member:

Contact local health agency and clean affected areas appropriately: In the event your employee tests positive for COVID-19, you may instruct them to go home or avoid the workplace. You should also contact your local health agency. They will need to know about all positive tests in the area, and they may also be able to advise you on your response. In particular, they may have the most up-to-date guidance about what steps you need to take to clean the worksite.

Inform exposed employees: The CDC has advised employers to inform fellow employees of their possible exposure to COVID-19, without disclosing the identity of the person who tested positive.[50] You may also wish to advise customers, vendors, and visitors of their exposure.

Determine whether the employee qualifies for FMLA leave: The Department of Labor has issued informal guidance regarding COVID-19 and the Family and Medical Leave Act (“FMLA”).[51] The FMLA “would not . . . protect[]” an employee staying home “for the purpose of avoiding exposure.” The FMLA would protect an employee who tests positive (or who is caring for a relative who tests positive) if the individual’s COVID-19 becomes a “serious health condition” as defined by the statute and regulations (e.g., if it causes serious complications for the employee or the relevant family member).[52]

Maintain confidentiality: A number of federal laws, including the FMLA, the ADA, and the Genetic Information Nondiscrimination Act (GINA), impose confidentiality requirements that may be relevant to records regarding COVID-19, employees’ symptoms, and co-morbidities. In general, the EEOC has advised that, “[e]mployers must maintain all information about employee illness as a confidential medical record in compliance with the ADA.”[53] Furthermore, employers should avoid involuntary disclosure of confidential information to employees’ supervisors, although employers may share information about the specific accommodations needed by employees.[54]

Record the incident if needed: In recent guidance, OSHA advised that its recordkeeping requirements may apply to employee cases of COVID-19.[55] Regulations require employers to record “fatalities, injuries, and illnesses” that are “work-related” and meet certain other criteria.[56] If an employee contracts COVID-19 while on the job, it is possible that the illness would be recordable.[57]

Prepare for workers compensation claims: Workers compensation eligibility varies by state. In the event an employee was exposed to COVID-19 in the workplace, it is possible—though far from guaranteed—that workers compensation would apply.[58]

Manage return-to-work certifications carefully: Generally speaking, an employer may require a doctor’s note or similar certification before allowing a previously-affected employee to return to work.[59] Be aware that the CDC, OSHA, and the EEOC have all advised that, during a pandemic, it may be more difficult for employees to obtain doctor’s notes.[60] Specifically, OSHA and the CDC state, “Do not require a healthcare provider’s note for employees who are sick with acute respiratory illness to validate their illness or to return to work, as healthcare provider offices and medical facilities may be extremely busy and not able to provide such documentation in a timely way.”[61] (Emphasis added). However, it seems likely that this advice was drafted primarily to address employees needing to absent themselves from work. The EEOC and Department of Labor both acknowledge the likely need for return-to-work certifications, and although CDC and OSHA urge consideration of “alternative” certifications where possible, it is unclear what non-traditional options will actually be available to employers in the coming weeks. Separately, in the event that a COVID-19-affected employee did qualify for FMLA leave or state paid leave, employers should follow the standard procedures for requiring return-to-work certifications under those laws.[62]

Be mindful of discrimination risks: When an employee is ready to return to work, employers should avoid treating them differently on the basis of their prior infection.

Seek counsel before requiring vaccinations: Currently, no vaccine for COVID-19 is available. However, in the event that a vaccine is developed, employers will need to structure any vaccine policy carefully to account for accommodations on the basis of disability or sincerely held religious beliefs.[63]

Gibson Dunn’s lawyers are available to assist with any questions you may have regarding developments related to the COVID-19 outbreak. For additional information, please contact any member of the firm’s Coronavirus (COVID-19) Response Team.

Gibson Dunn attorneys regularly counsel clients on the compliance issues raised by this pandemic, and we are working with many of our clients on their response to COVID-19. Please also feel free to contact the Gibson Dunn attorney with whom you work in the Labor and Employment Group, or the following authors:

Catherine A. Conway – Co-Chair, Labor & Employment Practice Group, Los Angeles (+1 213-229-7822, [email protected])

Amanda C. Machin – Washington, D.C. (+1 202-887-3705, [email protected])

Michele L. Maryott – Irvine (+1 949-451-3945, [email protected])

Karl G. Nelson – Dallas (+1 214-698-3203, [email protected])

Jason C. Schwartz – Co-Chair, Labor & Employment Practice Group, Washington, D.C. (+1 202-955-8242, [email protected])

____________________________________________________________________

            [1]           We refer throughout to “COVID-19” instead of coronavirus because many of the cited guidance materials are specific to this pandemic.

            [2]           CDC, Interim Guidance for Businesses and Employers, https://www.cdc.gov/COVID-19/ 2019-ncov/community/guidance-business-response.html (Last visited March 12, 2020); OSHA, Guidance on Preparing Workplaces for COVID-19, https://www.osha.gov/ Publications/OSHA3990.pdf. OSHA’s guidance was issued jointly with the Department of Health and Human Services. The CDC has also created a one-pager for employers, available at https://www.cdc.gov/coronavirus/2019-ncov/downloads/workplace-school-and-home-guidance.pdf.

            [3]           Id. at p. 17 (emphasis added). OSHA standards on Personal Protective Equipment and Bloodborne Pathogen Programs may also apply. Id.

            [4]           The National Conference of State Legislators is tracking COVID-19 legislation, but this may not cover emergency regulations issued by state labor departments. See NCSL, State Action on Coronavirus (COVID-19), https://www.ncsl.org/research/health/state-action-on-coronavirus-covid-19.aspx.

            [5]           Id. at 8; CDC, Interim Guidance for Businesses and Employers.

            [6]           Id.; OSHA, Guidance on Preparing Workplaces for COVID-19, 8-9.

            [7]           CDC, Interim Guidance for Businesses and Employers; OSHA, Guidance on Preparing Workplaces for COVID-19, 8-9.

            [8]           OSHA, Guidance on Preparing Workplaces for COVID-19, 12.

            [9]           Id. at 13; OSHA is separately updating industry-specific guidance on its COVID-19 webpage: https://www.osha.gov/SLTC/covid-19/.

            [10]         CDC, Interim Guidance for Businesses and Employers.

            [11]          CDC, Travel Health Notices, https://wwwnc.cdc.gov/travel. There are currently “Level 3” notices for South Korea, Iran, China, and parts of Europe. “Level 3” means that the CDC is encouraging Americans to avoid non-essential travel to these areas. See also OSHA, Guidance on Preparing Workplaces for COVID-19, 13 (advising companies to discontinue non-essential travel).

            [12]          See, e.g., N.Y. Labor Law § 201-d (prohibiting discharge on the basis of lawful “recreational activities”); Reiseck v. Universal Comms. of Miami, No. 06-0777, 2009 WL 812258, at *4 (S.D.N.Y. Mar. 26, 2009) (determining that employer did not violate statute by firing employee who was traveling to Florida weekly because employer fairly determined the work could not be performed from Florida), vacated in part on other grounds by 591 F.3d 101 (2d Cir. 2010).

            [13]          740 ILCS 14/1.

            [14]          See, e.g., New York Supreme Court, Coronavirus – Revised Courthouse Procedures (March 12, 2020), https://www.nycourts.gov/legacypdfs/courts/1jd /supctmanh/PDF/cv19-procedures.pdf; United States District Court for the Eastern District of Michigan, Notice of Courthouse Visitor Restrictions (March 11, 2020), http://www.mied.uscourts.gov/PDFFIles/NtcCourthouseRestrictions.pdf.

            [15]          As in the context of other laws, the fact that an accommodation was made for one person may be relevant to whether that accommodation is “feasible” under the ADA for another employee. Cf. Equal Employment Opportunity Commission v. TriCore Reference Laboratories, 849 F.3d 929, 941 (10th Cir. 2017) (discussing role of precedent under the Pregnancy Discrimination Act). However, it is not dispositive; interpretive guidance under the ADA acknowledges that a particular accommodation may impose an undue hardship on an employer in one circumstance but not another. 29 C.F.R., Appendix to Part 1630 (Interpretive Guidance on Title I of the Americans with Disabilities Act) (“Whether a particular accommodation will impose an undue hardship for a particular employer is determined on a case by case basis. Consequently, an accommodation that poses an undue hardship for one employer at a particular time may not pose an undue hardship for another employer, or even for the same employer at another time.”).

            [16]         See Department of Labor, Fact Sheet #21: Recordkeeping Requirements under the Fair Labor Standards Act (FLSA), https://www.dol.gov/agencies/whd/fact-sheets/21-flsa-recordkeeping.

            [17]          See, e.g., Cal. Labor Code § 226.7.

            [18]          Department of Labor, COVID-19 or Other Public Health Emergencies and the Fair Labor Standards Act Questions and Answers, https://www.dol.gov/agencies/whd/flsa/pandemic.

            [19]          See, e.g., Cal. Labor Code § 2802; 820 ILCS 115/9.5 (Illinois); see also 12 NYCCR 142-2.10 (regarding wage deductions).

            [20]          20 C.F.R. 639.3(f).

            [21]          EEOC, Pandemic Preparedness in the Workplace and the Americans with Disabilities Act § III.B.8, https://www.eeoc.gov/facts/pandemic_flu.html (“If the CDC or state or local public health officials recommend that people who visit specified locations remain at home for several days until it is clear they do not have pandemic influenza symptoms, an employer may ask whether employees are returning from these locations, even if the travel was personal.”).

            [22]          EEOC, Pandemic Preparedness in the Workplace and the Americans with Disabilities Act § III.B.6.

            [23]          Id.

            [24]          Id.

            [25]          Id. at § III.B.7.

            [26]          Id.

            [27]          EEOC, Pandemic Preparedness in the Workplace and the Americans with Disabilities Act § III.B.9; id. at § III.A.1 (stating, in the context of pre-pandemic guidance, that “[a]n inquiry asking an employee to disclose a compromised immune system or a chronic health condition is disability-related because the response is likely to disclose the existence of a disability. The ADA does not permit such an inquiry in the absence of objective evidence that pandemic symptoms will cause a direct threat.”).

            [28]          Id. at § III.B.9; see also id. at n.33 (“When pandemic influenza symptoms only resemble those of seasonal influenza, they do not provide an objective basis for a “reasonable belief” that employees will face a direct threat if they become ill.”).

            [29]          Id.

            [30]          H.R. 6201, Division C (March 13, 2020), https://docs.house.gov/ billsthisweek/20200309/ BILLS-116hr6201-SUS.pdf.

            [31]          Id., Division E.

            [32]          Id., Division G.

            [33]          CDC, Interim Guidance for Businesses and Employers (“Ensure that your sick leave policies are flexible and consistent with public health guidance and that employees are aware of these policies” and “[t]alk with companies that provide your business with contract or temporary employees about the importance of sick employees staying home and encourage them to develop non-punitive leave policies”); OSHA, Guidance on Preparing Workplaces for COVID-19, 11 (same).

            [34]          Department of Labor, COVID-19 or Other Public Health Emergencies and the Fair Labor Standards Act Questions and Answers.

            [35]          Id.

            [36]          Id. (citing WHD Opinion Letter FLSA2005-41).

            [37]          DOL, Fact Sheet #17A: Exemption for Executive, Administrative, Professional, Computer & Outside Sales Employees Under the Fair Labor Standards Act (FLSA), https://www.dol.gov/agencies/whd/fact-sheets/17a-overtime; Department of Labor, Field Operations Handbook § 22g11 (“A prospective reduction in the predetermined salary amount to not less than the applicable minimum salary due to a reduction in the employee’s normal scheduled workweek is permissible and will not defeat the exemption, provided that the reduction in salary is a bona fide reduction that is not designed to circumvent the salary basis requirement (e.g., a 20 percent reduction in an exempt employee’s salary while assigned to work a normally scheduled 4-day reduced workweek due to the financial exigencies of the employer and/or to avoid layoffs would not violate the regulations as long as the reduced predetermined salary amount is at a rate that is not less than the applicable minimum salary of $455.00 per week)”).

            [38]          See, e.g., San Francisco, Formula Retail Employee Rights Ordinances, https://sfgov.org/olse/formula-retail-employee-rights-ordinances; see also HR Dive, Predictive Scheduling Laws (Dec. 2, 2019), https://www.hrdive.com/news/a-running-list-of-states-and-localities-with-predictive-scheduling-mandates/540835/.

            [39]          See, e.g., Cal. Code Regs., tit. 8, § 11010(5) (“Reporting Time Pay”) (“Each workday an employee is required to report for work and does report, but is not put to work or is furnished less than half said employee’s usual or scheduled day’s work, the employee shall be paid for half the usual or scheduled day’s work, but in no event for less than two (2) hours nor more than four (4) hours, at the employee’s regular rate of pay, which shall not be less than the minimum wage”); 7 D.C. Admin. Code § 907.1 (“The employer shall pay the employee for at least four (4) hours for each day on which the employee reports for work under general or specific instructions but is given no work or is given less than four hours of work, except that if the employee is regularly scheduled for less than four hours a day, such employee shall be paid for the hours regularly scheduled. The minimum daily wage shall be calculated as follows: payment at the employee’s regular rate for the hours worked, plus payment at the minimum wage for the hours not worked, as described above.”); 454 MA Admin. Code 27.04(1) (“When an employee who is scheduled to work three or more hours reports for duty at the time set by the employer, and that employee is not provided with the expected hours of work, the employee shall be paid for at least three hours on such day at no less than the basic minimum wage. 454 CMR 27.04 shall not apply to organizations granted status as charitable organizations under the Internal Revenue Code.”); NJ Admin. Code 12:56-5.5 (“(a) An employee who by request of the employer reports for duty on any day shall be paid for at least one hour at the applicable wage rate, except as provided in (b) below; (b) The provisions of (a) above shall not apply to an employer when he or she has made available to the employee the minimum number of hours of work agreed upon by the employer and the employed prior to the commencement of work on the day involved”); 12 CRR-NY 142-2.3 (“An employee who by request or permission of the employer reports for work on any day shall be paid for at least four hours, or the number of hours in the regularly scheduled shift, whichever is less, at the basic minimum hourly wage.”).

            [40]          See New Jersey Earned Sick Leave Act Notice, https://www.nj.gov/labor/forms_ pdfs/mw565sickleaveposter.pdf.

            [41]          Colorado Department of Labor and Employment, Colorado Health Emergency Leave with Pay, 7 CCR 1103-10 (March 11, 2020), https://www.colorado.gov/pacific/cdle/ colorado-health-emergency-leave-pay-%E2%80%9Ccolorado-help%E2%80%9D-rules.

            [42]          Department of Labor, U.S. Department of Labor Announces New Guidance on Unemployment Insurance Flexibilities During COVID-19 Outbreak (March 12, 2020), https://www.dol.gov/newsroom/releases/eta/eta20200312-0.

            [43]          H.R. 6201, Division D.

            [44]          DOL Opinion Letter, FLSA2005-3 (discussing prepayment plan for overtime wages), https://www.dol.gov/sites/dolgov/files/WHD/legacy/files/2005_01_07_3_ FLSA_PrepaymentPlan.pdf; Cal. DLSE, Opinion Letter (Nov. 25, 2008), https://www.dir.ca.gov/dlse/opinions/2008-11-25-1.pdf.

            [45]          Department of Labor, COVID-19 or Other Public Health Emergencies and the Family and Medical Leave Act Questions and Answers.

            [46]          OSHA, Guidance on Preparing Workplaces for COVID-19, 13; CDC, Interim Guidance for Businesses and Employers.

            [47]          See, e.g., Cal. Labor Code § 512.

            [48]          See Department of Labor, State Minimum Wage Laws, https://www.dol.gov/agencies/whd/minimum-wage/state (identifying, by state, the number of hours after which premium pay is required). Note that under federal law, extra pay for night or weekend work is not automatically required. See DOL, E-Laws Adviser, https://webapps.dol.gov/ elaws/faq/esa/flsa/ 005.htm?_ga=2.39763365.725891313.1583959806-662641776.1578432998.

            [49]          See OSHA, Long Work Hours, Extended or Irregular Shifts, and Worker Fatigue, https://www.osha.gov/SLTC/workerfatigue/index.html; OSHA, Workplace Violence, https://www.osha.gov/SLTC/workplaceviolence/.

            [50]          CDC, Interim Guidance for Businesses and Employers.

            [51]          Department of Labor, COVID-19 or Other Public Health Emergencies and the Family and Medical Leave Act Questions and Answers, https://www.dol.gov/agencies/whd/fmla/pandemic.

            [52]          Id.

            [53]          EEOC Guidance, Pandemic Preparedness in the Workplace and the Americans with Disabilities Act § III.B.6.

            [54]          See 29 C.F.R. § 1630.14(c)(1)(i).

            [55]          OSHA, Guidance on Preparing Workplaces for COVID-19, 18; see OSHA, COVID-19, https://www.osha.gov/SLTC/covid-19/standards.html.

            [56]          29 C.F.R. § 1904.4(a); id. at § 1904.7.

            [57]          29 C.F.R. § 1904.5 sets forth the standards for determining work-relatedness of fatalities, injuries, and illnesses.

            [58]          See, e.g., Washington State Department of Labor and Industries, Workers’ Compensation Coverage and Coronavirus (COVID-19) Common Questions, https://lni.wa.gov/agency/outreach/workers-compensation-coverage-and-coronavirus-covid-19-common-questions; California Labor & Workforce Development Agency, Coronavirus 2019 (COVID-19) Resources for Employers and Workers, https://www.labor.ca.gov/coronavirus2019/#chart.

            [59]          EEOC Guidance, Pandemic Preparedness in the Workplace and the Americans with Disabilities Act § III.C.16 (“such inquiries are permitted under the ADA either because they would not be disability-related or, if the pandemic influenza were truly severe, they would be justified under the ADA standards for disability-related inquiries of employees”).

            [60]          EEOC, Pandemic Preparedness in the Workplace and the Americans with Disabilities Act § III.B.13; Department of Labor, COVID-19 or Other Public Health Emergencies and the Family and Medical Leave Act Questions and Answers; OSHA, Guidance on Preparing Workplaces for COVID-19, 11; CDC, Interim Guidance for Businesses and Employers.

            [61]          Id.

            [62]          Department of Labor, COVID-19 or Other Public Health Emergencies and the Family and Medical Leave Act Questions and Answers.

            [63]          EEOC, Pandemic Preparedness in the Workplace and the Americans with Disabilities Act § III.B.13. This guidance also states that, “Generally, ADA-covered employers should consider simply encouraging employees to get the influenza vaccine rather than requiring them to take it.”

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