The Department of the Treasury is moving with unusual speed to issue guidance on several new programs in the CARES Act that are designed to support the business community. Within the past few hours, guidance and application forms have been released by Treasury on the Paycheck Protection Program, Payroll Support to Air Carriers and Contractors,
On March 27, 2020, Congress responded to the COVID-19 emergency by adopting the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act), the most massive economic recovery legislation in United States history. A key focus of the CARES Act is the adoption of a variety of measures designed to expedite the approval and availability of drugs and devices needed to fight the pandemic, to shore up the financial positions of hospitals and other healthcare providers facing unprecedented demands, and to temporarily relax restrictions that may make it more difficult for patients to obtain access to needed testing and care. These measures include provisions that enhance access to telehealth services; provide expanded coverage for COVID-19-related services from Medicare, Medicaid, and private insurance and managed care organizations; expedite review and approval of new potential treatments; defer certain scheduled Medicare cuts and provide add-on payments to hospitals for treatment of COVID-19 patients; and expand the authority of non-physician practitioners in some circumstances.
Many of these new measures are specifically limited to the duration of the COVID-19 public health emergency. However, a number of them also reflect reforms that providers, drug and device manufacturers, and other industry participants have sought for some time, and it will be interesting to see whether experience with those reforms during the crisis leads to permanent changes in the healthcare system.
The following is a summary of the major healthcare provisions of the CARES Act.
On March 27, 2020, the Louisiana Department of Environmental Quality (LDEQ) issued its Second Amended Emergency Declaration and Administrative Order, which supersedes its two previous declarations and orders issued on March 19 and 20, 2020. Both of these declarations and orders were addressed in our previous blog entry titled LDEQ Issued COVID-19 Declaration and Administrative Order.
The Families First Coronavirus Relief Act (the Act) was passed on March 18, 2020 and imposes paid leave obligations on most employers throughout the country. The bill contains special and often overlooked provisions affecting public agencies. Those provisions could provide a “trap” for public agencies that do not carefully review the bill.
Definition of “public agency.” A “public agency” is defined broadly to include the government of the United States; the government of a state or political subdivision of a state; or an agency of the United States, a state, or a political subdivision of a state, or any interstate governmental agency.
Application of employee threshold. For purposes of the law’s paid leave obligations, a covered employer in the private sector includes any employer with fewer than 500 employees. This threshold does not apply to public agency employers. Public employers with only one employee are covered by the bill’s paid leave provisions, meaning large public employers with more than 500 employees are covered by the paid leave provisions.
On March 18, 2020, President Donald Trump signed the Families First Coronavirus Response Act (FFCRA) in response to the spread of the novel coronavirus and the illness it causes, COVID-19. The Act goes into effect on April 1, 2020 and remains in effect through December 31, 2020.
As discussed in our prior client alerts “Recent Clarifications to Families First Coronavirus Relief Act” and “Senate Passes Coronavirus Bill Requiring Paid Leave,” the Act provides for up to 80 hours (two weeks) of Emergency Paid Sick Leave if an employee is unable to work or telework for one of six specified reasons. Additionally, the Act provides up to 12 weeks of Emergency Paid FMLA Leave for one qualifying reason — that the employee is unable to work or telework due to the need to care for the employee’s minor child because the child’s school or place of care has been closed due to this public health emergency. The first two weeks of Emergency Paid FMLA Leave is unpaid, though the Emergency Paid Sick Leave will be applied to cover the first two weeks.
There are a myriad of questions and issues for employers to work through in applying these new provisions. Our team has been working non-stop to interpret these provisions, review new guidance, and provide answers. In addition, the Department of Labor (DOL) has established the COVID-19 and the American Workplace webpage, which includes a variety of fact sheets, Question-and-Answer pages, and workplace posters available to employers detailing these provisions.
By now, you’re likely aware of the Families First Coronavirus Response Act (FFCRA). This law, which will take effect on April 1, 2020, requires certain employers to provide employees with paid sick leave under the Emergency Paid Sick Leave Act (EPSL) or expanded paid family and medical leave under the Emergency Family and Medical Leave Expansion Act (expanded FMLA) for several reasons related to COVID-19. As a refresher, the FFCRA generally provides that employees of covered employers are eligible for one of the following:
- Two weeks (up to 80 hours) of paid sick leave at the employee’s regular rate of pay where the employee is (1) unable to work or telework because the employee is quarantined (due to a federal, state, or local government order or the advice of a health care provider) and/or (2) experiencing COVID-19 symptoms and seeking a medical diagnosis; or
- Two weeks (up to 80 hours) of paid sick leave at two-thirds the employee’s regular rate of pay where the employee is (1) unable to work or telework while caring for an individual subject to quarantine (due to a federal, state, or local government order or the advice of a health care provider), (2) unable to work or telework because of a need to care for a child (either a minor child under 18 years of age or an adult child who has a mental or physical disability and is incapable of self-care because of that disability) whose school or child care provider is closed for reasons related to COVID-19, and/or (3) experiencing a substantially similar condition as specified by the secretary of health and human services, in consultation with the secretaries of the treasury and labor; and
- Up to an additional 10 weeks of paid expanded family and medical leave at two-thirds the employee’s regular rate of pay where an employee who has been employed for at least 30 calendar days is unable to work or telework due to a need to care for a child whose school or child care provider is closed for reasons related to COVID-19.
Private employers with fewer than 500 employees and certain public employers are covered. Small businesses with fewer than 50 employees may qualify for exemption, which is discussed below.
Stabilizing core business operations, managing risk, and taking steps to perfect and enforce rights under existing agreements and insurance policies should be key priorities at this stage of your company’s response to COVID-19. Here are four strategies for supply chain professionals, in-house counsel, and risk managers to keep in mind as they work with their commercial teams to develop and safeguard secure and reliable supplies of critical inputs. The analysis takes into account how changing market dynamics in some cases creates flexibility to address immediate supply chain challenges and in other cases cautions against departing from historical practices.
Aggressively Collect and Leverage Competitive Intelligence
Companies are generally free under the antitrust laws to pressure suppliers to be forthcoming about production capacity, possible disruptions, and other market insights. Companies also have the ability to pool information with buyers, shippers, and other market participants as long as they implement the necessary safeguards to protect against unlawful price effects and coordination.
The safeguards needed to mitigate the antitrust risk associated with information sharing will vary depending on the nature of the information to be exchanged, the competitive relationship and market shares of the parties involved in the exchange, and other factors. However, with strong economic headwinds and consumers facing product shortages, we do not expect regulators in the United States to challenge collaborations that take reasonable precautions to prevent harm to competition even when they fall outside historical safe harbors.
On March 25, 2020, the Securities and Exchange Commission (SEC) issued an order (the Order) extending the conditional exemptions from reporting deadlines and proxy delivery requirements under the Securities Exchange Act of 1934 (the Exchange Act) for public companies affected by COVID-19. The SEC also issued CF Disclosure Guidance: Topic No. 9, discussing the SEC’s views regarding disclosure considerations and other securities law matters related to COVID-19.
SEC Order Extends Relief from Filing Obligations Until July 1, 2020
The SEC issued an Order providing companies that are unable to meet their filing obligations as a result of COVID-19 with additional time to file certain reports, subject to specified conditions. The Order provides companies with a 45-day extension to file or furnish certain reports (see below) that would otherwise have been due between March 1 and July 1, 2020. The Order also grants relief from the requirements of furnishing proxy and information statements when mail delivery is not possible. The Order supersedes and extends the SEC’s original order dated March 4, 2020.
An important negotiating point between buyers and sellers of a business is whether to include within the acquisition agreement a “Material Adverse Change” (MAC) or “Material Adverse Effect” (MAE) related closing condition. For simplicity’s sake, we will use the term MAC to refer to both MAC and MAE.
Use of MAC Clauses
MAC clauses permit the buyer to void the transaction if, prior to the closing date, a material adverse development occurs that affects (or is reasonably likely to affect) the balance sheet, the results of operations or the business of the target company. Even in transactions in which the buyer does not prevail in including a standalone MAC closing condition, the transaction agreement frequently includes an absence of changes (or “no MAC”) representation that is brought down to the closing, along with a general representation and warranty “bring-down” closing condition that may be qualified by a MAC standard.
Pandemics and the MAC Clause
The coronavirus (COVID-19) pandemic has caused many companies and industries to experience widespread and severe disruptions to their operations, with some businesses facing material risks to their longer-term prospects. Given these developments, this is an opportune time to review MAC clauses for transactions that have signed but not yet closed, and to give special consideration to the risks presented by pandemics in negotiating and drafting MAC clauses for deals to come. In particular, this pandemic shows in high relief the danger of the carve-outs that are often included in the definition of a MAC. There is no doubt that this pandemic has had, and is continuing to have, an unprecedented material adverse effect on many businesses that no one could have anticipated, and would normally meet all the necessary elements of a MAC under Delaware case law. However, the effect of the carve-outs used in many acquisition agreements is to leave the buyer bearing the brunt of the risks associated with the pandemic.
A party to a contract may under certain circumstances be excused from performing a contractual obligation when the failure to perform is caused by a “fortuitous event”—i.e., force majeure or an “act of God”—that makes performance impossible. Whether COVID-19 and related events, such as the pandemic declaration by the World Health Organization, government travel bans, or government declarations, constitute force majeure that impact contractual performance obligations depends on the language of the contract. Contracts often contain force majeure provisions, which will control in the event of a dispute over performance obligations. If the contract lacks a force majeure provision, or if the provision fails to address a particular event, such as a pandemic, specific default rules may apply depending on the jurisdiction, governing law, and industry.