As the COVID-19 state of emergency continues, businesses are implementing and considering a variety of employee-related measures to manage the impact of the crisis. While some businesses may avail themselves of payroll protection programs and loans to maintain the status quo, others may be faced with having to implement reductions-in-force (RIFs), furloughs and layoffs.  Added to this, employers may be faced with larger numbers of leaves of absence both because of COVID-19-related health and family care reasons, but also when certain workers have been called to duty.  The following summarizes some of the considerations to keep in mind with respect to benefit plans governed by ERISA and other compensation arrangements when planning and implementing workforce reduction measures.

Partial Plan Terminations. Partial terminations of qualified retirement plans can result if there is a significant decrease in the percentage of participants covered by the plan during a plan year (or longer period if there are a series of related severances from employment) due to employer-initiated terminations of employment (i.e., any severance from employment, other than a severance that is on account of death, disability, retirement on or after normal retirement age, or voluntary separations). The IRS may also find that a partial plan termination occurred if a sponsor adopts amendments that adversely affect the rights of employees to vest in benefits under the plan, excludes a group of employees that previously had been included, or reduces or ceases future benefit accruals that can result in a reversion to the employer in a defined benefit plan. An active participant reduction in a pension plan may also be a reportable event to the PBGC, unless a waiver applies.

While courts have looked at differing factors to determine if a partial plan termination occurred, the IRS ruled in Revenue Ruling 2007-43 that if the participant turnover rate is at least 20%, there is a rebuttable presumption that a partial termination of the plan has occurred. If the employer cannot provide sufficient evidence to show that the turnover rate was routine or was not the result of employer-initiated severance from employment, the presumption of a partial termination will stand and the affected participants, including those who voluntarily terminated during the applicable period, must be fully vested in their account balance (or accrued benefit, as applicable) as of the date of the partial plan termination in order for the plan to be qualified under the tax code.  Thus, an analysis of potential partial plan terminations should always be undertaken in the event of significant workforce reductions.

Qualified Plan Loans.  Sponsors of qualified plans that permit plan loans that are contemplating temporary furloughs or a program of unpaid leaves of absence should check the plan documents to determine how the plan loans of the affected employees will be treated.  A plan may, but is not required to, suspend a participant’s loan repayments during an unpaid bona fide leave of absence, but whether it can do so is based on the sponsor’s leave of absence policy.  Before implementing furloughs or unpaid leaves, a sponsor may want to consider amending a plan that does not provide for suspensions of repayments.  Even without amendment, however, if the plan participant is a “qualified individual” as defined under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), outstanding loan repayments through December 31, 2020 could be suspended for up to 12 months (“CARES Act Suspension”).  A qualified individual is a participant who is, or whose spouse or dependent is, diagnosed with SARS-CoV-2 or COVID-19 by a test approved by the Centers for Disease Control and Prevention or a participant who experiences adverse financial consequences because of being quarantined, furloughed or laid off, or having work hours reduced due to COVID-19; being unable to work due to lack of childcare on account of COVID-19; the closing or reduced hours of a business owned or operated by the individual due to COVID-19; or other factors as may be determined by the Secretary of Treasury.

The terms of the plan will also determine the consequences of termination of employment on employees with outstanding plan loans.  A plan may provide that termination of employment is an event of default, which will trigger a plan distribution equal to the amount of the loan and tax obligations for the employee. Alternatively, a plan could provide that termination of employment results in acceleration of the payment obligation, making the entire outstanding balance immediately due and payable.  If the loan is accelerated, the plan could provide the employee with reasonable period of time to repay the loan before triggering a default.  Finally, a plan could permit terminated participants to continue repaying the loan post-termination, subject to record keeper requirements.  While not entirely clear, if a plan permits post-termination repayment, the participant may be able to request a CARES Act Suspension.  Additional guidance from the IRS on the CARES Act Suspension is needed. As with furloughs and unpaid leaves, before implementing a RIF or layoffs, plan sponsors should review the loan provisions in their plans to determine if any amendments are appropriate.

Health and Welfare Plan Eligibility.  Health and welfare benefits coverage for employees who experience a loss of employment as a result of COVID-19 issues would typically be handled like any other termination of employment. Many employers, however, have been considering what actions they might to assist employees after loss of employment in light of this national health emergency.

Before taking action with respect benefit plans, employers should carefully review applicable plan documents, including insurance policies, to ensure that any action, especially any extension of “active” coverage for furloughed employees, is consistent with plan terms. If the plan’s terms are silent, employers may amend their plans to provide for the desired coverage. However, employers should obtain approval from their insurer (including stop loss policy insurer) to mitigate the risk of the carrier denying any claims (and the employer having to self-insure the costs). As discussed further below, depending on how an employer determines who is a full-time employee, not extending group health plan coverage offers to furloughed employees could result in ACA penalties.

At this time, Internal Revenue Code Section 125 rules have not been changed to allow election changes mid-year because of COVID-19. Unless the Section 125 permissible election change event rules otherwise allow for a change given the employee’s employment circumstances (e.g., commencement of or return from an unpaid leave) that corresponds with a change in status that causes a loss of eligibility under an employer’s group health plan. Currently, therefore, furloughed employees offered a special enrollment window to elect health coverage because of COVID-19 would need to pay their share of any health insurance premiums for a mid-year enrollment on after-tax basis, outside of an employer’s Section 125 plan. Any changes to eligibility for coverage and how coverage is paid should be documented as required in applicable plan documents (e.g., “wraps”) and timely communicated to employees.  For more guidelines and legal issues to consider when deciding whether to extend group health plan coverage see Benefits Guide in the Time of COVID-19: Continuing Employer Group Health Coverage During Temporary Layoffs or Furloughs.

Many life insurance and long-term disability insurers are allowing coverage to be extended for a limited time after employees are furloughed (i.e., waiving “actively-at-work” requirements). Employers that wish to extend coverage should contact their insurers to negotiate the terms of any extension. Employees that lose coverage as a result of layoffs may have the right to convert the policy to an individual policy.

Of additional note, in light of the COVID-19 crisis, several states (including Colorado, Connecticut, Maryland, Massachusetts, Nevada, New York, Rhode Island, and Washington) have reopened or have extended the availability of their state marketplaces to permit uninsured individuals to enroll in. Currently, the Trump Administration has decided against opening a special enrollment period on the Federal Exchange.

COBRA Continuation Coverage. Employers reducing their workforce through the use of RIFs, temporary layoffs or temporary furloughs should be mindful of potential COBRA obligations under federal law (and possibly state law if the plan is subject to a state’s COBRA extension rules). Federal COBRA rules apply if an employer with 20 or more employees sponsors a group health plan. Under COBRA, employers must offer continuation of coverage to employees, former employees and their dependents when group health plan coverage is lost due to certain qualifying events, such as termination of employment or reduction of hours.

In the case of a temporary layoff or furlough, if  under the terms of the plan, the temporary layoff or furlough results in a reduction in hours that results in a loss of healthcare coverage, then a COBRA qualifying event has occurred and the employer should comply with COBRA election rules. However, if the group health plan permits laid-off or furloughed employees to continue participation in the group health plan, then a COBRA qualifying event has not occurred because there is no loss of coverage. If, after a period of time, active coverage is no longer extended to the laid-off or furloughed worker, the COBRA qualifying event should occur at that future point in time if the loss of coverage still results from the reduction of hours. Thus, employers in determining whether or not conduct RIFs or implement temporary layoffs and furloughs should keep in mind its COBRA obligations and whether such actions constitutes qualifying events.

Currently, the federal government is not offering COBRA subsidies to terminated employees, as it did during the 2007-2009 Great Recession.

ACA Information Reporting. An issue that may not be at the forefront of employers’ minds, is how any temporary layoffs and furlough of employees may affect their Affordable Care Act (ACA) reporting obligations. Under the ACA, an employer with 50 or more full-time employees that sponsors a group health plan should offer minimum essential coverage to at least 95% of its full-time employees (and their dependents), and such coverage must meet affordability and minimum value requirements under the Code. Failure to do so may result in the employer being subject to employer shared responsibility penalties under Section 4980H of the Code. Employees may lose group health coverage for the period of time they are furloughed and laid-off because they are not working the required number of hours for coverage under their employer’s group health plan.

Temporary layoffs and furloughs may lead to inaccurate reporting by employers to the IRS as a result of improper accounting of full-time status (i.e., working 30 hours or more per week) or failure to account for the actual number of full-time employees over the plan year. This could ultimately result in significant penalties by the IRS through failure to offer group health plan coverage as required or failure to properly report accurate information related to the number of full-time employees on annual forms. Employers using a measurement method to track full-time status may want to determine whether, because of any temporary layoffs and furloughs, a monthly measurement method or the look-back measurement method is beneficial to the employer for determining full-time status at this time. In addition, employers should be aware of how breaks-in-service following a rehire of previously furloughed and laid-off employees affect eligibility provisions and waiting periods under the group health plan. Employers should be mindful of the Rule of Parity, which may be used in determining whether an employee is eligible for an offer of coverage, if the break in service is at least four weeks long (consecutively) and no more than 13 weeks (for most employers). Failure to understand and properly track these issues may result in violations under the ACA.

USERRA. Special health and retirement benefit continuation coverage rules apply to employees who are called up for military duty by federal authority (including National Guard and Reserve duty) under the Uniformed Services Employment and Reemployment Rights Act (“USERRA”). (If an employee is called up under state authority, similar state laws may apply.)

Severance Benefits. Employers contemplating a reduction in force should evaluate their existing obligations to pay severance benefits, whether to offer additional severance benefits, and the specific contours of any additional severance benefits. Severance obligations vary based on whether an employer has a written severance plan or policy and, if so, whether the plan is subject to ERISA.  Generally, a severance arrangement will be considered a plan subject to ERISA if the arrangement requires an ongoing administrative scheme. By contrast, employers may establish a one-time, non-discretionary fixed payment due to a limited event (such as a plant closing) without creating an ERISA plan.  Employers with severance plans governed by ERISA must administer their plans in accordance with the written plan document.  An issue such employers may face is whether employees impacted by a temporary furlough or reduction in hours are eligible to receive benefits under the terms of their severance plan document.

Regardless of whether they have a written plan, employers can offer impacted employees additional severance benefits customized to suit the needs of both the employer and impacted employees.  Factors to consider in crafting severance benefits include: (a) structuring benefit payments to not interfere with unemployment insurance benefits; (b) structuring a portion of the benefit to satisfy employer obligations under the federal WARN Act or state WARN acts; and (c) additional conditions to receipt of severance benefits (e.g., release of claims and return of employer property).

Executive Compensation. To mitigate financial pressure in the context of a downsizing, many employers are reassessing the cost and expense of their existing executive compensation arrangements. Employers wishing to modify executive compensation arrangements, should consider the following legal issues:

  • Corporate Authority. Employers should confirm which persons (e.g., key management, board of directors, compensation committee) are empowered to make the changes.
  • Executive Salary Reduction. Employers should review executive agreements to confirm whether executive consent is necessary, and whether a salary reduction without consent would trigger “good reason” termination rights for an executive. Wage and hour notice requirements also may apply to a salary reduction.
  • Section 409A and Deferred Compensation. Changes to deferred compensation plans, including changes to deferral elections or distributions, could violate Section 409A of the Internal Revenue Code (“Section 409A”) and result in tax penalties. Plans may allow for special distributions upon disability or unforeseeable emergency, or terminate the plan entirely, under Section 409A, but the application of the rules depend on the terms of the plan and plan amendments and terminations may be significantly restricted under Section 409A. Also employers should consider whether a temporary leave of absence or furlough constitutes a separation from service under Section 409A entitling an executive to a distribution.
  • Performance-Based Compensation. Employers might consider modifying 2020 performance goals for annual bonuses, performance vesting equity awards, and long term incentive plans in light of the drastically changed economic landscape. Note that modification may not be feasible under the terms of such compensation arrangements.
  • Eligibility for Vesting or Payments upon Leave of Absence or Furlough. Employers should also confirm whether an employee’s leave of absence or furlough due to the COVID-19 outbreak entitles an employee to partial or full vesting or payment under the employer’s equity incentive compensation plans, employment agreements, severance agreements, short and long term bonuses or other long-term incentive compensation. This may also raise issues under Section 409A as discussed above.
  • Executive Compensation Restrictions under CARES Act Loans. Employers that wish to apply for loans provided under Title IV of the CARES Act must comply with executive compensation restrictions for the duration of the loan. Different restrictions apply to employees whose total compensation (salary, bonuses, equity awards, and other financial benefits) exceeded $425,000 in calendar year 2019; and employees whose total compensation exceeded $3,000,000 in calendar year 2019. (For more details regarding these restrictions, see Epstein Becker & Green’s Act NowAdvisory “The CARES Act: What Employers Need to Know (Part II)”.

Multiemployer Pension Plan Withdrawal Liability. Layoffs and facility closures may trigger withdrawal liability depending on whether an employer who contributes to a multiemployer pension plan incurs a complete withdrawal or a partial withdrawal.  If this occurs, and the plan has unfunded vested benefits allocable to the employer, the plan will assess withdrawal liability (for which the employer and its controlled group have joint and several liability). A complete withdrawal occurs when an employer ceases contributions because it has terminated all operations covered by the plan or no longer has an obligation to contribute to the plan.  Many COVID-19-related layoffs and closures may only be temporary, however, and may not qualify as a complete withdrawal.  On the other hand, a partial withdrawal can be triggered upon a 70% contribution decline over a three-year testing period or a partial cessation of an employer’s contribution obligation. A significant decline in an employer’s obligation to contribute to a multiemployer pension plan, by way of RIFs or plant closures, can trigger a partial withdrawal resulting in withdrawal liability for the employer. Given the legal intricacies and fact-specific nature of withdrawal liability -not to mention theories of successor liability- carefully considering these issues is highly advisable.

ERISA Litigation Considerations. Downsizing raises the specter of litigation for a myriad of reasons. Two controllable risks involve accusations of breach of fiduciary duty in communications about employee benefits and potential claims based on violation of ERISA Section 510 for interference with vested employee benefits.

  • Communications. ERISA imposes fiduciary duties for certain communications regarding employee benefits. When employees inquire about their benefits, they are owed honest and accurate information. Managers who do not possess expertise, or have not been trained, in the company’s benefits should be instructed to refer employees to those persons who do; unnecessary exposure can arise when uninformed managers attempt to assuage employees about retirement, healthcare, or other benefits that may influence employees’ decisions to terminate employment or to cope with involuntary unemployment. Corollary to this risk, if an employer chooses to offer incentives to employees to induce retirement or encourage voluntary separation, communications about those incentives must be honest and complete. This includes disclosure of any future programs that have reached the stage of “serious consideration” – when (1) a specific proposal (2) is being discussed for purposes of implementation (3) by senior management with the authority to implement the change. This duty does not require a fiduciary to disclose its internal deliberations nor, in a union-represented workplace, interfere with the substantive aspects of the collective bargaining process. The watchword is candor and the best prophylactic against litigation lies in managing the information flow through well informed benefit professionals.
  • Vesting Issues. Another ERISA litigation risk arises from employees who may be near vesting, or another significant benefit milestone, when their employment terminates involuntarily. They may contend that the termination resulted from an illegal motive to interfere with that benefit milestone. Section 510 of ERISA exists to deter and prevent unscrupulous employers from discharging or harassing their employees in order to keep them from obtaining vested pension or other benefit rights. An employer violates Section 510 if an employment action is, at least in part, motivated by the specific intent to engage in activity prohibited by the statute, such as interfering with an employee obtaining vested benefits. Minimizing exposure to these claims involves an awareness of the risk and a vetting of the criteria used to select employees for termination to ensure that benefit issues do not influence the choices made.

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For more information about this post, please contact:

Michelle Capezza
New York
Gretchen Harders
New York
Sharon L. Lippett
New York
Cassandra Labbees
New York
Tzvia Feiertag
Christopher Lech
New York
Rina Fujii
New York
Daniel J. Green
New York
John Houston Pope
New York


USCIS Completes the Initial Selection Process

On April 1, 2020, U.S. Citizenship and Immigration Services (‘USCIS”) announced that the initial selection of H-1B cap-subject registrations for fiscal year (“FY”) 2021 was completed. Petitioners who electronically registered beneficiaries in the H-1B registration process and were selected through the random selection process may file their H-1B cap petition within the period indicated on the relevant registration selection notice. The filing period for the H-1B cap-subject petition will be at least 90 days. Petitioners must include a printed copy of the applicable registration selection notice with the FY 2021 H-1B cap-subject petition.

USCIS to Continue Processing Work Authorization Extension Applications Using Prior Biometrics

Due to COVID-19, USCIS will adjudicate extension applications for work authorization (“EADs”) by reusing previously submitted biometrics. USCIS is making this one-time exception due to the temporary closure of Application Support Centers that normally complete biometrics for pending EAD applications. Applicants who had appointments scheduled on or after March 18, 2020, or who have filed their application, will have their application processed with previously submitted biometrics.

DHS to Grant Automatic Extensions to Employers Served with Notice of Inspection Relating to I-9 Enforcement

The Department of Homeland Security (“DHS”) announced that it will grant an automatic 60-day extension to employers that receive a Notice of Inspection (“NOI”) relating to I-9 government audit requests during the month of March 2020. The 60-day extension is granted to employers that have not already responded to their NOI. At the end of the 60-day extension period, DHS will determine if an additional extension will be granted.

If you have any questions or wish further guidance on these or any other immigration issues, please contact one of the authors or your Epstein Becker Green attorney.

On March 20, 2020, New Jersey Governor Phil Murphy signed legislation (“Law”) prohibiting employers from taking any adverse employment action against employees who take, or request, time off due to an infectious disease that could affect others at work based on a written recommendation of a New Jersey licensed medical professional.  The Law, which we summarized in a previous article, became effective upon enactment.

On April 1, the New Jersey Department of Labor and Workforce Development (“NJDOL”) adopted temporary emergency new rules implementing the Law and concurrently proposed the same rules for permanent adoption. The regulations, which became effective upon their emergency adoption, are codified at N.J.S.A. 12:70 (the “Regulations”).

The Regulations define several of the terms used in the Law, including, of most significance, “protected leave,” which is defined as:

leave from work taken by an employee during the Public Health Emergency and State of Emergency declared by the Governor in Executive Order No. 103 (2020) concerning the COVID-19 pandemic, based on the written or electronically transmitted recommendation of a medical professional licensed in New Jersey that the employee take that time off for a specified period of time because the employee has, or is likely to have, an infectious disease that may infect others at the employee’s workplace.

More substantively, the Regulations reiterate that an employee returning from protected leave must be reinstated to the position the employee held immediately prior to the commencement of the protected leave, with no reduction in seniority, status, employment benefits, pay, or other terms and conditions of employment.  The Regulations, however, also provide that if the position has been filled, the employer must reinstate the employee returning from protected leave to an equivalent position of like seniority, status, employment benefits, pay, and other terms and conditions of employment.

Finally, the Regulations address those instances in which an employment action may not be retaliatory under the Law, even though the employee took protected leave. Specifically, reinstatement is not required and failure to reinstate will not be considered retaliatory if: (i) the employer conducts a reduction in force that would have affected the employee had that person been at work; or (ii) the employee would have been impacted by the good faith operation of a bona fide layoff and recall system, including a system under a collective bargaining agreement that would not entitle the employee to reinstatement to the former or an equivalent position.

The remainder of the regulations primarily address remedies under the Law and the Regulations, in particular, reinstatement of the aggrieved employee to the same or an equivalent position and potential fines of $2,500 for each violation.

The U.S. Department of Labor has again updated its compliance assistance for the Families First Coronavirus Response Act (“FFCRA”), in the form of “Questions and Answers.”  This post summarizes the most recent Questions and Answers.  Previous summaries can be found here and here.

Some of the newest answers include the following:

  • Question 60: Clarifies that shelter-in-place and stay-at-home orders can qualify as federal, state, or local quarantine or isolation orders for purposes of leave under FFCRA.
  • Question 61: Clarifies that an individual is eligible for paid sick leave due to the need to self-quarantine, if a health care provider directs or advises the worker to stay home or otherwise quarantine, and quarantine prevents the individual from working (or teleworking).
  • Question 62: States that an individual generally is not eligible for paid sick leave, even if exhibiting symptoms of COVID-19 and self-quarantining, without seeking a medical diagnosis or the help of a health care provider.
  • Questions 63-65: States that an employee may take paid sick leave to care for someone subject to a quarantine or isolation order, or who has been advised by a medical professional to self-quarantine, only if that person genuinely needs the employee’s care. An employee may take leave only to care for an immediate family member, someone that resides with the employee, or someone with whom the employee has a relationship that creates an expectation of care.
  • Question 68: Confirms that a “child care provider” includes not only paid child care providers, such as nannies, au pairs, and babysitters, but also unpaid individuals who provide care on a regular basis, such as grandparents, aunts, uncles, or neighbors.
  • Question 70: Confirms that a child’s school or place of care is considered “closed” if it is physically closed, even if the school provides online or other form of “distance learning.”
  • Questions 71-72: State that while an employee may take paid sick leave to care for someone else’s child under certain circumstances, an employee may not take expanded FMLA leave to care for someone else’s child.
  • Question 75: Provides four steps to calculate the daily amount you must pay a seasonal employee with an irregular schedule who takes paid sick leave or expanded FMLA leave:
    1. Calculate how many hours of leave the seasonal employee is entitled to take each day by determining the average number of hours each day that he or she was scheduled to work over the period of employment, up to the last six months.
    2. Calculate the seasonal employee’s regular hourly rate of pay by adding up all wages paid over the period of employment, up to the last six months, and then dividing that sum by the number of hours actually worked over the same period.
    3. Multiply the daily hours of leave (step #1) by the regular hourly rate of pay (step #2) to compute the base daily paid leave amount.
    4. Determine the actual daily paid leave amount, which depends on whether the leave taken is paid sick leave or expanded FMLA leave, and the reason for the leave.
  • Question 76: States that an employee may not receive paid sick leave or expanded FMLA leave while receiving workers’ compensation or temporary disability benefits, unless the employee has returned to light duty and a qualifying reason prevents the employee from working.
  • Question 77: States that if an employee is on a voluntary, employer-approved leave of absence, the employee may end the leave of absence and begin taking paid sick leave or expanded FMLA leave if a qualifying reason prevents the employee from working (or teleworking).  But an employee on a mandatory leave of absence may not take paid sick leave or expanded FMLA leave.
  • Questions 78-79: Confirms that the DOL will not bring enforcement actions for violations of the FFCRA occurring within the first 30 days of enactment (e, March 18 through April 17, 2020), provided that the employer has made a reasonable, good faith effort at compliance.  This limited period of non-enforcement, however, does not excuse employers from failing to comply with the FFCRA during this time.

The COVID-19 pandemic has altered the international workplace and international employee-employer relations in profound ways.  As employees now work from home in significant numbers around the globe, multinational companies have suddenly been confronted with managing issues they may not have previously prioritized. Matters such as outfitting employees’ homes with the necessary technology to stay connected with clients and coworkers, and ensuring that employees receive sufficient ergonomics support and training to maintain a safe and healthy home office space, now are part of the “new normal” to sustain both employers and employees’ efficiencies and morale.  These issues are especially challenging for multinational companies that might wish to implement uniform global policies and practices, but that may be prevented from doing so by the varying protocols and guidance of the different countries in which they operate.

In addition to taking steps to maintain business continuity as citizens worldwide are being asked or ordered to “shelter in place,” many companies are exploring measures to avoid layoffs and mitigate economic insecurity during this crisis.  Options may include, for example, requiring employees to use accrued, unused paid leave; salary reductions; deferring salary increases, bonuses, and/or equity awards; and furloughs.  In many countries, however, actions such as these cannot be undertaken without employee consent and consultation with employee representatives or works councils; further, they may bring with them risks of constructive or wrongful dismissal with the associated damages.  And, as a last resort, many employers may find it necessary to consider permanent layoffs, which are highly regulated outside the United States, and which often require notice and/or severance, consultation with employees and works councils, and government notifications and/or social plans.

Like domestic businesses, multinational employers may consider several different approaches to address the economic impact of the COVID-19 epidemic. Global companies, however, also must consider the different ways that each option would have to be implemented in the various countries in which they do business.   Multinational employers, for example, are more likely to need to review and analyze any collective bargaining agreements that may be in effect – and which may apply by industry or position – and to follow mandatory procedures with respect to affected workers.

Although country-specific statutory and regulatory requirements will preclude a uniform, one-size-fits-all multinational solution, several important global themes have emerged during this crisis.  For example, in response to the COVID-19 pandemic, many countries are implementing legislation (e.g., Brazil, the Netherlands, and the United Kingdom) to socialize the idea that employers may seek to reduce employees’ pay in exchange for greater job security.  Such legislation has been widely publicized, and employees in other countries are unlikely to be surprised that their employers are considering similar measures outside the established statutory scheme.

As we enter a “new normal,” it will behoove multinational employers to lay the ground work for employee “buy-in” before implementing changes that their businesses need to weather the COVID-19 storm.  Effective communications with employees and works councils will be paramount to help ensure that (i) the proposed measure is implemented successfully, (ii) the risk of subsequent legal action is reduced, and (iii) employee morale issues are minimized.  Straightforward and honest communications with employees can ease employee relations concerns. Employees inevitably will learn who will and will not be impacted by a company’s actions; however, open communications in advance can be a valuable tool in successful implementation of painful, but necessary measures.  And, of course, to the extent the employment actions being undertaken can be truthfully presented as temporary as opposed to final, the more likely employees will be willing to accept such changes, especially in the current COVID-19 business environment.  These communications must come from the top ranks of the organization in order to legitimize the effort to save as many jobs as possible.

The global coronavirus pandemic ignores international borders and has created a worldwide health and financial crisis.  The business response to the financial consequences wrought by COVID-19, however, will be constrained, and must be informed, by the workplace laws and practices that govern in different countries around the world.

As featured in #WorkforceWednesday:  Last week, Congress passed and President Trump signed the CARES Act, a $2+ trillion stimulus law, which is the largest stimulus in U.S. history. Attorney Paul DeCamp discusses how this law could benefit certain employers during this unprecedented time in the following video interview.

Video: YouTubeVimeoMP4Instagram.

The U.S. Department of Labor (“DOL”) continues to update its compliance assistance for the Families First Coronavirus Response Act (“FFCRA”), in the form of “Questions and Answers.”  The DOL posted a temporary rule issuing regulations pursuant to the FFCRA on April 1, 2020; while we are digesting the temporary rule and preparing a forthcoming advisory, we wanted to highlight some of the important insights of the updated FAQs. The DOL published its initial guidance on March 24, 2020, summarized in a previous post, covering the FFCRA’s paid sick and paid family leave requirements as well as the mandatory notice to employees.

Some of the newest answers to FAQs include the following:

  • Questions 20 and 21: Address the fact that employees may take sick time and expanded FMLA intermittently, but only if the employer agrees, in the following circumstances:
    1. If the employee is teleworking, any type of FFCRA leave could be taken intermittently, and in any increments the parties agree to.
    2. If the employee is physically at the workplace, an employee may take intermittent leave if the employee needs to care for their child whose school or place of care is closed, or child care provider is unavailable (in either case specifically because of COVID-19 related reasons). Such leave can only be taken in full-day increments.
  • Questions 23-27: Address the fact that, if an employee has been terminated, is on furlough, or the employer has closed its worksite (and as a result, the employee has no work), regardless of whether this change occurred before or after April 1, the employee is not eligible for paid or unpaid leave under the FFCRA.
  • Question 28: States that if an employee’s work schedule is reduced by the employer, the employee cannot take FFCRA leave to bridge the gap between the employee’s reduced hours and the hours the employee used to work. However, if a qualifying reason makes the employee unable to work their full schedule, they are entitled to leave based on their prior full schedule.
  • Question 29: Confirms that employees cannot collect paid benefits through FFCRA and through unemployment insurance at the same time.
  • Question 30: States that employees who have elected group health coverage are entitled to retain that health coverage throughout any period of FFCRA leave.
  • Questions 31-33: Provide that only upon agreement between the employer and the employee may an employee run paid time off under the employer’s existing policies and FFCRA leave concurrently, so that the employee can receive full pay while on FFCRA leave.
  • Question 40: Explains that, for purposes of determining FFCRA paid family leave eligibility, the interpretation of the term “son or daughter” is consistent with current FMLA regulations, and includes the employee’s own child, which includes a biological, adopted, or foster child, stepchild, legal ward, or a child for whom the employee stands in loco parentis, as well as an adult son or daughter who (1) has a mental or physical disability, and (2) is incapable of self-care because of that disability.
  • Question 43: Confirms that although leave under the FFCRA is job-protected, it does not shield employees from “employment actions, such as layoffs, that would have affected you regardless of whether you took leave.”
  • Questions 44-45: Clarify that the 12 weeks of expanded FMLA leave under the FFCRA are cumulative with any other FMLA leave the employee may have already taken. In other words, if an employee has already taken 8 weeks of FMLA leave in the one-year period their employer uses to define eligibility under the FMLA, the employee will only be eligible to take 4 more weeks of expanded FMLA leave under the FFCRA. Further, the amount of FMLA leave previously taken will not affect whether the employee is entitled to take sick leave under the FFCRA.

In addition to the above FAQs applicable to all employers, the DOL also answered some questions that are particularly relevant to health care entities:

  • Question 56: Explains that, for purposes of determining who may be excluded from FFCRA coverage, the term “health care provider” broadly includes anyone employed at any doctor’s office, hospital, health care center, clinic, post-secondary educational institution offering health care instruction, medical school, local health department or agency, nursing facility, retirement facility, nursing home, home health care provider, any facility that performs laboratory or medical testing, pharmacy, or any similar institution, employer, or entity. The definition of “health care provider” for this purpose also includes any individual employed by an entity that contracts with any of the above institutions, employers, or entities to provide services or to maintain the operation of the facility; anyone employed by any entity that provides medical services, produces medical products, or is otherwise involved in the making of COVID-19 related medical equipment, tests, drugs, vaccines, diagnostic vehicles, or treatments; and any individual that the highest official of a state or territory, including the District of Columbia, determines is a health care provider necessary for that state’s or territory’s or the District of Columbia’s response to COVID-19.
  • Question 57: Explains that, for purposes of determining who may be excluded from FFCRA coverage, the term “emergency responder” is an employee who is necessary for the provision of transport, care, health care, comfort, and nutrition of such patients, or whose services are otherwise needed to limit the spread of COVID-19, including military or national guard, law enforcement officers, correctional institution personnel, fire fighters, emergency medical services personnel, physicians, nurses, public health personnel, emergency medical technicians, paramedics, emergency management personnel, 911 operators, public works personnel, and persons with skills or training in operating specialized equipment or other skills needed to provide aid in a declared emergency. “Emergency responders” also include individuals who work for such facilities employing these individuals and whose work is necessary to maintain the operation of the facility, as well as any individual that the highest official of a state or territory, including the District of Columbia, determines is an emergency responder necessary for that state’s or territory’s or the District of Columbia’s response to COVID-19.

Finally, the DOL issued guidance on the application of the small business exemption provided for by the FFCRA:

  • Question 58: States that an employer with fewer than 50 employees can claim the small business exemption provided for by the FFCRA if an authorized officer of the business has concluded that:
    1. The provision of paid sick leave or expanded family and medical leave would result in the small business’s expenses and financial obligations exceeding available business revenues and cause the small business to cease operating at a minimal capacity;
    2. The absence of the employee(s) requesting paid sick leave or expanded family and medical leave would entail a substantial risk to the financial health or operational capabilities of the small business because of their specialized skills, knowledge of the business, or responsibilities; or
    3. There are not sufficient workers who are able, willing, and qualified, and who will be available at the time and place needed, to perform the labor or services provided by the employee(s) requesting paid sick leave or expanded family and medical leave, and these labor or services are needed for the small business to operate at a minimal capacity.

On March 31, 2020, the U.S. Department of the Treasury (“Treasury”) issued preliminary guidance regarding implementation of the Paycheck Protection Program (“PPP”), which is the $349 billion program contained in the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) that provides forgivable loans to eligible small U.S. businesses to help them weather the coronavirus (“COVID-19”) crisis.  The guidance consists of three advisory documents: (i) an overview of the program; (ii) information for lenders about the PPP; and (iii) information for potential borrowers.  Additionally, the Treasury released a copy of the PPP application form.

While this initial guidance generally restates what is already contained in the CARES Act (as we reported here), the just-released documents provide the following clarifications and new information:

  1. The terms of all PPP loans will be the same for every borrower. The loans will have a term of two years with an interest rate of 0.5 percent, and payments will be deferred for six months, although interest will continue to accrue over this period. The interest rate is significantly lower than the 4 percent cap mandated in the Act.
  2. Banks may start processing applications on Friday, April 3, 2020 for eligible small businesses and sole proprietorships (i.e., employers with 500 or fewer employees, with exceptions for some larger businesses). Eligible independent contractors and self-employed individuals can apply for loans beginning April 10, 2020.
  3. While eligible entities have until June 30, 2020 to submit their PPP loan application and all required documentation to an approved lender, the guidance encourages early application as the program has a funding cap.
  4. With respect to the amount of the loan that may be forgiven, it is “anticipated” that, “due to the likely high subscription” to the loan program, not more than 25 percent of the forgiven amount may be used for non-payroll costs.
  5. Additional guidance may be issued with regard to the waiver of the Small Business Administration’s (“SBA”) affiliation standards (which the CARES Act waived for small businesses (i) in the hotel and food services industries, pursuant to NAICS code 72; (ii) that are franchises in the SBA’s Franchise Directory; or (3) that receive financial assistance from small business investment companies licensed by the SBA).
  6. The guidance provided for lenders concerns a variety of matters, including fees and underwriting.

It is expected that additional, formal regulations and/or more substantive guidance will be forthcoming.

Sometimes a crisis can be an opportunity to embrace new technologies and changes that were already on the horizon – albeit at a much more expedited pace.  As employees are required to work remotely and practice social distancing due to the COVID-19 pandemic, the federal government and several state governments (including New York and New Jersey) are moving (New York more quickly than New Jersey) to enable remote online notarization and keep businesses operating.

A Potential Federal Solution

On March 18, 2020, Senator Kevin Kramer, R-N.D. and Mark Warner, D-Va, introduced legislation that would allow immediate nationwide use of remote online notarization in response to the Covid-19 outbreak.  Senate Bill 3533, the Securing and Enabling Commerce Using Remote and Electronic Notarization Act of 2020 (the “SECURE Act”) was introduced as bipartisan legislation to authorize and establish minimum standards for electronic and remote notarizations that occur in or affect interstate commerce.  If the SECURE Act becomes law, it will authorize every notary in the US to perform remote on-line notarizations using audio-visual communications and tamper-evident technology in electronic notifications and provide fraud prevention through use of multifactor authentication.

Currently, only twenty-three states allow notaries to conduct remote notarizations: Arizona, Florida, Idaho, Indiana, Iowa, Kentucky, Maryland, Michigan, Minnesota, Montana, Nebraska, Nevada, North Dakota, Ohio, Oklahoma, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington and Wisconsin.

Until the Covid-19 outbreak forced non-essential businesses to close and employees to work from home, neither New York nor New Jersey permitted remote on-line notarization of documents.

New York Moves Swiftly To Allow Remote Notarizations Through April 18, 2020

New York Governor Andrew Cuomo issued an executive order allowing notarizations using audio-video technology in place of physical appearance under certain conditions. This option allows New York Notaries and signers to practice the necessary “social distancing” required to reduce risk of contracting COVID-19. The order is in effect through April 18, 2020.

To use audiovisual technology to communicate during the notarization, the Notary and signer must comply with the following requirements:

  • The person seeking the Notary’s services, if not personally known to the Notary, must present valid photo ID to the Notary during the video conference. The signer may not present ID prior to or after the notarization.
  • The video conference must allow for direct interaction between the person and the Notary (e.g. no pre-recorded videos of the person signing).
  • The person must affirmatively represent that he or she is physically located in the State of New York.
  • The person must transmit by fax or electronic means a legible copy of the signed document directly to the Notary on the same date it was signed.
  • The Notary may notarize the transmitted copy of the document and transmit the same back to the person.
  • The Notary may repeat the notarization of the original signed document as of the date of execution provided the Notary receives such original signed document together with the electronically notarized copy within thirty days after the date of execution.

New Jersey Is On The Right Track, But Moving Too Slowly

On March 19, 2020, the New Jersey Legislature passed bill A-3864 which awaits signature by Governor Murphy and will allow remote notarization.  However, once signed by the Governor, the bill does not take effect for 90 days.  In addition, the New Jersey law does not apply to wills or family law matters (divorce, adoption, etc.).

Until Bill 3864 is signed by Governor Murphy and becomes effective, notaries in New Jersey have been instructed to perform “window-separated signings”.  This means that the Notary and signor must be able to communicate with each other by sight and sound through the window and by normal means.  Cell phones, FaceTime, Skype, Zoom or any other electronic communication tools may not be used for a “window-separated signing.”  The Notary must follow all federal, state and local guidelines for social distancing, health protection and sanitization when meeting with signers and handling documents, IDs or other materials. As Covid-19 continues to tear through New Jersey and the United States as a whole, “window-separated signings” is not a practical solution and provides little comfort to notaries and signers alike.

While the US as a whole has been moving towards remote notarization for years, state by state, this crisis could be the impetus for a national resolution.

On March 30, 2020, New Jersey Governor Phil Murphy and Superintendent of the State Police Colonel Patrick Callahan (who also acts as the State Director of Emergency Management) issued Administrative Order 2020-6  providing additional guidance regarding how certain businesses may operate under Gov. Murphy’s Executive Order 107 (which we wrote about here).  The Administrative Order clarifies and directs that:

  • Individual appointments to view real estate with realtors by individuals or families shall be considered essential retail business, but that open houses are still considered impermissible gatherings;
  • Car dealers may continue to conduct online sales or remote sales that are consistent with current law. In the event of such a sale, the car may be delivered to the purchaser or the purchaser can pick up the car either curbside or in the dealership’s service lane;
  • In accordance with the guidance released by the federal Department of Homeland Security, effective Tuesday, March 31, at 8:00 a.m., firearms retailers are permitted to operate – by appointment only and during limited hours – to conduct business that legally must be done in person. The NICS background check system will be up and running to process firearms purchases; and
  • Golf courses are considered recreational and entertainment businesses that must close to the public and to members associated with private golf clubs.

In announcing the Administrative Order, Col. Callahan and Gov. Murphy stressed the need to be flexible in order to keep New Jersey’s economy running, but made clear that the safety of residents is the top priority.  “While we’ve made adjustments to businesses that are permitted to operate, my stay-at-home order remains firmly in effect,” said Governor Murphy. “Unless you absolutely need to get out, or unless your job is critical to our response, I have ordered all New Jerseyans to just stay home.”