In a matter of weeks, COVID-19 has changed the workplace.  Travel restrictions, shelter-in-place orders, and mandatory closures have meant that it is far from business as usual for nearly all employers.  The unprecedented events of the last few weeks have forced many employers, facing major business disruptions or closures, to make tough decisions about hiring, layoffs, furloughs, and compensation.

Some of these employment decisions may implicate written employment contracts and collective bargaining agreements that contain “force majeure” clauses that excuse performance if certain events should occur.  Black’s Law Dictionary defines “force majeure” as “an event or effect that can be neither anticipated nor controlled.”  The frequency of force majeure clauses varies by industry.  In healthcare employment agreements, force majeure clauses are more common because disaster planning is particularly prevalent in the healthcare industry.  Other industries may follow suit in the wake of this pandemic.

The question many employers are now asking is whether COVID-19 allows them to invoke the force majeure clauses in their employment contracts to excuse their inability to perform their contractual obligations.  And the answer is: It depends.

As with most things in the legal world, the devil is in the details.  Initially, employers should closely examine the language and scope of the contract because not all force majeure clauses are created equal.  Some contracts may specifically delineate “pandemics,” “epidemics,” or “outbreaks of disease” as force majeure events.  Other contracts, however, may contain more general force majeure clauses that refer to “Acts of God” or “events which are outside of the parties’ control.”  No doubt, many parties will end up litigating whether COVID-19 qualifies as a force majeure event under these more general clauses.

But even if an employment contract clearly contemplates an epidemic or a pandemic such as COVID-19, as a force majeure event, there are still other issues that employers need to examine:

  • Consider whether the employment contract (or applicable state law) imposes an obligation on the party invoking the force majeure event to timely notify the other party of its inability to perform under the contract. For example, collective bargaining agreements may include notice provisions that require employers to provide the union with timely notice of the employer’s inability to perform under the contract as a condition of being able to rely on the clause.
  • Evaluate whether the force majeure provision excuses the employer’s nonperformance completely, or only during the pendency of the force majeure event. For instance, if an employer has made an employment offer to a prospective employee but the business has stopped operating due to a statewide shelter-in-place or quarantine order, the employer should consider whether the force majeure provision allows the employer to withdraw the offer entirely or simply delays the prospective employee’s start date until the business can resume operations.
  • When seeking to rely upon a force majeure clause, an employer may still be under a duty to mitigate the impact that COVID-19 has on its ability to perform under the employment contract. In fact, the contract may even delineate what mitigation steps the employer should take.  For example, many employers have attempted to mitigate the effects of shelter-in-place orders by allowing employees to work from home.

Even where no express force majeure clause exists to excuse nonperformance, the common law doctrines of impossibility, impracticability, and frustration of purpose may fill that void.  Further discussions of these doctrines can be found here and here.

Employers should also consider how they can incorporate the lessons learned from COVID-19 into their future employment contracts.  Force majeure clauses are sometimes thrown in as a matter of boilerplate, but no drafter should include such a clause without fully considering the potential consequences.  See e.g., Commonwealth Edison Co. v. Allied-General Nuclear Serv., 731 F. Supp. 850, 855 (N.D.Ill. 1990) (Posner, J.) (“If, however, the parties include a force majeure clause in the contract, the clause supersedes the doctrine [of impossibility].”)  Employers should consider clarifying any vague or ambiguous force majeure clauses and ensure that pandemics, epidemics, and other outbreaks of disease are specifically carved out as force majeure events.  General force majeure clauses that do not specifically include pandemics in their definitions may not provide protection during a future pandemic if courts find that such events have now become foreseeable.  Equally important, employers should think about what contractual remedies are available to the parties if a force majeure event should occur.  For example, employers should consider whether to include liquidated damages remedies in the event that a force majeure event requires termination of the contract.  Employers should also review the “choice of law” provisions in their employment contracts and determine how widely or narrowly the courts in the chosen jurisdiction have interpreted force majeure clauses.

Perhaps one of the most important takeaways from COVID-19 is to value contingency planning and have business continuity plans in place.  Indeed, preparing for business disruptions in this way may obviate the need for some employers to invoke force majeure clauses at all.

Should you have any questions or need further guidance on this or any COVID-19 issue, please contact Peter Steinmeyer, Amy Bharj, or your Epstein Becker Green attorney.

New York State has issued guidance in the form of Frequently Asked Questions (“FAQs”) regarding the State’s new COVID-19 Leave Law (the “Law”). As we have reported, the Law requires New York employers to provide certain employees who are under a COVID-19-related quarantine or isolation order with either paid or unpaid sick leave, depending on the employer’s size and net income. The FAQs provide answers to more than 30 questions regarding the Law’s mandates on benefits, eligibility, the application process, disputes, and the complaint process.

For example, the FAQs clarify that the leave periods under the Law refer to calendar days, not business days, but when granting paid leave, employers are required to pay the amount of money that the employee would have otherwise received during the five- or 14- day period. The FAQs also clarify that the Law applies to part-time employees, and that employers must provide such employees paid leave at the rate they would have otherwise been paid “had the employer’s operations continued in its normal due course.” If necessary, employers should look at a representative time period to determine the employee’s average daily pay rate. Notably, the FAQs clarify that the Law applies retroactively, that is, to employees who were quarantined prior to the Law’s effective date (March 18), but remain under a quarantine order

With respect to eligibility, the FAQs state that only employees who are under a mandatory or precautionary quarantine order, and are not able to work from home through remote access or other means, are eligible for leave under the Law.  The FAQs also make clear that employees whose employer temporarily shuts down because of COVID-19 are not covered by the Law (but may be eligible for unemployment insurance, which they can apply for at the NYS Department of Labor website).

Regarding school closures, if the child’s school or care center is closed due to a mandatory or precautionary order of quarantine or isolation issued by the State, department of health, local board of health, or government entity, an employee may be eligible to apply for NY Paid Family Leave benefits (but will not be eligible for paid leave directly from an employer).  The Law, however, does not provide eligibility for PFL benefits for school closures unrelated to a quarantine (e.g. for preventative social distancing), and the FAQs do not directly address whether the Governor’s order closing schools constitutes a “quarantine” order under the Law (and by its express terms, the Governor’s directive does not reference or seem to constitute such a quarantine order. While school closures are covered as eligible for leave under the federal FFCRA, absent a quarantine order, such closures do not entitle employees to paid leave from their employer under NY law.

The FAQs also address the Law’s interaction with other forms of paid leave to which an employee may be entitled. Specifically, the FAQs state that employers may not require employees to use their existing sick leave accruals or other accruals, such as paid time off, before taking COVID-19 leave under the Law. Further, employees may be eligible to take leave under the expanded Paid Family Leave provisions, and may also be entitled to disability leave if they are quarantined due to COVID-19, but only after exhausting the Law’s paid sick leave benefits (if they are eligible for such benefits).

Additionally, the FAQs provide detailed guidance on the types of forms and supporting documentation employees must provide when applying for leave benefits under the Law.

Finally, while the FAQs themselves do not address how employer’s size should be calculated for the purpose of determining how much leave employees are entitled to, an operator at the NY Paid Family Leave Hotline advised us that the employer’s size should be determined by counting an employer’s total number of employees, not just the employees working in New York.

A post on the Health Law Advisor blog will be of interest to many of our readers: “Coronavirus and Cash Shortfalls – What Can You Do to Mitigate the Effects of Coronavirus on Your Organization’s Financial Health?,” by attorney of Epstein Becker Green.

Following is an excerpt:

The coronavirus is having a direct effect – financial and otherwise – on nearly every business.  While the long-term effects of the global pandemic will be significant and far-reaching, the short-term financial consequences to businesses, due to expected cash shortfalls, could make the difference in a company’s survival.  Here are four areas that businesses should review that could impact – and potentially improve – their financial situation …

Read the full post here.

On March 13, 2020, Governor Greg Abbott declared a State of Disaster in Texas due to COVID-19. Subsequently, on March 19. 2020, Governor Abbott issued a Public Health Disaster Declaration, and an Executive Order, which, among other things, prohibited congregating in groups consisting of more than ten people, and closed all Texas restaurant dining rooms [1] bars, gyms and schools, effective March 20, 2020.  Governor Abbott has refrained from issuing a statewide shelter-in-place order, and has instead left the decision up to city and county leaders.  In the days that followed, and throughout this week, 16 counties, and major cities in Texas, including Austin, Dallas, El Paso, Houston, and San Antonio have issued “Stay at Home” orders, which share many similarities, with a few distinctions.  The following are summaries of the key aspects of the orders that may impact the workplace, followed by a glossary defining some of the key terms in the orders.

Austin’s “Stay Home – Work Safe” Order

On March 24, 2020, the City of Austin announced a “Stay Home – Work Safe” Order similar to a shelter in place or stay at home orders issued in other cities across U.S. and in Texas. The new Stay Home – Work Safe Order took effect at 11:59 P.M. on March 24, 2020 and will continue through April 13, 2020. The Austin Order, which applies to the City of Austin and Travis County, provides that all business or operations within the City of Austin must “cease all activities at facilities located within the City,” except for Essential Activities, Critical Infrastructure, Essential Government Functions, Essential Businesses.  Other businesses may engage in “Minimum Basic Operations,” which includes activities required to maintain the value of inventory, ensure security, and process payroll and employee benefits.  The Austin Order also provides that employees who are able may work remotely from within their residences.   All travel, including by foot, bicycle, or car, is prohibited, unless the travel is for the purposes of Essential Travel, Essential Activities, Essential Business (all of which are defined below), government service, or critical infrastructure. Anyone who violates the Austin Order will face penalties, including a fine of up to $1,000 or up to 180 days in jail

Dallas’ Stay Home Stay Safe Order

On March 24, 2020, Mayor Eric Johnson issued emergency regulations that apply a previously-issued Dallas County Stay Home Stay Safe Order to five counties that comprise the City of Dallas: Collin, Dallas, Denton, Kaufman, and Rockwall Counties.  The extension of the Dallas Order is intended to ensure that enforcement efforts will help provide consistency across neighboring jurisdictions, ensure that enforcement efforts across the city are uniform, and will clarify any confusion among Dallas residents.  Originally issued on March 22, 2020, the Dallas County Order provides some of the strictest requirements of all the Texas locality city or county COVID-19 shelter-in-place orders, requiring staying at home, except for Essential Activities, work at Essential Businesses and government services, or to perform essential infrastructure construction. Anyone who violates the regulations faces a fine from between $50 and $2,000.  While the original Dallas County Order was to be in effect until April 3, 2020, the new regulations apply the Dallas County Order to the expanded localities from 11:59 P.M. March 24, 2020 until April 29, 2020.

El Paso’s Stay-At-Home Order

On March 24, 2020, El Paso County issued a Stay-At-Home Order. Unlike many other similar orders, however, the El Paso Order does not have a set sunset date, and will remain in place from 11:59 P.M. on March 24, 2020 until further notice.  Like the Austin and Dallas Orders, anyone who violates the El Paso Order will face penalties, including a fine of up to $1,000 or up to 180 days in jail.  In addition to calling El Paso 311, the El Paso government has set up an email address where non-compliance can be reported. This is the second COVID-19-related order issued by El Paso County – on March 19, 2020, the County had issued an Emergency Order Extending a Disaster Declaration Due To a Public Health Emergency.

Houston’s Stay Home, Work Safe Order

On March 24, 2020, Houston and Harris County joined other Texas cities in announcing “Stay Home, Work Safe Order.”  A number of other orders had previously been issued there, including Harris County’s “Declaration of Local Disaster for Public Health Emergency,” effectively declaring a state of emergency due to COVID-19 in Harris County.  The Houston Order, which went into effect midnight March 24, 2020, continues through April 3, 2020.  The “Stay Home, Work Safe Orders outlined businesses that are deemed non-essential, and are to be closed to the public, including, but not limited to, playgrounds, gyms, fitness centers, swimming pools, hair and nail salons, spas, tattoo parlors, concert halls, arenas, stadiums, live performance theaters, movie theaters, and indoor malls and shopping centers.

San Antonio’s Stay Home, Work Safe Order

On March 23, 2020, the City and County of San Antonio announced a joint “Stay Home, Work Safe” Order.  In addition to announcing its stay-at-home and business closure policies, similar to the orders outlined above, the San Antonio Order also declares a state of disaster and public health emergency for the City.  One distinction from the other city orders is the specific enumeration of Information Technology and operations related to National Cyber Security as “Exempted Businesses.” The San Antonio Order has been in effect from 11:59 P.M. March 24, 2020 until at least 11:59 P.M. on April 9, 2020.

 

COMMON TERMS FOR “STAY HOME” ORDERS

Essential Activities:

 Pursuant to the Stay Home Orders outlined above, in effect in Austin, Dallas, El Paso, Houston and San Antonio, all individuals are prohibited from leaving their residences, unless they are engaged in the following “Essential Activities”:

  1. Tasks essential to health and safety, including the health and safety of family or household members;
  2. Activities to obtain necessary services or supplies, including food, pet supplies, and other household items, including for family or household members, or to deliver those services or supplies to others;
  3. Engaging in outdoor activities, such as walking, hiking or running that complies with six-feet social distancing requirements;
  4. Work performed to provide essential products or services to Essential Businesses (defined below);
  5. To care for a family member or pet in another household (Austin and Dallas only); and
  6. To seek safe residence when there is domestic violence in the home (El Paso only).

Essential or Exempt Businesses:

Businesses that are deemed “Essential” or “Exempt” from the above Stay Home Orders include:

  • Healthcare operations;
  • Stores that sell groceries and certain other essential supplies;
  • Food cultivation;
  • Social services and charitable organizations;
  • News media;
  • Gas stations and businesses needed for transportation;
  • Financial institutions;
  • Hardware and supply stores;
  • Critical trades, including plumbing, electricians, and exterminators;
  • Mail, shipping and delivery services;
  • Laundry services;
  • Restaurants for consumption off-premises;
  • Supplies to work from home;
  • Supplies for Essential Businesses, Critical Infrastructure, and Essential Government Functions;
  • Food delivery services;
  • Transportation;
  • Home-based care and services;
  • Residential facilities and shelters;
  • Professional services (such as legal or accounting services necessary to comply with legally required activities;
  • Information technology services;
  • Moving supply services;
  • Hotels and motels;
  • Funeral services;
  • Educational institutions;
  • Childcare facilities; and
  • Operations necessary to the operation of infrastructure sectors identified by the National Cybersecurity and Infrastructure Agency (San Antonio only).

Essential Travel:

“Essential Travel,” which includes travel for the purposes of engaging in Essential Activities and to engage in activities related to Essential Businesses, is generally permitted. Note that the El Paso Order enumerates a broad form of this permitted Essential Travel, listing “[t]ravel engaged in interstate commerce and otherwise subject to the provisions of the Commerce Clause of the United States Constitution” as an enumerated purpose for which residents of El Paso may leave their homes.

Social Distancing Requirements:

The Stay Home Orders in effect for Austin, Dallas, El Paso, Houston and San Antonio require individuals to maintain at least six feet of distance from other individuals, to frequently wash their hands with soap and water for at least 20 seconds, to cover coughs and sneezes, to clean frequently touched surfaces regularly, and not to shake hands.

WHAT TEXAS EMPLOYERS SHOULD DO NOW

Texas employers should review their current operations, in light of any relevant city or county orders, and determine whether they can continue to operate fully as an “Exempt” or “Essential” operation or business, or if certain adjustments to the scope of their operations must be made. In addition, employers should review their relevant paid leave policies, benefit plans and expense reimbursement policies and procedures to determine how they will apply under these circumstances.  Employers should also continue to monitor federal, state, and local legislative, regulatory, and executive branch developments, as well as Epstein Becker & Green’s Coronavirus Resource Center.

In addition, Epstein Becker Green is continually monitoring how the COVID-19 pandemic will impact Texas employers and will provide further updates, as necessary.  In the meantime, should you have any questions or need further guidance on this or any COVID-19 issue during this time, please contact Greta Ravitsky or Anastasia Regne.

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[1] While the Executive Order closed all Texas restaurant dining rooms, drive-through, pickup, or delivery options are allowed and highly encouraged during the duration of this Order.

On March 25, 2020, by signing legislative bill S2304 into law, Governor Philip Murphy expanded the availability of benefits under the state’s Temporary Disability Insurance (“TDI”) and Family Leave Insurance (“FLI”) programs to employees impacted by epidemic-related illnesses such as COVID-19.  The new law (“Law”) provides numerous key changes to the existing statutory scheme for state-issued disability insurance benefits, family leave insurance benefits, and use of accrued paid sick time.

Expanded Permissible Uses for Earned Sick Leave 

The Law expands the permissible uses of sick leave earned under New Jersey’s Earned Sick Leave Act to include times when an employee cannot work because, by order of a public health official or because of a state of emergency declared by the Governor due to a pandemic or other public health emergency, the employee’s workplace is closed or the school or child care facility of the employee’s child is closed. The new law also provides for earned sick leave to be used when: (a) a health care provider or other public health authority determines that the presence in the community of the employee, or a member of the employee’s family in need of care by the employee, would  jeopardize the health of others; or (b) the employee undergoes isolation or quarantine, or cares  for a family member in quarantine, as a result of suspected exposure  to a communicable disease at the direction of a healthcare provider or other authorized public official who asserts that the presence in the community of the employee or  family member would jeopardize the health of others;

Broadened NJ Family and Temporary Disability Benefits

The Law broadens the availability of benefits under the New Jersey Family Leave Act and Temporary Disability Act.  The law expands the definition of “serious health condition” under both laws to include, during a state of emergency, an illness caused by an epidemic of a communicable disease, a known or suspected exposure to such a disease, or efforts to prevent the spread of that disease, which requires in-home care or treatment of the employee or a family member due to an order from a public health authority or healthcare provider.

Elimination of Waiting Period in Certain Cases

In addition, the Law eliminates the current one-week waiting period for temporary disability benefits in cases related to an epidemic.

The Families First Coronavirus Response Act (the “Act”), which we detailed in a previous Advisory, requires private employers with fewer than 500 employees (“covered employers”) to provide paid sick leave (“Emergency Paid Sick Leave”) and family leave (“Public Health Emergency Leave”) for certain COVID-19 related absences and includes a tax credit for employers for the cost of the paid leave.

As covered employers prepare to meet these requirements, questions have arisen related to the payroll tax relief associated with these payments.  This update addresses some of these questions based on the guidance available at this moment.

  1. When are tax credits available to eligible employers?

Eligible employers will be able to claim payroll tax credits based on qualified leave taken by their employees between April 1, 2020, the effective date of the Act, and December 31, 2020.  These employers qualify for dollar-for-dollar reimbursement through tax credits for all qualifying wages paid under the Act.  Qualifying wages are those paid to an employee who takes leave under the Act for a qualifying reason, up to the appropriate per diem and aggregate payment caps.  Applicable tax credits also extend to amounts paid or incurred to maintain health insurance coverage.

Note also that under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) passed by the U.S. Senate on March 26, 2020, employers will most likely be able to postpone payment of the employer payroll taxes they do owe for 2020.  Unless modified before enactment, the CARES Act would permit 50 percent of employer payroll taxes for 2020 to be payable on December 21, 2021, with the other 50 percent to be payable on December 31, 2022.

  1. How will the payroll tax credits under the Act work?

While the Act as passed provided for a tax credit on Emergency Paid Sick Leave against the employer’s portion of Social Security taxes, a joint statement issued on March 20, 2020 by the Department of Treasury,  Internal Revenue Service (IRS), and the Department of Labor (IR-2020-57) (the “Joint Statement on the Act”) clarified that the employer tax credit under the Act includes employee income tax withholding, and both the employee and employer portion of Social Security and Medicare taxes.  Emergency Paid Sick Leave provided under the Act is credited against these payroll taxes, and any excess is refundable on an expedited basis.

The Joint Statement on the Act elaborates on how the Act caps the tax credit available to eligible employers to equal the amount of Emergency Paid Sick Leave and Public Health Emergency Leave taken by eligible employees.  The Act allows each eligible employer to retain total payroll taxes up to the amount of the credit, rather than having to deposit those amounts quarterly to the IRS.  If the total Emergency Paid Sick Leave taken exceeds the employer’s payroll tax liability for a quarter, an eligible employer can request an expedited cash refund using a streamlined form that the IRS will release this week.

  1. How will the mechanics of the credit work?

 For example, if an employer pays $100,000 in paid sick leave under the Act, and the employer’s total payroll tax liability for the quarter is $150,000, the employer would only need to make a quarterly payroll tax deposit of $50,000.  If the employer pays $100,000 in Emergency Paid Sick Leave under the Act, and the employer’s total payroll tax liability for the quarter is $50,000, the employer would make no payroll tax deposits to the IRS for that quarter, and could request an expedited credit refund of $50,000, based on procedures soon to be announced.

  1. Is there any other administrative guidance at this time?

The Joint Statement on the Act previewed the formal administrative guidance that will be forthcoming.  Formal guidance may set forth additional requirements or distinctions regarding the application of employer tax credits with respect to qualified leave under the Act.  The CARES Act also appears to provide that employers can seek advance refunds of the payroll tax credit for Emergency Paid Sick Leave and Public Health Emergency Leave refunds using forms and instructions to be provided by the IRS, and further instructs the IRS to waive any penalties payable by employers for failure to deposit payroll taxes, if the failure were due to an anticipated payroll tax credit for Emergency Paid Sick Leave and Public Health Emergency Leave.

  1. Are private employers that are part of a larger group of related companies eligible for payroll tax credits provided by the Act, if their combined employee totals equal or exceed 500 employees? 

According to guidance published by the Department of Labor (the “DOL Q&As”) if two or more entities are part of an integrated employer under the Family Medical Leave Act  (“FMLA”), which the Act amends, then employees of all entities making up the integrated employer count.  The DOL Q&As state that the relevant count is whether, at the time the employee is to take leave, the employer has, in total, fewer than 500:

  1. full-time and part-time employees within the United States (including any State, the District of Columbia, or any Territory or possession of the United States);
  2. employees on leave;
  3. jointly employed temporary employees; and
  4. day laborers supplied by a temporary agency.

The Act does not regard workers who are independent contractors under the Fair Labor Standards Act (the “FLSA”), rather than employees, as employees for purposes of the 500-employee threshold.

Unlike the Public Health Emergence Leave provisions of this Act, the Emergency Paid Sick Leave provisions do not specifically amend, or become part of, an existing substantive law like the FMLA or the FLSA.  However, companies subject to the FMLA already must provide unpaid sick leave (whereas state law has governed general paid sick leave requirements).

Neither the Act nor the DOL Q&As specify that the integrated employer concept applies for purposes of counting employees under the Emergency Paid Sick Leave provision.  Thus, it is unclear whether there is an intended distinction under the Act as to whether an employer who may equal or exceed 500 employees under an FMLA integrated employer analysis would still be eligible to claim payroll tax credits for paid sick leave so long as it is not a joint employer surpassing the employee thresholds.

  1. How should an employer proceed if unclear whether they are part of an integrated employer?

It seems reasonable to argue that an employer who is an integrated employer under an FMLA analysis, who would have been subject to unpaid sick leave obligations prior to the passage of the Act, should apply the same analysis to determine whether it is eligible for the credits associated with providing paid sick time under this Act.  However, DOL may elect to clarify this issue in forthcoming regulations or other guidance materials.

For the time being, employers with fewer than 500 employees but that are part of a potential integrated employer with 500 or more employees face a choice: (1) provide paid sick leave and risk taking the tax credit erroneously, or (2) do not provide the paid sick leave under the terms of this Act (unless other State requirements apply) and risk a deemed violation of the FLSA.  For employers presented with this dilemma, a practical approach may well be to provide the paid sick leave under the terms of this Act and take the tax credit.

As set forth in the Internal Revenue Service’s IR-2020-57, DOL issued guidance in Field Assistance Bulletin 2020-1 (March 24, 2020) (the “FAB”) providing a temporary 30-day non-enforcement policy of violations of the Act (from March 18 through April 17, 2020) for employers that acted reasonably and in good faith as defined therein.  Thus, employers will need to monitor guidance and determine in the coming weeks whether they need to take any corrective actions.  For purposes of this non-enforcement policy, it is worth noting that footnote 3 of the FAB also provides that employers who are eligible for tax credits but that have insufficient cash flow should make payment of sick leave or family leave wages as soon as possible, but not later than seven calendar days after the employer has withdrawn an amount equal to the required paid sick leave and expanded family and medical leave wages from the employer’s federal payroll tax deposits or, to the extent such deposits are not sufficient, has received a refund of the credit amount from the IRS to cover the required wages.

  1. How does the FMLA identify an integrated employer?  

The FMLA regulations provide that whether separate entities are an integrated employer depends on the entire relationship in its totality, not one single criterion.  Factors considered in determining whether two or more entities are an integrated employer include:

  1. common management;
  2. interrelation between operations;
  3. centralized control of labor relations; and
  4. degree of common ownership/financial control.

Employers must consider these integrated employer issues before using the payroll tax credit procedures because there is no guarantee that the payroll tax credits will be available if integration with one or more other entities takes the employee count to 500 or more.  Of course, Congress may still enact additional laws requiring all employers to provide the paid leave and sick time regardless of payroll tax credits.  Employers should closely monitor any further statutory and regulatory developments.

The closure orders issued by federal and state government authorities across the United States have resulted in the reduction and loss of income for a significant percentage of the U.S. workforce. On March 18, 2020, President Trump signed into law the Families First Coronavirus Response Act (the “Coronavirus Act”), effective April 1, 2020, providing relief for certain eligible families, employers and businesses. Further legislation is on the horizon. Meanwhile, under existing law, the Internal Revenue Code of 1986, as amended (the “Code”) permits employers to provide some immediate and direct employee assistance on a tax-favored basis.

The following summarizes some of the tax-favored benefit strategies employers may consider to assist their employees in these challenging times:

  • Qualified Disaster Relief Payments. Employers in states receiving FEMA assistance could make direct “qualified disaster relief payments” to their employees under Section 139 of the Code. Qualified disaster relief payments may pay for reasonable and necessary personal, family, living or funeral expenses as a result of a qualified disaster. This could include childcare due to school closures; commuting expenses in excess of normal commuting costs due to the reduction of, or medical inadvisability of taking, mass transit; and food deliveries for quarantined individuals. Qualified disaster relief payments, however, do not include income replacement payments, such as provisions for lost wages or unemployment compensation. Expenses that are otherwise reimbursed through insurance or FEMA grants also do not qualify.
  • Coronavirus Act Paid Sick and Family Leave. The Coronavirus Act grants private employers with fewer than 500 employees payroll tax credits to provide sick leave, emergency FMLA leave and group health plan coverage. For more information, please see Epstein Becker Green’s Act Now Advisory titled “Families First Coronavirus Response Act: Employers’ New Paid Family and Sick Leave Obligations Take Effect by April 1.”
  • Childcare and Elder-Care Stipends. Employers could provide childcare and elder-care stipends. Without further guidance from the IRS, childcare and elder care stipends generally are treated as taxable income to employees, unless the expenses meet the exception for a dependent care assistance program under Code Section 129.
  • Commuting Assistance Benefits. Different types of pre-tax commuting assistance benefits could be offered. Generally employer payments of employee ride-sharing and ride-hailing expenses, such as Uber gift cards, ride sharing or other special types of employer-organized transportation, may not constitute qualified transportation fringe benefits entitled to tax-favorable treatment under Code Section 132. However, where employees are engaged in essential businesses under a stay-at-home governmental mandate with limited or shut-down public transportation, such expenses arguably could be considered outside the normal day-to-day commuting expenses and perhaps could qualify as a de minimis fringe benefits for unsafe conditions and/or unusual circumstances. The IRS may recognize that employers are currently paying for taxi and carpool rides because mass transportation such as trains and buses pose higher risks of COVID-19 community spread, and because employees are working hours outside their normal hours, overtime, and/or late hours. If the unsafe conditions and unusual circumstances exclusion applies, such payments should also be deductible by employers. If special commuting arrangements otherwise qualify as a qualified transportation fringe benefit under Code Section 132, such amounts could be excluded up to the $270 monthly cap.
  • On-Premise Meals. Given the current circumstances of the COVID-19 outbreak, employers of essential businesses can likely take a 50 percent deduction for providing on-premise meals to employees for the “convenience of the employer” under Code Section 119.
  • 401(k) Plan Hardship Distributions. Employees may be eligible for hardship distributions under their 401(k) plans. For more information, please see Epstein Becker Green’s Blog titled May Employees Take Hardship Distributions Under Their 401(k) Plan? Benefits Guidance in the Time of COVID-19.
  • Home Office Expenses. As discussed further in an Epstein Becker Green blog post, office-related expenses, such as internet service, computer service and cleaning supplies, should qualify as working condition fringe benefits excludable from employee wages under Code Section 132(a)(3), but the IRS will need to issue clarifying guidance with respect to the tax treatment of such expenses.
  • Leave Donation Programs. Employers may be able to sponsor leave sharing or leave donation programs for their employees. For more information, please see Epstein Becker Green’s Blog titled Employer-Sponsored Leave Sharing or Leave Donation Programs: Benefits Guidance in the Time of COVID-19.
  • Charitable Emergency Funds. Employers may be able to provide tax-free emergency funds to their employees through their related 501(c)(3) charities and private foundations.
  • Health Insurance. Finally, employers could pay health insurance premiums during a temporary layoff or furlough (subject to insurer/third party agreement on coverage). For more information, please see Epstein Becker Green’s Blog Benefits Guidance In the Time of COVID-19: Continuing Employer Group Health Coverage During Temporary Layoffs or Furloughs.

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For more information about this post, please contact:

Gretchen Harders
New York
212-351-3784
gharders@ebglaw.com
Sharon L. Lippett
New York
212-351-4630
slippett@ebglaw.com
Rina Fujii
New York
212-351-4686
rfujii@ebglaw.com

 This document has been provided for informational purposes only and is not intended and should not be construed to constitute legal advice.  Please consult your attorneys in connection with any fact-specific situation under federal law and the applicable state or local laws that may impose additional obligations on you and your company.

IRS Circular 230 Disclosure

We inform you that any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of: (i) avoiding any tax penalty, or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.

On March 24, 2020, the Wage and Hour Division (“WHD”) of the U.S. Department of Labor (“DOL”) issued initial guidance (“Guidance”) on the Families First Coronavirus Response Act (“FFCRA” or the “Act”), which we detailed in a previous Advisory.  In short, the Act requires private employers with fewer than 500 employees (“covered employers”) to provide paid sick and family leave for certain COVID-19 related absences and includes a tax credit for employers for the cost of the paid leave.

The Guidance comprises (i)  a Fact Sheet for Employers, (ii) a Fact Sheet for Employees,  (iii) FAQs about the Act, (iv) a model poster that employers may use to comply with the FFCRA notice requirements and (v) FAQs regarding the required notice. The DOL plans to issue additional guidance and regulations in the near future.

Fact Sheet and FAQs Addressing Employer Paid Leave Requirements

The Fact Sheet summarizes the FFCRA’s requirements to provide employees with paid sick leave and family and medical leave for specified reasons related to COVID-19.  These provisions apply from April 1 through December 31, 2020 only.

To recap, the Act generally provides that covered employers must provide to all employees:

  • Two (2) weeks (up to 80 hours for full-time employees) of paid sick leave at the employee’s regular rate of pay (up to a cap of $511/day) where the employee is unable to work because the employee is quarantined pursuant to federal, state, or local government order or advice of a health care provider, and/or experiencing COVID-19 symptoms and seeking a medical diagnosis; or
  • Two (2) weeks (up to 80 hours for full-time employees) of paid sick leave at two-thirds the employee’s regular rate of pay (up to a cap of $200/day) because the employee is unable to work because of a bona fide need to care for an individual who is quarantined, or care for a child whose school or child care provider is closed or unavailable for reasons related to COVID-19, and/or the employee is experiencing a substantially similar condition, as determined by the Secretary of Health and Human Services.

In addition, a covered employer must provide to employees that it has employed for at least 30 days:

  • Up to an additional 10 weeks of paid family and medical leave at two-thirds the employee’s regular rate of pay (up to a cap of $200/day and $10,000 in the aggregate) where an employee is unable to work due to a bona fide need for leave to care for a child whose school or child care provider is closed or unavailable for reasons related to COVID-19.

As the Guidance confirms, FFCRA includes some exceptions to the paid sick and family leave requirements for otherwise covered employers. Specifically, employers of health care providers or emergency responders may elect to exclude such employees from eligibility for the paid sick leave and expanded family and medical leave provided under the Act.  In addition, small businesses with fewer than 50 employees qualify for a waiver of the requirement to provide leave due to school closings or child care unavailability, if the leave requirements would jeopardize the viability of the business as a going concern. The DOL stated additional guidance on the small business exemption would be forthcoming.

The Fact Sheet advises employers that the DOL will not enforce the FFCRA for the first 30 days after the law takes effect, provided the employer has acted “reasonably” and “in good faith” to comply.  The WHD defines “good faith” to mean that the employer remedies violations and makes the employee whole as soon as practicable, the violations were not willful, and the DOL receives a written commitment from the employer to comply with the Act in the future.  After the first 30 days (i.e., beginning May 1, 2020), employers who violate the Act will be subject to penalties.

Although the WHD does not administer this aspect of the Act, covered employers qualify for dollar-for-dollar reimbursement through tax credits for all wages paid to an employee who takes leave under the Act for a qualifying reason, up to the appropriate per diem and aggregate payment caps.  Applicable tax credits also extend to amounts paid or incurred to maintain health insurance coverage.

Supplementing the Fact Sheet, the FAQs clarify specific aspects of FFCRA coverage and key provisions.  Among the most helpful FAQs for employers are:

  • FAQ #2, which explains how employers should count employees to determine if their business is covered (independent contractors are not covered; separate establishments or divisions may be considered a single employer, based on the joint employer test under the Fair Labor Standards Act, as well as the integrated employer test under the Family and Medical Leave Act);
  • FAQ #4, which gives preliminary guidance applying for the small business waiver;
  • FAQ #6, which addresses how to calculate pay due to employees and explains the difference between paying an employee for family and medical leave and paying for sick leave (which is capped at 80 hours over a two-week period);
  • FAQ #10, which explains how the two types of leave interact: there’s a cap of 12 weeks of total paid leave (for example, if a child’s school is closed, an employee can take two weeks of paid sick leave, and then take an additional 10 weeks of family leave at 2/3 of the employee’s pay, up to the cap); and
  • FAQ #14, which clarifies how to determine whether an employee meets the threshold requirement of 30 days employment to be eligible for paid leave (the guidance states that the employee must have been on the company’s payroll for the 30 calendar days immediately preceding the day leave would begin).

Model Poster and FAQs Addressing Notice Requirements

The FFCRA includes a notice posting requirement. The WHD has created a model notice for employer use. The notice must be posted in a conspicuous place in each of the employer’s locations, or alternatively, an employer may e-mail or direct mail the notice to employees, or post it on an employee information internal or external website (e.g., a company intranet).  In addition, new employees must receive copies of the notice upon hire.  Currently laid-off employees, however, are not entitled to the notice.

An employer must only provide the notice in English, although the DOL will issue translations in other languages (which, at this point, are to be determined).

As noted in EBG’s Wage and Hour blog post, the DOL is soliciting employer and employee comments and questions as it continues to develop materials to assist with FFCRA as the effective date approaches.  The comments and questions the DOL receives may lead to further guidance and materials clarifying the Act’s requirements, so stay tuned for further updates.

[Updated on April 1, 2020]

As temporary layoffs and furloughs become more prevalent during the COVID-19 outbreak, employers have been asking whether they may allow employees to take hardship distributions under their Section 401(k) plans for expenses and losses resulting from COVID-19.

Under the IRS hardship distribution final regulations, employers were permitted to add a new safe harbor hardship category that would allow an employee to take a hardship withdrawal to cover expenses and losses (including loss of income) incurred by the employee on account of a disaster declared by FEMA under the Stafford Act. To qualify, either the employee’s principal residence or place of employment must be in the disaster area designated by FEMA for assistance. Expenses and losses incurred by family members do not count for this purpose.

If the employer’s 401(k) plan incorporates the IRS safe harbor definition of hardship, employees whose principal place of residence or principal place of employment is in New York, Washington,  California, Maryland, Missouri, Illinois, New Jersey, North Carolina, Florida, Texas, Louisiana, Iowa, Kentucky, Michigan, Massachusetts, South Carolina, Connecticut, Colorado, Oregon, Kansas, Alabama, District of Columbia, Georgia, Rhode Island, Ohio, and Pennsylvania (as of the date of this Blog) (collectively, the states listed in this sentence and any other state that is a FEMA-declared major disaster area “Eligible States”) may take a hardship withdrawal from their 401(k) accounts for expenses and losses (including loss of income) incurred on account of the COVID-19 outbreak. At this time, employees whose principal place of residence or principal place of employment is in a state other than one of the Eligible States may not be eligible for a hardship withdrawal to cover expenses and losses from COVID-19 because FEMA has not declared such state to be a major disaster area. However, employees in these other states may be able to rely on other provisions of the IRS safe harbor to take a hardship withdrawal.  For example, the IRS safe harbor permits a hardship withdrawal to prevent eviction from the employee’s principal residence or foreclosure on the mortgage on that residence.

Finally, the IRS could provide special disaster relief expanding the scope of the hardship.  For example, such relief could permit hardship withdrawals that would cover expenses and losses incurred by the employee’s family members as a result of COVID-19.

While hardship withdrawals for expenses and losses from COVID-19 may not be available to employees in all states, eligible employees in all states may now be eligible for distributions referred to as “coronavirus-related distributions”.  The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), which was enacted on March 27, 2020, provides for coronavirus-related distributions to individuals who meet the requirements specified in the CARES Act.  For more information on these distributions and other employee benefit-related provisions of the CARES Act, please refer to the Client Advisory, which is available here.

*           *          *

For more information about this post, please contact:

Sharon L. Lippett
New York
212-351-4630
slippett@ebglaw.com
Rina Fujii
New York
212-351-4686
rfujii@ebglaw.com
Gretchen Harders
New York
212-351-3784
gharders@ebglaw.com

 This document has been provided for informational purposes only and is not intended and should not be construed to constitute legal advice.  Please consult your attorneys in connection with any fact-specific situation under federal law and the applicable state or local laws that may impose additional obligations on you and your company.

IRS Circular 230 Disclosure

We inform you that any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of: (i) avoiding any tax penalty, or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.

Many employers are looking for ways to assist employees directly impacted by COVID-19 and employees on temporary lay-off or furlough who are exhausting their available paid-time-off (PTO). One option employers often ask about is the feasibility of adopting a leave sharing or leave donation program that would permit employees to donate vacation, sick leave or PTO to employees who need the additional time because they have been impacted by COVID-19. Properly structured, leave donated to a co-worker is a viable option, which will not be taxable to the donor but rather taxable to the co-worker when the leave is actually taken.

Employers generally may offer three different types of leave donation programs: (1) a major disaster leave sharing program (2) leave donations for employees on medical leave; and (3) leave donation to an employer-designated public charity or private foundation. Employees on leave for their own COVID-19 medical treatment could be beneficiaries of a medical leave sharing program; if an employee is not on medical leave, however, donating PTO to the employees would require a major disaster leave sharing program.

Major Disaster Leave Sharing. The current IRS guidance on “major disaster leave sharing programs” can be found under IRS Notice 2006-59. Such a program requires that the President declare a major disaster under Section 401(a) of the Stafford Act (or, as to federal employees only, a major disaster or emergency affecting a sufficient number of federal employees).On March 13, 2020, President Trump declared the COVID-19 outbreak to be an “emergency” under Section 501(b) of the Stafford Act. He did not, however, formally declare it a Section 401(a) “disaster,” but merely stated that he would not preclude the possibility that the COVID-19 outbreak would also rise to a Section 401(a) “disaster.” To fully utilize a major disaster leave sharing program, IRS guidance in the form of an announcement, notice or otherwise, would be welcome.

Continue Reading Employer-Sponsored Leave Sharing or Leave Donation Programs: Benefits Guidance in the Time of COVID-19