Note: This information is current as of 8:00 a.m. on April 1, 2020.

The Small Business Administration’s Economic Injury Disaster Loan Program (EIDL) is providing up to $2 million in long-term disaster-relief loans to qualifying small businesses for economic injury suffered due to the COVID-19 pandemic. The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) has opened up the EIDL program to more types of small businesses, relaxed some of the personal collateral requirements, and streamlined the application process. The expanded EIDL program also offers small businesses up to a $10,000 emergency cash advance that may not need to be paid back.

Loans under the EIDL program are separate and distinct from loans under the new Paycheck Protection Program (the “PPP”) established by the CARES Act, which we summarized here. For many small businesses, we believe that the PPP loans will be a more attractive financing option. In limited circumstances, it could make sense to obtain loans under both programs. Please contact us to discuss whether this makes sense for your business.

The following FAQs provide information about qualification and the application process. For more information from the SBA:

• Click here to access SBA resources and apply online
• Click here to access the SBA’s size standards tool if unsure whether you qualify as a small business.

Does my business qualify?

First, your business must qualify as a small business. Generally speaking, you are considered a “small business” if you either (a) have 500 or fewer employees, or (b) have more than 500 employees but are otherwise considered “small” under the SBA’s size standards. Size requirements vary by industry and are usually determined by your number of employees or average annual receipts. For information and tools to determine the size of your business, visit the SBA’s size standards tool linked to above, or find more information at “Table of Size Standards”. Certain other types of businesses may also qualify – see the loan application for more details.

Second, you must be able to demonstrate that the COVID-19 pandemic is the result of your economic injury or hardship, and demonstrate how you expect it to continue to impact your business, especially for the next six months. Most eligible businesses should be able to easily satisfy this requirement.

Is this the best option for my business?

If your business is experiencing financial hardship due to the COVID-19 pandemic, the EIDL may be right for you. However, you should give careful consideration to the personal collateral requirements, to the extent they apply, and whether a PPP loan would be a better option. As noted above, some businesses may want to apply for loans under both programs.

How much can I borrow?

The SBA will determine the exact amount you can borrow based on cash flow projections and demonstrated need, up to $2 million, with the goal being to keep your business solvent. As stated above, the loan amount may also depend on factors including the financial position of the principal owners of the business.

We recommend providing as much financial detail as possible as part of the loan application and, if possible, being very specific about the amount you are seeking to borrow, with corresponding projections showing why this amount is necessary for you to be able to pay your bills and make payroll in the ordinary course of business. Practically speaking, with millions of applications pouring in over the next few weeks, it seems unlikely that the SBA’s loan officers will have the bandwidth to critically scrutinize your application and challenge any reasonable assumptions included in your financial projections.  In short, you want to give the loan officer reasons to say “yes” instead of reasons to say “no.”

What are the loan terms?

Unlike the PPP loans and other traditional SBA loans, which are handled by third-party banks, EIDLs are underwritten, administered, and serviced directly by the SBA. Term length is either 15 or 30 years. We have received guidance from the SBA that the “default” term is 15 years, but that it may be extended to 30 years if the business demonstrates that it needs to minimize its monthly P&I payments under the loan. Current interest rates are 3.75%, but may change as the program continues to evolve. If interest rates go down, the expectation is that the reduced interest rate will apply retroactively to all borrowers under the program.

Borrowers can defer principal and interest payments for the first 11 months of the loan, with the first payment becoming due 12 months from the loan date. It is not expected that any portion of the loan will be forgiven. There are no prepayment penalties.

Are there restrictions on how the loan proceeds can be used?

Yes, funds can be used only to pay expenses that arise in the ordinary course of business, not for expansion, development, CapEx items, or other similar projects. Loan proceeds also may not be used to pay down long-term liabilities, refinance existing debt, or make distributions or other payments to owners. You will need to keep track of how you used the proceeds for 3 years in case of an SBA audit.

What are the collateral requirements?

As mentioned above, the CARES Act waives the personal guaranty requirement for loans less than $200,000. However, businesses borrowing more than $200,000 under this program should expect to provide personal guaranties from any person who owns more than 20% of the business. In addition, if the business is owned by another business or entity, the SBA will require a personal financial statement (and corresponding personal guaranty and/or pledge of personal assets) from the individual(s) who ultimately own the business.

Based on current guidance from the SBA and the new streamlined EIDL application, it is unclear if the SBA is still seeking pledges of personal collateral from the principal owners for loans less than $200,000 or if the provision in the CARES Act that waived the personal guaranty requirement was also intended to waive the personal collateral requirement. For loans over $200,000, business owners may still be required to provide (in addition to a personal guaranty) a pledge of personal assets as collateral to secure the loan, which may include mortgages on real estate in which the owner has significant equity, including any personal residence. Historically, this was a requirement for the EIDL program, but it is not clear how strictly the SBA is enforcing it in light of the current crisis. To the extent that the SBA does, in fact, require a personal guaranty and/or a pledge of personal assets, it is very important to carefully think through the legal implications, especially in light of the current economic climate.

How do I apply?

Applicants can find more information at https://www.sba.gov/page/coronavirus-covid-19-small-business-guidance-loan-resources and apply online at https://covid19relief.sba.gov/ or by phone at 1-800-659-2955 through the SBA Customer Service Center.

How long until applications are processed and funds are available?

Current processing and funding time is around three weeks after application, with expectations of a dramatic increase in processing times as application numbers continue to grow. We have heard that millions of applications have already been submitted in the past few weeks.

What if I need the money now?

Applicants to the EIDL program can now apply for an EIDL loan advance of up to $10,000. This advance does not have to be repaid and successful applications will have funds made available to them within three (3) days of applying.

We have spoken to several commercial banks (including several of our banking clients) who may be willing to provide short-term bridge loans to eligible businesses that have applied for an EIDL but are still waiting for it to be funded. We would be happy to connect you with the right people if you’d like to explore this further.

Conclusion

If an EIDL appears to be right for your business, it is advisable to apply as soon as possible and provide as much information as possible to help the loan officer quickly evaluate and approve your application. If funded, your business can decide whether to proceed based on the EIDL offer and terms.

Note to Minnesota businesses: Qualifying Minnesota small business applicants may also apply for the Small Business Emergency Loan Program for emergency relief loans from $2,500-$35,000. More information is available here: https://mn.gov/deed/business/financing-business/deed-programs/peacetime/.

Governor Tim Walz ordered any Minnesota business, nonprofit or non-hospital health care facility to take an inventory of any supplies of PPE, ventilators, respirators or anesthesia machines no later than Wednesday, March 25, 2020, and report it using the following form: https://mn.gov/ppe. The order mandates that such facilities and businesses must not use any of these supplies other than for use in delivering critical health care or other essential services and must be prepared to either donate the supplies to a local coordinating entity or to “be prepared for the possibility” of donating or selling them for use by critical health care workers.

The order references dental, veterinary, construction and institutes of higher learning or “other” as facilities and businesses to which the order may apply. The definition appears to be deliberately broad, and we expect that there may be further clarification as to the scope of its applicability.

View the full order here.

At 2:00 today, March 20, 2020, Minnesota Governor Tim Walz announced three new Executive Orders. The first addressed price gouging, while the other two focused on ensuring that Minnesotans in need of services administered through and overseen by the Department of Human Services (DHS) are able to continue to access those services.

Executive Order 20-10: Ban on Price Gouging

Minnesota does not have a law specific to price gouging, which has become a problem in recent weeks. This order prohibits businesses from engaging in price gouging while the peacetime emergency is in place.

Executive Order 20-11: Waive Federal Requirements as Needed

This order directs DHS to seek all federal 1135 waivers available. While the federal government has already made available a variety of blanket waivers, 1135 waivers are available to states during a declared Public Health Emergency, and allow for the waiving of certain Medicare, Medicaid and Children’s Health Insurance Program (CHIP) provisions under Section 1135 of the Social Security Act. To date, Florida and Washington state have been granted 1135 waivers due to the COVID-19 pandemic. The federal government is encouraging states to apply.

Executive Order 20-12: Waiving State DHS Requirements as Needed

Executive Order 20-12 grants DHS temporary emergency authority to waive or modify various existing statutes and administrative rules that set standards intended to protect the health and safety of Minnesotans. Scores of service providers have expressed the need to loosen these standards in order to provide for continuity of service while maintaining health and safety standards related to COVID-19.

In these difficult times, we are certain that you are focused on the health and safety of your families and employees.  At the same time, we understand you are concerned about the devastating impact that restaurant or franchise unit closures due to COVID-19 will have on your business’s financial condition and your contractual obligations to landlords, vendors and lenders.  This Client Alert discusses the rights you may have to suspend, postpone or modify your performance under your real estate leases due to what is commonly referred to as a “force majeure” clause.

Buried in the back of many contracts, including real estate leases, you may find provisions known as “force majeure” clauses that generally provide for relief to a landlord or tenant to the extent that their performance is materially and adversely affected by an event that constitutes “force majeure.”  The more traditional events or circumstances that are thought of as “force majeure” events are floods, tornados, hurricanes or other so called “Acts of God.”  It can certainly be argued, however, that a pandemic should likewise be treated as an event of “force majeure” which may, under certain circumstances, justify postponement of rental payments or excuse for performance under a real estate lease.

Language found in QSR leases varies greatly from lease to lease, and whether you can successfully prevail on a claim that you should be permitted to postpone or modify your payment obligations to your landlords will depend on the precise language set forth in each lease.  In order to get your arms around this issue, our recommendations to our franchise clients are as follows:

1. Review each lease agreement to identify those that have “force majeure” clauses or similar clauses that address the impact on a party’s obligations due to the occurrence of events beyond your reasonable control, such as fire, casualty, Acts of God or other events.  Please note that not all leases will use the phrase “force majeure;” instead, there may be provisions that operate in the same manner, but use different terms such as “events beyond the parties control,” “Acts of God,” or similar terminology.
2. Identify any language that appears to be specifically “on point” with respect to our current crisis.  You may find that some more recent leases mention the impact to a party due to “epidemics,” “pandemics,” or “disease.”  That is the most favorable language you might find, but the absence of these specific types of events does not necessarily mean you would not be entitled to some relief under our current circumstances.
3. Pay close attention to any notice provisions or other procedural requirements you must follow in order to take advantage of the relief provided by these types of clauses.  For example, we have seen a number of leases that require that a party intending to rely on the relief afforded by these provisions must provide its landlord with 10-15 days’ notice after the occurrence of the event constituting “force majeure.”  If a party fails to provide timely notice, some of the provisions we have seen state that the rights will be deemed to have been waived.
4. Please be aware that, even if you have provisions in your lease addressing “force majeure” or “events beyond your reasonable control,” such provisions will not automatically excuse performance on your part.  Before performance is excused or can be postponed, you will likely need to be prepared to demonstrate that your financial position has been dramatically impacted by the event in question so that it is virtually impossible for you to make your lease payments in a timely manner.  Please note that some courts have not granted relief under a “force majeure” clause if a party’s performance has merely been rendered impracticable or economically difficult.  Therefore, we do not recommend unilaterally withholding rent payments before carefully reviewing the specific terms of your lease and seeking advice on its legal implications.

Summary

Leases and other contracts with vendors or lenders may contain “force majeure” or other similar provisions that will support your claim to postpone or modify your performance obligations to your landlords and other parties if your ability to perform has been severely impacted by the current crisis.  In all events, we recommend that you review your leases and other material contracts carefully as soon as reasonably possible to make sure you preserve your rights to be able to take advantage of these types of provisions.  This should help you avoid the risk of inadvertently waiving your rights to do so by waiting too long to bring up this issue to landlords or other contracting parties.

As always, we are available to answer questions and assist our clients in any way possible with respect to these types of lease issues or any other employment or financing problems facing your business in these difficult times.

COVID-19 has presented businesses in the United States and around the globe with unprecedented challenges in supply chain and business continuity and performance of contractual obligations. In this uncertain time, an often overlooked “boilerplate” contract provision may be key to understanding your rights and obligations under your business contracts: a force majeure clause. This information may be important to any business facing issues related to contract performance – whether it involves another party’s ability to perform its contractual obligations or your own ability to perform under any of your contracts. This could include important business contracts such as leases, supply agreements, or services agreements.

WHAT YOU NEED TO KNOW

• What is force majeure?
• Is a force majeure clause in your contract and what does it mean?
• How can performance be suspended under my contract?
• What if there is no force majeure clause?

What is force majeure?

Many business contracts contain force majeure or other similar provisions that may support the claim by one party to postpone or modify its performance obligations to the other party under the contract. A force majeure typically means “an event or effect that can be neither anticipated nor controlled.” Depending on the exact language in the contract (see below), force majeure events may include natural disasters, national emergencies, strikes, shortages, government orders, epidemics, or pandemics. When the conditions in the clause are met, a party’s performance under the contract may be suspended or delayed because the circumstances that prevented performance were beyond its reasonable control or unforeseeable at the time the parties entered into the contract.

Please note that not all contracts will use the phrase “force majeure;” instead, there may be provisions that operate in the same manner, but use different terms such as “events beyond the reasonable control of a party,” “Acts of God,” or similar terminology.

Is there a force majeure clause in my contract and what does it mean?

If your contract includes a force majeure clause, then the precise language of the contract will control whether and under what circumstances nonperformance is excused; some force majeure clauses contain an extensive list of events that qualify, while others are more restrictive and are limited to a few specific events. In other words, whether the contract’s force majeure clause applies to issues caused by the COVID-19 pandemic likely hinges on the exact language in the contract, and the exact language used in a force majeure provision varies greatly from contract to contract.

In our current environment, if the force majeure clause explicitly includes epidemics, pandemics, or government orders that specifically apply to one of the contract parties, then the affected parties’ obligations under the contract may be postponed or excused. If those types of events are not explicitly mentioned in the contract (or if the force majeure clause is ambiguous), then performance may still potentially be excused based on the facts and circumstances of each individual situation.

How can performance be suspended under my contract?

The force majeure clause also may include notice, duration, and mitigation requirements that must be met or followed to excuse nonperformance. Further, the extended nonperformance may apply to some, but not all, of your obligations under the contract. It is critical to read the clause carefully to understand each party’s obligations to be sure the necessary steps are taken and documented. For example, we have seen a number of contracts that require a party intending to rely on the relief afforded by these provisions to provide the other party with 10-15 days’ notice of the occurrence of the event constituting “force majeure.”

Before performance is excused or can be postponed, the affected party will probably need to be prepared to demonstrate that its financial position has been dramatically impacted by the event in question, and that it has taken reasonable steps to avoid or mitigate the negative impact from the virus.

Alternatively, consider if the delay or disruption could be addressed through negotiations with the other party rather than a formal invocation of force majeure rights. You should consult with an attorney prior to initiating such discussions to ensure that you are not inadvertently waiving critical rights or harming your ability to seek recourse, should amicable resolution not be possible.

What if there is no force majeure clause?

If recent events and disruptions have made performance under the contract extremely difficult or impossible, then common law doctrines of impossibility or impracticability may still apply to afford you some relief.

Whether these doctrines apply will depend on the type of contract, the precise language in the contract, and the state law that governs the contract.

Key Takeaways and Action Items

In order to get your arms around this issue, our recommendations are as follows:

1. Review your material business contracts carefully and as soon as reasonably possible to identify those that have force majeure or other similar provisions.
2. Identify any language that appears to be specifically “on point” with respect to the COVID-19 crisis, especially if there are any explicit mentions of “epidemics,” “pandemics,” or “disease.”  That is the strongest language that would excuse performance under the contract, but the absence of these specific types of events does not necessarily mean that the affected party is precluded from claiming relief based upon a force majeure event.
3. Pay close attention to any notice provisions or other procedural requirements that must be followed in order to take advantage of the relief provided by these types of clauses.  If a party fails to provide timely notice, some of the provisions state that the rights will be deemed to have been waived.
4. Please be aware that, even if the contract has a force majeure provision, it will not automatically excuse performance by the affected party.  We do not recommend unilaterally ceasing performance under any contract before carefully reviewing the specific terms of the contract and seeking advice on its legal implications.

H.R. 6201, the Families First Coronavirus Response Act is second major legislative response by Congress to the COVID-19 virus.  This legislation was passed in the House on March 14, 2020 and in the Senate on March 18, 2020.  President Trump signed H.R. 6201 on March 18, 2020.  In addition to a range of appropriations to provide funding for various federal departments, grants, and programs, H.R. 6201 also includes several key legislative provisions impacting employers and their employees.

Many of the provisions of interest to employers require administrative actions and decisions by the Executive, in particular the Department of the Treasury.

To read the full text, please click here.

In the latest in a series of Executive Orders aimed at mitigating the impact of the COVID-19 virus on Minnesota’s health care system, Governor Walz today issued an order directing that all non-essential and elective surgeries and procedures – medical and dental – that utilize ventilators or personal protective equipment (PPE) be postponed. The prohibition goes into effect starting no later than 5:00 p.m. on Monday, March 23, 2020, and will continue until the current peacetime state of emergency is lifted or the order is otherwise terminated. According to the order, non-essential surgeries or procedures are those that can be delayed “without undue risk to the current or future health of a patient.” The order gives examples of criteria to consider in making this determination, including (a) whether the patient’s life is at risk if the surgery or procedure is not performed; (b) the threat of permanent dysfunction of an extremity or organ system, including teeth and jaws; and (c) the risk of metastasis or progression of the disease stage absent the surgery or procedure.

A violation of this and the other Executive Orders issued during this peacetime emergency is a misdemeanor punishable by a fine of up to $1000 or imprisonment of up to 90 days.

You can access and read the Executive Order here.

NOTE: The information in this Alert is current as of March 11, 2020, 12:30 pm Central Time. This is a rapidly-evolving situation and circumstances and requirements may change. Just before the distribution of this Alert, the World Health Organization declared COVID-19 a global pandemic, a declaration which has implications on how certain situations must be handled.

Work Safety

The Occupational Safety and Health Act (“OSHA”) requires employers to provide “a place of employment, which [is] free from recognized hazards that are causing or likely to cause the death or serious physical harm to … employees.” The nature of the workplace affects the type and level of response that may be required. For example, healthcare facilities and establishments caring for susceptible individuals may need to apply higher standards for workplace protection.

Employers should remind employees to take precautions such as staying home if they are sick, minimize shaking hands, diligent hand-washing, and sneezing or coughing into a sleeve or tissue. Employers should also provide additional supplies such as hand sanitizer and antiseptic wipes, frequently clean and disinfect touched objects and surfaces, consider holding meetings telephonically or through other electronic communication means instead of in-person meetings, provide appropriate personal protective equipment to employees if necessary, and send all employees home who become symptomatic at work. Lastly, employers should assign someone, often a member of human resources, as a disease prevention coordinator who will be the point person on the topic for employees, and who will also be charged with regularly monitoring information posted by government agencies for guidance on appropriate measures as the situation is evolving.

OSHA has deemed COVID-19 as a recordable illness when an employee is infected on the job. Therefore, if an employee becomes infected while traveling for work or at work, the employer must prepare and file appropriate reports with OSHA. State laws also have applicable reporting requirements; however, in many states, the reporting of disease is the responsibility of healthcare providers. Currently, there is no obligation for most employers to report a suspected or confirmed case of COVID-19 to the Minnesota Department of Health. The healthcare provider that receives the confirmation of a positive test result is a mandatory reporter who will handle that responsibility, as well as those in charge of any institution, school, child care facility or camp. However, employers should be prepared to file appropriate reports with OSHA for those who have been exposed to COVID-19 at work and should stay updated with changes in connection with state or local reporting requirements.

Travel Recommendations

To date, the Centers for Disease Control and Prevention (“CDC”) has issued several travel warnings. The travel warnings will likely change depending on the spread of COVID-19. If your employees travel internationally, stay updated on the status of international travel warnings by governmental agencies and consider restricting travel to areas that are affected. Similar precautions should be taken for business partners who are traveling from risk areas to your workplace. Consider whether there are alternatives to international travel by your employees or business partners such as videoconferences or other electronic communication means.

The CDC currently recommends that travelers do not travel to China and Iran, as they are listed at a Level 4 Travel Advisory, and to reconsider and avoid all nonessential travel to South Korea and Italy, as those countries are listed at Level 3. Japan and Hong Kong are listed as Level 2, where enhanced precautions should be taken. The CDC also recommends travelers defer all cruise ship travel worldwide. To check the status of CDC travel advisories, please visit the CDC page at https://travel.state.gov/content/travel/en/traveladvisories/traveladvisories.html, as these are likely to change.

For travel to Level 1 and Level 2 risk locations, consider rescheduling business meetings held there and otherwise regularly monitor CDC notices and employees traveling to those locations. These employees should self-monitor for respiratory symptoms and stay home from work if sick, if a household member is sick, or if they have had exposure to a person with suspected or confirmed COVID-19 infection.

Employers should consider implementing a travel ban to countries at Transit Advisory Level 3 or higher including transit stop-overs. Those employees who have traveled to these high-risk areas within the last 14 days or have had exposure to a person with suspected or confirmed COVID-19 infection within the last 14 days should:

• Stay home for the 14-day quarantine period and call a manager or the company’s appointed disease prevention coordinator for further instructions.
• Self-monitor for respiratory symptoms of sore throat, cough, shortness of breath, and fever, and report to the disease prevention coordinator daily.
• Individuals who become ill should seek medical care. Before going to a healthcare facility, call ahead to inform them about recent travel and symptoms.

The Americans with Disabilities Act (“ADA”) controls when and what sort of questions an employer may ask about an employee’s health. Employers may request that employees inform them if they are traveling to a high-risk location for personal reasons to assess exposure risks. While employers cannot prevent employees from traveling to high-risk locations for personal reasons, employers may deny time off for travel to a high-risk location, business cost of a resulting quarantine, or other legitimate business reasons, provided it is not for a discriminatory purpose. Employers should also warn employees that such travel may result in quarantine or self-monitoring upon return (including working from home, if applicable). Lastly, employers may ask employees if they are experiencing COVID-19 symptoms such as sore throat, cough, shortness of breath, and fever. For confidentiality purposes, employers should store this information in a separate, confidential health folder and limit access to those with a business need to know.

Sick Employees

If an employer has a reasonable, objective belief that an employee may have been exposed to COVID-19 and is a danger to the workplace, the employer can require the employee to stay at home or work from home if they are able to do so. Employers should consider the facts and circumstances of an employee’s known connection to an infected individual or recent travel, including the duration of the employee’s trip, the areas the employee visited, the amount of time the employee has been back and the employee’s symptoms.

Pursuant to the ADA, employers cannot require medical examinations unless they are job-related, consistent with business necessity and if the employee poses a direct threat due to a medical condition. A “direct threat” is a significant risk of substantial harm to the health or safety of the individual or others that cannot be eliminated or reduced by reasonable accommodation. An employee infected with COVID-19 can only be considered a direct threat if the CDC, state or local public health authorities proclaims the COVID-19 as a “pandemic” and that it is severe in the employer’s location. A pandemic declaration from international health authorities is not relevant for this consideration. The Equal Employment Opportunity Commission’s regulations identify four factors to also consider when determining whether an employee poses a direct threat: (1) the duration of the risk; (2) the nature and severity of the potential harm; (3) the likelihood that potential harm will occur; and (4) the imminence of the potential harm. Therefore, employers cannot require a sick employee to see a doctor unless COVID-19 is considered a severe pandemic by the CDC, state or local public health authorities for the employer’s location and the four factors have been considered and applied to the situation. During a pandemic, employers should rely on the latest CDC and state or local public health assessments that are appropriate for their location, and to make reasonable assessments of conditions in their workplace based on this information.

After a pandemic has been proclaimed by the CDC, state or local public health officials, employers may send employees home who become ill with flu-like symptoms, specifying that this is not a disability-related action. During a pandemic, employers may also require employees who have been away from the workplace due to exposure to COVID-19 to provide a doctor’s note certifying fitness to return to work. However, doctors and other healthcare professionals may be too busy during and after a pandemic outbreak to provide fitness documentation. Therefore, new approaches may be necessary, such as reliance on local clinics to provide a form, a stamp, or an e-mail to certify that an individual does not have the COVID-19. However, if an employee requests sick leave pursuant to the Family and Medical Leave Act (“FMLA”) or other employer sick leave policies, employees will be required to follow relevant procedures thereunder.

Employers should let all employees know that the company is monitoring the situation and taking appropriate precautions, and that they should discuss any concerns with the company’s appointed disease prevention coordinator. Employers should also direct employees to immediately notify the disease prevention coordinator if they have been exposed to COVID-19, so the company can provide them with appropriate support, such as requiring them to temporarily work remotely if possible, to avoid coworker exposure. Assure employees of the confidentiality of information they provide, and share that information only as necessary or as required by law. Employees who are infected with COVID-19 should not return to the workplace until they are no longer medically infected. If exposure has already occurred, the company should identify other employees who may have been exposed and inform them that they may have been exposed (while maintaining confidentiality of others consistent with applicable law) and assist those employees with possible accommodations, leave requests, benefits coordination, and return-to-work documentation when and as warranted. Employers should consider a deep clean of affected workspaces. Furthermore, employers in a shared office building or area should inform building management so they can take necessary precautions.

Wage and Hour Considerations

The Fair Labor Standards Act (“FLSA”) governs when, and under what circumstances, an employee must be compensated for time not spent working in the office. Under the FLSA, non-exempt employees are not required to be paid for time they are not working. Therefore, if a non-exempt employee is home because they have traveled to an affected area, have been exposed to COVID-19, are exhibiting symptoms, or if there has been a temporary business closure, time at home is not required to be compensable, regardless of whose decision it was for the employee to stay home. However, if the non-exempt employee performs tasks while at home such as working remotely, that time is treated as hours worked and is compensable.

For exempt employees, if a business temporarily closes due to COVID-19, they are entitled to their full weekly salary, unless they have not worked for the entire workweek. If an exempt employee misses work due to their own illness from the COVID-19, the employer may deduct from their salary, depending upon the employer’s paid sick leave policy, provided it is done in compliance with the FLSA.

If an employee misses work because they are infected by COVID-19 or because they are caring for an immediate family member who suffers from COVID-19, that absence may be permitted under the FMLA or other similar state leave laws.

Visitor Screening

Public health organizations recommend that companies bar employees or visitors from coming to the workplace for a period of 14 days after a “medium” or “high-risk” exposure to COVID-19 — generally meaning having been in close contact to or caring for someone who has been diagnosed with COVID-19, or having traveled from a high-risk region; therefore, it is appropriate to provide a screening questionnaire for visitors that asks those questions in order to make that determination. Currently, if visitors have traveled to China, Iran, Italy or South Korea, had close contact with someone diagnosed with COVID-19, or have cold or flu-like symptoms within the last 14 days, access can be denied.

The information within the visitor health questionnaire is sensitive and may be considered health information. Therefore, ensure appropriate privacy and confidentiality of this information once received as well as when reporting back to the visitor whether they are admitted or denied to the facility. Further, only if the CDC or a state or local health authority proclaims a severe pandemic has spread in the employer’s location can employers take employee and visitor temperature checks.

It is recommended that employers consider creating and implementing a communicable disease policy that includes COVID-19. Employers may also want to utilize a visitor questionnaire in order to address relevant concerns and decrease workplace exposure.

The SECURE Act, signed into law on December 20, 2019, has a serious impact on estate planning for clients’ retirement accounts.  In the past, many individuals who inherited retirement accounts were able to “stretch” the distributions over their own life expectancy.  The SECURE Act moves most individuals to a 10-year payout period.  The SECURE Act also makes several other changes that impact clients.

Retirement Accounts During Owner’s Lifetime

• Individuals who own their own retirement accounts can start taking required minimum distributions (RMDs) at 72 instead of 70 ½.
• You can continue to make contributions to a traditional IRA for as long as you’d like.
• You can still make qualified charitable distributions (distributions directly to charity that bypass reporting on your income tax return) beginning at 70 ½.  Note that if you also make contributions to a traditional IRA after age 70 ½, your qualified charitable distributions may be limited.

Retirement Accounts After Owner’s Death

• Eligible Designated Beneficiaries can still stretch distributions over their lifetimes.  Eligible Designated Beneficiaries include spouses, minor children of the owner, a disabled or chronically ill individual, or anyone not more than 10 years younger than the owner.
  • Eligible Designated Beneficiaries also include “conduit” trusts for the benefit of these individuals and, in the case of the disabled or chronically ill, an “accumulation” trust.  Once a minor reaches the age of majority, the “stretch” treatment ends and all distributions must be made within 10 years.
    • A conduit trust is one where all distributions from the retirement account must be paid out to an individual.  The individual recipient pays the income taxes on distributions.
    • An accumulation trust allows the trustee to accumulate any withdrawals from a retirement account in the trust and not distribute them to a beneficiary.  Any withdrawals that are retained in the trust will be taxed at the trust income tax rate (the top rate after a small deduction).
• Designated Beneficiaries (other than Eligible ones) must fully pay out the retirement account assets by December 31st ten years after the owner’s death.  Designated Beneficiaries include all other individuals other than Eligible Designated Beneficiaries, as well as conduit and accumulation trusts.
• Other beneficiaries, such as an estate or a trust that does not meet the requirements of a conduit or accumulation trust, must pay out under the rules previously in place – within 5 years for an owner already receiving RMDs, or over the owner’s remaining life expectancy if the owner was not yet receiving RMDs.

Estate Planning Strategies

• Reevaluate whether retirement accounts should be left directly to a beneficiary instead of to a trust. The advantages a trust previously provided are lessened under the new law.
• A spouse, minor child or person not more than 10 years younger than the account owner should likely not receive retirement account assets through an accumulation trust.  If a trust is still desirable, it should usually be a conduit trust.
• If other beneficiaries need assets retained in trust for their protection due to concerns about substance abuse, creditors or other issues, an accumulation trust should be considered, though only if the concerns outweigh the income tax disadvantages of this option.
• Those who are charitably inclined may want to name a charity as the beneficiary of a retirement account, or leave the account to a charitable remainder trust.
• Most conduit and accumulation trusts as drafted by skilled attorneys still “work.”  Their time frame is simply shortened in most cases – instead of stretched over a beneficiary’s lifetime, withdrawals must now take place under the 10-year rule.
• For questions or assistance regarding updates to estate planning documents, please contact our trusts and estates team.