BUSINESS GUIDANCE
Force Majeure
Last updated 3.16.2020
What’s the Problem?
With everything from travel bans and event cancellations, to disrupted supply chains – our lawyers are routinely being asked to weigh in on the legal consequences of non-performance under otherwise enforceable contracts. Whether parties are excused from performing contract obligations that have been impacted by Coronavirus will typically be a question of “force majeure.”
Force majeure clauses typically provide that where no party is at fault – i.e. where the event or condition is beyond a party’s control (typically events like an act of war, natural disaster, or an “act of God” are enumerated) and interrupts that party’s performance – the failure to perform under the contract is excused without liability to either party.
What to Consider?
The critical facts to consider are:
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Review your critical contracts. Do they contain force majeure provisions? If so, review the contents carefully for breadth and scope. Beware of notice requirements and other predicates, for example, if a declared state of emergency is required. Also check for governing law – is it US law or a substantively equivalent common law system – or a civil code country?
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Formulate a prevention, mitigation, and response plan. Consider having a designated “force majeure” czar to keep your messaging consistent. If invoking force majeure, make sure your other statements and representations to your counterparties are not seen as admissions or a waiver of rights.
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Don’t assume that force majeure applies – take care that you are not repudiating a contract that does not have force majeure provisions or where performance is not causally connected to Coronavirus. Remember force majeure is not a cure-all (no pun intended). Parties are still required to use best efforts and mitigate losses.
Does Coronavirus automatically trigger force majeure? This is a question specific to the contract itself – for example, does the contract’s clause expressly refer to a pandemic, epidemic, disease, or public health emergency? If so, Coronavirus could very well qualify. Does the clause refer to “acts of Government,” "government regulations," or other actions that make it "illegal" or "impossible" to act pursuant to the contract? Then perhaps a travel ban that frustrates performance qualifies.
That said, force majeure clauses vary greatly, and many force majeure provisions are, unfortunately, not very specific about particular events and only contain generalized categories.
Typically, courts have read force majeure provisions narrowly. For example, courts have rejected as a force majeure event a foreign government flooding the US market with cheap imports, sudden changes in market conditions, union strikes and unseasonable weather. That said, the Coronavirus, and the efforts taken by governments to contain its spread (travel bans, forced quarantines, etc.), are novel and unprecedented enough that in some cases Coronavirus may be interpreted as a force majeure event.
Bear in mind that contract clauses are not read in isolation to the other provisions of the contract, and this applies also to a force majeure provision. Other clauses may also address the party’s obligations in the event of unexpected circumstances – i.e. a "take or pay" supply contract – which is itself devised to allocate risk for unforeseen events. Such a contract may be interpreted differently than, for example, a mere output contract.
Also bear in mind, this analysis applies to common law countries. In civil law countries (where force majeure in fact originates), the respective civil codes set out the requirements of invoking force majeure. Hence when reviewing your contract, pay specific attention to any governing law provision. Reportedly, the China Council for the Promotion of International Trade (CCPIT) has issued thousands of "force majeure certificates" to Chinese companies that have claimed that their ability to perform contracts has been prevented by the Coronavirus, which may prove determinative in litigation under Chinese law.
If a contract does not have a specific force majeure clause, is one implied? The answer is likely no. In common law countries, force majeure is a creature of contract and failure to include such a provision will likely be implied as an intentional exclusion of the provision.
There are background concepts in the law, such as the “impossibility” or “frustration” doctrines, but these are narrowly construed and difficult to invoke – i.e. the event typically must (1) be not reasonably foreseeable and (2) radically change the contract terms from what the parties agreed to. Merely escaping a bargain that has turned bad because it is harder to perform is not enough.
As for implied terms, in civil law countries, the opposite is often true. For example, in China, under Article 180 of the General Rules on the Civil Law and Articles 117 and 118 of Chinese Contract Law, force majeure applies automatically to commercial contracts governed by Chinese laws.
What sort of contract obligations are covered by force majeure? The two key concepts to keep in mind are causation and mitigation. First, did the Coronavirus epidemic in fact cause a delay or non-performance? The fact that a supplier is located in China, for example, should not be enough. Rather, it would need to be shown that the supplier had shut down, which caused a delay in manufacturing of [x] days, which led to a delay in delivery of [x] days, which will result in delayed performance of [x] days. Second, were there commercially reasonable steps that the party could have taken to avoid or overcome the event, such as by seeking parts and materials from unaffected areas or unaffected manufacturers? More expensive or more difficult is not enough – and a failure to perform only tenuously connected to Coronavirus will also not be enough.
Do not overlook the other conditions that are part of the application of the force majeure in the contract: contracts will often specify that, if an event of force majeure has occurred, it will only apply to excuse a party’s performance if the affected party provides adequate notice to the other party (which often has a time limit and requires specificity as to the impact and duration of the event). Even without an express requirement, delay in providing notice could give rise to equitable principles such as waiver or laches. In addition, there is often limiting language (performance will be excused “on a day-for-day basis,” or “only to the extent reasonably necessary”) around the excused performance itself.
Suspend or terminate the contract? In some cases, the relevant contract will specify what the remedy is – suspension or termination. Some contracts may have a continuation provision, stating that a force majeure event that continues for a certain period of time gives rise to a right of termination. In other cases, force majeure may give rise only to a suspension of the required performance. Carefully review the relevant language – particularly for unintended consequences – if your intent is not to terminate the entire contract.
Will insurance cover force majeure? The losses arising out of a party’s inability to fulfill its contractual obligations because of Coronavirus could give rise to an insurance claim (for example Business Interruption Coverage) – depending on your policy's specific terms and conditions. Refer to our insurance related content for more specific questions concerning coverage.
CONTACTS
NATHAN ARCHIBALD
T.
801.799.5844
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MATTHEW HIPPLER
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775.327.3049
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ASHLEY WALD
T.
303.295.8092
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Retail
Last updated 3.13.2020
What’s the Problem: Retailers risk violating “price gouging” laws by inflating prices due to high demand on Coronavirus products (toilet paper, hand sanitizer, face masks etc.). Most states have specific laws prohibiting price spikes in times of disaster of emergency, as do many cities. In the absence of, or in addition to, specific statutes on pricing, the practice may also violate general unfair business practice and consumer protections laws.
As an example, under Utah Code Ann. § 13-41-201 during a declared “State of Emergency,” a retailer may not charge a consumer an “excessive price” unless the retailer’s cost to obtain the product has similarly increased. On March 6, 2020, Utah’s Governor issued an executive order declaring a state of emergency in response to the evolving outbreak of Coronavirus and excessive price violators are now subject to fines up to $1,000 for each violation.
Similarly, California’s anti-price gouging statute, Cal. Penal Code § 396, prohibits raising the price of consumer goods and services by more than 10% after an emergency has been declared. Since Governor Gavin Newsom officially declared a state of emergency in California on March 5, 2020, violations of the statute are subject to criminal prosecution that can result in one-year imprisonment in county jail and/or a fine of up to $10,000.
34 States and the District of Columbia (Alabama, Arkansas, California, Connecticut, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Massachusetts, Michigan, Mississippi, Missouri, New Jersey, New York, North Carolina, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Utah, Vermont, Virginia, West Virginia and Wisconsin) have similar laws, and many of these states have triggered these laws by officially declaring a state of emergency.
As for manufactures and wholesalers, while concerns over price gouging typically fall outside of federal law, on March 9, 2020, the Antitrust Division of the Department of Justice announced that it would use its enforcement powers under federal antitrust laws to “hold accountable anyone who violates the antitrust laws of the United States in connection with the manufacturing, distribution, or sale of public health products such as face masks, respirators, and diagnostics.” While the DOJ did not specify what conduct will be considered an “anti-trust” violation, pricing of these products at the wholesale level will be under scrutiny.
What to Consider:
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Monitor price increases
and look for unnatural spikes. Most states peg an unlawful increase as 10–15 % above normal pricing. Particularly monitor products in high demand due to Coronavirus.
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Clearly and unambiguously communicate your gouging policy to regional/local branches. The most likely cause of a price gouging incident will be branches that are unaware and operating independently in response to a run on certain products. Educate branches that any short-term gain from inflated sale prices will be outweighed, not only by negative public relations or reputational harm, but in revenue hits if regulators are alerted or class action lawsuits on behalf of affected consumers are filed.
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Plan to audit stores for compliance. In the social media age, any particular incident runs the risks of viral exposure. Retailers need to proactively review compliance to get ahead of any incidents.
CONTACT
NATHAN ARCHIBALD
T.
801.799.5844
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Insurance/Risk Management
Last updated 3.14.2020
What's the Problem?
How does an employer determine if an illness is compensable under workers’ compensation? And, what happens if it is not?
If an employer places an employee at risk of COVID-19 infection within the scope of the employee’s work or travel there is likely no workers’ compensation coverage for that employee. This is the case in Colorado and California as well as many other jurisdictions because COVID-19 is not distinctly associated with any particular occupation, perhaps with the exception of certain healthcare workers. Therefore, the threat of COVID-19 infection is common to the entire population of earth not only those workers at higher risk or those sent to a high-risk area. Under Colorado and California law, a disease is not compensable under workers’ compensation coverage if it results from a hazard to which the employee would have had equal exposure outside of the employment. In other words, there is nothing unique about sending someone into a coal mine if the entire world is a coal mine. Simply put, an employer should not assume that its employees will receive the benefits of workers’ compensation insurance for contracting COVID-19 while in the course of employment. Therefore, neither should an employer assume that it will be entitled to workers’ compensation statutory immunity in the event an employee contracts COVID-19 and makes a claim against the employer.
If an employee cannot access benefits under workers’ compensation laws, then that employee may seek damages against his or her employer directly. An employer will have no coverage under a typical commercial general liability policy pursuant to exclusion (e) which precludes coverage for injuries to an employee arising out of or in the course of employment (including sickness and disease). However, if the employer maintains the appropriate Employer’s Liability coverage, a form of coverage designed to fill the gap between workers’ compensation coverage and commercial general liability coverage in scenarios just like this, then the employer should be protected. Employer’s Liability coverage is typically included with the purchase of workers’ compensation insurance. It is designed to cover the gap between non-compensable workers’ compensation claims and the lack of coverage for claims by an employee under the commercial general liability policy.
Things to Consider
We highly recommend that employers have their policy form reviewed to confirm they have this vital coverage to protect against the unique risk exposure presented by COVID-19.
CONTACTS
SHAWN EADY
T. 303.290.1639
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JOE RAMIREZ
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303.290.1605
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Corporate Disclosures
Last updated 3.15.2020
What’s the Problem?
While many things have been suspended in the wake of the COVID-19 outbreak, robust enforcement of the securities laws has not. The Securities and Exchange Commission has made it clear that issuers need to be monitoring the impact, and potential impact, of COVID-19 on their financial results and operations and share that information with investors at the time and in the manner required under the securities laws.
Things to Consider:
Current and meaningful risk factors: The impact of COVID-19 on issuers is likely to vary significantly; so too should each issuer’s risk factors. Issuers should assess the current and projected impact of COVID-19 on operations, employees, customers, suppliers, facilities, travel, supply-chain, security, logistics, financial results, and any other matters relevant to their business. Risk factors should be specifically tailored to reflect the actual risks identified by issuers and updated as each issuer’s risk assessment evolves.
Tailored forward-looking statements: To maximize the protections of the Private Securities Litigation Reform Act safe harbor, cautionary forward-looking statements language, including language regarding the projected impacts caused by the COVID-19 outbreak, should be tailored to the issuer’s facts and circumstances.
A thoughtful MD&A: Issuers are required to include in management’s discussion and analysis all known trends and uncertainties that they reasonably expect to have a material effect on their financial condition or operating performance. If the impacts of the COVID-19 outbreak represent such a trend or uncertainty, it should be discussed in a manner that allows investors to see the issues through the eyes of management.
Board oversight of material risks: Boards have a duty of oversight and should be in regular communication with management regarding COVID-19 matters. Issuers are required to discuss matters relating to the board’s oversight of material risks in their proxy statements filed in connection with annual shareholder meetings. Depending on the issuer, it may be appropriate to discuss board oversight of risks presented by COVID-19’s impacts.
Enforcing trading and communications policies: Issuers should remind employees and directors of their obligations under trading, communications, and other policies that may be implicated by matters relating to the COVID-19 outbreak. Issuers should continue to guard against trading on the basis of, or selective disclosure of, material non-public information by employees or directors. Issuer’s must continuously assess whether employees or directors are in possession of material non-public information as a result of actual or anticipated COVID-19 impacts and enforce trading and communications policies that impose restrictions on the use or disclosure of such information.
Managing timely, fair, and accurate communications:
SEC Chairman Clayton has admonished companies to “provide investors with insight regarding their assessment of, and plans for addressing, material risks to their business and operations resulting from the Coronavirus to the fullest extent practicable to keep investors and markets informed of material developments.” In addition to ensuring that periodic reports contain appropriate disclosure, companies should consider whether interim updates are warranted on Form 8-K. Companies should anticipate a barrage of questions from investors and analysts regarding COVID-19 and should have a plan in place for maintaining open lines of communication, without violating Regulation FD’s prohibition on selective disclosure.
Regardless of the degree of concern COVID-19 presents, and the pressure from various stakeholders to receive frequent updates, Regulation FD generally requires that all investors have access to the same material information. Despite the desire for guidance, many companies who regularly issue guidance may suspend providing guidance until they are able to more accurately quantify the anticipated impact of COVID-19.
Holding a virtual annual meeting: As state and local government officials continue to implement “social distancing” policies, it may not be desirable to hold a gathering of people for an in-person annual meeting. If virtual meetings are permitted by an issuer’s state of incorporation, charter and bylaws, issuers should consider whether the annual meeting should be held virtually, or whether the proxy statement should reference a possible virtual annual meeting. If issuers decide to hold a virtual annual meeting, they must be sure to comply with SEC and state requirements relating to notice of the meeting, instructions regarding access to the meeting, and conduct of the meeting.
Extended filing deadlines: Public companies that are unable to meet filing deadlines for SEC reports to be filed between March 1 and April 30, 2020 due to the COVID-19 outbreak will have an
additional 45 days to file these reports; provided that, among other things, such companies file a report on Form 8-K describing the reason for the delayed filing.
CONTACTS
AMY BOWLER
T.
303.290.1086
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LUCY STARK
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303.295.8493
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Hotel/Resort/Hospitality
Last updated 3.16.2020
How are hotels dealing with reservation cancellations due to travel disruptions caused by the Coronavirus outbreak?
National hotel franchisors are providing regular Coronavirus updates to their customers, loyalty reward program participants, and to their franchisees. Informal surveys of hospitality industry clients reveal that most are taking their lead on how to deal with room reservation cancellations from their franchisors. Most national hotel flags already provide liberal cancellation protections to their customers. Those policies remain in place and in many cases are being made more customer friendly. For example, Hilton announced on March 12, 2020 that all reservations – even those described as “non-refundable” – that are scheduled for arrival before April 30, 2020 can be changed or cancelled at no charge up to 24-hours before scheduled arrival. The same policy will apply to any new reservations booked between March 12 and April 30, 2020. Hilton also announced that they will pause the expiration of loyalty program points between March 12 and May 31, 2020. Other national hotel chains have announced similar policies to preserve relations with their customer bases.
Should hotels waive conference cancellation fees?
Hotel operators should look first to the conference contract provisions dealing with cancellation to determine their rights. Unforeseeable events like the Coronavirus outbreak that cause disruption in travel or result in governmental entities invoking bans on large gatherings to prevent the spread of disease may fall under a force majeure clause in a contract. The occurrence of a force majeure event would be grounds for cancellation without penalty. Force majeure clauses are narrowly construed by most courts so operators should be familiar with the enumerated events in the clause. Events such as “acts of God” could invite differing interpretations by contract parties. Acts of God are most often interpreted to be natural disaster events, but a cancelling party might argue that a pandemic also falls into that category. Obviously, if the contract includes epidemics, diseases or public health emergencies as enumerated force majeure events, a cancelling party may invoke the clause as the reason for cancellation. Actions by governments may be included as a defined force majeure event. A travel ban, or a ban on large gatherings making contract performance an impossibility, could constitute legitimate grounds for cancellation of a conference that contains actions by governmental entities as an enumerated force majeure event. Whether a customer may invoke a force majeure clause in cancelling a scheduled conference will depend on the specific wording of the force majeure clause. Regardless of the wording of contract provisions, hotel operators should expect parties seeking a waiver of contractual cancellation fees to invoke contract performance defenses such as frustration of contract purposes, impossibility of performance, and similar defenses. Hotel operators should also consider customer relation and reputation consequences in deciding whether to waive cancellation fees.
Are hotels enacting housekeeping precautions to protect customers?
Housekeeping practices take on greater importance during an outbreak like the Coronavirus. Hotel operators are being encouraged by their franchisors to increase the frequency of cleaning in public areas of their hotel properties. Lobbies, public restrooms, elevators, door handles, and frequently used surfaces should receive more frequent cleaning with disinfectants. Many hotels are deploying antibacterial hand sanitizers in numerous and conspicuous locations. Housekeeping staff should be briefed on best practices and the hotel protocols for cleaning of guest rooms and public areas should be reviewed to ensure they are thorough and adequately provide for mitigation of the spread of disease. Special care should be taken to clean and disinfect light switch plates, remote controls, touch screens, and door handles in guest rooms and throughout the hotel. Hotels with workout facilities should ensure that disinfectant wipes are readily available for guest use in wiping down exercise machines and equipment.
CONTACT
TOM DEVINE
T. 303.295.8110
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Cybersecurity/Privacy
Keeping Your Data Safe
Last updated 3.15.2020
With more employees working remotely during the COVID-19 pandemic, it is time to consider your security hygiene to keep your data safe. Malicious cyber actors are already using people's desire for COVID-19 information as a phishing and malware distribution opportunity. The following tips can help you work remotely safely and securely:
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Test your ability to work remotely now – If you have the capability to work remotely and have not done so recently, do so now. Be prepared for that eventuality.
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Safely transport your devices – Ensure that when traveling between your work and home that all your devices are properly stored and secured. When using a taxi or rideshare, ensure your devices remain in your possession to prevent accidentally leaving them behind. When traveling in your own vehicle, take your device with you or lock your devices in the trunk during stops and don't leave them in your vehicle overnight. Due to the lack of availability of new mobile devices, thefts of these devices is expected to increase significantly.
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Use secure Wi-Fi networks – Unsecured Wi-Fi networks are one of the biggest security risks for the mobile workforce. While there are many harmless Wi-Fi networks in the world, there are also trap networks hosted by hackers with ill intent. Stay away from public Wi-Fi networks like the public library, the airport public Wi-Fi, or the local coffee shop. If you cannot access a safe Wi-Fi network, connect via a VPN or use your mobile device as a Wi-Fi hotspot. Many mobile phones have VPN options available in the settings.
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Avoid public devices or options when connecting to your network – Always be wary of public computers such as in hotels, libraries, shared working spaces, and lobbies of large office buildings. Hackers love public computers because they can install keylogging and spyware software, then collect the passwords of dozens of people who pop in to use the computer
Beware of Scammers
Last updated 3.15.2020
The fear around the Coronavirus (COVID-19) outbreak is being exploited by scammers. The Federal Trade Commission posted a great article that outlines the tactics of scammers who may use websites to sell bogus products and use fake emails, texts, and social media posts to take your money and get your personal information. Here are some tips from that article to help you avoid Coronavirus scams. The full article can be found
here.
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Don’t click on links from sources you don’t know. It could download malware onto your computer or device.
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Watch for emails claiming to be from the Centers for Disease Control and Prevention (CDC) or experts purporting to have information about the virus. For the most up-to-date information about the Coronavirus, visit the Centers for Disease Control and Prevention (CDC) and the World Health Organization (WHO).
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Ignore online offers for vaccinations. If you see ads touting prevention, treatment, or cure claims for the Coronavirus, ask yourself: if there’s been a medical breakthrough, would you be hearing about it for the first time through an ad or sales pitch?
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Do your homework when it comes to donations, whether through charities or crowdfunding sites. Don’t let anyone rush you into making a donation. If someone wants donations in cash, by gift card, or by wiring money, don’t do it.
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Be alert to “investment opportunities.” The U.S. Securities and Exchange Commission (SEC) is warning people about online promotions, including social media, claiming that the products or services of publicly-traded companies can prevent, detect, or cure coronavirus and that the stock of these companies will dramatically increase in value as a result.
CONTACT
TRACY GRAY
T.
303.473.2703
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Labeling/Advertising
Supplement Labeling
Last updated 3.13.2020
Nutritional supplement and some CBD companies are marketing products as effective to treat Coronavirus with unsupported health claims. There are
currently no specific drugs, OTC medicines, or medical devices approved by FDA to treat or prevent Coronavirus.
Supplement products making unsupported health claims risk FDA violations and potential enforcement action. These companies take themselves out of the usual “safe harbor” that does not require FDA product approval. FDA has taken a hard line – considering any supplement companies that make such unsupported health claims as misleading consumers, and the products as unapproved, misbranded drugs.
FDA has stepped up its surveillance program and enforcement efforts, including issuing joint warning letters with the Federal Trade Commission to numerous nutritional supplement companies and one company selling CBD products. These warning letters require companies to respond within 48-hours with steps they have taken to correct the violations.
On March 9, FDA Commissioner Stephen M. Hahn, M.D. announced that “FDA considers the sale and promotion of fraudulent COVID-19 products to be a threat to the public health. We have an aggressive surveillance program that routinely monitors online sources for health fraud products, especially during a significant public health issue such as this one.” Dr. Hahn called the warning letters a first step, saying that FDA is “prepared to take enforcement actions against companies that continue to market this type of scam.”
Some states are taking pre-emptive, aggressive steps. The State of Missouri has filed suit against televangelist, Jim Bakker, seeking a temporary restraining order to stop him from promoting colloidal silver as a treatment for Coronavirus.
And as night follows day, consumer plaintiff lawyers are heeding FDA pronouncements. The first, of what is expected to be many, Coronavirus-related consumer class action suits has been filed. This first case, in the Southern District of California, alleges that the defendant falsely claimed its Germ-X product (an alcohol-based sanitizer) could prevent or reduce Coronavirus infection.
What to Consider?
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Do not alter product labeling or websites to make any claims about the Coronavirus. FDA regularly monitors any health claims made on product labeling—which includes not only the package label but also websites, videos, customer comments or reviews made on numerous websites, and statements made on social media by “influencers.” Although FDA regulations permit certain structure or function claims for supplements that are not permitted for foods, those claims must still be adequately supported by scientific studies. Even if your product contains ingredients that are widely believed to help boost immune systems, don’t make any health claims that suggest, or even mention the Coronavirus.
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Audit product labeling, including websites and advertising, audited for compliance. With increased FDA scrutiny for Coronavirus claims, this is a good reminder to periodically audit your product labels to ensure that there are no problematic claims that may unnecessarily increase risks for agency action or consumer class action lawsuits.
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Contact any public figures/influencers endorsing your products and direct them not to mention Coronavirus or make any health claims beyond what’s on existing product labeling. The sales benefit of influencers discussing products on social media comes with a cost: federal regulators attribute those statements to the company and consider them to be part of the product labeling. It is imperative that any influencer or public figures who discuss and recommend your products be on the same page with you and don’t make any unsubstantiated or problematic claims.
CONTACT
LEE GRAY
T.
303.290.1602
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WARN Act/Mass Layoffs/Plant Closings
Mass Layoffs/WARN Act Application
Last updated 3.20.2020
What's the Issue?
Does an employer have to give 60-days’ notice if they undertake a mass layoff as a result of the Coronavirus pandemic?
Answer: Probably not, based on the unforeseeable business circumstances exception under the Worker Adjustment and Retraining Notification Act of 1988 (“WARN”). However, if WARN is triggered, notice would be required “as soon as practicable,” even under the exceptions to the 60-day notice requirement.
Things to Consider
The WARN Act is a federal labor law that requires most employers with 100 or more employees to provide 60 calendar-day advance notification of plant closings and mass layoffs of “employees,” as defined in the Act. See general information in this
DOL Guidance.
WARN REQUIREMENTS
A WARN notice is required when:
a business with 100 or more full-time workers (not counting workers who have less than 6 months on the job and workers who work fewer than 20 hours per week) is laying off at least 50 people at a single site of employment, OR
the business employs 100 or more workers who work at least a combined 4,000 hours per week, and is a private for-profit business, private non-profit organization, or quasi-public entity separately organized from regular government.
CIRCUMSTANCES WHEN WARN IS NOT TRIGGERED
WARN is not triggered when the following various thresholds for coverage
are not met:
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If a plant closing or mass layoff results in fewer than 50 people losing their jobs at a single site of employment; or
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If 50-499 workers lose their jobs and that number is less than 33% of the employer’s total active workforce at a single site; or
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If a layoff is for 6 months or less; or
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If work hours are not reduced 50% in each month of any 6-month period.
EXCEPTIONS TO THE 60-DAY NOTICE
There are three exceptions to the full 60-day notice requirement. However, notice must be provided as soon as is practicable even when an exceptions applies. And, the employer must provide a statement of the reason for reducing the notice requirement in addition to fulfilling other notice information requirements.
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Faltering company: When, before a plant closing, a company is actively seeking capital or business and reasonably in good faith believes that advance notice would preclude its ability to obtain such capital or business, and this new capital or business would allow the employer to avoid or postpone a shutdown for a reasonable period;
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Unforeseeable business circumstances: When the closing or mass layoff is caused by business circumstances that were not reasonably foreseeable at the time that 60-day notice would have been required (i.e., a business circumstance that is caused by some sudden, dramatic, and unexpected action or conditions outside the employer's control, like the unexpected cancellation of a major order); or
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Natural disaster: When a plant closing or mass layoff is the direct result of a natural disaster such as a flood, earthquake, drought, storm, tidal wave, or similar effects of nature. In this case, notice may be given after the event.
CORONAVIRUS PANDEMIC ISSUES
Even where WARN would otherwise apply to an employer’s mass layoff or plant closing, the current Coronavirus pandemic is likely to create one of two exceptions to the WARN notice requirements. Certainly, a strong argument could be made that the pandemic created unforeseeable business circumstances. The
Department of Labor (“DOL”) indicates that if “an employer believes their situation is the result of an economic crisis, it may apply the unforeseen business circumstances exception” but will have the burden to prove why it was unforeseen. It seems reasonable that this pandemic was unforeseen.
The
DOL defines natural disaster as: “When a plant closure or a mass layoff is the direct result of a natural disaster such as a hurricane, flood, earthquake, drought, storm, tidal wave, or similar events caused by nature, employers are obligated to give as much notice as possible, even if the notice comes after a disaster. To comply with the law, the employer may send notice to the employee’s last known address, even if their homes are destroyed. This would indicate good faith.” It seems reasonable as well that a pandemic may be considered a “similar event caused by nature.”
OTHER CONSIDERATIONS
Some states have mini-WARN Act provisions which must be consulted based on the state where your business is located.
Employee terminations also can impact 401(k) and other retirement plans. Generally, if there is a reduction of 20% or more in one or a series of terminations, that can be a "partial termination" that would trigger 100% vesting in the plan. Please see other Retirement Plan information in the Employee Benefits section of the Resource Site.
CONTACT
BRYAN BENARD
T.
801.799.5833
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Critical Infrastructure Guidance
Last updated on 3.24.2020
On March 19, 2020, the Cybersecurity & Infrastructure Security Agency of the Department of Homeland Security issued a guidance on
Essential Critical Infrastructure Workers During the COVID-19 Response. This guidance is to be used by state and local governments, and the private sector, to ensure that employees essential to the operations of critical infrastructure are able to continue to work uninterrupted.
Specific categories of essential infrastructure workers are identified in the following sixteen industrial sectors: Chemical Sector; Commercial Facilities Sector; Communications Sector; Critical Manufacturing Sector; Dams Sector; Defense Industrial Base Sector; Emergency Services Sector; Energy Sector; Financial Services Sector; Food and Agriculture Sector; Government Facilities Sector; Healthcare and Public Health Sector; Information Technology Sector; Nuclear Reactors, Materials, and Waste Sector; Transportation Systems Sector; and Water and Wastewater Systems Sector. One note: the list of essential infrastructure workers is advisory in nature and not a federal directive.
CONTACT
KELLY JOHNSON
T.
202.654.6933
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Tax
Federal Emergency Tax Relief – Legislation and Guidance
Last updated 04.16.2020
Emergency Payroll and Self-Employment Tax Credits
Employer Tax Credits for Emergency Paid Sick Leave and Expanded Family & Medical Leave
On March 18, 2020, President Trump signed H.R. 6201, Families First Coronavirus Response Act, which had been passed by the US Senate earlier that day and by the US House of Representatives with technical corrections on March 16.
The legislation requires employers to provide emergency paid sick leave and temporarily expands paid family and medical leave. To ease some of the financial burden to employers, the legislation provides refundable tax credits for employers required to provide emergency sick leave and expanded family leave.
The legislation provides quarterly employer payroll tax credits of up to $511 per day for an employee taking emergency sick leave for themselves and up to $200 per day for employees taking leave to care for their children or other family members. For employees taking expanded family leave, the bill provides for a credit of $200 per day per employee taking expanded family leave benefits, subject to a total cap of $10,000 per employee.
Self-Employment Tax Credit
The Act provides a similar refundable credit against self-employment tax. The credit would cover 100% of a self-employed person’s sick-leave equivalent or 67% if that person is taking care of a child or family member.
See more information about the emergency leave requirements and payroll tax credits in the “Emergency Relief Legislation” tab under the Employment Law Considerations section of our Resource Site.
CARES Act Tax Relief
The CARES Act was enacted on March 27, 2020. The $2 trillion stimulus package provides loans to affected businesses and industries, extends the payment deadlines for employer payroll tax, temporarily lifts net operating loss carryforward limitations and interest expense deductions, and eliminates the “retail glitch” by permitting bonus depreciation for certain qualified improvement property. The IRS has issued guidance to assist taxpayers with filing amended returns and claims for refunds to take advantage of these provisions. More information can be found under the “Tax Relief” tab in the CARES Act section of the Resource Site.
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KAREN DEAN
T.
303.295.8550
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Federal Tax Deadlines and Extensions
Last updated 4.21.2020
On March 20, 2020, Secretary Mnuchin announced that Tax Day will be moved from April 15, 2020 to July 15, 2020. In response to this announcement, the IRS has issued Notice 2020-18 formalizing the automatic postponement of the due date for both filing federal income tax returns and making federal income tax payments to July 15, 2020. In Notice 2020-23, issued April 9, 2020, the IRS provided a welcome and automatic postponement for almost all deadlines for filings and payments falling on or after April 1, 2020 and before July 15, 2020. Individuals, trusts, estates, corporations, partnerships, S Corporations, and other non-corporate tax filers now qualify for the extra time. Interest, penalties, and additions to tax will be disregarded until July 15 but will start accruing after that date. Taxpayers wishing to file their returns by October 15, 2020 must file a request for extension by July 15.
The IRS has established its own resource page and other information to assist taxpayers affected by COVID-19, which can be viewed
here.
C Corporations
All corporate income tax filings and payments otherwise due from April 15, 2020 to July 15, 2020 are now due July 15, 2020. This includes estimated payments, any elections that are made or required to be made on the tax return, Section 965 installment payments, and BEAT payments and filings. This also includes information returns that accompany federal income tax filings, such as the Form 5471 and Form 8858.
Partnerships & S Corporations
Unfortunately, the relief provided by the IRS does not apply to tax partnerships and S Corporations filings and payments due before April 1, 2020. Partnerships and S Corporations that were not able to file or make payment by the March 16 or other due date may still seek penalty and interest relief based on their specific facts and circumstances. However, Notice 2020-23 extends the July 15 deadline postponement to partnership and S Corporation filings due between on or after April 15, 2020 and before July 15, 2020.
In addition, to provide additional flexibility for partnerships to take advantage of the CARES Act tax relief and to adjust other items,
Rev. Proc. 2020-23, issued on April 8, 2020, permits a partnership to file an amended Form 1065 for taxable years beginning in 2018 and 2019 instead of an AAR, as required by the partnership audit rules.
Individuals, Trusts & Estates, and Nonprofits
All individual, trust, and nonprofit income tax filings and payments, including estimated payments, otherwise due from April 15, 2020 to July 15, 2020 are now due July 15, 2020. Notice 2020-23 augments and clarifies that the extension to July 15 applies to: gift tax returns and payments, generation-skipping transfer tax filings and payments; estate tax returns and payments, including deferred estate tax payments and annual recertification filings under Section 6166 of the Internal Revenue Code.
Tax Enforcement, Refund Claims and Court Petitions
Notice 2020-23 also extends the certain filing deadlines until July 15, 2020 provided the deadline was on or after April 1 and before July 15, 2020. The filing extensions includes: (1) filing a petition with the U.S. Tax Court; (2) filing a petition for review of a Tax Court decision; (3) filing a claim for refund or credit; and (4) bringing a suit on any claim for credit or refund.
The Notice also provides extra time for the IRS to perform certain time-sensitive actions. For taxpayers undergoing an examination or who are in appeals, Notice 2020-23 grants a 30-day postponement for the IRS to initiate action provided the last date of performance was between April 6 and before July 15, 2020. This includes issuing notices of assessment, making a notice of demand for payments, collecting or making a levy for any tax liability, and bringing a suit regarding any tax liability.
CONTACTS
KAREN DEAN
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303.295.8550
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DIANA MYERS
T.
307.734.3526
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Other Tax Actions Deadlines – Real Estate
Last updated 4.15.2020
Extensions of Other Time-Sensitive Actions
In
Notice 2020-23, issued April 9, 2020, the IRS extended almost all deadlines, including for time-sensitive actions related to like-kind exchanges, low-income housing credits, and opportunity zones.
Extension for Qualified Opportunity Zone Investments
Notice 2020-23 also extends the deadline for actions related to investing in a qualified opportunity fund (“QOF”) under Section 1400Z-2 of the Internal Revenue Code. Taxpayers required to invest capital gains in a QOF during a 180-day period that ends on or after April 1, 2020, and before July 15, 2020, now have until July 15, 2020, to do so. The extension does not apply to increase the amount of time a QOF has to meet certain investment requirements or can utilize the working capital safe harbor. The guidance also does not extend the time period during which taxpayers can take advantage of the opportunity zone program generally. More information can be found on our
Opportunity Zone resource site.
Extensions for Like-Kind Exchanges
Notice 2020-23 extends the deadline for time-sensitive actions related to like-kind exchanges under Section 1031 of the Internal Revenue Code. Taxpayers required to identify replacement property or complete exchanges on or after April 1, 2020, and before July 15, 2020, now have until at least July 15, 2020, to do so. Similar extensions apply to reverse exchanges under Revenue Procedure 2000-37. More information can be found under the Real Estate section of the Resource site.
Extensions for Low-Income Housing Tax Credit Investments
In Rev. Proc. 2020-23 issued April 8, 2020, the IRS extended the deadline for certain time-sensitive actions with respect to low-income housing tax credits, including certain measurement periods, elections and certifications.
Taxpayers that were required to complete such actions on or after April 1, 2020, and before July 15, 2020, now have until July 15, 2020, to do so.
The guidance allows for an extension of:
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the 24-month measuring period in which to spend the requisite amount of rehabilitation expenditures under IRC Section 42(e)(3) in order to qualify for treatment as a separate new building;
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annual certification requirements to be delivered to state housing authorities pursuant to Treas. Reg. § 1.42-5(c)(1);
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annual income certifications required from each low-income tenant by Treas. Reg. § 1.42-5(c)(1)(iii);
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elections of the appropriate percentage for the month tax-exempt bonds are issued under Treas. Reg. § 1.42-8(b);
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the time allowed to sell an existing building after acquisition by foreclosure of any purchase-money security interest under IRC Section 42(d)(2)(D)(i)(IV) without affecting whether such building has previously been placed in service;
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the requirement to meet the minimum set-aside requirements under IRC Section 42(g)(3)(A) by the end of the first year of the credit period;
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the requirement to spend 10% of the reasonably expected basis within one year of the carryover allocation as required under IRC Section 42(h)(1)(E); and
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the one-year grace period to secure an extended low-income housing agreement if it is determined that such agreement was not in effect as of the beginning of the tax year under IRC Section 42(h)(6)(J).
There are no filing or other special requirements to take advantage of these extensions.
CONTACTS
ADAM COHEN
T.
303.295.8372
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PETER PERLA
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303.295.8006
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SARAH HARADON
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303.295.8044
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State Tax
Last updated 5.11.2020
The State response to the Covid-19 continues to evolve. The States are looking at a number of factors as they form their responses including:
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The State's "Rainy Day Fund"
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Availability of Federal monies
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Impact on State Budget
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Potential legislative responses (which could require the extension of current sessions or the calling of a special session including: Extended deadlines for filing and payment, waiver of penalties and interest, tax holidays or abatements, tax credits, deductions or exemptions, decoupling from the Federal tax changes in the CARES Act, etc.
State Income Tax Filing & Payment Deadlines
Many states that have an income tax are conforming with the federal extended filing deadline and payment deadline (July 15) for both individual and corporate state income tax filings, including estimated payments. Which means that payments made by July 15, 2020 will not be subject to interest or penalties. In the states where Holland & Hart is located, Alaska, Nevada, and Wyoming do not have a state income tax. The following states have made the modifications to certain income tax filing and payment dates:
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DC has
extended its income tax filing and payments (but not for estimated payments) to July 15, 2020. In addition, DC has
announced that it will not claim nexus for franchise tax purposes based solely on the temporary relocation of employees in DC during the declared public emergency period (currently in effect through May 15, 2020).
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The Colorado
extension to July 15 covers income tax return payments due on or after April 15, 2020 but before July 15, 2020. Estimated tax payments otherwise due on or after April 15, 2020 but before June 16, 2020 are likewise extended to July 15. An automatic 6-month filing extension to October 15, 2020 applies to income tax returns that were due by April 15. An original income tax return due, as extended, on or after April 15, 2020 but before July 15, 2020 is due July 15, 2020. There are also similar extensions for certain income tax payments related to S corporations, trusts/estates, and partnerships (see
Emergency Rule 39-22-609-1 for details, including income tax payments not covered by this extension.)
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Idaho has
extended its filing and payment deadline to June 15, 2020;
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Montana has
extended its individual income tax filings and deadlines until July 15, 2020; and
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New Mexico has extended its income tax filings and deadlines until July 15, 2020. Penalties will be waived but interest will continue to accrue; and
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Utah has
extended its filing and payment deadlines to July 15, 2020.
Other State and Local Taxes
Some state and local jurisdictions are moving the remittance and filing deadlines for sale/use taxes (for certain industries), property taxes, and payroll taxes. The following states in which Holland & Hart have an office have made modifications to the filing and payment deadlines for non-income taxes:
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Alaska has extended the filing and payment deadlines for several taxes and license fees to July 15, 2020;
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Colorado has extended to May 20, 2020 the filing and remittance dates for state and state-administered local sales taxes otherwise due on April 20, 2020 (generally at the cost of the vendor fee otherwise available). This extension does not cover: retailer’s use tax; consumer use tax; certain other sales/use-related taxes; or sales tax filing and remittances for the self-collecting home rule cities. Colorado has also provided
numerous extensions for property taxes, including extensions to June 15, 2020 of certain April 15, 2020 deadlines related to business personal property, natural resource property, and oil/gas property. There is
also an extension to May 15, 2020 of certain April 15, 2020 several severance tax filing and payment deadlines.
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DC has
extended filing and remittance deadlines for sales and use taxes for periods ended February 29, 2020 and March 31, 2020; and
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New Mexico has
extended the deadline for withholding returns until July 25, 2020.
As this is a constantly evolving area, please check back regularly.
CONTACTS
ROB LANG
T.
801.799.5740
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MARK KOZIK
T.
303.295.8191
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Export Control Regulations
U.S. EXPORT CONTROL REGULATION REMINDERS
Last updated on 4.3.2020
What's the Issue?
As increasingly more employees telework and work remotely outside the office, it is important for organizations to ensure export compliance remains at the forefront. Sometimes, employees may be unaware that U.S. export controls continue to apply when working outside the office. Teleworking presents potential risks for inadvertent unauthorized transfers of technology and technical data by employees who may not fully understand the export controls under federal law on such transfers and the multiple means by which such transfers may occur.
Issues to Consider
1. Working Remotely and Exchanging Technical Specifications about a Product with a U.S. Person located outside the United States or with a Non-U.S. Person located anyway:
Questions: If I share from the U.S. technical specifications of a product or operating software for a product with a person outside the United States, who is an employee of my company or an independent contractor hired by my company, might I require prior approval from the U.S. Government? Yes.
Might export restrictions under federal law apply to such a transfer to a non-U.S. Person within the United States? Yes.
U.S. export control regulations govern transfers of controlled technology, technical data, and software, including but not limited to, physical shipments or transfers and electronic transmissions of the controlled technology, technical data, and software.
The principal U.S. export control regulations include (a) the U.S. Export Administration Regulations (the “EAR”) administered and enforced by the U.S. Department of Commerce, Bureau of Industry and Security (“BIS”) and (b) the International Traffic in Arms Regulations (“ITAR”) enforced and administered by the U.S. Department of State, Directorate of Defense Trade Controls (“DDTC”). The EAR generally regulates the export of “dual use” goods, software, and technology, i.e., items which have principally civil application, but which may have military or other application. The ITAR regulates the export of certain defense and military related items and services, i.e., “defense articles” and “defense services.”
In addition, U.S. economic sanctions regulations and executive orders administered and enforced by the U.S. Department of the Treasury, Office of Foreign Assets Control (“OFAC”) may function, in effect, as export controls. The U.S. Government also maintains more specialized export control regulations administered by the Nuclear Regulatory Commission and the U.S. Department of Energy related to exports or imports of nuclear material or equipment and exports of technology and services for the development, production, or use of nuclear reactors, equipment and material.
2. Determining whether an Export of Information—Technical Data or Software—is Controlled or Regulated by Federal Law:
Question: What are the key factors to determine whether a U.S. Government license or authorization is required to transfer technical data, technology, or software to a foreign person either within the U.S. or outside the U.S.?
The first step in determining whether a license or authorization may be required is to determine whether the technical data, technology, or software is subject to the ITAR or EAR. If subject to the ITAR, prior authorization generally must be obtained from DDTC to transfer technical data, technology, or software to a foreign person either within the U.S. or outside the U.S. BIS license requirements are dependent upon an item’s technical characteristics, the destination, end user, and end-use of the item.
In general, the key factors to consider when determining whether a license or authorization is required are:
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Does your conduct or transfer of an item or information constitute an “export”?
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What technical data, technology, or software are you exporting? Is such technical data, technology, or software subject to the ITAR or the EAR? If so, within which category of the ITAR’s U.S. Munitions List or within which Export Control Classification Number of the EAR’s Commerce Control List does the technical data, technology, or software fall?
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To what foreign nation is the technical data, technology, or software going? If the technical data, technology or software will remain in the U.S., will a non-U.S. person receive or have access to it?
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What will the technical data, technology, or software be used for?
3. Maintenance of Controlled Technical Data, Technology, or Software Outside for the United States
Question: If my company stores technical data, technology, or software in the “cloud” or a computer server outside the U.S., might transfers to such storage and maintenance of our technical data, technology, or software outside the U.S. be considered an “export” controlled by U.S. law and requiring a U.S. Government license or authorization? Yes.
Uploading data to a cloud storage or computer server outside the United States, except as noted below, is generally considered an export and may require a U.S. Government license or authorization. In addition to possible U.S. government licensing requirement raised by the transfer of data to a non-U.S. computer server, the use of a computer server in certain foreign nations or under the control of certain non-U.S. persons may present compliance risks and may be prohibited by federal statute.
However, under the EAR and ITAR (effective March 25, 2020), the transfer of technology and technical data outside of the United States using end-to-end encryption is not considered an export provided that the technology and technical data is encrypted in accordance with certain specified criteria in the applicable regulation (See, 15 C.F.R. Section 734.18; 22 C.F.R. Section 120.54(a)(5).
4. Medical Research and Testing:
Question: If I am involved in medical research or medical testing, are there export controls under federal law applicable to the transfer or export of medical samples, such as a coronavirus / SARS-CoV-2 sample? Yes.
In a report published on February 7, 2020, the International Committee on Taxonomy of Viruses (ICTV) classified the causative agent of COVID-19 respiratory disease as SARS-CoV-2 virus. BIS currently considers SARS-CoV-2 to be distinct from the SARS-CoV virus and as such will continue to classify the SARS-CoV-2 and its specific genetic elements as EAR99. Assuming that no prohibited use or user is involved, an export license is generally not required for export of this virus or its genetic elements to most destinations outside the United States.
5. Enforcement and Penalties:
Question: Are there civil and criminal penalties applicable to violations of these federal regulations and laws? Yes.
Both violations of the ITAR and EAR may be subject to criminal prosecution and administrative or civil penalties. For each, a criminal violation may be subject to 20 years imprisonment, a $1 million fine, and additional penalties, including debarment and denial of export privileges. Administrative penalties for a violation of the ITAR may include a monetary penalty of up to $1.18 million, debarment, and other penalties. Administrative penalties for a violation of the EAR may reach up to $300,000 per violation or twice the value of the transaction, whichever is greater. Violators may also be subject to the denial of their export privileges.
See the following information provided by the U.S. Government concerning its investigations and enforcement actions relating to export control violations:
Bureau of Industry of Security (BIS)
Don't Let This Happen to You! Actual Investigations of Export Control and Anti-boycott Violations
Directorate of Defense Trade Controls (DDTC)
DDTC Compliance Actions
U.S. Department of Justice
Summary of Major U.S. Export Enforcement, Economic Espionage, and Sanctions-Related Criminal Cases (Updated November 2019)
6. Status of Operations
Question: Have the DDTC and BIS notified the public of possible delays in processing license applications or other regulatory activity due to the COVID-19 pandemic? Yes.
Due to reduced work forces and employees working from home, DDTC and BIS have informed the public to anticipate delays in licensing processing, commodity jurisdiction and general correspondence requests, and other approval requests.
Information on Status of Operations:
DDTC:
https://www.pmddtc.state.gov/ddtc_public
