Re-Opening Your Business, Part 2: Navigating Government Orders and Regulatory Guidance

CNN has a helpful collection of information outlining where all 50 states stand on re-opening.  There is not enough space in this blog post to go through that data, especially as each state has a slightly different approach for re-opening.  Regardless of your particular state, though, one of the fundamental components of any re-opening plan for your business is understanding the applicable governmental orders and regulatory guidance.  As I stated in my initial blog post on this topic, re-opening will be a process, and you may well plan to go forward, but have to take steps back, as you move through your path to a new normalcy in your business operations.

California, where I am at, is seeing a rapid shift in governmental orders.  On March 16th, six Bay Area counties (plus the City of Berkeley) issued stay at home orders shuttering all but certain enumerated “essential businesses.”  On March 19th, Governor Gavin Newsom issued a statewide stay-at home order that had the same restriction for the entire state of California.  Other counties in California followed suit, issuing their own orders.  Since then, these numerous orders have been modified several times as developments in the COVID-19 healthcare crisis have emerged at the federal, state and local levels.  On May 8th, Governor Newsom relaxed his order to allow certain sectors of curbside retail to reopen.  In doing so, Governor Newsom announced that counties can apply for variances to allow for faster re-opening processes or they could maintain stricter controls.

The result of these well-intentioned state and local orders, though, has been a confusing patchwork of governmental requirements that have left pundits,  businesses and citizens alike scratching their heads to figure out which orders apply.  This confusion is not likely to fully abate any time soon as health, scientific, political, and economic factors are influencing the orders and policies that are being created.

In addition to these orders, various guidance documents have been issued by the Centers for Disease Control and Prevention (CDC), Occupational Safety and Health Administration (OSHA), and the Equal Employment Opportunity Commission (EEOC), the United States Department of Labor, and the White House.

At a high level, the White House’s Guidelines for Opening Up America Again set forth a three-phased approach intended to assist state and local officials to reopen businesses and protect lives.  The White House recommends the development and implementation of appropriate policies in accordance with federal, state and local regulations and guidance regarding:

  • Social distancing and protective equipment
  • Temperature checks
  • Sanitation
  • Use and disinfection of common and high-traffic areas
  • Business travel

Diving deeper, OSHA has issued various guidance documents outlining the measures that businesses must take to protect the workforce, as well as how COVID-19 related complaints will be handled.  Additionally, the CDC recently issued updated guidance for actions that people and communities can take to slow the spread of the virus.   Given the changing understanding of the virus, this guidance has changed over the past several weeks (ex. the CDC now advises that the virus does not spread easily from touching infected surfaces).  So, frequent review of these agencies’ websites is recommended.

These guidance documents are not standards nor regulations; they create no new legal obligations.  However, they do contain recommendations that include descriptions of mandatory safety and health standards (for example:  employers are obligated to provide their workers with personal protective equipment, but the guidance notes that the exact type of PPE to be provided will depend based upon the risk of exposure to be encountered by the worker).

So, what should a prudent business seeking to re-open do?

First, you need to assess which of the various local and state orders apply to your business.  If you operate in one county, this should be relatively straightforward.  If your operations span several counties, you will need to carefully outline the requirements of each of the applicable orders to understand where they are the same and where they differ.  The counties of Alameda, Contra Costa, Marin, San Francisco, San Mateo and Santa Clara, for example, issued similarly-worded orders outlining several indicators that are deemed to be critical to deciding when and how to ease shelter-in-place restrictions.  These orders are more restrictive than the most recent order from Governor Newsom.  The Health Officer of Fresno County, by contrast, issued an order allowing businesses to re-open that is predicated on state and CDC guidelines.  Regardless, all re-opening plans are phased approaches that are designed to allow businesses to re-open depending on the level of risk presented by their operations.  There is no one-size fits all approach.

Second, you will need to evaluate applicable regulatory guidance, which may be more detailed in some instances than local or state shelter-in-place orders regarding risk mitigation measures.  For example, the General Duty Clause, Section 5(a)(1) of the Occupational Safety and Health (OSH) Act of 1970, 29 USC 654(a)(1), requires employers to furnish each worker with “employment and a place of employment, which are free from recognized hazards that are causing or are likely to cause death or serious physical harm.”  Accordingly, OSHA recommends a framework called the “hierarchy of controls” to identify and select ways to control workplace hazards, and it has issued detailed guidance explaining how to do so.  With regard to COVID-19, these workplace controls include:

  • Engineering controls (e.g., high-efficiency air filters, increasing facility ventilation rates; physical barriers to separate workstations, etc.);
  • Administrative controls (ex. encouraging sick workers to remain at home, establishing alternating shifts, discontinuing non-essential travel, PPE;
  • Following existing OSHA standards (ex. PPE Standards, 29 CFR 1910 Subpart I);
  • Classifying worker exposure to COVID-19 (e.g., lower risk, medium, high, and very high) and adopting risk mitigation strategies based upon the exposure risk level; and
  • Workforce education and training.

Third, avail yourself of the resources that are out there.  For weeks, governmental officials, regulatory agencies, and the news media have reported the minimum necessary safety controls:  social distancing, frequent handwashing, frequent cleaning, and masks.  Beyond these effective baseline protocols, though, OSHA has various programs and services to help businesses establish a safety and health program.  California has created industry-specific checklists, which can be found at the state’s coronavirus webpage.  Each county and city is also working to respond to COVID-19, most of whom have dedicated webpages with links to useful local information.  While this may seem daunting at first, as you move through each level you will see that the information presented largely coordinates with the level above it (e.g., city, county, state, federal), and you quickly see similar strategies and recommendations for re-opening businesses at all levels of government.

In my next blog post, we will go through a few industry-specific checklists to show the similarities and variances of these orders, guidelines and recommendations to particular businesses.

Re-Opening Your Business is Going to be a Process, Not a Ribbon Cutting

In my very first class in college – a political science lecture – the professor stated, “Where you stand depends on where you sit.” In other words, every position is relative to the circumstances presented. That phrase has stayed with me over the years, especially as my profession is based upon the representation of my clients’ various interests. Everything is relative. That includes your desire to re-open your business and/or your goal to get back to work. Here are some considerations that you should keep in mind, though, as you go through this process.

First, the overarching goal of any re-opening plan should be your workforce’s health and safety. It is not a competing interest; it is the primary interest from which everything else must follow. Obviously, no business is immune to economic realities, but generating revenue is only one element. The potential economic harm that could brought about by not focusing on health and safety could reduce revenue because of increased employee absenteeism due to sickness, curtailed operations if the office must be deep cleaned and/or temporarily closed due to illness, and potential liability from claims (governmental and/or individual) that the business was operated in a grossly negligent or reckless manner.

Second, re-opening your business is going to be a process, not a ribbon cutting. The prudent business will create an operational plan outlining the processes and strategies that will be employed to operate safely. This plan must be set forth in writing, distributed to all employees, and acknowledged in writing by each employee that it will be followed.

In preparing such a plan, you should keep several considerations in mind, which I generally outline below. In subsequent blogs, I will go through the various elements in greater detail.

 

Governmental Orders_GuidelinesGovernmental Orders/Guidelines

Regardless of where your business is located, there are likely several potentially applicable orders and/or guidelines that have been issued by local, state and federal governmental officials. Some of these orders/guidelines may be expiring, may get extended, or may be more restrictive than other guidelines. Regardless, you must evaluate which ones apply to your business as they do represent current thinking from governmental authorities regarding how business may safely operate.

 

Regulatory GuidanceRegulatory Guidance

You must stay up to date on guidance from the Centers for Disease Control and Prevention (CDC), Occupational Safety and Health Administration (OSHA), and the Equal Employment Opportunity Commission (EEOC), the United States Department of Labor, and from state and local authorities. Key guidance documents are found on these agencies’ respective COVID-19 specific web pages.

 

Current Health of Biz Ops

Current Health of your Business Operations

Not all businesses are the same, so you must honestly assess the operations of your business when deciding how best to operate going forward. Is working remotely working for your company? Then, it should be encouraged. If working remotely is not feasible for all employees, then who needs to come back, and how is that best accomplished (i.e., staggered work shifts, reconfigured office spaces, PPE needs, childcare issues, etc.)?

 

Health & Safety MeasuresHealth & Safety Measures

You will need to evaluate the health and safety challenges presented by your facilities, employees, and third parties (ex. vendors, customers, deliveries). OSHA, the CDC, and the EEOC have provided various guidance documents for businesses to plan and respond to COVID-19. These documents deal with PPE, social distancing, facility modifications, and employment concerns such as body temperature checks, dealing with illness, and Americans with Disabilities Act compliance in the context of pandemic preparedness. For areas that these guidance documents do not address (ex. the elevator in the lobby of your multi-story office building), you may need to involve a greater group of stakeholders beyond your office (e.g. building management, local health agencies) to develop workable measures.

 

Phased re-entry milestones

Phased Re-Entry Milestones

Just like many governmental orders and/or guidelines have phases, so too should your business plan for re-opening. You should have a clear understanding for the metrics that will need to be achieved to move from one phase to another. A clear framework for returning to more “normalized” operations will help ease the potential anxiety of employees, customers, and business partners as you go along. Additionally, you need to have a clear understanding of what might require you to phase back to an earlier position of safety, should circumstances change.

 

Communication strategyCommunication Strategy

What, how, when and where you communicate about your COVID-19 operation strategy cannot be an afterthought. In the short term, this is crisis management. Over the longer term, your communications will be your business voice of reason, projecting a well-earned level of confidence in the “health” of your business operations.

 

Risk mitigation and managementRisk Mitigation and Management

I previously wrote about the need for liability protection for essential businesses as they operate to provide essential services. However, liability protection will be needed by all businesses as they move to re-open, and waiting for statutory immunity that may never come is not a recommended strategy. In analyzing how you can re-open, you should also consider how things can go wrong. By identifying the risks of your “new normal,” you can work on developing strategies to help avoid and/or handle such risks. As the old saying goes, the best defense is a good offense.

Are Your Options Underwater?

Equity incentives – often in the form of stock options – are a key part of  executive compensation.  Option holders work for a company exit that can produce a big payday for them. Now more than ever companies need to keep their employees focused on better times in the future. When cash to pay salaries is short, equity gives them something to strive for. Yet, what happens when the options are “underwater,”  that is, when the exercise price exceeds the market value of the optioned shares?

  • Most likely, the options no longer motivate employees.
  • Also, they are counted as part of “fully diluted” equity, reducing the deemed value of outstanding shares.
  • And, they count against limits in option plans even though they are unlikely to be exercised.

So, what can a company do with an underwater option plan?  There are a number of approaches. The following are the most common.

  • Repricing
  • Option for option exchanges
  • Replacement with Stock Appreciation Rights (“SARs”)

Repricing

Repricing is done one of two ways: (a) amending the exercise price of the underwater option to equal current fair market value; and (b) canceling the underwater option and replacing it with a new option at current fair market value.  After a repricing, the employee will then hold options for the same number of shares under the same vesting schedule as before. Thus, to the extent that the underwater option had vested, the amended or replacement option should also be vested. Since the existing exercise price of the options being repriced is below fair market value, there is no tax consequence to employee or company from a repricing.

Easy, right?  Perhaps.

In a private company option repricing may or may not require shareholder approval. It depends on the terms of the plan. Whether or not shareholder approval is required, shareholder views are a consideration. The shareholders may feel that it is unfair that they have to suffer from the company’s lower market value while the employees get an adjustment. Shareholders may be particularly unhappy if the option repricing works to the benefit of the senior officers or if shareholder investors purchased stock at prices higher than current fair market value.  Nevertheless, shareholder investors should concentrate on what is necessary to incent employees under the changed circumstances.

Extension of Term

Along with repricing, the company may want to consider extending the term of the options. The pandemic and the related economic problems mean that any exit is unlikely until business conditions improve substantially, which may be years away.

Well, this sounds better if the shareholders won’t be upset, right? Well, now you have to option holders to think about.

Incentive stock options are limited to a ten-year term. Non-qualified options are not limited, but tend to have ten-year terms. When repricing options, a company should consider the term of the existing option. If there’s four years left on the option, the company may want to replace the option with one that has another ten-year term.

Option for Option Exchange

Option for option exchange may be more acceptable to shareholder investors than a repricing. In an option for option exchange, the existing options are valued. Even though they are underwater, they have a value that can be calculated by a valuation expert using a Black-Scholes or other model. They are then exchanged for options with a current fair market value exercise price. The number of new options granted will be based on achieving a value equal to the underwater options.

For example, assume 100,000 options with a $10.00/share exercise price and assume current fair market value of the stock is $5.00/share. The value of those options can be calculated because over the remaining option term there is a chance that the stock price will again be greater than $10.00/share. The employee could exchange those options for a lesser number of options with an exercise price of $5.00/share.  Although the overall value would be the same, the employees could realize the benefit so long as the stock value raises above $5.00/share.

Now, we’ve addressed both shareholder and employee concerns. But what about Stock Appreciation Rights (SARs)?

Replacement with SARs

SARs will be covered in more detail in another post. The point of mentioning them here is that when options are underwater, exchanging them for SARs may be an opportunity to give the company more flexibility, keep investors happy, and, at the same time, give the employees an equity like incentive that can be exercised at no cost when the conditions of exercise are met.

For the time being, then, bear in mind that underwater options are an inescapable feature of the downside of the business cycle. We are certainly on the downside now, meaning that options issued in more optimistic times may well have exercise prices below fair market value of the stock. However, options don’t have to stay submerged. Consider repricing, replacement or exchanges as relatively simple fixes to pull options back to the surface.

Statutory Liability Protection for Essential Businesses is an Essential Need

Since the inception of the COVID-19 shutdown of the American economy instituted by governmental officials across the United States, food and beverage businesses have been designated as critical infrastructure and essential businesses. Early on, little guidance on how to operate in a pandemic beyond social distancing was provided in conjunction with the hastily prepared governmental orders, leaving many food and beverage businesses to navigate the new operating landscape on their own. As the weeks have worn on, thankfully there have been updates to the initial orders and regulatory guidance that have clarified how to operate.

The most recent guidance update was jointly issued by the Centers for Disease Control and Prevention (CDC) and the Occupational Safety and Health Administration (OSHA) on April 26, 2020. This guidance was issued in response to the outbreak of COVID-19 cases in numerous meat and poultry processing facilities across the country. Recognizing that food processing workers may have a higher risk to potential COVID-19 exposure due to the close proximity in which they work along processing lines and other plant areas, the CDC and OSHA made more definitive recommendations regarding distance between workers, engineering controls (for a quick summary, see graphic below), administrative controls (e.g., social distancing protocols, sick leave policies, handwashing, etc.), the use of personal protective equipment, and employee education about the virus and how to prevent its spread.

"Meat Processing Workstations" provided by the CDC

While such guidance is both necessary and helpful, and with some tailoring can be applied to many essential businesses outside of the meat processing industry, it does not eliminate all risk to the essential workers or to the owners/operators of essential businesses who may be claimed to be liable to those workers should they become ill. Food and beverage businesses, even if they faithfully follow these recommended practices, cannot guarantee that none of their workers will be exposed to or contract COVID-19.

More importantly, governmental leaders view food and beverage businesses to be critical to the protection and maintenance of our food supply.  President Donald Trump just signed an Executive Order to re-open shuttered food processing plants to prevent shortages of pork, chicken and other products. Given the competing demands of meeting our nation’s food supply needs and workplace safety, food and beverage businesses need more protection at this time, and liability protection is a must-have tool while we grapple with this pandemic.

Such liability protection was most notably proposed by Senator Mitch McConnell. Senator McConnell, in response to nervous businesses across the country, indicated his desire to shield companies from liability over pandemic-related lawsuits. As reported by Bloomberg, he publicly worried that asking essential businesses to operate without protection from lawsuits could see those businesses end up in years-long legal claims over their efforts to restart the economy.

Senator McConnell is not alone in sharing this concern. Senate Bill 3007, sponsored by Utah State Senator Kirk Cullimore, was recently passed during a “virtual” special session of the Utah legislature. This bill provides protection from civil liability for damages or an injury resulting from exposure of an individual to COVID-19 on a business premises or during an activity managed by the business owner (i.e., claims brought by customers and/or employees).

Proponents of the Utah legislation noted that businesses need assurance that they will not face lawsuits claiming that they exposed employees or customers to COVID-19. This is not an unreasonable fear. Senator Cullimore, who is a practicing attorney, in a subsequent interview regarding the bill noted that he believes that it would be “very difficult to prevail on a negligence claim related to the contracting of COVID-19.” This is likely true given that establishing causation with legal certainty – when, where and how an individual was actually exposed to the virus – would be very difficult, if not impossible. Even so, “as business owners know, whether something may or may not prevail in litigation is not always necessarily the main economic concern,” said Cullimore. “Bringing a claim in and of itself is detrimental to business and an impediment to operating a business.”

Opponents of the Utah legislation openly questioned, however, whether such a measure would be the equivalent of endorsing negligence. It doesn’t have to be. Exceptions to any COVID-19 limitation of liability protections can – and should be – made for gross negligence, fraud or willful misconduct. But deeming certain businesses to be so essential to our communities’ health and safety that they can choose to operate (e.g., food processors, manufacturers, distributors, and retail grocers), and then not shielding them from pandemic-related liability when they do, is a false choice. It is reasonable for a business to argue that it cannot guarantee that a worker will never be exposed to COVID-19. It is also reasonable for a business to dispute that the mere act of working by an employee would establish the requisite causation for any tort claim brought by such employee for being exposed to or contracting COVID-19.

Yet, there must be limitations. Substantial compliance with governmental orders and/or regulatory guidance should be required, of course, and a willful disregard for workplace safety cannot be allowed. If a business is not following recommended governmental and/or regulatory guidance, if it has not made any modifications to its operations to improve worker safety, or if it can be shown that a business willful acted in disregard to applicable law, then the business should not be shielded from potential liability. (In fact, Utah’s law expressly does not preclude liability for willful misconduct or reckless or intentional infliction of harm, nor does it modify workers’ compensation or Utah laws pertaining to workplace safety.)

As statutory liability protections will be heavily negotiated, publicly debated, voted upon, and subject to judicial scrutiny, businesses, employees and customers should be reasonably assured that appropriate liability protections balancing the various concerns will be put into place. But, is it realistic to believe that a federal statute will be quickly put into place, and if so, whether it adequately addresses the concerns of all relevant stakeholders? Senator McConnell has publicly tied such liability protection to any new round of federal stimulus funding, and his Democratic counterparts appear to be resisting this approach for the time being. While it would be preferable for the federal government to establish statutory liability protection regarding COVID-19 exposure claims for essential businesses to prevent a patchwork of state laws of varying levels of protection, essential businesses need protection now. For this reason, I applaud the Utah legislature in passing its liability protection measure, but its broadly worded liability protection language may prove to be too sweeping to serve as a model for legislation covering each state – especially California where it can be argued that we love to do things our own special way.

 

COVID-19 Risk Factors Belong in Your Private Placement Memorandum

Co-written by Karen Balderama, Wendel Rosen LLP Business Practice Group Co-Chair and Mia Butera, Wendel Rosen LLP Business Attorney

The COVID-19 pandemic will have lasting unknown effects on businesses and has already caused delays and cancellations with respect to fundraising efforts and investment transactions planned or already in progress. Although raising capital during a pandemic seems like an impossible task, there are investors and issuers that are carefully progressing through the process of pitching, conducting due diligence, negotiating terms, and even closing rounds of financing. Issuers and investors fortunate enough to move forward on their transactions will have some additional considerations to mull over as they negotiate terms and determine an appropriate valuation for a company at a time when the global economy appears to be on the brink of collapse.

This post will discuss the need for companies thinking about fundraising in a private offering of securities to make additional disclosures to prospective investors regarding the impact of the COVID-19 pandemic.

For non-reporting companies conducting a private offering of their securities to investors, disclosures about how the COVID-19 pandemic has and will continue to impact the issuer should be made in a private placement memorandum (PPM). A PPM is the primary disclosure document provided to prospective investors in private offerings of securities to help investors make an informed decision regarding whether to invest in a particular business. Generally, a PPM will provide information about the issuer, the securities to be issued, the issuer’s business, operations, and the advantages, disadvantages, and most importantly, the risks associated with the issuer and thereby the securities the investors intend to purchase. The COVID-19 pandemic will have a material adverse effect on the global economy and on many businesses. A failure to disclose or adequately describe the investment risk it poses may be a material omission or misstatement that could allow investors to have claims for damages or even rescind their investments.

Not all issuers will be affected equally by the COVID-19 pandemic. For many businesses, the impact of the pandemic will be far reaching and substantial, but it may not be material for others. This is why the risk factors disclosed in PPMs should be specifically tailored to address the issuer’s own unique, or not so unique, set of circumstances. Issuers and investors alike will be confronted with challenges caused by disruptions in the consumer marketplace, government regulations and restrictions in response to the pandemic, and other unknown changes in federal and state law. Disclosures should be made around the significant uncertainties regarding the effect of the COVID-19 pandemic on different aspects of the issuer’s business, such as labor and employment matters, supply chains, distribution and customer demand, and the short and long-term negative impact on the issuer’s operations, financial condition and projections.

Labor and Employment

In addition to the usual risk factors around hiring employees and/or independent contractors such as workers’ compensation, wage and hour compliance, availability of highly skilled workers, immigration laws, harassment claims, and management issues, the COVID-19 pandemic will likely have a major impact on hiring, retaining, paying, and managing workers. Shelter in place orders mean that non-essential businesses are forced to operate almost entirely remotely which will prove challenging for even the most tech-savvy and remote-friendly companies. Essential businesses that still operate during the pandemic must put into place and enforce social distancing policies, and may have additional liability if an employee contracts the virus at the workplace.

Supply Chain

The COVID-19 pandemic will likely have some sort of impact on an issuer’s supply chain. This might be in the form of delays in shipments of supplies, key vendors temporarily ceasing operations, service providers unable to perform their duties in a timely fashion, or distributors and sales teams unable to sell and market the issuer’s products. This could or may already have a negative effect on the issuer’s financial condition.

Closures for Non-Essential Businesses

It will be important to determine if the issuer is deemed an “essential business” in the jurisdictions in which it operates. Whether it is or not should be disclosed. Additionally, an issuer should have a general plan for how operations will continue during and after the pandemic. For businesses that are non-essential and require on-site activities (manufacturing, in-person service providers, etc.) it may prove impossible to carry on operations as normal and there are unknown risks and restrictions for future operations.

Demand and Market Downturn

The COVID-19 pandemic will likely have an adverse effect on the global economy as a whole, resulting in an economic downturn that could impact demand for the issuer’s products or services. Likewise, issuers should let investors know if they are in a position to take advantage of closures or other impacts of the pandemic, for example businesses offering medical supplies, remote collaboration technologies, or delivery services may see an uptick in demand and revenue.

Government Response

Federal, state and local governmental authorities have passed legislation and issued rules and executive orders aimed at blunting the economic impact of lockdowns and shelter in place orders to workers and businesses alike. The costs of such measures such as mandated paid sick leave may be borne solely or partially by businesses, which may have a material adverse effect on their financial condition. Uncertainty around how long the pandemic will last and its continuing effects on the economy may result in further government actions that could adversely impact the business and financial prospects of the issuer. Issuers are advised to monitor new legislation or orders to which they may be subject and assess how such government actions may impact their business. If the issuer’s business will be or might be materially affected, appropriate disclosures to investors should be made.

An issuer may either (1) revise or update its existing risk factor disclosures in its offering materials to address how each area has been or may be affected by the COVID-19 pandemic, or (2) include a new standalone risk factor disclosure regarding the COVID-19 pandemic and its impact on the issuer’s overall business. Either way, it is important to be fully transparent about the pandemic’s effect on the business of the issuer. Because of the rapidly changing nature of the pandemic and government and societal reactions, it is important that an issuer monitor these developments and their impact on its business and update its disclosures as circumstances change.

Issuers or investors with questions regarding COVID-19 risk factor disclosures may contact any member of Wendel Rosen’s Business Practice Group.

Supplemental Paid Leave for Illness Related to COVID-19: A New Cost of Business for Large California Food Companies?

On Thursday, April 16, 2020, Governor Gavin Newsom signed Executive Order N-51-20 (the “Executive Order”), effective immediately. The Executive Order requires all food sector businesses that employee 500 or more “food sector workers” – whether in California or nationwide – to provide COVID-19 Supplemental Paid Sick Leave. The businesses subject to the Executive Order’s reach ranges from farm to table. The Executive Orders requires that supplemental paid sick leave be extended to workers at farms, suppliers, manufacturers, warehouses, distributors, fast food restaurants, delivery companies, and grocery stores. This coverage applies to all food sector workers who perform work for the hiring entity, regardless of whether they are deemed employees of that hiring entity. That’s right – this applies to independent contractors. And, it applies to both full and part-time workers.

Who Is Covered?

The Executive Order applies to Food Sector Workers and Hiring Entities.

A “Food Sector Worker” is any person who:

    • works in the canning, freezing and preserving industry;
    • works in the agricultural product processing industry;
    • works in facilities on a farm that prepare products for market;
    • has some other general agricultural occupation;
    • works for a Hiring Entity that operates a food facility as defined in Health and Safety Code Section 113789 (i.e., “an operation that stores, prepares, packages, serves, vends, or otherwise provides food for human consumption at the retail level”); or
    • delivers food from a food facility for or through a Hiring Entity.

To be covered, the person must also be exempt from Governor Newsom’s March 20th executive order directing all individuals living in the State of California to stay home or at their place of residence, except as to maintain continuity of operations of the federal critical infrastructures (or any other statewide stay-at-home order), and that person must leave his/her home to perform work for or through a Hiring Entity.

A “Hiring Entity” means “any kind of private entity whatsoever” including a delivery or transportation company that has 500 or more employees in the United States.

What Leave Must Be Provided?

There are four categories of coverage provided by the Executive Order.

    • A Food Sector Worker who is employed full time or who worked, or was scheduled to work, at least forty (40) hours in each of the two weeks before the leave date are entitled to receive eighty (80) hours of leave.
    • A Food Sector Worker who does not meet these requirements, but otherwise has a normal weekly schedule, is entitled to leave equaling the total number of hours that he/she is normally scheduled to work over a two week period.
    • If a Food Sector Worker does not have a normal weekly schedule, then he/she is entitled to fourteen times (14x) the average number of hours the Food Sector Worker worked each day for or through the Hiring Entity in the six (6) months preceding the leave date.
    • If the Food Sector Worker has worked for the Hiring Entity less than six months, then he/she is entitled to fourteen times (14x) the average number of hours over the entire period that he/she has worked for the Hiring Entity.

When Can This Leave Be Taken?

A Food Sector Worker who is subject to a Federal, State or local quarantine or isolation order related to COVID-19, who is advised by a healthcare provider to self-quarantine due to COVID-19 related concerns, or who is prohibited from working by his/her Hinging Entity due to health concerns related to potential transmission of COVID-19 may take this supplemental leave.

What Is The Amount Of The Supplemental Paid Sick Leave?

Each hour of COVID-19 Supplemental Paid Sick Leave shall be paid at a rate equal to the highest of:

    • the Food Sector Worker’s regular rate of pay for the last pay period;
    • CA minimum wage; or
    • the applicable local minimum wage.

No Hiring Entity is required to pay more than $511 per day and $5,110 in the applicable two week leave period. However, a Hiring Entity will be exempt from the Executive Order if it pays an amount equal or greater than what is required by the Order.

What Must Hiring Entities Avoid?

A Hiring Entity cannot require a Food Sector Worker to use any other paid or unpaid leave, PTO, or vacation time before he/she uses the COVID-19 Supplemental Paid Sick Leave. A Hiring Entity cannot retaliate against or fire a Food Sector Worker who exercises his/her rights under the Executive Order. A Hiring Entity cannot delay leave when requested by a Food Sector Worker (assuming that he/she satisfies the conditions for such leave).

The California Labor Commissioner is empowered to enforce violations of the Executive Order, and any Food Sector Worker may file a complaint with the Labor Commissioner for alleged violations.

Stay Tuned

The COVID-19 Supplemental Paid Sick Leave requirement remains effective for the duration of any statewide stay-at-home order, and workers who are on leave when such order is rescinded are entitled to take the full amount of leave. How long the statewide stay-at-home order will be in effect is anyone’s guess at this point.

Additionally, on Thursday, April 23, 2020, the Labor Commissioner will publish a model notice of this new supplemental leave requirement. Notice must be conspicuously posted in the workplace, but if a Hiring Entity’s Food Sector Workers do not frequent a workplace (ex. delivery drivers), the Hiring Entity my disseminate the required notice by electronic means (ex. email).

Of particular interest is how this leave is to be paid for. While the Families First Coronavirus Response Act (which applies to food businesses with less than 500 employees) allows for businesses to obtain a tax credit, there is no similar provision in the Executive Order. Perhaps Governor Newsom or the state legislature will address this issue in the near future. Until, then, Hiring Entities should assume that they are footing the bill.

Wash Your Hands – A Worker’s Right

Among all the other rights afforded to Food Sector Workers under the Executive Order, the easiest one to comply with is that such workers must be allowed to wash their hands at least every thirty (30) minutes. Local public health agencies are empowered to enforce this health and safety measure.

 

 

Food Industry Leadership: Two Positive Examples Of Crisis Leadership

Happy Monday! Here’s a welcome relief from the emotional strain of the moment’s new normal of constant COVID-19 health alerts and infection updates: positive crisis leadership.

Xavier Unkovic is the Global President for Amy’s Kitchen. Last week, he shared the following message on LinkedIn to publicly support his team and food industry workers everywhere:

comic of essential food worker working food line
“NOT ALL HEROES WEAR CAPES” by Xavier Unkovic

As we all shelter in place, the idea of food and beverage companies as essential businesses has never been more apparent. Thank you to all the employees of these essential businesses who continue to work so that we may maintain a healthy social distance for ourselves and our communities.

Similarly, hats off to the Albertsons Companies, which is seeking to have its grocery store employees classified as first responders to ensure that they get the personal protection equipment and COVID-19 testing that they need to continue to keep our grocery stores in operation and supplying us with food. To read more about this grocer’s efforts, check out the story published on Business Insider.

The big takeaways here for all businesses and their leaders is that in moments of crisis, large or small, the best approach when all eyes are on you is to remain calm, stay positive, and demonstrate unwavering commitment to your values.

In closing, I leave you with the World War II motivational slogan that has endured a timeless appeal:

Keep Calm and Carry On
KEEP CALM – CARRY ON” by John Cooper is licensed under CC BY 2.0

The attorneys at Wendel Rosen LLP continue to wish you, your families, and your businesses well during this difficult time. We are not just attorneys “at law.” We’re also attorneys at your side, and we continue to help our clients every step of the way.