COVID-19 Response: Essential Business Operations: a High-Stakes Question Under Proliferating “Stay at Home” Orders
Washington, D.C. (March 27, 2020) - An ever-expanding number of states and local government authorities are issuing “shelter in place” or “stay at home” orders that restrict the movement of employees of non-essential businesses. These orders have prompted many businesses to question whether they qualify as “essential,” requiring employees to continue working. With substantial differences among the stay at home orders – and even potential conflicts between state and local directives – it is a matter of extreme urgency for businesses to determine whether they fall within the definition of “essential,” particularly as many of these orders include civil and criminal penalties.
Developments are unfolding very quickly, and clients we are advising are encountering law enforcement visits and threats of criminal prosecution as a consequence of decisions to stay open. As these designations are heavily fact-specific, and being revised, advance preparation and advice of counsel are essential.
Government Guidance on “Essential Critical Infrastructure” or “Essential Business Operations”
The U.S. Department of Homeland Security (DHS) issued guidance on March 19, 2020, in the form of a Memorandum on Identification of Essential Critical Infrastructure Workers During COVID-19 Response (CISA Guidance). The CISA Guidance identifies 16 industry sectors considered to be “essential,” including healthcare, first responders, food and agriculture, energy, water and wastewater, transportation and logistics, public works, communications, manufacturing, hazardous waste, banks, chemical companies, and defense. In addition, DHS issued a March 23 update memo, which references supply chain continuity issues that may be important to many businesses, noting “reliance on technology and just-in-time supply chains means that certain workers must be able to access certain sites, facilities, and assets to ensure continuity of function.” The CISA guidance memo also provides important information on balancing maintenance of critical infrastructure business functions with COVID-19 precautions.
Several states, including California, Illinois, Washington, Maryland, and Connecticut, have incorporated parts of the CISA Guidance in their orders defining essential business. But they have taken different approaches on how closely they follow the CISA list. For example, the California order implements it as designating “essential businesses” under that State’s order. Illinois and Connecticut provide listings of “essential businesses,” but note in their orders that these lists are intended to align with the CISA guidance. On the other hand, Pennsylvania, New York, and New Jersey have defined their own lists of “essential” businesses. Several states, including New York, Pennsylvania, and Connecticut allow businesses that are non-essential to apply for an essential business designation.
Further complicating matters, some local jurisdictions are also issuing stay at home orders. Where the language of the local orders is more restrictive than the state orders, the more restrictive language will govern. This can create potential issues when there are differences in the definitions of what is an “essential business.” For example, Alameda County, in California, determined that a manufacturing plant did not constitute an essential business under its order, but that same plant was essential under the California order. In the end, the company closed the production facility.
Supply Chain Continuity Considerations
Companies that supply the operations of exempted businesses may also be considered “essential.” As noted above, the CISA guidance specifically references as essential those workers and businesses manufacturing or otherwise supplying materials and products needed for supply chains associated with the industry sectors identified as essential. Many of the State orders make specific reference to supply chains as well. For example, the guidance that accompanies the Maryland order includes various types of “supply chain” entities – without identifying them as such – including suppliers of materials and equipment used by essential businesses. This issue requires careful analysis, to ensure that the employer keeps “open” only those parts of the business – and workforce – serving the exempted business needs.
Considerations for Businesses Dealing with These Issues
Businesses that find themselves in a gray area need to prepare strong documentation if they want to stay open. It may be possible to seek a ruling from the relevant government authority, but most government offices are short-staffed as a result of the outbreak and too overwhelmed to respond. A number of industries are seeking federal government determinations that they are essential, which presumably would provide good evidence even if a state or local order does not rely on the CISA list. Short of obtaining a determination, businesses need to take steps to document their status as essential. This effort will necessarily be fact-specific, but will involve the following elements:
- Identify the relevant state and local orders to which the business is subject, and prepare a written document citing specific provisions that designate the business as essential. Attach any documentation from a governmental authority that supports this determination.
- Identify customers and reasons why the products and/or services the business provides are either essential or supply essential businesses as those terms are set out in the relevant order. If possible, seek letters from customers in sectors designated essential that document their dependence on products or components supplied by the business and their evidence of an essential business designation.
- Cite examples under other authorities’ essential business determinations that have concluded the business is essential.
- If a business operates in multiple jurisdictions, work with counsel to determine if there is an approach that meets the requirements in each.
- Be ready to demonstrate clearly that the business is complying with other requirements of the order, for example, OSHA/HHS Guidance on Preparing Workplaces for COVID-19 or onsite workers – for example, 10 or fewer people in any one space (including creating separate break rooms to reduce gathering); six feet of separation if at all possible; regular sanitizing of work areas and cafeterias; and sending people home who are symptomatic.
- Explain to employees the essential business designation and importance of continuity of operations, along with the COVID-19 protections available to employees.
- Provide letters to employees documenting that they are working for a business that is essential under the relevant order, which employees can show to law enforcement authorities as needed.
- Post a notice on the front door of the business identifying the basis for its essential business designation.
- Prepare in advance a plan for dealing with law enforcement agents who may arrive on the premises and ensure a clear line of communications to an attorney for on-the-spot advice.
This is a high-stakes question with no standard answer, and businesses need to pay urgent attention to addressing it, particularly as aggressive enforcement efforts are increasing in multiple states. Lewis Brisbois’ COVID-19 Response Team is prepared to assist companies with essential business determinations, documentation, and assistance in the event of enforcement actions.
Karen C. Bennett, Partner
Katherine I. Funk, Partner
Jane C. Luxton, Partner