Coronavirus (COVID-19) Archives

Decided January 13, 2022

National Federation of Independent Business v. Occupational Safety and Health Administration, No. 21A244; and

Ohio v. Occupational Safety and Health Administration, No. 21A247

On Thursday, January 13, 2022, by a 6–3 vote, the Supreme Court prevented the implementation of an OSHA rule that would have imposed a vaccine-or-testing regime on employers with 100 or more employees.

Background:

On November 5, 2021, the Occupational Safety and Health Administration (“OSHA”) issued an emergency temporary standard (“ETS”) governing employers with 100 or more employees. The ETS mandated covered employers to “develop, implement, and enforce a mandatory COVID-19 vaccination policy, with an exception for employers” that require unvaccinated employees to undergo weekly COVID-19 testing and to wear a mask during the workday.

Business groups and States filed petitions for review of the ETS in each regional Court of Appeals, contending that OSHA exceeded its statutory authority under the Occupational Safety and Health Act. The Fifth Circuit stayed the ETS and later held that the OSHA mandate was overly broad, not justified by a “grave” danger from COVID-19, and constitutionally dubious. After all petitions for review were consolidated in the Sixth Circuit, that court dissolved the Fifth Circuit’s stay. The panel majority held that COVID-19 was an emergency warranting an ETS and that OSHA had likely acted within its statutory authority.

Issue:

Whether to stay implementation of the vaccine-or-testing mandate pending the outcome of litigation challenging OSHA’s statutory authority to require employers with 100 or more employees to develop, adopt, and enforce a vaccine-and-testing regime for their employees.

Court’s Holding:

The vaccine-or-testing mandate should be stayed because OSHA likely lacks the statutory authority to adopt the vaccine-or-test mandate in the absence of an unmistakable delegation from Congress.

“It is telling that OSHA, in its half century of existence, has never before adopted a broad public health regulation of this kind—addressing a threat that is untethered, in any causal sense, from the workplace.”

Per Curiam Opinion of the Court

What It Means:

The Court’s decision prevents the implementation of the OSHA mandate, which applies to 84 million Americans. Echoing its recent decision in Alabama Ass’n of Realtors v. Dep’t of Health & Human Services, the Court emphasized that agency action with such “vast economic and political significance” requires a clear delegation from Congress. It is doubtful that the stay will be lifted to allow OSHA to enforce the mandate before the ETS expires in May, meaning that it is unlikely employers will ever actually be subject to the ETS’s vaccine-or-testing mandate.
The challengers had argued that covered employers would incur unrecoverable compliance costs and that employees would quit rather than comply. The federal government, for its part, had argued that the OSHA mandate would save over 6,500 lives and prevent hundreds of thousands of hospitalizations. The Court stayed the mandate without resolving this dispute on the ground that only Congress could properly weigh such tradeoffs.
The Court’s decision to hear oral argument on the stay applications may signal the beginning of a trend, as this is the second time this Term that the Court moved an application to vacate a stay from the emergency docket to the argument calendar.
Other Mandates: The Court stayed lower court injunctions against the vaccine mandate issued by the Centers for Medicare & Medicaid Services (“CMS”). See Biden v. Missouri, 21A240; Becerra v. Louisiana, 21A241. By a 5–4 vote, the Court ruled that the Secretary of Health and Human Services likely has the statutory authority to require vaccination for healthcare workers at facilities that participate in Medicare and Medicaid. Today’s decisions do not address the federal contractor vaccine mandate that is presently enjoined on a nationwide basis by a federal district court in Georgia. Four other federal district courts also have enjoined the government from enforcing that mandate. So far, the Sixth and Eleventh Circuits have refused to stay the injunctions against the federal contractor mandate pending appeal.

The Court’s opinions are available here and here.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding developments at the Supreme Court. Please feel free to contact the following practice leaders:

Appellate and Constitutional Law Practice

Allyson N. Ho +1 214.698.3233 aho@gibsondunn.com	Mark A. Perry +1 202.887.3667 mperry@gibsondunn.com	Lucas C. Townsend +1 202.887.3731 ltownsend@gibsondunn.com
Bradley J. Hamburger +1 213.229.7658 bhamburger@gibsondunn.com

Related Practice: Labor and Employment:

Eugene Scalia +1 202.955.8543 escalia@gibsondunn.com	Jessica Brown +1 303.298.5944 jbrown@gibsondunn.com	Jason C. Schwartz +1 202.955.8242 jschwartz@gibsondunn.com
Katherine V.A. Smith +1 213.229.7107 ksmith@gibsondunn.com

On December 15, 2021, New York City issued much-anticipated guidance on its COVID-19 vaccine mandate for private sector employers, which goes into effect on December 27, 2021. It is the first state or local private-sector vaccination mandate of its kind in the nation, and it is expected to apply to approximately 184,000 businesses.

This alert provides need-to-know information about the mandate for New York City private-sector employers.

Covered Entities

The mandate generally applies to any business that employs more than one worker or operates a workplace in New York City, as well as any self-employed individual or solo practitioner who works at a workplace, or interacts with workers or the public in the course of their business. A “workplace” is defined as any place where work is performed in the presence of another worker or member of the public, including vehicles. The City specifies that this includes coworking spaces, which must check the proof of vaccination of individuals, as well as the workers of small companies, who rent space there.

The mandate does not apply to businesses or individuals who are already subject to another Order of the Commissioner of the Department of Health and Mental Hygiene (DOHMH), Board of Health, the Mayor, or a federal or state entity that requires proof of full vaccination.

Workers of Covered Entities and Exceptions

A “worker” is defined by the mandate as an individual who works in-person in New York City at a workplace and includes a full-time or part-time staff member, employer, employee, intern, volunteer, or contractor of a covered entity, as well as a self-employed individual or solo practitioner. Since the mandate applies to workplaces in New York City, workers’ residency is not relevant, apart from a limited exception for performing artists and athletes (discussed below).

There are a few notable exceptions. First, the mandate does not apply to workers who qualify for a reasonable accommodation (discussed below). Second, the mandate does not apply to workers who are only entering the workplace for a “quick and limited purpose.” The City provides the following examples of a “quick and limited purpose”: using the bathroom, making a delivery, clocking in and receiving an assignment before leaving to begin a solitary assignment. Third, the mandate does not apply to non-NYC resident performing artists, college or professional athletes, and anyone who accompanies them. Fourth, the mandate does not apply to workers who work alone without in-person contact with co-workers or others in the course of their business.

For workers who refuse to comply with the mandate, and who do not otherwise qualify for exemption or reasonable accommodation, the City makes clear that it is in the covered entity’s discretion whether to discipline or fire such workers, so long as they are kept out of the workplace.

Verification of Workers’ Proof of Vaccination

By December 27, covered workers must have received at least one-dose of a COVID-19 vaccine. Covered entities must confirm all workers’ proof of vaccination, which requires reviewing (1) a form of identification and (2) proof of vaccination.

Acceptable forms of identification include:

Driver’s license
Non-driver government ID card
IDNYC card
Passport
School or work ID card

Copies of the above identification documents are permitted, including pictures.

Acceptable proof of vaccination includes:

A photo or hard copy of a CDC vaccination card
NYC COVID Safe App
New York State Excelsior Pass
CLEAR Digital Vaccine Card
CLEAR Health Pass
Official vaccination record
A photo or hard copy of an official vaccination record of one of the following vaccines administered outside the United States: AstraZeneca/SK Bioscience, Serum Institute of India/COVISHIELD and Vaxzevria, Sinopharm, or Sinovac

If the vaccine is authorized to be administered in a two-dose series, workers have 45 days after providing proof of their first dose to receive their second dose. If workers do not show proof of a second dose within the requisite 45 days, covered entities must exclude them from the workplace until they provide proof of a second dose.

Reasonable Accommodation Requests

The City also provides important guidance for covered entities with regard to workers who request a reasonable accommodation to the mandate based on a sincerely held religious belief or disability. Any such existing workers must apply for a reasonable accommodation by December 27, 2021, and covered entities may permit workers to continue coming into the workplace while the request is being evaluated.

Covered entities are required to keep a record of accommodation requests, including when the request was granted or denied, the basis for doing so, and any supporting documents provided by the worker with respect to the request.

Importantly, the City’s guidance includes a checklist that covered entities may follow to process a reasonable accommodation, which “will demonstrate that the employer handled the reasonable accommodation request appropriately.”

Recordkeeping Requirements

Covered entities are also required to keep a record of each worker’s proof of vaccination. (For workers who have received an accommodation, the employer must maintain documentation as described above). The City has outlined three ways to meet this requirement:

Maintaining a copy of the worker’s proof of vaccination;
Maintaining a paper or electronic record created by the covered entity that includes: (i) the worker’s name; (ii) whether the worker is fully vaccinated; and (iii) for workers who have submitted proof of one-dose, the date by which the worker must provide proof of a second dose; or
Checking workers’ proof of vaccination each day before they enter the workplace and keeping a record of each verification.

For workers employed by a contractor, covered entities may either keep a record of proof of vaccination or may request that the contractor’s employer confirm the contractor is vaccinated and then maintain a record of that request and confirmation.

Covered entities with multiple locations (e.g., a chain restaurant) may store vaccination and reasonable accommodation records in one central location. In case of inspection by the City, each location should have available the contact information of the business representative who is centrally storing such records.

Finally, records should be stored in a secure manner and only made accessible to individuals who have a legitimate need to access such information for purposes of compliance with the mandate or other governmental orders, laws, or regulations.

Public-Facing Affirmation Sign

By December 27, covered entities are additionally required to fill out and post in a conspicuous location the DOHMH’s Affirmation of Compliance with Workplace Vaccination Requirements. Businesses, such as restaurants, fitness centers, and entertainment venues, that have previously posted the requisite Key to NYC notice poster do not have to post the additional DOHMH affirmation sign.

Mandate Enforcement

The mandate will be enforced by inspectors from various City agencies and monetary penalties may be assessed for covered entities that are non-compliant. This includes an initial fine of $1,000 and escalating penalties for persisting violations. According to the City’s guidance, enforcement of the mandate will begin immediately – i.e., December 27.

* * *

Although legal challenges to the City’s mandate might be filed, covered entities may wish to act promptly in light of the mandate’s fast-approaching December 27 deadline.

The following Gibson Dunn attorneys assisted in preparing this client update: Eugene Scalia, Jessica Brown, Harris M. Mufson, Lauren Elliot, Andrew G.I. Kilberg, Kate Googins, and Meika Freeman.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments. To learn more about these issues, please contact the Gibson Dunn lawyer with whom you usually work, any member of the firm’s Administrative Law and Regulatory or Labor and Employment practice groups, or the following:

Jessica Brown – Denver (+1 303-298-5944, jbrown@gibsondunn.com)

Harris M. Mufson – New York (+1 212-351-3805, hmufson@gibsondunn.com)

Lauren Elliot – New York (+1 212-351-3848, lelliot@gibsondunn.com)

Gabrielle Levin – New York (+1 212-351-3901, glevin@gibsondunn.com)

Danielle J. Moss – New York (+1 212-351-6338, dmoss@gibsondunn.com)

Eugene Scalia – Co-Chair, Administrative Law & Regulatory Group, Washington, D.C. (+1 202-955-8543, escalia@gibsondunn.com)

Jason C. Schwartz – Co-Chair, Labor & Employment Group, Washington, D.C. (+1 202-955-8242, jschwartz@gibsondunn.com)

Katherine V.A. Smith – Co-Chair, Labor & Employment Group, Los Angeles (+1 213-229-7107, ksmith@gibsondunn.com)

Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

Yesterday, November 4, 2021, the Occupational Safety and Health Administration (“OSHA”) released its long-awaited emergency temporary standard (“ETS”) requiring most American workers to be vaccinated or undergo weekly COVID-19 testing. Importantly, the ETS states that it preempts state and local requirements that might stand in the way of employee vaccination (or that regulate testing protocols), even if it is possible for employers to comply with both those state requirements and the ETS.

The ETS applies to employers with more than 100 employees except in workplaces covered by the Safer Federal Workforce Task Force COVID-19 Workplace Safety: Guidance for Federal Contractors and Subcontractors (the “Task Force Guidance”), which implements Executive Order 14042 for federal contractors. Workplaces covered by that Guidance are not covered by the ETS.

As expected, under the ETS employers with 100 or more employees must require employees to either be vaccinated or present a negative COVID-19 test weekly and wear a face covering when indoors. The ETS also requires employers to pay employees for time spent getting vaccinated and recovering from side effects.

By December 6, employers must comply with all requirements other than testing. This includes establishing a vaccination policy, determining employee vaccination status, providing the requisite paid time off, and ensuring that unvaccinated employees are masked.

Beginning on January 4, 2022, unvaccinated employees must undergo weekly testing. Any employee who has received all doses of the vaccine by January 4 does not have to be tested. The Task Force Guidance for Executive Order 14042 will be revised to postpone the current December 8 vaccination deadline and to require, like the ETS, that employees receive all vaccine doses by January 4.

In issuing the ETS, OSHA has also sought notice and comment, so the ETS may be converted to a “permanent” OSHA standard. Under the OSH Act, ETSs are to be in place for only six months. Comments are due December 6, 2021.

Some states and private employers have already announced that they have or will file litigation regarding the ETS, which could potentially result in a stay or in the ETS being invalidated. Litigation that is already pending could have the same impact on Executive Order 14042. Events in court likely will move quickly in the coming weeks.

OSHA has also published FAQs,[1] a summary,[2] and fact sheet.[3] This alert provides an overview of the ETS contents and timing and previews some of its implications for employers.

Who Does (and Doesn’t) the OSHA ETS Cover?

The ETS applies to “all employers with a total of 100 or more employees at any time” the ETS is in effect.

The ETS does not apply to:

Federal contractor workplaces covered under the Task Force Guidance, which we previously discussed here;
Settings where any employee provides healthcare services or healthcare support services subject to the requirements of the Healthcare ETS, issued in June; and
Employees of covered employers:
- Who do not report to a workplace where other individuals such as coworkers or customers are present;
- While working from home; or
- Who work exclusively outdoors.

Can an Employer Require Testing in Lieu of Vaccination?

Yes. Under the OSHA ETS, an employer must either: (1) require that all employees are vaccinated; or (2) require unvaccinated employees to be regularly tested and wear masks in the workplace.

An employee might be exempted from a vaccination requirement if the employee is entitled to reasonable religious or disability accommodations under federal civil rights laws, vaccination is medically contraindicated, or a medical necessity requires delay.
An employer must ensure that each unvaccinated employee regularly submits a negative COVID-19 test result. Testing frequency for unvaccinated employees depends on whether the employee regularly reports to a workplace or was recently diagnosed with COVID-19:
- If an employee regularly reports to a workplace, he must present a COVID-19 test result at least once every 7 days.
- If an employee usually does not report to a workplace, e.g., he regularly works from home, he must test at least 7 days before returning to the workplace.
- If an employee is diagnosed with COVID-19, by a health care professional or by a positive COVID-19 test result, then the employer must not require that employee to undergo testing for 90 days following the date of the positive test or diagnosis.

Must an Employer Pay for Employees’ Time to Get Vaccinated?

The ETS requires that employers compensate employees for the time it takes to get vaccinated and to recover from vaccination side effects. This includes:

Up to four hours paid time, including travel time, at the employee’s regular rate of pay for each vaccination dose; and
Paid sick leave for a “reasonable” amount of time to recover from side effects.
- Employers may require employees to use accrued paid sick leave benefits for recovery from vaccination, but may not require employees to use existing leave entitlements for the time to get vaccinated.
- But if an employee does not have accrued paid sick leave needed to recover from vaccine side effects, an employer may not require the employee to accrue negative paid sick leave or borrow against future paid sick leave.

Must an Employer Pay for Testing Costs?

The ETS does not require employers to pay for any costs associated with testing; however, other laws, regulations, or collective bargaining agreements may require an employer to pay for testing:

California’s Department of Industrial Relations has stated that employers are responsible for the costs of employer-mandated COVID-19 testing under the state’s reimbursable business expense law.
Some other states have business expense reimbursement laws or prohibitions on requiring employees to pay for medical testing in certain circumstances. These types of laws might be interpreted to place the burden on employers to pay for mandated COVID-19 tests.

To What Extent Does the ETS Preempt State Laws?

The ETS states that it preempts all state “workplace requirements relating to the occupational safety and health issues of vaccination, wearing face coverings, and testing for COVID-19, except under the authority of a Federally-approved State Plan.” This includes all “inconsistent state and local requirements relating to these issues . . . regardless of the number of employees.” In the preamble to the ETS, OSHA was clear that it intends for the ETS to preempt state or local requirements that stand in the way of vaccination, testing, or masking, even if it is possible to comply with both the ETS and those state or local requirements. The sweeping language also may be interpreted to preempt state and local anti-discrimination laws that are more accommodating than the federal standard.

The ETS does not purport to preempt more protective generally applicable state and local requirements that apply to the public at large. Such measures might include generally applicable state laws such as vaccine passports and mask mandates or more stringent requirements imposed by OSHA-approved state plans.

Are Masks Required for Unvaccinated Employees?

Under the ETS, employers must ensure that any employee who is not fully vaccinated wear a face covering when indoors or when occupying a vehicle with another person for work purposes.

The ETS includes an exception to the face covering requirement when an employee is alone in a closed room; for a limited time while eating or drinking; for a limited time for identification purposes; when an employee is wearing a respirator or facemask (such as a mask for medical procedures); or where the employer can show that the use of face coverings is not feasible or creates a greater hazard.

The ETS itself “does not require the employer to pay for any costs associated with face coverings.” But, as with other COVID-related costs, other laws or employment agreements may require that employers pay for or provide face coverings.

Notably, the ETS does not require fully vaccinated employees to wear face coverings indoors, even in areas of substantial or high transmission. But other laws or regulations may.

What Recordkeeping Requirements Does the ETS Impose?

The ETS requires employers to maintain a record and roster of each employee’s vaccination status and preserve these records and rosters while the ETS remains in effect. Critically, the ETS provides an exemption from this requirement for employers that previously ascertained (before the ETS was published) and retained records of employee vaccination status through another form of proof (including self-attestation). The ETS also requires employers to make available, for examination and copying by an employee or anyone with written authorization from the employee, the employee’s COVID-19 vaccine documentation and any COVID-19 test results for the employee. Additionally, employers must make available to an employee (or their representative) the aggregate number of fully vaccinated employees and total number of employees at the workplace.

What Else Does the ETS Require?

Employers must require employees to “promptly notify the employer” of a positive test result, remove any employee who receives a positive test from the workplace until the ETS return-to-work criteria are met, and report work-related COVID-19 fatalities and in-patient hospitalizations. The CDC document, “Key Things to Know About COVID-19 Vaccines,” must be provided to all employees, along with the employer’s policies established to comply with the ETS, OSHA’s anti‑discrimination and anti‑retaliation requirements, and information about OSHA’s penalties for supplying false statements or documentation.

What Are the Implications for Federal Contractor Employers?

As noted above, the ETS does not apply to workplaces covered by the Task Force Guidance for federal contractors. But to the extent that a federal contractor has workplaces that are not covered by the Task Force Guidance, it will need to ensure compliance with the ETS for those sites.

The Administration announced that the Task Force Guidance will be revised to mirror the ETS by requiring that covered employees have received all shots by January 4, 2022. That will mean that federal contractor employees, like employees covered by the ETS, would not need to meet the Task Force definition of “fully vaccinated” until January 18, 2022.

How Does the ETS Interact with Accommodation Requirements?

The ETS acknowledges that federal law requires reasonable accommodations for employees who cannot be vaccinated because of a religious belief or medical condition. Employers that elect to comply with the ETS by allowing employees to decide whether to get vaccinated or be tested weekly may not receive many accommodation requests because employees who cannot be vaccinated for medical or religious reasons can choose the weekly testing option.

By contrast, employers that elect to comply with the ETS by adopting a vaccination mandate (rather than opting for testing in lieu) should anticipate and prepare for accommodation requests from their workforces. OSHA predicts that 5% of employees will request accommodations from vaccine requirements, but the actual number may be significantly higher for certain segments of the workforce.

Employers that mandate vaccination should have robust protocols for reviewing and resolving accommodation requests, and should anticipate that such requests will begin immediately upon announcement of their vaccine mandates. For some employers, being prepared to handle accommodation requests will necessitate additional HR personnel training on compliance with federal law in the context of vaccines.

Employers should be aware that the ETS masking and testing requirements for unvaccinated employees will apply to employees who qualify for accommodations. Also of note, the ETS “encourages employers to consider the most protective accommodations such as telework, which would prevent the employee from being exposed at work or from transmitting the virus at work.” Particularly where remote work is not a viable accommodation, compliance with the masking and testing requirements may inform whether an employer can provide accommodations without incurring “undue hardship.”

Additional information about compliance with federal law in the context of employer-mandated vaccines can be found in our client alerts on these topics.

What Impact Could Legal Challenges Have?

Some court challenges to the ETS already have been filed, and more are likely. The challenges are being filed directly in federal courts of appeals, and the challengers are likely to soon seek a stay of the ETS’s requirements pending a decision on the merits. Cases filed in different courts will be consolidated and assigned to a single court by lottery.

The litigation bears watching, since ETSs historically do not have a good track record on judicial review: Of the six challenged in court, only two have been upheld even in part. In the cases now being filed, challengers are likely to argue that OSHA has not met the standard to issue the ETS as an emergency rulemaking without notice and comment. They also are likely to challenge OSHA’s authority to promulgate a vaccine-or-test mandate at all.

In addition, at least twenty-five states have brought challenges to the federal contractor vaccine mandate, which may result in a preliminary injunction prohibiting enforcement of those requirements. If the federal contractor mandate is enjoined, but the ETS is not stayed (or a stay is promptly lifted), federal contractor employers may have to comply with the ETS instead.

Employers should watch these lawsuits and other ETS-related developments carefully. Employers should also continue to monitor for new Task Force Guidance if they are federal contractors.

_____________________________

[1] https://www.osha.gov/coronavirus/ets2/faqs.

[2] https://www.osha.gov/sites/default/files/publications/OSHA4162.pdf.

[3] https://www.osha.gov/sites/default/files/publications/OSHA4161.pdf.

The following Gibson Dunn attorneys assisted in preparing this client update: Eugene Scalia, Jason C. Schwartz, Katherine V.A. Smith, Jessica Brown, Lauren Elliot, Amanda C. Machin, Zoë Klein, Andrew Kilberg, Emily Lamm, Hannah Regan-Smith, Marie Zoglo, Josh Zuckerman, Nicholas Zahorodny, and Kate Googins.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments. To learn more about these issues, please contact the Gibson Dunn lawyer with whom you usually work, the authors, or any of the following in the firm’s Administrative Law and Regulatory or Labor and Employment practice groups.

Administrative Law and Regulatory Group:
Eugene Scalia – Washington, D.C. (+1 202-955-8543, escalia@gibsondunn.com)
Helgi C. Walker – Washington, D.C. (+1 202-887-3599, hwalker@gibsondunn.com)

Labor and Employment Group:
Jason C. Schwartz – Washington, D.C. (+1 202-955-8242, jschwartz@gibsondunn.com)
Katherine V.A. Smith – Los Angeles (+1 213-229-7107, ksmith@gibsondunn.com)

Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

On October 25, 2021, the Equal Employment Opportunity Commission (“EEOC”) expanded its guidance on religious exemptions to employer vaccine mandates under Title VII of the Civil Rights Act of 1964 (“Guidance”). This Guidance describes in greater detail the framework under which the EEOC advises employers to resolve religious accommodation requests.

The EEOC emphasizes that whether an employee is entitled to a religious accommodation is an individualized determination to be made in light of the “particular facts of each situation.” Guidance at L.3. The agency also was careful to note that the Guidance is specific to employers’ obligations under Title VII and does not address rights and responsibilities under the Religious Freedom Restoration Act or state laws that impose a higher standard for “undue hardship” than Title VII.

The EEOC provided its views on the following questions.

Who makes a religious accommodation request, and what form must it take?

Only sincerely held religious beliefs, practices, or observances qualify for accommodation. Id. at L.1.
A religious accommodation request need not use “magic words,” but it must communicate to the employer that there is a conflict between the employee’s religious beliefs and a workplace COVID-19 vaccination requirement. Id.
The EEOC encourages employers to create processes and/or designate particular employees to handle such religious accommodations requests. Id. Employers also should provide employees and applicants with information about whom to contact, and the procedures to follow, to request a religious accommodation, the EEOC advises.

May an employer ask an employee for more information regarding a religious accommodation request?

Yes. An employer may ask for an explanation of how an employee’s religious beliefs conflict with a COVID-19 vaccination requirement. Id. at L.2. Furthermore, an employer may make a “limited factual inquiry” if there is an objective basis for questioning either: (1) the religious nature of the employee’s belief; or (2) the sincerity of an employee’s stated beliefs. Id.

The religious nature of the employee’s belief. Employers are not prohibited from inquiring whether a belief is religious in nature, or based on unprotected “social, political, or economic views, or personal preferences.” Id. However, the EEOC cautions employers that even unfamiliar or nontraditional beliefs are protected under Title VII. Id.
The sincerity of an employee’s stated beliefs. The EEOC explains that “[t]he sincerity of an employee’s stated religious beliefs … is not usually in dispute,” but provides factors that may “undermine an employee’s credibility.” Id. These factors are:
1. actions the employee has taken that are inconsistent with the employee’s professed belief;
2. whether the accommodation may have a non-religious benefit that is “particularly desirable”;
3. the timing of the request; and
4. any other reasons to believe the accommodation is not sought for religious reasons. Id.

No single factor is determinative. Id. The EEOC cautions that religious beliefs “may change over time,” “employees need not be scrupulous in their [religious] observance,” and “newly adopted or inconsistently observed practices may nevertheless be sincerely held.” Id.

What is an undue hardship under Title VII?

The Supreme Court has held that an employer is not required to provide an accommodation if the accommodation would impose more than a de minimis cost. Id. at L.3. The Guidance takes an expansive view of what types of costs might justify denying an accommodation. The EEOC suggests that such costs may include:

“[D]irect monetary costs”;
“[T]he burden on the conduct of the employer’s business—including, in this instance, the risk of spread of COVID-19 to the public”;
Diminished efficiency in other jobs;
Impairments to workplace safety; and
Causing coworkers to take on the accommodated employee’s “share of potentially hazardous or burdensome work.” Id.

Furthermore, an employer “may take into account the cumulative cost or burden of granting accommodations to other employees,” but may not rely on the “mere assumption” that “more employees might seek religious accommodation” with respect to a vaccine requirement. Id. at L.4. Likewise, an employer cannot rely on “speculative hardships” to deny an accommodation, according to the EEOC, but must rely “on objective information,” considering factors such as whether the employee making the request works indoors or outdoors, in a solitary or group setting, or has close contact with others, especially “medically vulnerable individuals.”

If an employer grants one religious accommodation request from a COVID-19 vaccination requirement, must it grant all religious accommodation requests?

No. Religious accommodation determinations are individualized in nature and must focus on a specific employee’s request and whether accommodating the specific employee would impose an undue hardship. Id. When assessing whether granting an exemption would impair workplace safety, the EEOC advises considering, among other factors, the number of employees who are fully vaccinated, physically enter the workplace, and will need a particular accommodation.

Must an employer provide a requesting employee’s preferred religious accommodation?

No. An employer may choose any reasonable accommodation that would “resolve the conflict” between the a vaccination requirement and an employee’s sincerely held religious belief, though it “should consider the employee’s preference.” Id. at L.5. If an employer does not choose an employee’s preferred accommodation, it should explain to the employee why that accommodation is not granted. Id.

Can an employer discontinue a previously granted religious accommodation?

Yes. An employer may be able to discontinue an accommodation if the accommodation is no longer used for religious purposes or the accommodation subsequently imposes more than a de minimis cost. Id. at L.6. Employers also should be aware that an employee’s “religious beliefs and practices may evolve or change over time and may result in requests for additional or different religious accommodations.”

Questions the EEOC did not address include what steps large employers faced with tens of thousands of reasonable accommodation requests must take to satisfy the individualized-determination requirement; what may constitute reasonable accommodations for employees entitled to exemptions, particularly when community transmission is high; and how employers can comply with recordkeeping and privacy concerns under state and federal statutes, including how to receive and store employee vaccine and testing records.

The following Gibson Dunn attorneys assisted in preparing this client update: Eugene Scalia, Katherine V.A. Smith, Jason C. Schwartz, Jessica Brown, Andrew G. I. Kilberg, Zoë Klein, Chad C. Squitieri, Hannah Regan-Smith, and Kate Googins.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments. To learn more about these issues, please contact the Gibson Dunn lawyer with whom you usually work, or any of the following in the firm’s Administrative Law and Regulatory or Labor and Employment practice groups.

Labor and Employment Group:
Jason C. Schwartz – Washington, D.C. (+1 202-955-8242, jschwartz@gibsondunn.com)
Katherine V.A. Smith – Los Angeles (+1 213-229-7107, ksmith@gibsondunn.com)

Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

On Friday, September 24, the White House’s “Safer Federal Workforce Task Force” (“Task Force”) issued new guidance (the “Guidance”) regarding vaccination requirements and other COVID-safety measures for federal contractor employees. This Guidance implements President Biden’s Executive Order regarding COVID precautions for government contractors, issued September 9, 2021.

Key terms of the Guidance include a vaccination mandate for all covered employees of federal contractors, except in “limited circumstances” for workers “legally entitled” to accommodation. The vaccination mandate applies to covered employees working from home and who have recovered from COVID-19. There is no alternative for workers to present a weekly negative COVID test, as expected in the forthcoming Occupational Safety and Health Administration Emergency Temporary Standard (“OSHA ETS”) for large employers. Employers covered by both the Guidance and the OSHA ETS (i.e., federal contractors with 100 or more employees) would be held to this higher standard. The Guidance also directs masking and distancing practices in accordance with CDC guidelines.

This alert provides a brief overview of these and other provisions of the Guidance for contractors.

I. President Biden’s September 9 Executive Order Regarding Vaccinations for Employees of Federal Contractors

The Executive Order for federal contractors called for the Task Force, which the President established in January, to establish vaccination requirements for federal contactors by September 24.[1] The Order is effectuated by directing federal agencies to include a clause in contracts requiring “the contractor and any subcontractors (at any tier)” to “comply with all guidance for contractor or subcontractor workplace locations published by the Safer Federal Workforce Task Force,” “for the duration of the contract.”[2] Under the Order, this clause is to be included in new contracts and extensions and renewals of existing contracts, and “shall apply to any workplace locations . . . in which an individual is working on or in connection with a Federal Government contract.”[3]

The Order cited the Federal Property and Administrative Services Act (the Procurement Act) as authority for the new federal contractor mandate.[4] As noted in prior alerts, there is some question whether the Procurement Act authorizes the imposition of workplace safety standards in this manner, and legal challenges are possible.

II. Key Definitions

The Guidance defines the following key terms:

A covered contractor is “a prime contractor or subcontractor at any tier who is party to a covered contract.”
A covered contractor employee is “any full-time or part-time employee of a covered contractor (1) working on or in connection with a covered contract or (2) working at a covered contractor workplace.”
An employee works “in connection with a covered contract” when he performs “duties necessary to the performance of the covered contract, but who are not directly engaged in performing the specific work called for by the covered contract,” such as human resources, billing, and legal review.
A covered contractor workplace is a “location controlled by a covered contractor at which any employee of a covered contractor working on or in connection with a covered contract is likely to be present during the period of performance for a covered contract. A covered contractor workplace does not include a covered contractor employee’s residence.”

III. Three Areas of COVID-19-Safety Protocols

The Guidance addresses three key safety requirements for covered contractors and subcontractors at all tiers, except for contracts which are “under the Simplified Acquisition Threshold as defined in section 2.101 of the FAR” and contracts or subcontracts “for the manufacturing of products.”[5] The FAQs go on to state that these safety protocols do not apply to “subcontracts solely for the provision of products” and “covered contractor employees who only perform work outside the United States or its outlying areas.” Thus, the Guidance’s exceptions to the safety protocols largely do not expand or contract the scope of applicable contracts from the Executive Order.

(1) Vaccination:

The Guidance states that all covered contractor employees, including those who previously had COVID-19 as well as covered contractor employees working from home, must be fully vaccinated by December 8. The only exceptions are for employees who are “legally entitled to an accommodation” for medical or religious reasons.

A covered contractor is responsible for reviewing requests for accommodation and determining what, if any, accommodations to offer. Covered contractors are not responsible for providing vaccines to their employees (but may choose to do so), nor are they instructed to pay employees for the time and expenses associated with getting vaccinated (however, this may be a requirement of state and local law and is expected to be a requirement for large employers in the forthcoming OSHA ETS).

Contractors are instructed to review and verify, but not necessarily collect or store, documents to ensure that their employees are fully vaccinated. Acceptable documents include physical or electronic CDC cards, state health records, or private medical records. Unacceptable documents include positive antibody tests and attestations that an employee is vaccinated.

Agencies have discretion to grant temporary exemptions from the vaccine requirement when there is “an urgent, mission-critical need” to have contractors begin work before becoming fully vaccinated. Even then, employees must be fully vaccinated within 60 days of beginning work on the contract. They also must adhere to physical distancing and masking requirements for unvaccinated workers in the meantime.

(2) Physical Distancing and Masks:

Contractors must ensure that all employees and visitors present in covered contractor workplaces follow CDC guidance pertaining to physical distancing and masks. Fully vaccinated employees do not have to physically distance, but unvaccinated employees should maintain six feet of distance from others whenever practicable.

In areas of high community transmission (as determined by the CDC), everyone, including visitors, whether vaccinated or not, must wear masks indoors. In areas of low community transmission, only the unvaccinated must wear masks indoors (they also must wear masks outdoors in certain circumstances). Contractors are responsible for checking the CDC’s website weekly to determine the transmission rate of the local community. When the transmission rate increases, additional safety measures are effective immediately. When the transmission rate decreases to a low or moderate level, safety measures can be removed after two consecutive weeks at that lower level.

These mask mandates apply in all shared spaces and common areas. They do not apply in enclosed office spaces or when individuals are eating or drinking and maintaining appropriate distancing. Contractors can create exceptions to the mask mandate for situations where masks can burden breathing or otherwise pose a safety concern as determined by a workplace risk assessment. And the mask requirements do not apply when employees are working remotely from their residences.

As with the vaccination requirement, employers must review and consider what, if any, religious and medical accommodations to the mask requirement they must offer.

(3) Implementation:

All covered contractors must designate a COVID-safety coordinator. The coordinator is an employee responsible for coordinating, implementing, and enforcing compliance with the Guidance. The coordinator must provide relevant information about the Guidance to employees and visitors likely to enter a covered contractor workplace. The Guidance is silent as to whether a coordinator is required for each worksite or whether a single coordinator can fulfill these responsibilities for more than one worksite.

IV. Relationship to Other Federal and State Mandates

The Guidance purports to apply in all states and municipalities, even those that prohibit employers from imposing vaccination, mask, and distancing requirements. It claims to supersede any contrary state laws and local ordinances. It does not, however, excuse covered contractors from complying with stricter measures imposed by state and local governments. The Guidance also says that agencies may impose additional safety requirements on covered contractor employees while present on federal property.

The Guidance states that all contractors must comply with its COVID-19 protocols, even those employers that will also be subject to the forthcoming OSHA ETS. As we previously explained, the ETS—which is anticipated within weeks of September 9—is expected to require all employers with 100 or more employees to ensure that their workforce is fully vaccinated or to require any workers who remain unvaccinated to produce a negative test result at least weekly before coming to work. However, the Guidance for contractors states that “[c]overed contractors must comply with the requirements set forth in this Guidance regardless of whether they are subject to other workplace safety standards,” such as the forthcoming ETS. Given that the Guidance does not indicate that employees can undergo regular COVID testing in lieu of being vaccinated (and in fact does not mention testing at all), large employers who are also federal contractors will not be able to avoid a vaccination requirement by relying on the ETS testing option.

Finally, new contracts must state that if the Safer Federal Workforce Task Force updates its Guidance to add new requirements, those requirements will apply to existing contracts.

________________________

[1] Executive Order on Ensuring Adequate COVID Safety Protocols for Federal Contractors (Sept. 9, 2021), https://www.whitehouse.gov/briefing-room/presidential-actions/2021/09/09/executive-order-on-ensuring-adequate-covid-safety-protocols-for-federal-contractors/.

[2] Id. § 2.

[3] Id.

[4] Id. (citing 40 U.S.C. 101 et seq).

[5] The Executive Order exempted “(i) grants; (ii) contracts, contract-like instruments, or agreements with Indian Tribes…; (iii) contracts or subcontracts whose value is equal to or less than the simplified acquisition threshold, as that term is defined in section 2.101 of the Federal Acquisition Regulation; (iv) employees who perform work outside the United States or its outlying areas, as those terms are defined in section 2.101 of the Federal Acquisition Regulation; or (v) subcontracts solely for the provision of products.” Executive Order on Ensuring Adequate COVID Safety Protocols for Federal Contractors.

The following Gibson Dunn attorneys assisted in preparing this client update: Eugene Scalia, Jason C. Schwartz, Katherine V.A. Smith, Jessica Brown, Lucas C. Townsend, Lindsay M. Paulin, Andrew G. I. Kilberg, Chad C. Squitieri, Marie Zoglo, and Josh Zuckerman.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments. To learn more about these issues, please contact the Gibson Dunn lawyer with whom you usually work, or any of the following in the firm’s Administrative Law and Regulatory, Labor and Employment or Government Contracts practice groups.

Administrative Law and Regulatory Group:
Eugene Scalia – Washington, D.C. (+1 202-955-8543,escalia@gibsondunn.com)
Helgi C. Walker – Washington, D.C. (+1 202-887-3599, hwalker@gibsondunn.com)

Labor and Employment Group:
Jason C. Schwartz – Washington, D.C. (+1 202-955-8242, jschwartz@gibsondunn.com)
Katherine V.A. Smith – Los Angeles (+1 213-229-7107, ksmith@gibsondunn.com)

Government Contracts Group:
Dhananjay S. Manthripragada – Los Angeles (+1 213-229-7366, dmanthripragada@gibsondunn.com)
Joseph D. West – Washington, D.C. (+1 202-955-8658, jwest@gibsondunn.com)

Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

The U.S. Department of Justice’s increased focus on the private equity sector in recent years has coincided with that sector’s growing investment in the highly regulated healthcare and life sciences industries. That increased focus has been further fueled by the CARES Act and its Paycheck Protection Program, which was in operation from April 2020 through May 31, 2021. In March 2021, the DOJ announced new enforcement priorities focusing on CARES Act fraud. Chief among the potential targets are private equity-backed companies. While private equity firms were ineligible for PPP loans, their portfolio companies may have been eligible, and it is likely that prosecutors and private plaintiffs will seek to hold private equity firms liable under the False Claims Act for a portfolio company’s actions with respect to PPP.

The Small Business Administration released data on the companies that received PPP loans and analysis of this data revealed that over 8,100 privately backed companies were approved for PPP loans of $150,000 or more. Of these, 2,528 were private equity-backed companies. Under the CARES Act, businesses were eligible to receive PPP loans issued by private lenders and credit unions but backed by the SBA. PPP loans were to be used for select purposes including: funding payroll and benefits paying mortgage interest, rent, or utilities; and other worker protection costs related to COVID-19. In April 2020, due to confusion about private equity firms’ eligibility for the loans, the SBA issued an interim final rule stating that private equity firms were ineligible for PPP loans.

Portfolio companies, however, would continue to qualify for the loans if they met special size requirements under the SBA’s affiliation rules. The affiliation analysis under the SBA’s rules involves six different bases for affiliation, including ownership, stock options, control, management, identity of interest, and the existence of franchise and license agreements. While this is a fact-specific analysis, for the purposes of the PPP, a private equity firm was likely to be considered an “affiliate” of a portfolio company, and portfolio companies controlled by the same private equity firm were likely to be “affiliates” of each other. Under the rules, if the aggregate number of employees at the borrower and its affiliates exceeded a certain size, the borrower was ineligible for PPP loans. In addition, upon application, borrowers were required to certify in good faith that the loan was necessary, that they satisfied the affiliation rules for size and eligibility, and that they agreed to use the funds appropriately. If these certification requirements are determined to have not been met, the SBA will seek immediate repayment of the loan.

Read More

Originally published by the Daily Journal on September 17, 2021.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments. Please contact the Gibson Dunn lawyer with whom you usually work, any member of the firm’s False Claims Act or Private Equity groups, or the authors in San Francisco:

Winston Y. Chan (+1 415-393-8362, wchan@gibsondunn.com)
Trisha Parikh (+1 415-393-8314, tparikh@gibsondunn.com)

Please also feel free to contact the following practice leaders and members:

Private Equity Group:
Richard J. Birns – New York (+1 212-351-4032, rbirns@gibsondunn.com)
Scott Jalowayski – Hong Kong (+852 2214 3727, sjalowayski@gibsondunn.com)
Ari Lanin – Los Angeles (+1 310-552-8581, alanin@gibsondunn.com)

False Claims Act/Qui Tam Defense Group:

San Francisco
Winston Y. Chan – Co-Chair (+1 415-393-8362, wchan@gibsondunn.com)
Charles J. Stevens (+1 415-393-8391, cstevens@gibsondunn.com)

Washington, D.C.
Jonathan M. Phillips – Co-Chair (+1 202-887-3546, jphillips@gibsondunn.com),
F. Joseph Warin (+1 202-887-3609, fwarin@gibsondunn.com)
Joseph D. West (+1 202-955-8658, jwest@gibsondunn.com)
Robert K. Hur (+1 202-887-3674, rhur@gibsondunn.com)
Geoffrey M. Sigler (+1 202-887-3752, gsigler@gibsondunn.com)

New York
Reed Brodsky (+1 212-351-5334, rbrodsky@gibsondunn.com)
Mylan Denerstein (+1 212-351-3850, mdenerstein@gibsondunn.com)
Alexander H. Southwell (+1 212-351-3981, asouthwell@gibsondunn.com)
Casey Kyung-Se Lee (+1 212-351-2419, clee@gibsondunn.com)

Denver
Robert C. Blume (+1 303-298-5758, rblume@gibsondunn.com)
Monica K. Loseman (+1 303-298-5784, mloseman@gibsondunn.com)
John D.W. Partridge (+1 303-298-5931, jpartridge@gibsondunn.com)
Ryan T. Bergsieker (+1 303-298-5774, rbergsieker@gibsondunn.com)

Dallas
Robert C. Walters (+1 214-698-3114, rwalters@gibsondunn.com)
Andrew LeGrand (+1 214-698-3405, alegrand@gibsondunn.com)

Los Angeles
Nicola T. Hanna (+1 213-229-7269, nhanna@gibsondunn.com)
Timothy J. Hatch (+1 213-229-7368, thatch@gibsondunn.com)
Deborah L. Stein (+1 213-229-7164, dstein@gibsondunn.com)
James L. Zelenay Jr. (+1 213-229-7449, jzelenay@gibsondunn.com)

Palo Alto
Benjamin Wagner (+1 650-849-5395, bwagner@gibsondunn.com)

Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

Yesterday, September 9, President Biden announced several initiatives regarding COVID-19 vaccine requirements for U.S. employers. This alert provides a brief overview of the content and timing of the principal initiatives, and previews certain objections likely to be raised in legal challenges that some governors and others have said they will file.

OSHA rule requiring all employers with 100+ employees to ensure their workers are vaccinated or tested weekly, and to pay for vaccination time.

The President announced that the Department of Labor’s Occupational Safety and Health Administration (OSHA) is developing an Emergency Temporary Standard (ETS) that will require all employers with 100 or more employees to ensure that their workforce is fully vaccinated or to require any workers who remain unvaccinated to produce a negative test result at least weekly before coming to work. The rule—which is expected to issue within weeks—will require employers with more than 100 employees to provide paid time off for the time it takes for workers to get vaccinated and to recuperate if they experience serious side effects from the vaccination.

OSHA ETS’s are authorized by statute, which permits the Secretary of Labor to promulgate an ETS when he determines (1) “that employees are exposed to grave danger from exposure to substances or agents determined to be toxic or physically harmful or from new hazards,” and (2) “that such emergency standard is necessary to protect employees from such danger.”[1] An ETS may be in place for up to six months, at which point OSHA must issue a permanent standard that has been adopted through ordinary rulemaking processes.[2] This would be OSHA’s second COVID ETS, following an ETS adopted in June that was limited to the health care sector.[3]

OSHA likely does not plan a notice-and-comment process for the forthcoming rule, which is not required for an ETS. As a consequence, the standard’s specific requirements likely will become known the day of publication, with an effective date shortly thereafter. Uncertainties that issuance of the rule should resolve include how it would apply to employees working at home, or to workers at remote locations without contact with other employees.

The decision to adopt the rule as an “emergency” and “temporary” standard, without notice and comment, could be one focus of a legal challenge. A challenge may also target the rule’s wage-payment requirement; wages are not a subject that OSHA ordinarily regulates, and the requirement arguably contrasts with Congress’s decision to let the COVID-related paid leave programs established by the Families First Coronavirus Response Act expire after December 31, 2020. If the ETS requires vaccination for workers who recently had and recovered from COVID-19, that could be targeted also.

Executive Orders requiring vaccinations for employees of federal contractors, and for all federal workers.

In announcing the OSHA ETS, the President also issued separate Executive Orders regarding vaccination of employees of federal contractors, and regarding vaccination of federal workers.

The federal contractor Order imposes no immediate workplace requirements. Rather, the requirements—which the White House has said will include a vaccine mandate—are to be delineated by September 24 by the White House’s “Safer Federal Workforce Task Force” (Task Force), established by the President in January. Under the Order, by September 24, the Task Force is to provide “definitions of relevant terms for contractors and subcontractors, explanations of protocols required of contractors and subcontractors to comply with workplace safety guidance, and any exceptions to Task Force Guidance that apply to contractor and subcontractor workplace locations and individuals in those locations working on or in connection with a Federal Government contract.”[4] The Task Force Guidance is to be accompanied by a determination, issued by the Director of the Office of Management and Budget (OMB), that the Guidance “will promote economy and efficiency in Federal contracting, if adhered to by Government contractors and subcontractors.”[5] The Order cites the Federal Property and Administrative Services Act (the Procurement Act), as authority for the new federal contractor mandate.[6]

The Order is effectuated by requiring federal agencies to include a clause in contracts requiring “the contractor and any subcontractors (at any tier)” to “comply with all guidance for contractor or subcontractor workplace locations published by the Safer Federal Workforce Task Force,” “for the duration of the contract.”[7] This clause is to be included in new contracts and extensions and renewals of existing contracts, and “shall apply to any workplace locations . . . in which an individual is working on or in connection with a Federal Government contract.”[8]

A legal challenge to the Order is likely to focus on the President’s authority under the Procurement Act to use a White House Task Force to develop workplace safety rules for federal contractors. As discussed in a prior alert, presidents of both parties increasingly use the Procurement Act to regulate terms and conditions of employment at federal contractors, including most recently a $15 minimum wage requirement.[9] A challenge to this COVID Executive Order could produce an important legal precedent on presidential authority in this area.

Separate from the Order regarding contractors, President Biden also signed an Executive Order requiring that all federal executive branch workers be vaccinated, with minimal exceptions.[10] The Order requires federal agencies to “implement, to the extent consistent with applicable law, a program to require COVID-19 vaccination for all of [their] Federal employees.”[11] The Order does not allow employees to avoid vaccination through frequent testing. Instead, “only” those “exceptions . . . required by law” will be permitted.[12] Those exceptions are likely to concern disabilities and religious objections.[13] The President directed the Task Force to “issue guidance within 7 days . . . on agency implementation of” the Order’s requirements for federal employees.[14]

COVID-19 vaccinations for health care workers at Medicare and Medicaid participating hospitals, and at other health care settings.

The President announced that the Centers for Medicare & Medicaid Services (CMS) will require COVID-19 vaccinations for workers in most health care settings that receive Medicare or Medicaid reimbursement, including but not limited to hospitals, dialysis facilities, ambulatory surgical settings, and home health agencies. This action is an extension of a vaccination requirement for nursing facilities recently announced by CMS, and will apply to nursing home staff as well as staff in hospitals and other CMS-regulated settings, including clinical staff, individuals providing services under arrangements, volunteers, and staff who are not involved in direct patient, resident, or client care.[15]

* * *

We anticipate providing further updates later this month, as actions on the President’s directives proceed.

_______________________

[1] 29 U.S.C. § 655(c)(1).

[2] Id. § 655(c)(3).

[3] See OSHA National News Release, US Department of Labor’s OSHA issues emergency temporary standard

to protect health care workers from the coronavirus (June 10, 2021), https://www.osha.gov/news/newsreleases/national/06102021.

[4] Executive Order on Ensuring Adequate COVID Safety Protocols for Federal Contractors (Sept. 9, 2021), https://www.whitehouse.gov/briefing-room/presidential-actions/2021/09/09/executive-order-on-ensuring-adequate-covid-safety-protocols-for-federal-contractors/.

[5] Id. § 2.

[6] Id. (citing 40 U.S.C. 101 et seq).

[7] Id.

[8] Id.

[9] Gibson Dunn, Department of Labor Initiates Rulemaking to Raise the Minimum Wage to $15 Per Hour For Federal Contractors (July 29, 2021), https://www.gibsondunn.com/wp-content/uploads/2021/07/department-of-labor-initiates-rulemaking-to-raise-the-minimum-wage-to-15-dollars-per-hour-for-federal-contractors.pdf.

[10] Executive Order on Requiring Coronavirus Disease 2019 Vaccination for Federal Employees (Sept. 9, 2021), https://www.whitehouse.gov/briefing-room/presidential-actions/2021/09/09/executive-order-on-requiring-coronavirus-disease-2019-vaccination-for-federal-employees/.

[11] Id. § 2.

[12] Id.

[13] Press Briefing by Press Secretary Jen Psaki (September 9, 2021), https://www.whitehouse.gov/briefing-room/press-briefings/2021/09/09/press-briefing-by-press-secretary-jen-psaki-september-9-2021/ (stating that there would be exceptions for “legally recognized reasons, such as disability or religious objections”).

[14] Executive Order on Requiring Coronavirus Disease 2019 Vaccination for Federal Employees (Sept. 9, 2021) at § 2; see also Safer Federal Workforce, https://www.saferfederalworkforce.gov/.

[15] See also CMS, Press Release, Biden-Harris Administration Takes Additional Action to Protect America’s Nursing Home Residents From COVID-19 (Aug. 18, 2021), https://www.cms.gov/newsroom/press-releases/biden-harris-administration-takes-additional-action-protect-americas-nursing-home-residents-covid-19.

The following Gibson Dunn attorneys assisted in preparing this client update: Eugene Scalia, Helgi C. Walker, Katherine V.A. Smith, Jason C. Schwartz, Jessica Brown, Karl G. Nelson, Amanda C. Machin, Lindsay M. Paulin, Zoë Klein, Chad C. Squitieri, and Marie Zoglo.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments. To learn more about these issues, please contact the Gibson Dunn lawyer with whom you usually work, or any of the following in the firm’s Administrative Law and Regulatory, Labor and Employment or Government Contracts practice groups.

Administrative Law and Regulatory Group:
Eugene Scalia – Washington, D.C. (+1 202-955-8543,escalia@gibsondunn.com)
Helgi C. Walker – Washington, D.C. (+1 202-887-3599, hwalker@gibsondunn.com)

Labor and Employment Group:
Jason C. Schwartz – Washington, D.C. (+1 202-955-8242, jschwartz@gibsondunn.com)
Katherine V.A. Smith – Los Angeles (+1 213-229-7107, ksmith@gibsondunn.com)

Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

Decided August 12, 2021

Chrysafis v. Marks, No. 21A8

On Thursday, August 12, 2021, the Supreme Court granted Gibson Dunn’s request for an extraordinary writ of injunction pending appeal and held that New York State’s eviction moratorium law (“CEEFPA”)—which bars landlords from commencing or continuing eviction proceedings against any tenants who self-certify that they are suffering a COVID-related “hardship,” with no opportunity for property owners to challenge those hardship claims—is inconsistent with fundamental due process principles.

Background:
CEEFPA was enacted in December 2020 and extended in May 2021. The law prohibits New York property owners from filing eviction petitions, continuing pending eviction cases, or enforcing existing eviction warrants, even in cases initiated prior to the COVID 19 pandemic, if their tenants submit a “hardship declaration.” It also requires landlords to distribute these hardship declarations, along with government-drafted notices and government-curated lists of legal service providers, to their tenants.

On May 6, 2021, Pantelis Chrysafis, Betty S. Cohen, Brandie LaCasse, Mudan Shi, Feng Zhou, and the Rent Stabilization Association of NYC, Inc. (“Plaintiffs”), represented by Gibson Dunn partners Randy M. Mastro and Akiva Shapiro, filed suit in the U.S. District Court for the Eastern District of New York. Plaintiffs alleged that CEEFPA—which shuts them out of the housing courts without a hearing and compels them to convey government messages against their own wishes and interests—violates the Due Process Clause and the First Amendment.

Despite finding, after an evidentiary hearing, that Plaintiffs had adequately alleged irreparable harm, the district court declined to enter a preliminary injunction and dismissed the case on the merits. Among other things, the district court determined that CEEFPA did not implicate property owners’ procedural due process rights; that it only compelled commercial speech and was thus subject only to rational basis review; and that the government’s interest in combatting the pandemic outweighed the irreparable harm that Plaintiffs had demonstrated. A Second Circuit panel denied Plaintiffs’ motion for an emergency injunction pending appeal.

Issues:
1. Whether Plaintiffs’ constitutional challenge to CEEFPA was likely to succeed.

2. If so, whether the eviction moratorium should be enjoined on an emergency basis pending appeal.

Court’s Holding:
Yes and yes.

“[The moratorium] violates the Court’s longstanding teaching that ordinarily ‘no man can be a judge in his own case’ consistent with the Due Process Clause.”

Per Curiam Opinion of the Court

What It Means:

CEEFPA’s prohibitions on initiating eviction proceedings, prosecuting existing eviction cases, and enforcing existing eviction warrants—along with its requirement that landlords distribute hardship declarations to tenants—cannot be enforced during the pendency of appellate proceedings in the Second Circuit and, potentially, before the Supreme Court. Six Justices agreed that the challenged “scheme”—under which, “[i]f a tenant self-certifies financial hardship,” the moratorium “generally precludes a landlord from contesting that certification and denies the landlord a hearing”—“violates the Court’s longstanding teaching that ordinarily ‘no man can be a judge in his own case’ consistent with the Due Process Clause.” Slip. op. 1 (citation omitted). While the analogy to other state and federal COVID-19 eviction moratoria is not exact, the decision suggests that government actors cannot close the courthouse doors for any extended period of time to landlords seeking to protect their property rights by prosecuting eviction actions.
The majority effectively rejected the dissenting Justices’ arguments that emergency relief was unwarranted because, inter alia, CEEFPA is set to expire in a number of weeks and courts should defer to a state government’s pandemic-based defenses or justifications. See Slip. op. 3-4 (Breyer, J., dissenting). Moreover, even those dissenting Justices acknowledged “the hardship to New York landlords” that the eviction moratorium has caused, and they signaled that they might be inclined to grant a renewed application for emergency relief if the State were to extend the moratorium beyond its current expiration date of August 31. Slip. op. 4-5 (Breyer, J., dissenting).

The Court’s opinion is available here.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding developments at the Supreme Court. Please feel free to contact Randy M. Mastro (+1 212.351.3825, rmastro@gibsondunn.com), Akiva Shapiro (+1 212.351.3830, ashapiro@gibsondunn.com), or the following practice leaders:

Appellate and Constitutional Law Practice

Allyson N. Ho
+1 214.698.3233
aho@gibsondunn.com

Mark A. Perry
+1 202.887.3667
mperry@gibsondunn.com

In March of 2020, as the COVID-19 pandemic and the consequent government shutdown orders forced business closures and event cancellations across the United States, we provided a four-step checklist and flowchart on evaluating contracts’ force majeure provisions in order to aid contracting parties in understanding their options. Force majeure (or “act of god”) provisions are the most common terms in commercial contracts that address parties’ obligations when they become unable to comply with contract terms. These provisions generally set forth limited circumstances under which a party may suspend performance, fail to perform or, in some cases, terminate the contract, without liability due to the occurrence of an unforeseen event.[1]

In the months since March 2020, as commercial disputes over these clauses have wended their way through the courts, some patterns have emerged regarding litigants’ and courts’ treatment of force majeure clauses in light of the pandemic. The courts’ discussions of these clauses in decisions over the past sixteen months provide supplemental guidance regarding the four steps of analysis of the application of force majeure clauses.

STEP 1: Does COVID-19 trigger the force majeure clause? The first step is to review the triggering events enumerated in the force majeure clause.

First, as we explained back in March 2020, force majeure clauses pre-COVID tended to be interpreted narrowly and therefore COVID-19 might not be a covered event under the general rubric of “acts of God” absent reference in the relevant clause to a specific triggering event.[2] Among those triggering events can be events relating to diseases, including “epidemic,” “pandemic,” or “public health crisis.” At the onset of the 2020 crisis, there was general consensus that COVID-19 would be covered under any of these categories, and that has not changed. Likewise, other clauses referring to government actions also seemed likely to be triggered by the restrictive executive orders regulating the size of gatherings or shuttering certain businesses, and our guidance has not altered on this point. “Catch all” language invoking other events or causes “outside the reasonable control of a party” seemed likely to broaden the interpretation of such clauses to reach COVID-19 and its derivative impacts, except in the case where such language is qualified by an exclusion of events of general applicability.

The great majority of the early published decisions on force majeure continue to adhere to the principles in our early guidance; however, litigants in cases to date appear to have primarily engaged the courts to resolve disputes over the effect of triggering their force majeure provisions and therefore have not engaged in litigation over whether COVID-19 triggered the relevant force majeure clause in the first place.

For example, in Future St. Ltd. v. Big Belly Solar, LLC, 2020 WL 4431764 (D. Mass. July 31, 2020), the issue confronting the court was whether the difficulties in making certain minimum purchases and payments under the parties’ contract was caused by COVID-19 or not; there did not appear to be a dispute that the relevant force majeure provision would have been triggered if COVID-19 had indeed been the precipitating cause. The court in that case held, consistent with the prior case law, that the plaintiff failed to establish causation but assumed without discussion that “the pandemic and effects of same” were a valid triggering event under the relevant force majeure clause, which excused failure to perform “occasioned solely by fire, labor disturbance, acts of civil or military authorities, acts of God, or any similar cause beyond such party’s control.” Id. at *6.

Similarly, in Palm Springs Mile Assocs., Ltd. v. Kirkland’s Stores, Inc., 2020 WL 5411353 (S.D. Fla. Sept. 9, 2020), the parties raised the issue of whether the defendant (who was seeking to excuse its failure to pay rent) had adequately demonstrated that county regulations restricting non-essential business operations “directly affect[ed] [its] ability to pay rent.” Id. (emphasis added).[3] The court concluded he had not. And in something of a “split the baby” decision, In re Hitz Rest. Grp., 616 B.R. 374 (Bankr. N.D. Ill. 2020), held that the triggering of a force majeure clause only “partially excuse[d]” a restaurant tenant’s obligation to pay rent after Illinois’ executive order suspending in-person dining services went into effect. Examining the factual record, the Hitz court held that the restaurant could have used approximately 25% of its space to conduct activities that were still permitted following the executive order, including food pick-up and delivery services. Accordingly, the court held that the tenant was still on the hook for 25% of the rent. See, id. at 377 (finding force majeure clause to have been “unambiguously triggered” by an executive order).

Thus, because litigants generally have not disputed that COVID-19 falls within one or more of the enumerated events in the clauses to have been considered by courts thus far, most courts have not had occasion to opine on whether COVID-19 would trigger a clause that listed only “acts of god” without specific triggering events such as pandemic. The one outlier appears to be a single case from a New York federal court, which concluded that COVID-19 qualifies as a “national disaster” based on a number of factors, including Black’s Law Dictionary’s definition of “natural” and “disaster”; the Oxford English Dictionary’s definition of “natural disaster”; and the fact that “the Second Circuit has identified ‘disease’ as an example of a natural disaster.” See JN Contemporary Art LLC v. Phillips Auctioneers LLC, 2020 WL 7405262, at *7 and n.7 (S.D.N.Y. Dec. 16, 2020) (“It cannot be seriously disputed that the COVID-19 pandemic is a natural disaster.”). Interestingly, the generic “acts of God” category in a force majeure clause has been interpreted to include “national disasters” even as it has been interpreted to exclude public health events like pandemics. What the Southern District of New York decision does not clarify is whether the Court now views COVID-19 as covered by a generic “acts of God” provision even if that provision does not specifically enumerate “national disasters.” It also remains to be seen whether other courts will follow in the footsteps of the federal court’s expansion of jurisprudence or whether other courts will continue to adhere to the notion that force majeure provisions should be interpreted narrowly.

STEP 2: What is the standard of performance? The second step is to review what specifically the force majeure clause excuses.

As described above, a number of early cases have tackled the causation component of force majeure, concluding that, consistent with prior cases, a litigant must establish a direct relationship between the alleged triggering event and the performance he or she alleges should be excused. A review of COVID-19 force majeure cases also reveals that courts have taken a narrow approach when analyzing the related question of whether the remedy sought by the litigant invoking force majeure is available under the express language of the contract. For example, in MS Bank S.A. Banco de Cambio v. CBW Bank, 2020 WL 5653264 (D. Kan. Sept. 23, 2020), the plaintiff sought to delay the defendant’s termination of a service agreement based on force majeure, but the court analyzed the agreement and held that “nothing in the Services Agreement” allowed the plaintiff “to forestall termination based on force majeure.”

Similarly, in NetOne, Inc. v. Panache Destination Mgmt., Inc., 2020 WL 6325704, (D. Haw. Oct. 28, 2020), the plaintiff argued that the defendant had breached its agreement by refusing to refund a deposit after the plaintiff terminated its event contract based on the agreement’s force majeure provision. The court held for the defendant, finding no language in the contract that obligated the defendant to refund deposits based on a triggering of the force majeure clause. In contrast, the force majeure clause in the contract at issue in Sanders v. Edison Ballroom LLC, No. 654992/2020, 2021 WL 1089938, at *1 (N.Y. Sup. Ct. Mar. 22, 2021), expressly stated that defendant would “refund all payments made by” the plaintiff in the event that the clause was triggered. The court in Sanders therefore awarded summary judgment to the plaintiff, requiring defendant to refund the full deposit previously paid by plaintiff on an event space due to the fact that the act of a “governmental authority” had made it “illegal or impossible” for the defendant to hold the event, thus triggering the force majeure clause. Id. at *3.

Ultimately, as we cautioned in March 2020, it is vital to understand not just whether or when your force majeure clause has been triggered, but what happens next. Often, such a clause provides an excuse for delaying performance, but only if that failure is directly caused by the force majeure event, as in many of the cases discussed herein. Other contracts provide that that performance may be delayed in light of a force majeure event, but only so long as the force majeure event continues.

It is worth noting that all of the foregoing cases were analyzing contracts entered into before COVID-19 came to dominate all of our lives. It will be interesting to see how courts analyze force majeure clauses in contracts executed after March 2020 and whether that context will make a difference in terms of how narrowly courts read such provisions.

Does the force majeure clause broadly cover events caused by conditions beyond the reasonable control of the performing party without enumerating specific events?	No ☐	Yes ☐	If yes, proceed to Step 2. Inquiry should also be made into what additional elements a party may need to demonstrate based on the applicable law. Some courts may require a party invoking a force majeure provision to demonstrate that the triggering event was beyond its control and without its fault or negligence and that it made efforts to perform its contractual duties despite the occurrence of the event.
Does the force majeure clause specifically reference an “epidemic,” “pandemic,” “disease outbreak,” or “public health crisis”?	No ☐	Yes ☐	If yes, proceed to Step 2. Inquiry should also be made into what additional elements a party may need to demonstrate based on the applicable law. Some courts may require a party invoking a force majeure provision to demonstrate that the triggering event was beyond its control and without its fault or negligence and that it made efforts to perform its contractual duties despite the occurrence of the event.
Does the force majeure clause refer specifically to “acts of civil or military authority,” “acts, regulations, or laws of any government,” or “government order or regulation”?	No ☐	Yes ☐	If yes, proceed to Step 2. Inquiry should also be made into what additional elements a party may need to demonstrate based on the applicable law. Some courts may require a party invoking a force majeure provision to demonstrate that the triggering event was beyond its control and without its fault or negligence and that it made efforts to perform its contractual duties despite the occurrence of the event.
Does the force majeure clause cover only “acts of God”?	No ☐	Yes ☐	If yes, proceed to Step 2. While some courts have interpreted the phrase “act of God” in a force majeure clause in a limited manner, encompassing only natural disasters like floods, earthquakes, volcanic eruptions, tornadoes, hurricanes, and blizzards, one court to consider the question head-on has found that COVID-19 clearly constitutes a “natural disaster,” suggesting that COVID-19 may trigger provisions covering only “acts of God.”
Does the force majeure clause have a catchall provision that covers “any other cause whatsoever beyond the control of the respective party” and contains an enumeration of specific events that otherwise do not cover the current situation?	No ☐	Yes ☐	If yes, the force majeure clause may not have been triggered because courts generally interpret force majeure clauses narrowly and may not construe a general catch-all provision to cover externalities that are unlike those specifically enumerated in the balance of the clause. But depending on the jurisdiction, courts may look at whether the event was actually beyond the parties’ reasonable control and unforeseeable and the common law doctrine of impossibility or commercial impracticability may still apply, depending on the jurisdiction.

Step 2a. What is the standard of performance?

Does the force majeure clause require performance of obligations to be “impossible” (often, as a result of something outside the reasonable control of a party) before contractual obligations are excused?	No ☐	Yes ☐		If yes, the force majeure clause may have been triggered if the current government regulations specifically prohibit the fulfillment of contractual obligations. Proceed to Step 2b.
Does the force majeure clause require only that performance would be “inadvisable” or “commercially impractical”?	No ☐	Yes ☐		If yes, the force majeure clause may have been triggered due to the extreme disruptions caused by COVID-19. Proceed to Step 2b.

Step 2b. What remedy is available when the force majeure clause is triggered?

Does the contract clearly provide that the remedy sought is available upon the triggering of the force majeure clause?

No ☐

Yes ☐

If yes, then proceed to Step 3.

For example, a party seeking to terminate an agreement, to obtain a refund of a deposit, or to obtain some other remedy will need to demonstrate that such remedy is expressly contemplated by the contract upon the occurrence of a force majeure event.

Step 3. When must notice be given?

Does the contract require notice?

No ☐

Yes ☐

If yes, proceed to Step 4.

Timely notice must be provided in accordance with the notice provision, or termination may not be available even though a triggering event has occurred. Some notice provisions required notice in advance of performance due. Others required notice within a certain number of days of the triggering event. Still others require notice within a specified number of days from the date that a party first asserts the impact of force majeure, without regard to when the triggering event occurred.

Step 4. Are there requirements for the form of notice?

Does the contract contain specific provisions for the method of notice?	No ☐	Yes ☐	If yes, notice provisions may specify the form of the notice, to whom it must be sent, and the manner in which it must be sent. Specific notice language may also be required.
Does the contract require specific language to give notice of a force majeure event?	Yes ☐	No ☐	If yes, determine whether required wording is present in any notice. Some contracts may even have form of notices attached as exhibits to the contract.
Does the contract specify a specific method for delivery of such notice?	No ☐	Yes ☐	If yes, notice may be required by email, priority mail, or through use of a particular form addressed to specific people.

________________________

[1] The COVID-19 pandemic ultimately thrust these clauses to the mainstream, with prominent media outlets covering the effect of force majeure clauses on sports league cancellations and broadcast contracts. See, e.g., https://www.espn.com/nba/story/_/id/29050090/under-plan-nba-players-receive-25-less-paychecks-starting-15; https://nypost.com/2020/04/28/dish-demands-disney-pay-for-espn-refund-over-no-live-sports/

[2] See, e.g., Kel Kim Corp. v. Cent. Mkts., Inc., 70 N.Y.2d 900, 902-03 (1987) (“[O]nly if the force majeure clause specifically includes the event that actually prevents a party’s performance will that party be excused.”).

[3] The force majeure clause at issue in Palm Springs excused delays that were “due to” the force majeure event.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments. For additional information, please contact the Gibson Dunn lawyer with whom you usually work, any member of the firm’s Coronavirus (COVID-19) Team or Litigation, Real Estate, or Transactional groups, or the authors:

Shireen A. Barday – New York (+1 212-351-2621, sbarday@gibsondunn.com)
Nathan C. Strauss – New York (+1 212-351-5315, nstrauss@gibsondunn.com)

Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

In this update, we look at the key employment law considerations our clients face across the UK, France and Germany connected to a return to the workplace in the near future, including: (i) ensuring a “Covid-secure” workplace’ and whether to continue to offer flexible working arrangements in the future; (ii) whether to implement an employee Covid-19 vaccination policy (and if so, whether it should be compulsory or voluntary); and (iii) vaccination certification logistics and the facilitation of Covid-19 testing for employees. The legal and commercial issues around Covid-19 continue to be fast-developing, alongside guidance from governments and national authorities, which employers and lawyers alike will continue to monitor closely in the coming months.

1. A return to the workplace

On 5 July 2021, the Prime Minister announced the UK government’s plans to lift the remaining Covid-19 legal restrictions in England from 19 July 2021 following a further review of the health crisis on 12 July 2021 (with varying timeframes across the other nations of the United Kingdom). Should the lifting of restrictions be confirmed on 12 July, it is expected that there will no longer be legal limits on social contact or social distancing, or mandatory face covering requirements except in certain specific settings (such as healthcare settings). Event and venue capacity caps are also expected to be dropped and venues such as nightclubs should be permitted to reopen. UK employers are therefore anticipating a return to the workplace over the next few months, with the government’s message of “work from home where you can” expected to be removed from 19 July 2021.

With a safe return to the workplace in mind, to the extent they have not done so already, employers should be ensuring their workplaces are “Covid-secure” and risk assessments have been conducted in line with the UK’s Health and Safety Executive’s regularly updated guidelines which are scheduled for further review on 19 July 2021. Practical measures to be put in place will vary depending on the nature of the workplace and industry-specific guidelines, but employers may need to (or wish to) produce policy documents to outline protocols covering meetings, hand washing, mask-wearing, shielding and self-isolation in the event of exposure to Covid-19. In terms of the practical logistics of a return to the workplace, employers should consider whether they wish to continue flexible working arrangements that may currently be in place for their workforce including working from home, the rotation of teams with allocated days to attend the workplace and even specifying arrival and departure times to avoid “bottle necks” in reception areas. UK employers have a duty to consult with employees on matters concerning health and safety at work so will need to engage with their workforce and any relevant unions in good time in advance of a return to the workplace.

Some UK employers will also be preparing for the anticipated end of UK government financial support towards employer costs through the Coronavirus Job Retention Scheme (which is currently set to run until the end of September 2021), the reintegration of furloughed employees, managing levels of accrued untaken annual leave which employers may seek to require their employees take at specific times to ensure it is well distributed, the management of employees who are reluctant to return to the workplace and their options in terms of disciplinary processes and navigating potential employment claims associated with any such processes, as well as potential headcount reductions and redundancies.

Germany

The home office regulations in Germany were tightened in spring of this year, ending in June. Unlike the UK, Germany had to face a serious “third wave” of Covid-19 infections in spring. Until April 2021, German law only stipulated an obligation for employers to provide working-from-home opportunities whenever possible. However, after intense public discussions, the government imposed an additional and enforceable obligation for employees to actually make use of such offers. Due to the rapidly falling numbers of infections in Germany during early summer, the government announced that the working-from-home obligation shall cease from the end of June.

However, a fast return to the status before the pandemic is still highly unlikely. Many large entities have already announced that they will provide non-mandatory work-from-home opportunities to their employees after the end of June in order to allow all employees to return to the office when they feel comfortable doing so. Some entities may no longer have the capacity to provide office space to all employees every day, five days per week.

Due to the recent and unpredictable development of the Delta variant and generally possible increasing infections in autumn, employers are well advised to keep the work-from-home infrastructure for a potential mandatory return to the home office in place.

France

The health crisis has led employers in France to adopt strict measures to prevent the spread of Covid-19 which have varied in intensity depending on the period of the pandemic in question. These measures have required a great deal of work by Human Resources personnel, who have had to adapt to many recommendations from the French government including the National Health Protocol for companies (hereinafter the “Health Protocol”) – a driving force which is regularly updated according to the ever-evolving health situation.

On Thursday, 29 April 2021, President Emmanuel Macron unveiled a 4-step plan to ease lockdown in France, with key dates on 3 May 2021, 19 May 2021, 9 June 2021, and 30 June 2021, which is progressively accompanied by an easing of the Health Protocol. As of 9 June 2021, working from home is no longer the rule for all workplaces and, where applicable, it is now up to the employer to prescribe a minimum number of days per week for employees to work from home or from the workplace within the framework of local social dialogue. In this way, the easing of the Health Protocol is slowly handing back decision-making authority to employers by allowing them to determine the right proportion of at home/onsite days for their employees. However, all hygiene and social distancing rules must continue to be followed by employers, as well as the promotion of remote meetings where possible.

As the physical risks of returning to the workplace reduce, employers must continue to monitor and account for the psychosocial risks, insofar as a return to the workplace may be a source of anxiety for employees (such as the fear of having lost their professional reflexes or the fear of physical contamination). Employers must therefore remain vigilant on these issues as they manage the return of their workforce.

2. Vaccination policies

The UK government’s Department of Health and Social Care has said that it is aiming to have offered a Covid-19 vaccination to all adults in the UK by the end of July 2021, although the vaccination is not mandatory. In his 5 July 2021 announcement, the Prime Minister confirmed that the government plans to recognise the protection afforded to fully-vaccinated individuals in relation to self-isolation requirements upon return from travel abroad or contact with an individual who has tested positive for Covid-19. Employers are therefore considering some of the following issues with respect to the vaccination of their workforce:

(i) Whether to introduce voluntary vaccination policy or vaccination as a contractual obligation or pre-requisite to employment for new recruits: UK health and safety legislation requires employers to take reasonable steps to reduce workplace risks, and some employers will be of the view that requiring (or encouraging) employee vaccination is a reasonable step to take towards protecting their workforce from the risks of Covid-19 in the workplace. This assessment is likely to depend largely on the nature of the work being done, the workforce (its interaction generally and with third parties) and the nature of the workplace.

Proposed amendments to the Health and Social Care Act 2008 (Regulated Activities) Regulations 2014 (SI 2014/2936) will make it mandatory from October 2021 for anyone working in a regulated care home in England to be fully vaccinated against Covid-19 (subject to a grace period). This includes all workers, agency workers, independent contractors and volunteers who may work onsite. The government is currently considering whether this mandatory vaccination policy should apply to other healthcare and domiciliary care settings. In the meantime, many employers who are not bound by this policy are nevertheless considering introducing a vaccination policy, whether voluntary or compulsory. Any vaccination policy must be implemented carefully and thoughtfully.

(ii) Employees who refuse the Covid-19 vaccination: Employees may be reluctant or refuse to have the Covid-19 vaccination for a variety of reasons such as their health, religious beliefs or simply personal choice. Depending on whether employers choose to encourage their employees to have the vaccination through a voluntary policy, or make vaccination a mandatory contractual requirement, where employees decline vaccination, employers will need to consider: (a) whether they need to take additional steps to protect the health and safety of those unvaccinated employees or others, including addressing any measures to ensure the workplace is “Covid-secure” or extending working-from-home flexibility for unvaccinated employees; (b) whether disciplinary action (including dismissal) is an option; and (c) how best to manage the risk of potential employment claims.

Employers will be seeking to balance their obligations to protect their workforce under health and safety legislation (which may in part be achieved through high levels of workforce vaccination), reporting obligations in respect of diseases appearing in the workplace (which include Covid-19) and their general duty of care towards employees on the one hand, with employees’ right to refuse the vaccination and the risk of potential employment claims on the other.

(iii) Data protection implications: Employers who collect information relating to whether their employees have been vaccinated will be processing special category personal data, which means they must comply with the requirements of the UK data protection laws in respect of such processing. As such, employers processing vaccination data will need a lawful basis to do so under Article 6(1) of the UK GDPR as well as meeting one of the conditions for processing under Article 9. Furthermore, any such processing must be done in a transparent way so relevant privacy notices will need to be updated and employers must ensure that they also take account of data minimisation and data security obligations. Specifically, they should ensure they do not retain the information for longer than necessary or record more information than they need for the purpose for which it is collected (i.e., protecting the workforce), as well as ensuring any such data remains accurate and safe from data breaches.

Whether an employer has a legal basis for processing this special category personal data will depend on the context of their employees’ work, the relevant industry and other factors such as the interaction of their workforce with each other as well as clients or other third parties.

Germany

The German government lifted its vaccination prioritization system on 7 June 2021. Most recently, occupational doctors (Betriebsärzte) have been involved in the vaccination campaign as well in order to accelerate it.

Employers may be interested in reaching the highest possible vaccination rate amongst their employees. There are not only economic reasons for such an approach (e.g., to mitigate the risk of disrupted production as a result of quarantine measurements), employers also have a legal obligation towards their employees to protect them and create a safe work environment. In this regard, however, there are crucial points to consider:

(i) So far, there is no indication for the lawfulness of an obligatory vaccination: It is quite clear that there is no justification for the state to make vaccination mandatory for its citizens – mainly for constitutional reasons. The legality of a contractual vaccination obligation imposed by the employer is also widely opposed in Germany.

(ii) Alternatively – and less risky from a legal perspective –, employers may consider a cooperative approach to achieve a high percentage of vaccinated employees: This could include different measures to increase willingness to be vaccinated amongst the workforce, e.g., by providing information about the vaccine, highlighting the advantages, or offering the vaccination through the company’s medical provider. A more controversial method is to consider rewards for vaccinated employees. There is no case law yet on the issue of whether employers can legally grant such bonuses. However, an incentive will most likely be considered lawful if the bonus stays within a reasonable range. Only in such a case, a completely voluntary decision for each employee to decide for or against a vaccination can be assumed. Even negative incentives can be justified under special circumstances. Therefore, absent any statutory rules on this issue it seems reasonable and appropriate to deny non-vaccinated employees access to common areas like close-area production areas, warehouses, or the cafeteria in order to avoid a spread of infections. On the other hand, it is not admissible to threaten an employee with termination if that employee decides against vaccination.

(iii) Data protection implications: Given the fact that the new UK GDPR is an almost verbatim adoption of the EU GDPR, the data protection implications for the UK and the EU, including Germany and France, are basically identical. Articles 6 and 22 of the EU GDPR can provide the necessary basis to legally handle the processing of health data like the vaccination status. Nonetheless, employers will have to make sure this is done in a transparent fashion and the information is not kept longer than absolutely necessary.

In the event that employers offer bonuses to employees for getting vaccinated, compliance with the EU GDPR is less problematic as the employees will likely provide their personal data on a voluntary basis. However, to comply with the EU GDPR, employers must ensure they have explicit consent for the data processing.

France

In France, vaccination against Covid-19 has been progressively extended to new audiences in stages and in line with accelerated vaccine deliveries. Since 31 May 2021, vaccination has been available to all over 18 years’ old including those without underlying health conditions. As of 15 June 2021, it has been available to all young people aged between 12 to 18 years’ old.

(i) No obligation to get vaccinated: Employees are encouraged to be vaccinated as part of the vaccination strategy set out by France’s health authorities. However vaccination against Covid-19 remains voluntary and there should be no consequences from an employer if an employee refuses vaccination. Indeed, the mandatory or simply recommended nature of any occupational vaccination is decided by the French Ministry of Health (Ministère de la Santé) following the opinion of the French High Authority of Health (Haute Autorité de Santé). In the case of Covid-19, the mandatory nature of the vaccination has not yet been confirmed. Therefore, employers cannot request employees get vaccinated as a condition of returning to the workplace. In the same way, vaccinated employees will not be able to refuse to return to the workplace on the grounds that their colleagues have not been vaccinated.

As an employer cannot force an employee to be vaccinated, one big question arises in relation to those employees whose jobs require them to travel abroad regularly, particularly to countries where entry is allowed or denied according to Covid-19 vaccination status. Although no position has been taken in France on this subject for the moment, it seems likely that an employer will be able to require such an employee to prove that they has been vaccinated before allowing them to travel on company business.

(ii) Compliance with strict confidentiality and the EU GDPR: An employer cannot disclose information relating to an employee’s vaccination status, nor their willingness to be vaccinated, to another person under the EU GDPR. It is therefore, not possible for an employer to organise for a vaccination invitation to be sent to individual employees identified as vulnerable or whose job requires proof of vaccination. Indeed, such a process would allow the employer to obtain confidential information concerning the health of the employees in question, which is contrary to medical secrecy and which data is considered “sensitive” health data under the EU GDPR.

(iii) Involvement of occupational health services: The Covid-19 vaccination may be performed by occupational health services. If an employee chooses to go through this service, they are allowed to be absent from work during their working hours. No sick leave is required and the employer cannot object to their absence. In other situations, in particular if an employee chooses to be vaccinated in a vaccinodrome or at their doctor’s practice, there is no right to leave. However, in our opinion, the employer must facilitate the vaccination of employees in order to comply with its health and safety obligations.

3. Vaccination certification and Covid testing

Vaccination certification

The UK government has introduced a Covid-19 vaccination status certification system known as the “NHS COVID Pass”. The Pass can be downloaded onto the NHS App on an individual’s smartphone and be used within the UK and abroad by those who have received a Covid-19 vaccination to demonstrate their vaccination status. In his 5 July 2021 announcement, the Prime Minister confirmed that a Covid-19 vaccination certificate will not be legally required as a condition of entry to any venue or event in the UK, but businesses may make use of the NHS Covid Pass certification if they wish to do so. Employers may therefore ask their employees to show their NHS Covid Pass as a condition to returning to the workplace or particiating in certain activites, but to the extent they do so, the employment and data privacy issues noted above will need to be considered in advance to ensure employers do not expose themselves to risk of claims.

Covid testing

Since April 2021, the UK government has made Covid-19 lateral flow tests available at no cost to everyone in England. Under its current workplace testing scheme, free rapid lateral flow tests will continue to be made available until the end of July 2021. UK government guidance encourages employers to offer regular (twice weekly) testing to their on-site employees to reduce the risk of Covid-19 transmission in the workplace, although such testing programs are voluntary. Employers who propose introducing Covid-19 testing for their workforce will need to consider the risks and implications of doing so, including: (i) the terms of any policy around Covid-19 testing, including whether testing will be mandatory or voluntary and the extent to which they need to consult with the workforce ahead of introducing such policy; and (ii) how to manage employee reluctance to submit to testing, and whether disciplinary proceedings will be appropriate or feasible, taking into account the risk of claims from their employees.

Germany

Vaccination certification

On 17 March 2021, the European Commission presented its proposal to create a Digital Green Certificate. It aims to standardize the mechanism by which a vaccination certificate is verified throughout the EU and to facilitate the right of free movement for EU citizens. Germany recently presented a new digital application for this certificate, the “CovPass-App”. Additionally, the newest version of the “Corona Warn App” is also capable of saving and displaying an individual’s vaccination certificate. It is possible to check their immunization status by scanning a QR-code on “the CovPassCheck App” and users are able to get their certificate uploaded to the application on their smartphone at selected pharmacies and doctors.

Regardless of the abstract possibilities of verification, employers in Germany and the EU will have to consider if and how they would like to use these tools. For instance, certificates might open up options to release employees from potential test obligations or work-from-home orders. At the same time, employers will have to observe aforementioned data protection implications and avoid unlawful discrimination or indirect vaccination obligations.

Covid testing

In Germany, rapid testing is currently free of charge and widely available. In addition, employers are required to offer at least two rapid tests a week for employees that are required to work onsite. The German government has declared that whilst employers’ no longer have an obligation to offer work-from-home opportunities, their obligation to offer rapid tests to employees will remain after the end of June. However, employees are not legally required to make use of this offer. This raises the question for employers whether or not they should make these tests mandatory. The legality of mandatory testing has not been assessed by a German court yet. It will depend primarily on the outcome of the balancing of the conflicting interests of employers and employees. While employees may claim a general right of privacy and cannot be required to undergo medical testing, employers can argue that they have a legal obligation to ensure the safety of their other employees.

Currently, one can argue that, due to the current extraordinary pandemic situation, the interests of the employer generally outweigh reservations of the employee against being tested or testing themselves. However, this might very well change when the number of cases continues to drop and the vaccination rate rises. Thus, employers electing to apply such measures are well-advised to monitor the nationwide and even local epidemiological developments closely and adapt their policies accordingly.

Again, the test results are “health data” that fall within the scope of the EU GDPR. Therefore, the data protection implications mentioned above apply accordingly. In the event that entities are having a works council, potential questions of co-determination rights according to the Works Constitution Act (BetrVG) have to be considered as well.

France

Vaccination certification

The French government has deployed a new application feature called TousAntiCovid-Carnet, which is part of the European work on the Digital Green Certificate. It is a digital “notebook” that allows electronic storage of test result certificates as well as vaccination certificates. For the French Data Protection Authority (“CNIL”), the voluntary nature of the use of this application must remain an essential guarantee of the system. Consequently, its use must not constitute a condition for the free movement of persons, subject to a few exceptions. Employers are therefore (in line with the health and safety obligations) invited to publicize this system and to encourage employees to download the application, but they cannot make it compulsory, either through internal regulations or by any other means. Any attempts to do so would be vitiated by illegality. Moreover, if the application is installed on a work phone, the employer will not be able to access the declared data, according to the French Ministry of Labor (Ministère du Travail).

In any case, if a French law that required people to have a vaccination passport and/or to download an application was to enacted, each employer would have to ensure compliance with such a law. But, until then, this is not the case.

Covid testing

Companies may carry out Covid-19 screening operations with antigenic tests at their own expense, on a voluntary basis and in compliance with medical confidentiality. They may also provide their employees with self-tests in compliance with the same rules, along with instructions provided by a health professional. On the one hand, employee rights to privacy prevent a negative test result from being communicated to the employer – an employee does not have to inform their employer that they have taken a test at all in such a situation. On the other hand, in the event of a positive test, an employee must inform their employer of the positive result – an employee, like an employer, has a health and safety obligation to take care of their own health and safety, which in turn impacts his colleagues.

* * *

We are looking forward to navigating these issues with our clients in the coming months and would be pleased to discuss any of the points raised in this alert.

The following Gibson Dunn attorneys assisted in preparing this client update: James Cox, Nataline Fleury, Mark Zimmer, Heather Gibbons, Georgia Derbyshire, Jurij Müller, and Joanna Strzelewicz.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these and other developments. Please feel free to contact the Gibson Dunn lawyer with whom you usually work, or the following authors and members of the Labor and Employment practice group in Europe:

United Kingdom
James A. Cox (+44 (0) 20 7071 4250, jcox@gibsondunn.com)
Georgia Derbyshire (+44 (0) 20 7071 4013, gderbyshire@gibsondunn.com)
Kathryn Edwards (+44 (0) 20 7071 4275, kedwards@gibsondunn.com)

Germany
Mark Zimmer (+49 89 189 33 130, mzimmer@gibsondunn.com)
Jurij Müller (+49 89 189 33-162, jmueller@gibsondunn.com)

France
Nataline Fleury (+33 (0) 1 56 43 13 00, nfleury@gibsondunn.com)
Charline Cosmao (+33 (0) 1 56 43 13 00, ccosmao@gibsondunn.com)
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Léo Laumônier (+33 (0) 1 56 43 13 00, llaumonier@gibsondunn.com)
Joanna Strzelewicz (+33 (0) 1 56 43 13 00, jstrzelewicz@gibsondunn.com)

Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

On Saturday, June 14, 2021, a federal judge in Texas dismissed the lawsuit filed by employees and former employees against Houston Methodist Hospital challenging its policy requiring all employees to be vaccinated against COVID-19. The holding may provide some degree of reassurance to employers that have decided to require employees to be vaccinated against COVID-19.

The plaintiffs claimed that (1) they were wrongfully discharged, (2) the vaccine mandate violates public policy, (3) the vaccine mandate violates the Food, Drug, and Cosmetic Act (“FDCA”) provisions on emergency use authorization (“EUA”), (4) the vaccine mandate violates federal laws on human test subjects, and (5) the vaccine mandate violates the Nuremberg Code. The plaintiffs sought damages as well as declaratory and injunctive relief.

Judge Lynn N. Hughes of the U.S. District Court for the Southern District of Texas issued a four-page order holding that the plaintiffs failed to state any claim on which relief could be granted.

First, the plaintiffs’ wrongful discharge claim failed because Texas state law “only protects employees from being terminated for refusing to commit an act carrying criminal penalties to the worker,” and “[r]eceiving a COVID-19 vaccination is not an illegal act.”

Second, the plaintiffs’ claims based on a public-policy exception to at-will employment failed because “Texas does not recognize [an] exception to at-will employment” based on “public policy,” and even if it did, the Hospital’s vaccine mandate would not qualify for an exception. This determination was based on Supreme Court precedent holding that due process is not violated by involuntary quarantine to prevent transmission of contagious diseases or by mandatory vaccination requirements, as well as non-binding guidance from the Equal Employment Opportunity Commission that employers can mandate vaccination for employees, as long as they do so subject to reasonable accommodation requirements under the Americans with Disabilities Act and Title VII.

Third, Judge Hughes rejected the plaintiffs’ arguments that the Hospital’s vaccine mandate violated the provisions of the FDCA that require the Secretary of Health and Human Services to ensure that recipients of products authorized for emergency use under § 21 U.S.C. § 360bbb-3 are informed of the “option to accept or refuse administration of the product.” (Emphasis added.) The opinion explained that there is no private right of action under Section 360bbb-3, and the provision “neither expands nor restricts the responsibilities of private employers”—and in fact “does not apply at all to private employers.”

Fourth, the opinion rejected the plaintiffs’ argument that they were being unlawfully forced to participate in a human trial and that the vaccination policy violated the Nuremberg Code. “Equating the injection requirement to medical experimentation in concentration camps is reprehensible,” Judge Hughes commented.

Finally, Judge Hughes explained that the Hospital’s vaccine mandate does not amount to coercion. Just as the FDCA provides, an employee “can freely choose to accept or refuse a COVID-19 vaccine; however, if she refuses, she will simply need to work somewhere else…. Every employment includes limits on the worker’s behavior in exchange for his remuneration. That is all part of the bargain.”

Judge Hughes’ reasoning is consistent with that of many employers who have implemented or considered a vaccination mandate. Although the order does not eliminate all risk to employers that a vaccine mandate could be found unlawful—it will not be binding precedent on other courts faced with similar challenges to employer-mandated vaccines in the future—it should provide some degree of reassurance to employers, particularly with regard to its holding that the FDCA EUA provisions do not create employment rights and are not susceptible to a private right of action.

Gibson Dunn lawyers are available to assist in addressing any questions you may have about these developments. Please contact the Gibson Dunn lawyer with whom you usually work, any member of the firm’s Labor and Employment practice group, or the following authors:

Jessica Brown – Denver (+1 303-298-5944, jbrown@gibsondunn.com)
Hannah Regan-Smith – Denver (+1 303-298-5761, hregan-smith@gibsondunn.com)

Please also feel free to contact the following practice leaders:

Jason C. Schwartz – Washington, D.C. (+1 202-955-8242, jschwartz@gibsondunn.com)
Katherine V.A. Smith – Los Angeles (+1 213-229-7107, ksmith@gibsondunn.com)

Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

On Friday, May 28, 2021, the EEOC updated its technical assistance on vaccinations (the “Guidance”). Among other items summarized below, the Guidance states that employers may mandate vaccines under federal EEO laws, explains how to resolve requests for accommodations from employees who cannot be vaccinated for a protected reason under Title VII of the Civil Rights Act of 1964 (“Title VII”) or the Americans with Disabilities Act (“ADA”), and clarifies that employers may request documentation of vaccination.

Employer-Mandated Vaccination

Although the EEOC’s previous guidance from December 16, 2020, strongly implied that employers could mandate vaccines, this updated Guidance clearly states that nothing in the EEO laws prevents an “employer from requiring all employees physically entering the workplace to be vaccinated for COVID-19, subject to the reasonable accommodation provisions of Title VII and the ADA and other EEO considerations.” This is true whether the employee receives the vaccine from the employer or a third party, although if the employer or its agent provides vaccines pursuant to a mandatory-vaccination policy, the employer may only ask pre-vaccination screening questions if it has “a reasonable belief, based on objective evidence, that an employee who does not answer the questions and, therefore, cannot be vaccinated, will pose a direct threat to the employee’s own health or safety or to the health and safety of others in the workplace.”

Employers may also require confirmation, including documentation, of vaccination, but under the ADA, “documentation or other confirmation of vaccination provided by the employee to the employer is medical information about the employee and must be kept confidential” and maintained in a separate location from the employees’ personnel files. The Guidance does not address state data privacy laws and requirements, which may impose additional obligations.

The Guidance explains that when deciding on and implementing a vaccination policy, employers should be mindful that, “because some individuals or demographic groups may face greater barriers to receiving a COVID-19 vaccination than others, some employees may be more likely to be negatively impacted by a vaccination requirement.” An employer may not adopt a vaccination policy that discriminates on the basis of any protected characteristic.

When introducing a vaccination policy, employers should, “as a best practice,” notify employees that they may request an accommodation if they are unable to be vaccinated due to a disability or religious belief, practice, or observance. Managers and/or supervisors tasked with implementing the vaccination policy should know how to recognize an accommodation request (which does not require employees to use any particular verbiage) and should know to whom any requests should be referred for resolution.

Accommodations Process under the ADA and Title VII

Under the ADA, if an employee cannot be vaccinated due to a disability, the employer may not “require compliance” from the employee unless “the individual would pose a ‘direct threat’ to the health or safety of the employee or others in the workplace.” To determine whether the individual is a direct threat, the employer must “make an individualized assessment of the employee’s present ability to safely perform the essential functions of the job,” based on “(1) the duration of the risk; (2) the nature and severity of the potential harm; (3) the likelihood that the potential harm will occur; and (4) the imminence of the potential harm.”

The direct threat assessment “should be based on a reasonable medical judgment that relies on the most current medical knowledge about COVID-19.” The Guidance identifies the following as relevant to whether an unvaccinated employee would present a direct threat:

“the level of community spread at the time of the assessment”;
“the type of work environment,” including:
- “whether the employee works alone or with others”;
- whether the employee works inside or outside;
- available ventilation;
- “the frequency and duration of direct interaction the employee typically will have with other employees and/or non-employees”;
- “the number of partially or fully vaccinated individuals already in the workplace”;
- “whether other employees are wearing masks or undergoing routine screening testing”; and
- “the space available for social distancing.”

If the employer determines that the unvaccinated employee would present a direct threat to others or themselves, the employer must determine whether there is a reasonable accommodation for the employee. Possible reasonable accommodations include the following:

Requiring the employee to
- wear a mask;
- work a staggered shift;
- work at a distance from coworkers or non-employees; and/or
- get periodic tests for COVID-19
“making changes in the work environment (such as improving ventilation systems or limiting contact with other employees and non-employees )”;
“permitting telework if feasible”; or
“reassigning the employee to a vacant position in a different workspace.”

An accommodation request may only be denied if there is no accommodation option that “does not pose an undue hardship, meaning [under the ADA] a significant difficulty or expense.” As with the direct threat assessment, “[e]mployers may rely on CDC recommendations when deciding whether an effective accommodation is available that would not pose an undue hardship.” The undue-hardship assessment should consider the “proportion of employees in the workplace who already are partially or fully vaccinated against COVID-19” and the “extent of employee contact with non-employees, who may be ineligible for a vaccination or whose vaccination status may be unknown.”

The Guidance suggests that the employer’s first option should be an accommodation that would “allow the unvaccinated employee to be physically present to perform his or her current job without posing a direct threat.” If no such option is possible, the employer “must consider if telework is an option for that particular job as an accommodation” and, as a “last resort,” determine “whether reassignment to another position is possible.”

Employers must also provide reasonable accommodations for employees who cannot be vaccinated due to “an employee’s sincerely held religious belief, practice, or observance” and must do so “according to the same standards that apply to other accommodation requests.” The Guidance notes that “the definition of religion is broad and protects beliefs, practices, and observances with which the employer may be unfamiliar” and that “the employer should ordinarily assume that an employee’s request for religious accommodation is based on a sincerely held religious belief, practice, or observance,” unless the employer has an objective basis to question the sincerity or religious nature of an employee’s accommodation request. Under Title VII, employers are not required to accommodate employees who are unable to be vaccinated due to religious beliefs, practices, or observances if doing so would impose “more than minimal cost or burden on the employer,” which “is an easier standard for employers to meet than the ADA’s undue hardship standard.”

Finally, the Guidance explains that employees who “seek job adjustments” or request exemptions from a vaccination requirement due to pregnancy “may be entitled to job modifications, including telework, changes to work schedules or assignments, and leave to the extent such modifications are provided for other employees who are similar in their ability or inability to work.”

Incentives

Employers may “offer an incentive to employees to voluntarily provide documentation or other confirmation that they received a vaccination on their own from a pharmacy, public health department, or other health care provider in the community.” The employer may also offer an incentive for employees to receive a vaccination from the employer or its agent, but only if vaccination is voluntary. This is because of the “pre-vaccination disability-related screening questions” that accompany the vaccine, which employers generally cannot compel their employees to answer. Therefore, if the employer (or its agent) provides the vaccine, the employer may not offer such a large incentive that employees would feel “pressured to disclose protected medical information” to the employer in connection with those screening questions.

Employers also may not offer incentives for employees’ family members to receive the vaccine from the employer or its agent, again because of the pre-screening questions, which would lead to the employer’s receipt of genetic information in the form of family medical history of the employee. But employers may (1) provide vaccines to employees’ family members without offering any incentive or (2) offer incentives “to employees to provide documentation or other confirmation from a third party not acting on the employer’s behalf, such as a pharmacy or health department, that employees or their family members have been vaccinated.”

Emergency Use Authorization

The Guidance no longer references the obligations of the Food and Drug Administration (“FDA”) with regard to the Emergency Use Authorization (“EUA”) status of the COVID-19 vaccines. Previously, the EEOC had indicated that the FDA had an obligation to ensure recipients of the vaccine received informed consent, but it now states that it “is beyond the EEOC’s jurisdiction to discuss the legal implications of EUA or the FDA approach.”

Jessica Brown – Denver (+1 303-298-5944, jbrown@gibsondunn.com)
Hannah Regan-Smith – Denver (+1 303-298-5761, hregan-smith@gibsondunn.com)

Please also feel free to contact the following practice leaders:

Jason C. Schwartz – Co-Chair, Washington, D.C. (+1 202-955-8242, jschwartz@gibsondunn.com)
Katherine V.A. Smith – Co-Chair, Los Angeles (+1 213-229-7107, ksmith@gibsondunn.com)

Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

A California federal court issued the first decision in the country in a securities class action arising out of the COVID-19 pandemic, dismissing the case on the ground that the issuer could not have anticipated the extent of the pandemic in early January 2020. The decision, Berg v. Velocity Financial, Inc.,[1] offers some hope for issuers that their public statements made before or in the early days of the pandemic will be protected from suit to the extent they failed to predict the COVID-19 crisis and its impact on the issuer’s business.

COVID-19 Securities Lawsuits

The COVID-19 pandemic and resulting “Coronavirus Crash” brought on a surge of event-driven securities lawsuits. The initial wave of pandemic-related securities lawsuits began in the Spring of 2020 and targeted primarily businesses in the travel and healthcare industries that were directly impacted by the ongoing public health crisis.[2] Several of these lawsuits centered on allegations that the issuer-defendants had downplayed the impact of COVID-19 on their business and/or concealed incidences of COVID-19 outbreaks at their places of business.

Despite a relatively steady stock market recovery through the Summer and Fall of 2020, pandemic-related securities lawsuits continued to be filed,[3] targeting defendants in a wider range of industries that were less directly impacted by COVID-19, including the software,[4] financial services,[5] and energy industries.[6] These cases alleged that companies failed to disclose the impact of COVID-19 on their financial performance and misstated their ability to weather the storm. Pandemic-related securities lawsuits have now become so numerous that the U.S. Chamber Institute for Legal Reform and the Chamber’s Center for Capital Markets Competitiveness filed a petition with the U.S. Securities and Exchange Commission urging the SEC to “act without delay to place reasonable limits on securities litigation arising out of the COVID-19 pandemic.”[7]

Berg v. Velocity Financial, Inc.

Berg involves claims against Velocity Financial, Inc. (“Velocity”), a real estate finance company specializing in lending for small commercial and residential properties. After Velocity went public in January 2020, its shares rapidly declined in value. The plaintiff filed a putative securities class action in July 2020, accusing Velocity of misrepresenting or failing to disclose material facts in its offering materials concerning: (i) the company’s “disciplined” underwriting process; (ii) the growth of non-performing and short-term, interest-only loans in its investment portfolio; (iii) a “substantial and durable” market for real estate investors; and (iv) risks facing its business, including those relating to the pandemic.

On January 25, 2021, the Court granted Velocity’s motion to dismiss, finding that the allegations of fraud were based on information that was either not available at the time of Velocity’s initial public offering or contradicted by Velocity’s offering materials. Regarding COVID-19, specifically, the Court grounded its decision on the fact that Velocity could not have anticipated the extent of the pandemic in early January 2020. Even so, the Court noted that Velocity’s offering materials had cautioned investors that Velocity’s business might be affected by “changes in national, regional or local economic conditions or specific industry segments,” including those caused by “acts of God,” which disclosure the Court found covered the pandemic. Similarly, the Court found that Velocity could not have anticipated that the rate of its nonperforming loans would increase to the extent that it did and, more specifically, that the extent of the increase due to the pandemic was not foreseeable when the company filed its offering materials in January 2020.

Conclusion

The COVID-19 crisis continues to cause disruptions and uncertainty in the economy, and companies can be certain that plaintiffs’ lawyers will continue to monitor securities filings and stock price performance for potential claims—groundless or otherwise. Companies can take some comfort that courts, starting with the Berg decision and possibly more to follow, will take a sensible and pragmatic approach in recognizing the unprecedented nature of the COVID-19 pandemic and dismissing cases premised on a failure early-on to anticipate the extent of the crisis. The Berg decision further shows that seemingly generic risk disclosures that did not call out COVID-19 risks in particular were sufficient in the early days of the COVID-19 pandemic. And public companies will no doubt hope that the decision provides a roadmap for other courts to dismiss similar securities complaints premised on a failure to predict the extent or commercial impact of the COVID-19 crisis.

____________________

[1] No. 20 Civ. 6780, 2021 WL 268250 (C.D. Cal. Jan. 25, 2021).

[2] See, e.g., Douglas v. Norwegian Cruise Lines, 20-cv-21107 (S.D. Fla. Mar. 12, 2020); Service Lamp Corp. Profit Sharing Plan v. Carnival Corp., 20-cv-22202 (S.D. Fla. May 27, 2020); McDermid v. Inovio Pharm. Inc., 20-1402 (E.D. Pa. Mar. 12, 2020); Yannes v. SCWorx Corp., 20-cv-03349 (S.D.N.Y. Apr. 29, 2020).

[3] See, e.g., Tang v. Eastman Kodak Company, No. 20-cv-10462 (D.N.J. Aug. 13, 2020); City of Riviera Beach Gen. Emps. Ret. Sys. v. Royal Caribbean Cruises LTD, No. 20-cv-24111 (S.D. Fla. Oct. 7, 2020).

[4] See Arbitrage Fund v. ForescoutTechs., No. 20-cv-03819 (N.D. Cal. June 10, 2020).

[5] See SEC v. Wallach, No. 20-cv-06756 (N.D. Cal. Sept. 29, 2020).

[6] See Hessel v. Portland Gen. Elec. Co., No. 20-cv-01523 (D. Or. Sept. 3, 2020).

[7] Tom Quaadman & Harold Kim, Petition for Rulemaking on COVID-19 Related Litigation, (Oct. 30, 2020), https://instituteforlegalreform.com/petition-for-rulemaking-on-covid-19-related-litigation/.

The following Gibson Dunn attorneys assisted in preparing this client update: Brian M. Lutz, Jennifer Conn, Avi Weitzman, Michael Nadler, Dillon M. Westfall, Tyler Andrew Hammond, and Maxwell Peck.

Gibson Dunn lawyers are available to assist in addressing any questions you may have regarding these developments. Please contact the Gibson Dunn lawyer with whom you usually work, any member of the Securities Litigation practice group, or the following authors:

Brian M. Lutz – San Francisco/New York (+1 415-393-8379/+1 212-351-3881, blutz@gibsondunn.com)
Jennifer L. Conn – New York (+1 212-351-4086, jconn@gibsondunn.com)
Avi Weitzman – New York (+1 212-351-2465, aweitzman@gibsondunn.com)

Securities Litigation Group:
Monica K. Loseman – Co-Chair, Denver (+1 303-298-5784, mloseman@gibsondunn.com)
Brian M. Lutz – Co-Chair, San Francisco/New York (+1 415-393-8379/+1 212-351-3881, blutz@gibsondunn.com)
Robert F. Serio – Co-Chair, New York (+1 212-351-3917, rserio@gibsondunn.com)
Jefferson Bell – New York (+1 212-351-2395, jbell@gibsondunn.com)
Matthew L. Biben – New York (+1 212-351-6300, mbiben@gibsondunn.com)
Jennifer L. Conn – New York (+1 212-351-4086, jconn@gibsondunn.com)
Thad A. Davis – San Francisco (+1 415-393-8251, tadavis@gibsondunn.com)
Ethan Dettmer – San Francisco (+1 415-393-8292, edettmer@gibsondunn.com)
Mark A. Kirsch – New York (+1 212-351-2662, mkirsch@gibsondunn.com)
Jason J. Mendro – Washington, D.C. (+1 202-887-3726, jmendro@gibsondunn.com)
Alex Mircheff – Los Angeles (+1 213-229-7307, amircheff@gibsondunn.com)
Craig Varnen – Los Angeles (+1 213-229-7922, cvarnen@gibsondunn.com)
Robert C. Walters – Dallas (+1 214-698-3114, rwalters@gibsondunn.com)
Avi Weitzman – New York (+1 212-351-2465, aweitzman@gibsondunn.com)
Aric H. Wu – New York (+1 212-351-3820, awu@gibsondunn.com)

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Last week, the Small Business Administration (the “SBA”) issued two interim final rules incorporating changes to the Paycheck Protection Program (the “PPP”) prescribed by the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act, Pub. L. 116-260 (the “Economic Aid Act”). The Act extended the authority to make PPP loans to first and second-time PPP borrowers through March 31, 2021, and changed certain PPP requirements, including establishing additional eligibility criteria for applicants seeking a second PPP loan. One of the interim final rules governs new PPP loans made under the Economic Aid Act and pending loan forgiveness applications for existing PPP loans (the “First IFR”). The other interim final rule governs second draw PPP loans (the “Second IFR”). This alert will focus on some of the key provisions of these interim final rules.[1]

First IFR

The First IFR consolidates the interim final rules and significant guidance previously issued by the SBA regarding the PPP originally established under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) to provide a single regulation governing borrower and lender eligibility, loan application requirements and loan origination requirements, as well as general rules regarding PPP loan increases and forgiveness. The First IFR expressly states that it is not intended to substantively change any existing PPP rules that were not amended by the Economic Aid Act, and that the SBA plans to issue a consolidated rule governing PPP loan forgiveness and the loan review process.

Notable amendments to the rules governing the PPP implementing the changes required by the Economic Aid Act include the following:

Certain new types of organizations that meet the PPP eligibility requirements are eligible to receive new PPP loans including:
- Certain nonprofit business associations (other than professional sports leagues and organizations formed to promote or participate in a political campaign) that do not employ more than 300 employees;[2]
- Certain news organizations that employ no more than 500 employees (or, if applicable, the employee size standard established by the SBA for the entity’s industry) per location;[3]
- Destination marketing organizations[4] that meet the requirements described in this alert for section 501(c)(6) organizations;[5] and
- Housing cooperatives that employ no more than 300 employees.
Certain business concerns that may have been eligible for PPP Loans under prior rules are ineligible to receive new PPP loans. These business concerns include:
- Public companies (i.e., companies whose securities are listed on a national securities exchange); and
- Recipients of grants under the Shuttered Venue Operator Grant program established by the Economic Aid Act.
All new PPP borrowers may use 2019 or 2020 for purposes of calculating their maximum loan amount.
A PPP borrower’s forgiveness amount will not be reduced by the amount of an Economic Injury Disaster Loan (“EIDL”) advance received by the borrower. Similarly, when calculating the maximum amount of a new PPP loan that will be used to refinance an EIDL made between January 31, 2020 and April 3, 2020, borrowers should not include the amount of an EIDL advance as this advance does not need to be repaid.
PPP loan proceeds (including PPP loans made prior to December 27, 2020, as long as the SBA has not already remitted a loan forgiveness payment to the lender with respect to the loan) may be used to pay for goods that are essential to the borrower’s operations, investments in facility modifications, personal protective equipment required for the borrower to operate safely and business software and cloud computing services that help facilitate the borrower’s business operations.
Recipients of new PPP loans may select a covered period between eight and 24 weeks.
The SBA will forgive a PPP loan of $150,000 or less if the borrower signs and submits a one-page certification that, among other things, requires the borrower to describe the number of employees it was able to retain because of the PPP loan. The SBA has not published the certification to date.

Second IFR

The Economic Aid Act gives PPP loan recipients the opportunity to receive, for the first time, a second PPP loan. However, the eligibility requirements are narrower than those for initial PPP loans as we first described in our recent client alert, Coronavirus Relief Package Passed by Congress Would Revive Paycheck Protection Program and Provide Additional Relief to Eligible Businesses. Each potentially eligible borrower must be an eligible recipient of an initial PPP loan and: (1) together with its affiliates, employ 300 or fewer employees (compared to the 500 employee standard for initial PPP loans); however, hotels and restaurants with a NAICS code beginning with 72 and certain news organizations are exempt from the affiliation rules and may employ 300 or fewer employees per physical location; (2) have used, or will use, the first PPP loan funds on eligible expenses before the second PPP loan is disbursed; and (3) demonstrate at least a 25% reduction in revenue in at least one quarter of 2020 relative to 2019. Borrowers whose initial PPP loans are under review will not receive a second loan until their eligibility for the first loan is confirmed.

Second draw PPP loans are eligible for loan forgiveness under the same terms as initial PPP loans, including the changes to the forgiveness rules set forth in the First IFR. Most borrowers’ maximum second draw loan amount is capped at 2.5 times monthly payroll costs up to $2 million, although eligible hotels and restaurants may receive a second draw loan of up to 3.5 times monthly payroll costs up to $2 million.

The Second IFR provides important clarifications for second draw PPP loan requirements under the Economic Aid Act:

First, the 25% revenue reduction may be measured by comparing quarterly revenues (as established in the Economic Aid Act) or annual revenues. The Second IFR makes clear that eligible borrowers may use annual tax returns, in addition to quarterly statements, to demonstrate that they experienced at least a 25% reduction in revenue in 2020 as compared to 2019 to meet the revenue reduction criteria under the Economic Aid Act. An entity that was not in business during 2019, but was in operation on February 15, 2020, may satisfy the revenue reduction requirement for a second draw PPP loan if it had revenue during the second, third, or fourth quarter of 2020 that demonstrates at least a 25 percent reduction from the revenue of the entity during the first quarter of 2020.
Second, borrowers may calculate payroll costs based on calendar year 2020 rather than, as provided in the Economic Aid Act, the 12-month period before the second loan is made. Noting that all second draw PPP loans will be made in 2021, the Second IFR states that this adjustment is not expected to make a significant difference in payroll costs while simplifying the payroll cost calculation and easing a borrower’s administrative burden. Adjusted calculation methodologies apply to seasonal businesses.
Third, borrowers must determine whether their revenue was reduced in 2020 as compared to 2019 by comparing their “gross receipts” for the relevant periods. “Receipts” for this purpose is defined consistent with “receipts” as defined in SBA’s size regulations (§ 121.104) to include “all revenue in whatever form received or accrued (in accordance with the entity’s accounting method) from whatever source, including from the sales of products or services, interest, dividends, rents, royalties, fees, or commissions, reduced by returns and allowances.” Amounts forgiven in connection with initial PPP loans are not included in this definition.[6]
Fourth, businesses that are part of a single corporate group may not collectively receive more than $4 million in second draw PPP loans in the aggregate. Given the maximum loan amount of $2 million, this cap is proportionately the same as the $20 million aggregate limit for first draw PPP loans to businesses that are part of a single corporate group. A borrower that has temporarily closed or temporarily suspended its business remains eligible for a second draw PPP loan, while a borrower that has permanently closed its operations is not.
Finally, potential borrowers seeking more than $150,000 in a second draw PPP loan must submit documentation—such as annual tax forms or quarterly financial statements—at the time of their application to support the 25% reduction in revenue relative to 2019. Borrowers that receive less than $150,000 must submit such documentation prior to applying for loan forgiveness. If a borrower does not apply for loan forgiveness, this documentation is required upon request by the SBA.

_______________________

[1] For additional details about the PPP please refer to Gibson Dunn’s Frequently Asked Questions to Assist Small Businesses and NonProfits in Navigating the COVID-19 Pandemic and prior Client Alerts about the Program: Federal Reserve Modifies Main Street Lending Programs to Expand Eligibility and Attractiveness; President Signs Paycheck Protection Program Flexibility Act; Small Business Administration and Department of Treasury Publish Paycheck Protection Program Loan Application Form and Instructions to Help Businesses Keep Workforce Employed; Small Business Administration Issues Interim Final Rule and Final Application Form for Paycheck Protection Program; Small Business Administration Issues Interim Final Rule on Affiliation, Summary of Affiliation Tests, Lender Application Form and Agreement and FAQs for Paycheck Protection Program; Analysis of Small Business Administration Memorandum on Affiliation Rules and FAQs on Paycheck Protection Program; Small Business Administration Publishes Additional Interim Final Rules and New Guidance Related to PPP Loan Eligibility and Accessibility; Small Business Administration Publishes Loan Forgiveness Application; and Coronavirus Relief Package Passed by Congress Would Revive Paycheck Protection Program and Provide Additional Relief to Eligible Businesses.

[2] To be eligible, the business association must qualify for federal income tax-exempt status under section 501(c)(6) of the Internal Revenue Code and (1) it must not receive more than 15 percent of its receipts from lobbying activities; (2) its lobbying activities must not comprise more than 15 percent of its total activities; and (3) the cost of its lobbying activities must not exceed $1,000,000 during its most recent tax year ended prior to February 15, 2020.

[3] To be eligible, the news organization must be majority owned or controlled by a NAICS code 511110 business (newspaper publishers) or 5151 business (radio networks, radio stations, television broadcasting), or a nonprofit public broadcasting entity with a trade or business under NAICS code 511110 or 5151, and must certify in good faith that proceeds of the loan will be used to support expenses at the component of the organization that produces or distributes locally focused or emergency information.

[4] The Economic Aid Act defines a “destination marketing organization” as (a) engaged in marketing and promoting communities and facilities to businesses and leisure travelers through a range of activities, including assisting with the location of meeting and convention sites; providing travel information on area attractions, lodging accommodations and restaurants; providing maps; and organizing group tours of local historical, recreational and cultural attractions; or (b) engaged in, and deriving the majority of its operating budget from revenue attributable to, providing live events.

[5] In addition, to be eligible, the destination marketing organization must either be exempt from federal income taxation under section 501(a) of the Internal Revenue Code or be a quasi-governmental entity or political subdivision of a State or local government or their instrumentalities.

[6] The Second IFR also states that “receipts generally are considered “total income” (or in the case of a sole proprietorship, independent contractor, or self-employed individual “gross income”) plus “cost of goods sold,” and exclude net capital gains or losses as these terms are defined and reported on IRS tax return forms.”

Gibson Dunn’s lawyers are available to assist with any questions you may have regarding these developments. For further information, please contact the Gibson Dunn lawyer with whom you usually work, or the following authors:

Michael D. Bopp – Washington, D.C. (+1 202-955-8256, mbopp@gibsondunn.com)
Roscoe Jones, Jr. – Washington, D.C. (+1 202-887-3530, rjones@gibsondunn.com)
Alisa Babitz – Washington, D.C. (+1 202-887-3720, ababitz@gibsondunn.com)
Courtney M. Brown – Washington, D.C. (+1 202-955-8685, cmbrown@gibsondunn.com)

Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

This Alert reports on recent intellectual property law developments relating to the COVID-19 pandemic, and provides updates on various developments we covered in previous alerts. First, we briefly review the intellectual property-related provisions of the COVID-19 relief and government funding bill that the President signed into law at the end of December. Second, we discuss ongoing efforts around the world to facilitate the donation of intellectual property rights, including through the Open COVID Pledge, and a proposal pending before the World Trade Organization (“WTO”). Finally, we include updated figures regarding the frequency of patent litigation in 2020, and note manufacturer 3M’s success in using trademark law to combat price gouging of its personal protective equipment.

(1) New Intellectual Property Laws in the COVID-19 Relief and Government Funding Bill

The COVID-19 relief and government funding bill that became law on December 27, 2020 incorporates three sections focused on intellectual property-related measures: the Copyright Alternative in Small-Claims Enforcement Act (“CASE Act”), which amends certain provisions of the Copyright Act, 17 U.S.C. § 101 et seq; amendments to the Federal Criminal Code that make it a felony to engage in unauthorized streaming of copyrighted content (commonly referred to as the Protecting Lawful Streaming Act); and the Trademark Modernization Act, which includes revisions to the Lanham Act, 15 U.S.C. § 1051 et seq. We summarize these developments below; more detailed discussions can be found in Gibson Dunn’s prior alerts about the intellectual property Acts in the bill, available here and here.

The CASE Act (Consolidated Appropriations Act of 2021, Division Q, Title II, Subtitle A) establishes a new Copyright Claims Board (“Board”) within the United States Copyright Office to serve as an alternative forum to federal courts for parties to resolve small copyright infringement claims, with streamlined procedures, and limited remedies amounting to no more than $30,000 in total damages in a single proceeding for registered works, and $15,000 of the same for unregistered works.[1] Decisions of the Board will not be precedential, and the Act provides for limited appellate review. This new procedure has the potential to provide individual rights holders (such as composers and graphic artists), an alternative mechanism that should be more efficient and affordable than federal court litigation for resolving small claims. Whether copyright owners will use this alternative forum remains to be seen.

An additional measure, widely referred to as “The Protecting Lawful Streaming Act” (Consolidated Appropriations Act of 2021, Division Q, Title II, Subtitle A), adds a new Section 2319C to the federal criminal code that makes it a criminal offense for a person “to willfully, and for purposes of commercial advantage or private financial gain” digitally transmit material without authorization of the copyright owner, or the law. The provision will allow the Department of Justice to bring felony charges against digital transmission services that are “primarily designed” for the purpose of streaming copyrighted materials without authorization. The maximum penalty for violation is imprisonment for up to ten years.[2] Before this provision, criminal copyright infringement based on unauthorized streaming could be charged only as a misdemeanor.

The Trademark Modernization Act of 2020 (Consolidated Appropriations Act of 2021, Division Q, Title II, Subtitle B) revises various provisions of the Lanham Act, 15 U.S.C. §§ 1501 et seq., in response to a recent rise in fraudulent trademark applications. Specifically, the Act enhances trademark examination proceedings by formalizing the process third-parties may use to submit evidence to the USPTO, and by providing the Office with greater authority and flexibility to set deadlines for trademark applicants to respond to actions taken by examiners.[3] The Act also clarifies the standard for finding the irreparable harm necessary for injunctions in trademark cases, bringing uniformity in response to inconsistencies that have emerged across federal courts after the Supreme Court’s decision in eBay Inc. v. MercExchange, LLC, 547 U.S. 388 (2006).[4]

(2) Ongoing Efforts to Facilitate the Donation of Intellectual Property Rights During the COVID-19 Pandemic

WTO Proposal to Suspend IP Rights Under the TRIPS Agreement. The TRIPS council met again on December 10, 2020, to discuss a proposal, originally submitted in October by South Africa and India, seeking the temporary waiver of various provisions in Section II of the TRIPS Agreement that grant Member countries intellectual property rights, and impose obligations to enforce them. The proposal, if passed, would effectively waive all copyright, trademark, industrial design, and patent rights provided under the TRIPS Agreement, insofar as such rights relate to the prevention, containment, or treatment of COVID-19; the effective waiver would apply until vaccination is widespread and “the majority of the world’s population has developed immunity” to the virus.[5] The TRIPS Agreement already includes provisions that require compulsory licensing of intellectual property rights during health emergencies to assist low-income countries that do not have the capacity to make pharmaceutical products. Proponents of the proposed waiver contend that these provisions are cumbersome and do not facilitate the necessary access to other personal protective equipment and vaccines.[6]

The TRIPS proposal has gained support from more than 99 countries, but major players, including the United States, the United Kingdom, Japan, Canada, and the European Union oppose it. The United Kingdom explained that its opposition to the proposal arises in part from a lack of “clear ways in which IP has acted as a barrier to accessing vaccines, treatments, or technologies” in the response to COVID-19.[7] The WTO has postponed further discussion of the proposal.

Open COVID Pledge. Organizations continue to sign onto the Open COVID Pledge, through which signatories grant a non-exclusive, royalty-free, worldwide license to use their patents and copyrights “for the sole purpose of ending” the COVID-19 pandemic. The pledge now includes patents related to wearable technology to perform contact tracing and proximity alerts, face covering and face shield designs, and computer software relating to diagnosing the virus. A Japanese-led Open COVID Pledge Coalition was founded last spring. That coalition, which includes several major Japanese companies, has also continued to grow, with voluntary pledges now having contributed approximately 1 million patents.

COVID-19 Technology Access Framework. The COVID-19 Technology Access Framework, which was established in April, creates a mechanism for universities to grant “non-exclusive royalty free licenses . . . for the purpose of making and distributing products to prevent, diagnose and treat COVID-19 infection during the pandemic and for a short period thereafter.” Since our prior reporting on the framework (see here), 21 more universities have now signed on.

Medicines Patent Pooling. As we previously reported, the UN-backed nonprofit Medicines Patent Pool (“MPP”) has been compiling patent information relating to products that are being used in clinical trials to treat COVID-19. The MPP also negotiates licenses with patent holders to facilitate widespread access to treatments. Twenty-one generic pharmaceutical manufacturers have now signed a pledge to work with the MPP to (among other things) negotiate licenses for patented COVID-19 therapeutics, and to accelerate development and delivery timelines for new treatments.

(3) Patent Litigation Sees Steady Increase While 3M’s Use of Trademark Law to Combat Price Gouging Proves Successful

Patent Lawsuits. Nearly 4,000 patent cases were filed in federal district courts in 2020, an increase of approximately 400 cases over 2019.[8] The Patent Trial and Appeal Board has seen a small increase in filings, with approximately 1500 petitions for inter partes, covered business method, and post-grant review, filed in 2020—an increase of approximately 200 proceedings over 2019.[9] District courts across the country continue to delay jury trials, and hold hearings remotely. The Federal Circuit’s May 18, 2020 order suspending in-person oral arguments indefinitely, and opting in favor of telephonic arguments (or no argument at all, if the Court so orders) remains in effect. In the Eastern District of Texas, Judge Gilstrap announced in November that all of his jury trials would be postponed until March 2021, with other judges ordering similar delays. Many courts, however, continue to hold the majority of proceedings online and have ordered jury trials to be continued. The Western District of Texas has postponed all jury trials until after January 31 while the Southern District of New York has postponed the same until after February 12.

3M Litigation. As reported in a previous update, in the summer of 2020, manufacturer 3M brought a wave of lawsuits across the country against online vendors, asserting claims under the Lanham Act for the sale of counterfeit PPE using 3M’s trademarks, and related state law claims, in an effort to combat both the counterfeit production of PPE, as well as price gouging of the same. In some of these cases, 3M established irreparable harm under a reputational theory of injury—namely, that “[n]o amount of money could repair the damage to 3M’s brand and reputation” if it were associated with “price-gouging at the expense of healthcare workers and other first responders in the midst of the COVID-19 crisis.”[10] In analyzing these trademark infringement claims based on the sale of counterfeit PPE at inflated prices, courts have also paid particular attention to the “bad faith” prong of the trademark infringement analysis, with one, for example, noting that the defendant’s decision to stop selling automobiles in favor of selling N95 masks constituted “textbook bad faith.”[11]

* * *

We are continuing to monitor intellectual property-related updates and trends relating to COVID-19.

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[1] 17 U.S.C. § 1504(e)(1)(A), (D).

[2] Id. § 2319C(c).

[3] 15 U.S.C. § 1051(f).

[4] 15 U.S.C. § 1116(a).

[5] WTO, Council for Trade-Related Aspects of Intellectual Property Rights, Waiver from Certain Provisions of the TRIPS Agreement for the Prevention, Containment and Treatment of COVID-19, p. 2, October 2, 2020, https://docs.wto.org/dol2fe/Pages/SS/directdoc.aspx?filename=q:/IP/C/W669.pdf&Open=True.

[6] See WTO, Members discuss intellectual property response to the COVID-19 pandemic, October 20, 2020, https://www.wto.org/english/news_e/news20_e/trip_20oct20_e.htm.

[7] See, e.g., UK Mission to the WTO, UN, and Other International Organizations (Geneva), “UK Statement to the TRIPS Council: Item 15 Waiver Proposal for COVID-19,” UK Government, October 16, 2020.

[8] These figures were obtained from Docket Navigator’s Omnibus Reporting of Patent Cases by year. A “patent case” here refers to actions “addressing the infringement, validity or enforceability of a U.S. patent flagged with Nature of Suit (“NOS”) 830 in the PACER system as well as other cases that are known to meet the above criteria.” Docket Navigator, Scope of Data Available in Docket Navigator, https://search.docketnavigator.com/help/scope.html (last visited January 6, 2021).

[9] Docket Navigator, Omnibus Report PTAB Petitions, https://search.docketnavigator.com/patent/binder/390087/13 (last visited January 8, 2021). This does not include proceedings conducted pursuant to 35 U.S.C. § 6(b)(1)-(3), such as appeals of adverse decisions of examiners, appeals of reexaminations, or derivation proceedings.

[10] 3M Co. v. Performance Supply, LLC, 1:20-cv-02949, Dkt. No. 23 (S.D.N.Y. May 4, 2020).

[11] Id.

Gibson Dunn lawyers regularly counsel clients on the issues raised by this pandemic, and we are working with many of our clients on their response to COVID-19. For additional information, please contact any member of the firm’s Coronavirus (COVID-19) Response Team. Please also feel free to contact the Gibson Dunn lawyer with whom you usually work, or the authors in New York:

Richard Mark (+1 212-351-3818, rmark@gibsondunn.com)
Joe Evall (+1 212-351-3902, jevall@gibsondunn.com)
Doran Satanove (+1 212-351-4098, dsatanove@gibsondunn.com)
Wendy Cai (+1 212-351-6306, wcai@gibsondunn.com)

Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

On December 21, 2020, Congress passed a massive $2.3 trillion, 5,593-page, bicameral and bipartisan year-end legislation package to fund the government and provide long-delayed coronavirus relief. H.R. 133 includes $1.4 trillion to fund the government and $900 billion in coronavirus relief via the Coronavirus Response and Relief Supplemental Appropriations Act, 2021 (the “Act”). Following the $2.3 trillion coronavirus relief package signed into law last March, the current legislation is the second-largest economic stimulus in U.S. history. This is the fourth coronavirus relief package that Congress has passed this year, bringing the total sum that Congress has spent on coronavirus relief up to roughly $3 trillion.

The Act passed Congress overwhelmingly, by a vote of 359-53 in the House and 92-6 in the Senate. President Trump has criticized the bill sharply, but the strong votes in both chambers may dissuade him from vetoing the measure. The passage of the massive legislation marks nearly nine months since Congress last provided coronavirus relief to a nation besieged by a pandemic and businesses on the brink of economic collapse in the absence of federal funding.

While the Act includes a wide variety of provisions, this alert will focus largely on language relating to the Paycheck Protection Program (“PPP”), which allows for second draw loans for the hardest-hit businesses. The Act also expands the list of expenses PPP funds may cover and clarifies that ordinarily tax deductible business expenses are still deductible even if PPP loans were used to cover those costs. Other provisions of the Act include PPP set-asides for businesses that traditionally have difficulty accessing mainstream banking services and expanded the types of organizations eligible for relief. The Act also provides funding for the SBA to conduct auditing and fraud-detection efforts over the administration of PPP loans.

Other COVID-19 relief provisions include billions in funding for “shuttered venue operators,” such as live venues, closed movie theaters, and museums. Moreover, any entity that received an Economic Disaster Injury Loan advance under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) no longer needs to deduct the amount of their advance from their PPP loan forgiveness amount. Below is a summary of the key provisions most relevant to our clients and friends.

Paycheck Protection Program Revival and Changes

The Act revives and makes key changes to the Paycheck Protection Program Flexibility Act of 2020 (“PPP Flexibility Act”) that Congress passed, and the President signed into law, in June of 2020.[i] As discussed in a previous Gibson Dunn client alert, President Signs Paycheck Protection Program Flexibility Act, the PPP Flexibility Act relaxed certain requirements of and restrictions on PPP loans, which were established by the CARES Act and clarified by subsequent guidance from the Small Business Administration (“SBA”) and the U.S. Department of the Treasury. If President Trump signs the legislation, the SBA is required to establish regulations on implementing the programs in the Act within 10 days of the signing.

Importantly, the Act revives the signature small-business relief effort that Congress established last spring, committing $285 billion for additional PPP loans and extending the deadline to apply for PPP loans to March 31, 2021. The Act allows the hardest-hit businesses to receive a second draw PPP loan, with extra relief provided to food services and hotels; expands the list of eligible expenses that PPP funds may cover; and permits PPP recipients to deduct expenses covered with PPP funds. The Act also expands the types of programs eligible for first-time PPP loans, while prohibiting publicly-traded companies and companies affiliated with China or Hong Kong from receiving new loans.

The first round of PPP loans was largely viewed as a success. As of August 8, 2020—when the first round of PPP loans closed—the SBA had approved 5,212,128 PPP loans. More than 5,000 lenders participated in administering the program, and the average loan was approximately $100,729. In total, the loans amounted to more than $525 billion.[ii] As of November 22, 2020, the SBA had received 595,144 loan forgiveness applications, totaling approximately $83 billion, of which the SBA had forgiven approximately $38 billion.

Second Draw Loans

Significantly, the Act reopens the PPP to certain businesses that already received a PPP loan. The program’s expiration in August of this year left over $130 billion in unused funds that will now be reallocated to the General Treasury, and the program’s rules initially prevented businesses who received loans from obtaining a second PPP loan. The Act offers a second PPP loan to companies who meet certain eligibility criteria. Specifically, businesses applying for a second draw loan must show that they—and their affiliates— “employ not more than 300 employees.” Additionally, businesses are eligible only if they have used or will use the full amount of their initial PPP loan and have lost at least 25 percent of their revenue in any quarter of 2020. Although initial press reports covering the Act indicated that eligible businesses must have at least a 30 percent reduction in their revenue, the finalized Act created a lower eligibility threshold. Specifically, eligible entities must have gross receipts that demonstrate a 25 percent or more reduction from the gross receipts of the entity during the same quarter in 2019. Entities that submit applications on or after January 1, 2021 are eligible to utilize their gross receipts from the fourth quarter of 2020. However, entities not in operation on or after February 15, 2020 are not eligible for initial PPP loans nor second draw loans.

Maximum Second Draw Loan Amount

While the loan amount for most borrowers will be the same as the amount of their initial PPP loans, second draw loans are capped at $2 million per borrower. This is significantly lower than the $10 million cap placed on initial PPP loans in the CARES Act. For borrowers who received a PPP loan within the last 90 days at the time of their second draw application, the proposed bill requires that the aggregate of the initial and second draw loan does not exceed $10 million.

Larger Second Draw Loan Amounts for Food and Hotel Industries

Second draw loan borrowers are generally allowed to receive a loan amount of up to two-and-one-half times their average monthly payroll. The Act, however, allows businesses within the accommodation and food services industries to receive second draw loans of up to three-and-one-half times their monthly average payroll costs. The maximum loan amount of $2 million still applies.

Restrictions on People’s Republic of China and Hong Kong Affiliated Entities

Notably, the second draw loan provision also restricts businesses or entities affiliated with the People’s Republic of China (“PRC”) or the Special Administrative Region of Hong Kong (“Hong Kong”) from receiving additional relief. The Act states that a borrower is ineligible for a second draw loan if: 1) an entity created in or organized under the laws of the PRC or Hong Kong or with significant operations in the PRC or Hong Kong holds 20 percent or more interest in the borrower; or 2) a member of the borrower’s Board of Directors is a resident of the PRC.

Changes to PPP Eligibility

The Act made changes and clarifications to what kinds of entities are eligible for PPP loans. Significantly, 501(c)(6) organizations—that were previously not eligible to receive PPP assistance—will now be eligible to receive a first-time loan under the PPP program. To be eligible, 501(c)(6) organizations must have no more than 300 employees and may not be primarily engaged in political or lobbying activities. Specifically, the lobbying activities of the organization cannot comprise more than 15 percent of the business’s total activities and cannot exceed $1 million in costs during the most recent tax year of the organization that ended prior to February 15, 2020. The Act defines lobbying activities to include any entity that is organized for research or for engaging in advocacy in areas such as public policy or political strategy or otherwise describes itself as a think tank in any public documents.

The Act also allows certain news organizations that were previously ineligible because of affiliation with other newspapers or other businesses to access PPP loans. Under the Act, any station that is licensed by the Federal Communications Commission (“FCC”) under Title III of the Communications Act of 1934 is eligible to receive a PPP loan if the entity either: 1) employs not more than 500 employees per physical location or otherwise meets the applicable SBA size standard; or 2) is a nonprofit organization designated as a public broadcasting entity by the Communications Act of 1934. The news outlet must be majority-owned or controlled by a business that is a newspaper publisher or in the radio and television broadcasting industry, as defined by the North American Industry Classification Code (the “Code”), unless it is a public broadcasting entity, in which case its trade or business must fall under the Code. All news organizations must certify that proceeds of the loan will be used to support the component of the business that produces or distributes locally-focused or emergency information.

The Act also excludes entities that are not otherwise eligible under the SBA’s traditional eligibility rules codified under 13 C.F.R. § 120.110.[iii] Additionally, publicly traded companies are not eligible for PPP loans under the Act, codifying what was previously understood through guidance from the Department of the Treasury, but unclear on the face of CARES Act.

PPP Loan Forgiveness – Covered Period and Range of Eligible Expenses

The covered period is the time allotted for borrowers to spend PPP loan proceeds on qualified expenses for purposes of forgiveness. The legislation allows borrowers to choose a “covered period” of 8 or 24 months.

Congress also voted to expand the number of forgivable expenses under the Act. Forgivable expenses, which were previously limited to payroll costs and certain mortgage, rent, and utility expenses, now include supplier costs, investments in facility modifications, and personal protective equipment that businesses require to operate safely. Business software and cloud computing services that help facilitate business operations are also included.

Repeal of Emergency Injury Disaster Loan Advance Deduction Prohibition

The Act repeals a provision in the CARES Act requiring PPP borrowers to deduct the amount of their Economic Injury Disaster Loan (“EIDL”) advance—up to $10,000—from their PPP forgiveness amount. The Act reflects Congress’s view that those that received EIDL advances should be afforded additional relief.

Permitted Tax Deductions for PPP Borrowers

The Act clarifies that organizations receiving PPP loans will be allowed to deduct from taxable income expenses paid for by funds received under the loan. Secretary of the Treasury, Steven Mnuchin, previously prohibited corporations from making such tax deductions, citing the Administration’s view that allowing the deductions would amount to “double-dipping” because the loan forgiveness amount is already excluded from income for tax purposes. However, the Act clarifies that it was Congress’s intent that the CARES Act allow for such tax deductions. Thus, businesses receiving PPP funds will be allowed to deduct business expenses as if they used non-PPP funds to cover those costs.

Simplified Forgiveness Applications for Small PPP Loans

The Act simplifies the loan forgiveness process for recipients of a PPP loan of $150,000 or less. To begin the loan forgiveness process, recipients must sign and submit a letter of certification, which will be provided by the SBA Administrator no later than 24 days after the Act’s enactment. The certification letter will be no more than one page in length and will verify the loan recipient’s eligibility to their lender. The letter must provide specific information relating to the entity’s loan including: 1) the number of employees the eligible recipient was able to retain because of the covered loan; 2) the estimated amount of the covered loan amount spent by the eligible recipient on payroll costs; and 3) the total loan value.

No Enforcement Action Against Lenders

The Act makes clear that an enforcement action may not be brought against lenders that rely on an applicant’s certification for an initial PPP loan or second draw PPP loan as long as the lender: 1) acts in good faith relating to loan origination or forgiveness of the PPP loan; and 2) all other relevant Federal, State, local, and other statutory and regulatory requirements applicable to the lender are satisfied with respect to the PPP loan.

Funds for Community Development Financial Institutions

The Act includes PPP set-asides for very small businesses with ten employees or fewer through community-based lenders like Community Development Financial Institutions and Minority Depository Institutions. In total, the Act provides $12 billion in capital investments to support these institutions, which makes loans and grants to businesses that are often unable to get traditional banks to do business with them.

Conflicts of Interest for Government Officials

As a nod to public concerns about PPP forgiveness, the Act places disclosure requirements on high-level government officials who receive a PPP loan. This provision applies to the President, Vice President, heads of executive agencies, and Members of Congress, including their spouses. The public disclosure must be made within 30 days of forgiveness of the PPP loan.

Additional Notable Provisions of the Act

The Act also includes various other COVID-19 relief provisions, including:

Grants for Shuttered Venue Operators. The Act authorizes $15 billion in relief to eligible live venues, closed movie theaters, zoos, and museums, which were particularly hard-hit by the pandemic. Of the allocation, $2 billion goes toward eligible entities that have no more than 50 full-time employees. The bill takes an incremental approach to disbursing funds. Only eligible entities that saw a 90 percent or more loss in revenue during the period beginning on April 1, 2020 and ending on December 31, 2020 when compared to the same period in 2019 are eligible to receive funds within the initial 14 days during which the SBA allocates funds. Entities with a 70 percent or more loss in revenue are eligible to receive funds after the initial 14-day period ends. After the first 28 days of issuing grants, the SBA may award a grant to any eligible entity.
SBA Fraud and Prevention Programs. Congress allocated $50 million to the Small Business Administration for audits and other fraud prevention programs to monitor the agency’s administration of PPP loans.
Rental Assistance. The Act extends the Centers for Disease Control and Prevention’s September 4, 2020 eviction moratorium through January 31, 2021.
Transportation Relief. The Act extends the Payroll Support Program included in the CARES Act, to support the airline industry and airline industry workers. Specifically, the Act allocates $15 billion for airline payroll support, $1 billion for airline contractor payrolls, and $2 billion for airports and airport concessionaires.
Business Meal Expense Deduction. The Trump Administration secured a provision within the Act that allows all corporations to temporarily deduct meal expenses. Advocates of the provision believe that it will provide a significant boost to the restaurant industry, encouraging corporations to cover meal expenses. The business meal deduction will be available until January 1, 2023.
Affirming Federal Reserve Emergency Loan Powers. Title VI of the Act re-allocates $429 billion in unused Treasury direct loans and excess funds from Federal Reserve facilities authorized by the CARES Act back into the general Treasury Fund. Although ending the Federal Reserve’s emergency loan authority was a source of contention for lawmakers, the Act struck a compromise, requiring Congress to authorize any future emergency loans issued by the Federal Reserve, rather than ending the Federal Reserve’s ability to lend altogether.
No Corporate Immunity Provision. Although discussed during negotiations, lawmakers declined to include within the Act a corporate immunity provision, which would have granted corporate employers immunity from COVID-19 related lawsuits brought by employees.

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[i] For additional details about the PPP please refer to Gibson Dunn’s Frequently Asked Questions to Assist Small Businesses and Nonprofits in Navigating the COVID-19 Pandemic and prior Client Alerts about the Program: Federal Reserve Modifies Main Street Lending Programs to Expand Eligibility and Attractiveness; President Signs Paycheck Protection Program Flexibility Act; SBA “Paycheck Protection” Loan Program Under the CARES Act; Small Business Administration and Department of Treasury Publish Paycheck Protection Program Loan Application Form and Instructions to Help Businesses Keep Workforce Employed; Small Business Administration Issues Interim Final Rule and Final Application Form for Paycheck Protection Program; Small Business Administration Issues Interim Final Rule on Affiliation, Summary of Affiliation Tests, Lender Application Form and Agreement, and FAQs for Paycheck Protection Program; Analysis of Small Business Administration Memorandum on Affiliation Rules and FAQs on Paycheck Protection Program; Small Business Administration Publishes Additional Interim Final Rules and New Guidance Related to PPP Loan Eligibility and Accessibility; and Small Business Administration Publishes Loan Forgiveness Application.

[ii] This data was collected from the U.S. Small Business Administration website and may be reviewed here. The data does not reflect any changes or cancellations to PPP loans made after August 8, 2020.

[iii] Excluded businesses also include financial business primarily engaged in the business of lending; passive businesses owned by developers or landlords that do not actively use or occupy the assets acquired or improved with the loan proceeds; life insurance companies; business organizations located in a foreign country; pyramid sale distribution plans; businesses deriving more than one-third of gross annual revenue from legal gambling activities; businesses engaged in any illegal activity; private clubs and businesses which limit the number of memberships for reasons other than capacity; government-owned entities (except for businesses owned or controlled by a Native American tribe); loan packagers earning more than one third of their gross annual revenue from packaging SBA loans; businesses with an Associate who is incarcerated, on probation, on parole, or has been indicted for a felony or a crime of moral turpitude; businesses in which the lender or CDC, or any of its Associates owns an equity interest; businesses primarily engaged in political or lobbying activities; speculative businesses; and unless waived by the SBA, businesses that have previously defaulted on a Federal loan or Federally assisted financing. 13 C.F.R. § 120.110 (What businesses are ineligible for SBA business loans?).

Michael D. Bopp – Washington, D.C. (+1 202-955-8256, mbopp@gibsondunn.com)
Roscoe Jones, Jr. – Washington, D.C. (+1 202-887-3530, rjones@gibsondunn.com)
Courtney M. Brown – Washington, D.C. (+1 202-955-8685, cmbrown@gibsondunn.com)
William Lawrence – Washington, D.C. (+1 202-887-3654, wlawrence@gibsondunn.com)
Amanda Sadra * – Los Angeles, CA (+1 213-229-7016, asadra@gibsondunn.com)

* Not admitted to practice in California; currently practicing under the supervision of Gibson, Dunn & Crutcher LLP.

Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

Paris partner Pierre-Emmanuel Fender is the author of “Weathering the Covid-19 Crisis in France,” [PDF] published in the Europe, Middle East and Africa Review 2020 by Global Restructuring Review in December 2020.

On December 11, 2020, the FDA granted Emergency Use Authorization for the Pfizer/BioNTech COVID-19 vaccine candidate.[1] That vaccine, which appears to be more than 90% effective in preventing the virus’s spread,[2] will likely soon be joined by other candidates, such as a similarly effective vaccine developed by Moderna.[3]

With their blazing-fast production time and extraordinary efficacy, the COVID-19 vaccines are among our most impressive recent medical achievements. They may also be the most controversial. Despite near-universal healthcare consensus as to the vaccines’ safety and efficacy, early polling suggests deep skepticism, with many in the population indicating that, if offered the vaccine, they will refuse.[4] And in a time of endemic disinformation and controversy, this resistance may only deepen.

Given the choice, employers might prefer to stay on the sidelines in an effort to avoid the coming “vaccine wars.” Like it or not, however, America’s workplaces will be on the front lines and likely will find themselves caught between public health imperatives, liability fears, and a restive workforce. And while current guidance indicates that employers generally can mandate employee vaccination (subject to religious and medical exceptions), unless the Occupational Safety & Health Administration (OSHA) or other authority requires them to do so, employers will face strong and countervailing pressures in deciding whether or how to implement such policies.

This Client Alert offers a “Playbook” for employers to navigate these choppy waters. Below we set out key considerations, both for employers who want or ultimately may be required to pursue a mandatory vaccination program and for employers who wish to encourage voluntary compliance.

Each employment context, of course, will differ. A mandatory vaccination policy that works well for a close-quarters or contact-heavy workplace, such as a healthcare facility or even a meatpacking plant, might be too heavy handed for a low-contact team of remote computer coders. Likewise, different states, cities, and industries may adopt very different workplace vaccination rules, creating a thicket of regulation (this Alert limits its scope to nationally applicable federal regulation, but state and local rules may differ). Despite this variation, though, there are nevertheless strategies and insights that can offer guidance.

I. Deciding Who Decides: Should Employers Mandate Vaccination?

As a threshold question, employers will need to decide whether to require employees to be vaccinated or instead to make vaccination voluntary. Below are some key considerations in making this choice.

A. Why Require the Vaccine?

Protecting Workplace and Community Health: In the absence of a regulatory requirement, the single most important reason for a workplace vaccine mandate is that it will protect workers’ health and lives. Each COVID-19 vaccine authorized for emergency use will have been found by the FDA to be “safe and effective,” and that authorization will have been supported by the Vaccines and Related Biological Products Advisory Committee (VRBPAC), an FDA advisory panel of outside scientific and public health experts that has independently reviewed the data.[5] The upshot is that, based on the best evidence available, the vaccines now being rolled out will protect the health and lives of employees, customers, and communities.

To be sure, vaccinations will not ensure everyone’s safety: we do not yet have long-term data on the duration of immunity, even the most effective vaccine candidates will protect no more than 90 to 95% of patients, and bona fide medical or religious reasons mean that some individuals cannot be vaccinated. Accordingly, even in the best-case scenario, a significant minority of the population will still be exposed and dependent upon the development of herd immunity to protect them. But these caveats should not distract from this reality: by an order of magnitude, COVID-19 vaccines will be our most effective medical strategy to prevent transmission of the virus and save lives.

Ensuring Vaccines Become Vaccinations: These powerful health benefits, however, will only be realized if workers actually get the vaccine. In other words, as public health experts have noted, we must “turn vaccines into vaccinations.”[6] Here, a mandatory approach may be important because voluntary vaccine programs have often had relatively low compliance, even in industries like healthcare,[7] and even for vaccines that have been the subject of massive “persuasion” campaigns (such as for the flu).[8] Given the amount of disinformation surrounding the coronavirus in general and vaccines in particular, such opt-in rates may, without a mandate, be even lower here. Put another way, a mandatory vaccine policy likely will be vastly more successful than a voluntary one at ensuring workers actually get protected.

Reducing Costs of Absences, Lost Productivity, and Long-Run Medical Care: Because a mandatory vaccination program creates a more vaccinated workforce, it also can significantly reduce workplace costs. Vaccinated workers will be less likely to fall ill to COVID-19, impose fewer costs from absences or lost productivity, require fewer instances of acute medical care, and impose lower long-term health costs. This last point is an important one: COVID-19 might be best known for short-term (and often horrific) acute consequences, but its long-term health impacts are poorly understood, yet believed to be significant for some.[9] Therefore, the virus may lead to worker illness and impairment that can span for months or even years. A higher vaccination rate is likely to curb each of these costs.

Getting and Staying Open: A mandatory vaccination approach also makes it more likely that a business can open and stay open. Even if there are no medical consequences, a single positive COVID-19 test can lead an employer to fully stop operations, particularly in industries like dining and hospitality.[10] A highly vaccinated workplace reduces the likelihood of such stoppages. At the same time, high vaccination rates can accelerate a “return to normal” by making it safer for the workforce to return to the office or otherwise resume normal operations, and by creating a safer environment for customers.

Defend Against Civil Liability for COVID-19 Cases: Further, and especially as vaccination rates increase, an un- or under-vaccinated workforce may pose a liability risk, as individuals infected on premises look to pin the blame on employers.

Under tort law principles employers that fail to take reasonable care to protect employees (or, for that matter, vendors, visitors, customers, or others on premises) risk liability. Applying this concept, individuals who become sick based on alleged on-premises exposure can argue (and in some cases have argued) that a business’s negligent safety practices (whether related to personal protective equipment (PPE), vaccines, cleaning, or anything else) caused their illness.

For employees themselves, such COVID-19 suits are likely to be limited by workers’ compensation statutes. As we noted in a previous Client Alert, companies are already seeing lawsuits seeking relief from employee injuries ranging from wrongful workplace exposure to COVID-19 to wrongful death from COVID-19.[11] In many cases, damages related to on-the-job COVID-19 exposure (or subsequent illness) will be considered occupational injuries and so are very likely covered under the relevant state’s workers’ compensation statutes. But employees’ lawyers will no doubt argue that this bar may not provide full protection, as evidenced by extensive (and so far, unsuccessful) efforts by federal lawmakers to provide businesses with greater immunity from employee COVID-19 claims,[12] as well as by a surge of interest in drafting (potentially unenforceable) employee COVID-19 liability waivers.[13]

More importantly, workers’ compensation statutes do not account for other stakeholders who may claim COVID-19 damages from exposure to an unvaccinated workforce. This includes suits by contractors, vendors, visitors, or customers—particularly in contact-intensive industries like education, lodging, hospitality, healthcare, or fitness where PPE may not provide sufficient protection.

A mandatory vaccination policy reduces these risks. First, and most obviously, mandatory vaccination makes it less likely individuals get sick in the first place, and therefore less likely anyone suffers legally actionable damages. Separately, the adoption and implementation of a mandatory vaccine plan can itself be important evidence of the high standard of care a company provided for those on premises, which also may be important in beating back potential liability.

Unless a broad liability shield is enacted by Congress, civil suits for COVID-19 infection damages, whether by employees, contractors, visitors, or customers, will remain a threat for the foreseeable future, and mandatory vaccination could be a key tool to address it.

Potential Protection Against Enforcement Action: Apart from civil liability from private plaintiffs, businesses without vaccine mandates could confront regulatory risk as well. Under OSHA’s “general duty” clause, for instance, employers are required to furnish each employee with a workplace free from recognized hazards that could cause serious harm.[14] While current OSHA guidance suggests this “general duty” can be satisfied by measures like PPE or distancing,[15] in the longer-run the agency might take the position that a robust vaccination program is required and that workplaces without such policies are not safe. This may be particularly true for healthcare and other industries where social distancing or similar measures may not be viable.

Further, even if OSHA does not enforce the “general duty” clause in this way, private litigants, unions, or others may seize on this language to argue that employers without mandatory vaccination policies are not providing a safe workplace.

B. Why Make the Vaccine Optional?

Employee Morale and Retention: Any “mandate,” as opposed to an optional program, would need to be carefully messaged and framed to the workforce. If the purposes behind the requirement are not explained (and even if they are), it may become a source of employee discontent or dissatisfaction. Day-to-day, such a requirement may lead employees opposed to the vaccine to view the company more negatively, and to respond accordingly.

Even with excellent messaging and buy-in, it is likely that some portion of the workforce, out of “anti-vaccine” belief, political views, or other reasons, will refuse to get the vaccine, and at the extreme may choose separation of employment rather than being vaccinated. And laws like the National Labor Relations Act (NLRA) could arguably protect various forms of employee protest as to the requirement, such as through social media campaigns.

Administrative Ease: Even for “mandatory” vaccines, by law those with medical conditions or sincerely held religious beliefs that preclude vaccination are entitled to make exemption requests and to seek appropriate reasonable accommodation (both possibilities discussed in detail below). Given the controversy around the vaccine, many workers may try to claim such exemptions. Without thoughtful processes, this could put Human Resources (HR) at risk of being overwhelmed by needing to decide, on a case-by-case basis, who qualifies for an exemption. In a voluntary program, by contrast, no (or much less) formal process is needed.

Less Liability Risk for Discrimination Claims: On this point, individuals who seek an exemption but are denied may pursue legal claims, such as on the grounds that they were unlawfully discriminated against under the Americans with Disabilities Act (ADA) based on a medical condition their employer did not treat with sufficient seriousness,[16] or under Title VII of the Civil Rights Act[17] for their religious beliefs. Careful applications of the exemption process will minimize this risk, but cannot eliminate it.

Potentially Less Necessary to Certain Industries: Finally, while in some industries, like healthcare or personal services, close contact is unavoidable, in others, it is less of a concern. For workplaces that do not require close contact, and so can more effectively avoid or mitigate the potential spread of the virus on-site, a vaccine mandate might be unnecessary.

II. Playbook For Employer Vaccine Policies

As the above shows, employers may have sound safety, business, and legal reasons to pick either a mandatory or a voluntary approach to a COVID-19 vaccine. But without attention to risk points, either approach can run into trouble. Here are ways to minimize the danger, no matter which approach employers take.

A. Assess the Right to Require Vaccinations

An employer’s first step is to confirm its right to require vaccinations. For obvious reasons, this is important to workplaces that want to mandate vaccines. But even workplaces that want to pursue voluntary vaccination policies may want to confirm this information, both because conditions may change over time, and also because, even if employers do not make vaccination a condition of employment, they may want to make it a condition for certain employment activities.

For most private-sector U.S. employers, current law suggests vaccinations can likely be required as a condition of employment for at-will employees. In the context of the H1N1 flu, for example, OSHA guidance indicates that, so long as a private employer makes appropriate religious and medical exceptions, an employer may require vaccination as a condition of employment.[18] Historically such guidance was directed toward medical care facilities. Given the EEOC’s finding that COVID-19 constitutes a “direct threat” to workplace health at this time,[19] however, there is good reason to believe the EEOC would similarly view COVID-19 vaccine mandates as permissible.

That said, a given workplace may be subject to special conditions, so it is important to assess, at the outset, whether a vaccination requirement would be permissible. One example is if a collective bargaining agreement (CBA) governs the terms of employment, in which case it may speak to vaccine requirements.[20] Further, if employees are not at-will, but rather work under a contract, that contract may dictate whether a vaccine can be required.

Likewise, while to date no state or local law or regulation appears to impose any general bar to private employers requiring vaccination, the situation at the federal, state, and local level is evolving rapidly,[21] so employers should obtain legal advice and ensure no new rule (or relevant agency guidance or court decision) has changed the landscape before getting started.

B. Make a Plan to Process Exemption Requests

Even if employers choose to “mandate” a vaccine, they must still be prepared to provide legally required exceptions for employees who (1) cannot take the vaccine due to a medical disability or (2) seek an exemption from the vaccine based on sincerely held religious beliefs. Virtually all employers must comply with these important legal protections. But employers should also recognize that they can structure such requests, and the resulting accommodations, in a way that satisfies the law while ensuring that those who are not truly motivated by such concerns, but instead merely would prefer to be unvaccinated, do not take advantage of them.

1. Medical Exemptions

For medical reasons, some individuals may be unable to safely take the vaccine. We know, for example, that the vaccine should not be administered to individuals with a known history of a severe allergic reaction to any component of the vaccine. Under the ADA, if an employee claims to require an exemption based on a “disability,” [22] a workplace must engage in an “interactive process” with that individual to arrive, if possible, at a “reasonable accommodation” (which, potentially, would relieve the employee from having to get the vaccine).

Employee requests for medical exemptions should be treated like any other ADA request for accommodation. However, if employers are concerned that vaccine qualms will lead to insincere accommodation requests, there are steps they can take. First, the ADA permits requests for reasonable documentation of the disability, which an employer can enforce.[23]

Second, workers with disabilities do not have the right to the accommodation of their choice, but rather to a “reasonable accommodation,” viz, one that “reasonably” accommodates their disability, and that does not impose an “undue hardship” on an employer.[24] For example, employees who cannot be vaccinated do not necessarily need to be offered the “accommodation” of simply not receiving the vaccine but then otherwise resuming work as normal, nor must they be offered the accommodation of continuing to work from home after their colleagues have returned to work. Rather, under appropriate circumstances, an employer might instead require unvaccinated employees to attend work, but continue to distance and wear masks and PPE, even after vaccinated employees may in the future be permitted to halt such measures.[25]

Other possible accommodations may include shifting unvaccinated workers to other workplace roles or positions, relocating work sites within a building, or requiring that employees work remotely even if they want to return. This process will typically require a case-by-case assessment of the relevant facts.

In sum, employers should recognize that the ADA does not create an automatic right for anyone to “opt-out” of the vaccine, but only a right to a fair interactive process that leads to a reasonable accommodation.

2. Religious Exemptions

The second major category for possible exemptions are accommodation requests based on sincerely held religious beliefs or religion-like philosophical systems.[26] Under Title VII, such beliefs must be taken into account, and if it would not pose “undue hardship,” a reasonable accommodation must be granted.

Compared to medical exemption requests, Title VII religious accommodation requests are (1) easier to establish, with employees permitted to substantiate the “sincerity” of their beliefs with little documentation; but (2) less demanding on employers, in that the accommodations granted need only be provided if they would impose “de minimis” burdens on the employer. Both of these distinctions are relevant to any COVID-19 vaccination mandate.

On the “sincerity” of the religious belief at issue, the EEOC has noted that an employer is entitled to “make a limited inquiry into the facts and circumstances of the employee’s claim that the belief or practice at issue is religious and sincerely held, and gives rise to the need for the accommodation.”[27] That said, an employee can provide sufficient proof of sincerity by a wide variety of means, including “written materials or the employee’s own first-hand explanation,” or verification of “others who are aware of the employee’s religious practice or belief.”[28] Beyond that, probing the “sincerity” of a religious belief is risky business. So to the extent employees provide such substantiation, and even if their interpretation of a religious tenet differs from that religion’s mainstream, employers would be wise, at that point, to accept it.

However, the EEOC has further made clear that employers are only obligated to accommodate “religious” beliefs or comprehensive religious-type philosophical systems, as opposed to other strongly held types of beliefs. For instance, there is no legal requirement to accommodate political, scientific, or medical views, or isolated ideas (such as “vaccines are dangerous”).[29]

Given these principles, workplaces with vaccine mandates may want to create standardized Title VII exemption-request forms that (1) expressly state and remind employees that political, social, scientific, or other non-religious views are not sufficient justification and that it is not appropriate to request a Title VII exemption on those grounds, but that (2) otherwise permit employees to explain, in their own words, their religious or religious-type beliefs and why those beliefs prevent vaccination. As noted, however, to the extent an employee then completes the form and provides such an explanation, the explanation generally should be credited.

However, for the accommodation itself, as in the ADA context, even a sincere religious exception does not guarantee the right to be accommodated, but only the right to a process that may, if legally required, lead to an accommodation. And unlike the medical context, where the “undue hardship” an employer must show to deny accommodation is a “significant difficulty or expense,”[30] in the Title VII context “undue burden” is defined to require only a showing of more than a “de minimis” cost on the business.[31]

Accordingly, in addition to requiring unvaccinated employees to keep using PPE and other measures even after the rest of the workforce returns to normal, an employer likely has much more latitude to indicate that, where the risk of non-vaccination imposes burdens on the company, non-vaccination will not be allowed.[32]

C. Build Buy-In and Plan for Conflict Diffusion

Even with the legal authority to impose a mandate, employers that go this route still must be sure to build employee buy-in for compliance. This is particularly important in light of concerns regarding how a vaccine requirement might impact employee morale or office culture.

The more a workforce understands why the employer chose a mandate, and the more they have the chance to feel “heard” on the subject, the less friction there will be (and the fewer workers will attempt to claim potentially unneeded exemptions). Best practices for building buy-in include:

Informing employees of the policy change in advance, so that they can meaningfully share their views.
Clear communication as to the purpose of the requirement: employee safety and allowing a return to normal.
Tying the vaccine mandate to concrete and visible changes (e.g., once the vaccine is in place, re-open formerly closed off recreation areas or office space).
Providing accurate and reader-friendly information on the vaccine. Given the amount of mis- or disinformation available, employers and HR in particular will play a key educational role.

On this point, given the incendiary rhetoric around vaccines and strong beliefs held by individuals on many topics related to vaccination, it is possible that the accommodation process, if not carefully handled, could lead to workplace tension. Workplaces should be aware of this risk and ensure that at no time does it rise to the level of impermissible discrimination or a hostile workplace.

D. Minimize (and if Possible, Eliminate) Vaccination Costs to Employees

As a further way to ensure buy-in, whether for a mandatory or a voluntary program, employers should consider as many steps as possible to reduce the cost to employees of getting the vaccine. The medicine itself will be provided, free of charge, by the federal government.[33] But unless already covered by employee insurance, employees may still be charged an “administrative fee.”[34] Employers should consider covering those or other incidental costs, even if otherwise “out of plan” for workers.

Another “cost” to employees is that of time—such as the time to travel off-site to get a vaccine. Contracting with a third-party provider to conduct on-site vaccination can help reduce this cost and may provide further liability protection.

Finally, for the small minority of workers who experience symptoms or bad reactions to the vaccine, employers should consider adopting a permissive approach to allowing (or extending further) paid sick leave to the extent necessary, even if a worker might otherwise not be entitled to it.

As shown above, such measures, while they may not be legally required in certain circumstances (depending on wage-hour and sick leave laws, among other things), are likely to be critical to increase and encourage buy-in.

E. Take a Thoughtful Approach to Continued PPE and Distancing Requirements

One common question will be whether a vaccination policy can or should supplant mask requirements, distancing, and other measures. Because the vaccines are not one-hundred percent effective, and because it is unknown if vaccinated individuals can still spread the virus, there is no guarantee that even a vaccinated employee will be fully protected. Further, employers should also be mindful of the safety of individuals who, for medical or religious reasons, are unable to be vaccinated. Finally, even the most optimistic projections indicate that, for at least some period of time, there will not be enough vaccines to cover everyone in the workforce.[35] Each of these considerations suggests that, at least in the short term, policies like masks and social distancing may still be needed.

In the long run, however, providing the prospect of a return to relative normal for those who are vaccinated could be a powerful force toward boosting morale and commitment to a vaccination program, and toward getting greater employee buy-in.

F. Be Aware of Labor Law Issues

One further area to be aware of in rolling out a vaccine policy is the possibility of concerted labor action. Section 7 of the NLRA protects certain “concerted activity” regarding working conditions,[36] which might extend to protests or other labor action regarding a vaccine policy. Crucially, however, the NLRA does not protect non-compliance with workplace safety rules (such as employees attempting to style refusal to be vaccinated as a legally protected labor protest).[37] Further, to the extent there is a risk of labor activity against a vaccine mandate, employers should be aware that there is a countervailing risk of labor activity for a mandate, such as strikes by employees who refuse to come to work until their colleagues have been vaccinated.

G. Don’t Lean Too Hard (or Perhaps at All) on Waivers

Finally, for those employees who, whether by choice or a valid exemption, are not vaccinated, some employers are considering requiring a waiver indicating that the employee understands the medical risks of this decision and accepts any associated risk. Given the limitations on the enforceability and permissibility of such waivers, however, a robust disclosure may be a better format. OSHA, for instance, has long required an attestation for employees in the context of bloodborne pathogen vaccines acknowledging their understanding of the risks should they not be vaccinated.[38] Seeing the risks of declining the vaccine clearly laid out in writing may, at the margin, increase buy-in.

That said, as a liability protection device, there is reason to be skeptical about such disclosures or waivers. In many jurisdictions, courts will find that employee liability waivers for workplace illnesses and injuries are not enforceable or even permissible, given the perceived imbalance of bargaining power or the operation of state workers’ compensation laws (which in some cases are read to preclude such waivers).[39] Accordingly, while it may make sense to provide certain disclosures to unvaccinated employees, an actual waiver of liability may be prohibited or unenforceable.

* * *

As noted at the outset, no one size fits all, especially given the different levels of risk of infection spread in different industries and workplaces, as well as the fast-evolving legislative and regulatory environment around COVID-19. If your company is considering rolling out a vaccination program in your workplace, or otherwise has any questions on approaching the pandemic and return-to-work operations, Gibson Dunn’s Labor and Employment Group can offer assistance.

___________________

[1] Jessica Glenza, “FDA approves Pfizer/BioNTech coronavirus vaccine for emergency use in US,” The Guardian (Dec. 11, 2020), available at https://www.theguardian.com/world/2020/dec/11/fda-approves-pfizer-biontech-covid-19-coronavirus-vaccine-for-use-in-us.

[2] Lauran Neergaard & Linda A. Johnson, “Pfizer says COVID-19 vaccine is looking 90% effective,” Associated Press (Nov. 10, 2020), available at https://apnews.com/article/pfizer-vaccine-effective-early-data-4f4ae2e3bad122d17742be22a2240ae8.

[3] Denise Grady, “Early Data Show Moderna’s Coronavirus Vaccine Is 94.5% Effective,” N.Y. Times (Nov. 16, 2020), available at https://www.nytimes.com/2020/11/16/health/Covid-moderna-vaccine.html.

[4] See, e.g., RJ Reinhart, “More Americans Now Willing to Get COVID-19 Vaccine,” Gallup (Nov. 17, 2020), available at https://news.gallup.com/poll/325208/americans-willing-covid-vaccine.aspx (survey indicating that, as of late November, 42% of Americans would not agree to be vaccinated against COVID-19, up from 34% in July); Bill Hutchinson, “Over half of NYC firefighters would refuse COVID-19 vaccine, survey finds,” ABC News (Dec. 7, 2020), available at https://abcnews.go.com/Health/half-nyc-firefighters-refuse-covid-19-vaccine-survey/story?id=74582249.

[5] For an accessible introduction to this process, see FDA, “Vaccine Development – 101,” available at https://www.fda.gov/vaccines-blood-biologics/development-approval-process-cber/vaccine-development-101.

[6] See, e.g., Testimony to the Subcomm. on Oversight and Investigation of the H. Comm. on Energy and Commerce 1 (Sept. 30, 2020) (statement of Ashish K. Jha, Dean of Brown University School of Public Health), available at https://docs.house.gov/meetings/IF/IF02/20200930/111063/HHRG-116-IF02-Wstate-JhaA-20200930.pdf.

[7] See, e.g., Carla Black et al., CDC, Health Care Personnel and Flu Vaccination, Internet Panel Survey, United States, November 2017 (2017), available at https://www.cdc.gov/flu/fluvaxview/hcp-ips-nov2017.htm (noting a 60-70% flu vaccination rate among healthcare personnel).

[8] See, e.g., CDC, Flu Vaccination Coverage, United States, 2019–20 Influenza Season (Oct. 1, 2020), available at https://www.cdc.gov/flu/fluvaxview/coverage-1920estimates.htm.

[9] See, e.g., Rita Rubin, As Their Numbers Grow, COVID-19 ‘Long Haulers’ Stump Experts, J. of Am. Med. (Sept. 23, 2020), available at https://jamanetwork.com/journals/jama/fullarticle/2771111 (noting scientific studies estimating that approximately 10% of people who have had COVID-19 experience long-term symptoms, from fatigue to joint pain, and that these effects manifested even in individuals who were not initially seriously ill).

[10] See, e.g., “Some Savannah restaurants close due to positive COVID-19 cases,” WTOC (June 19, 2020), available at https://www.wtoc.com/2020/06/24/some-savannah-restaurants-close-due-positive-covid-cases/.

[11] See, e.g., Jean Casarez, “Wrongful death lawsuit filed against long-term care facility over staffer’s Covid‑19 death,” CNN (July 10, 2020), available at https://www.cnn.com/2020/07/10/us/wrongful-death-lawsuit-care-facility/index.html.

[12] See, e.g., Eli Rosenberg et al., “Senate stimulus negotiators try to reach deal on whether companies can be sued over virus outbreaks,” Wash. Post (Dec. 8, 2020), available at https://www.washingtonpost.com/business/2020/12/08/stimulus-negotiations-liability-shield/.

[13] See discussion infra.

[14] 29 U.S.C. § 654.

[15] See generally U.S. DOL, OSHA Report 4045-06 2020, Guidance on Returning to Work (2020), available at https://www.osha.gov/Publications/OSHA4045.pdf.

[16] 42 U.S.C. § 12112 (barring discrimination on the basis of a “disability”). Because “disability,” as defined in the ADA and further defined in subsequent ADAAA, includes any “physical or mental impairment that substantially limits one or more major life activities of [an] individual,” id. § 12102, employees who do not wish to be vaccinated may argue that they have a disability that prevents them from being vaccinated.

[17] Id. § 2000e-2 (prohibiting discrimination on the basis of an “individual’s race, color, religion, sex, or national origin”).

[18] See, e.g., OSHA, Standards Interpretation of Nov. 9, 2009, available at https://www.osha.gov/laws-regs/standardinterpretations/2009-11-09 (“[A]lthough OSHA does not specifically require employees to take the vaccines, an employer may do so”).

[19] EEOC, What You Should Know About COVID-19 and the ADA, the Rehabilitation Act, and Other EEO Laws (Sept. 8, 2020), available at https://www.eeoc.gov/wysk/what-you-should-know-about-covid-19-and-ada-rehabilitation-act-and-other-eeo-laws (“An employer may exclude those with COVID-19, or symptoms associated with COVID-19, from the workplace because, as EEOC has stated, their presence would pose a direct threat to the health or safety of others.”).

[20] Note, however, that to the extent OSHA or state regulators ultimately require, as a generally applicable workplace safety rule, that certain workplace vaccination policies be put into place, such health and safety rules would likely trump contrary (that is, more permissive) CBA terms. See discussion infra; see also United Steelworkers of America v. Marshall, 647 F.2d 1189, 1236 (D.C. Cir. 1980) (noting duty to bargain with unions over safety and health matters does not excuse employers from complying with OSHA safety standards); Paige v. Henry J. Kaiser Co., 826 F.2d 857, 863 (9th Cir. 1987) (same, as applied to California’s state-level OSHA equivalent).

[21] See, e.g., Joe Sonka, “Kentucky legislator pre-files bill prohibiting colleges from mandating vaccines,” Louisville Courier J. (Dec. 4, 2020), available at https://www.courier-journal.com/story/news/politics/ky-general-assembly/2020/12/04/kentucky-bill-would-prohibit-colleges-mandating-covid-19-vaccine/3827327001/.

[22] See 42 U.S.C. §12102 (defining “disability” to include any “physical or mental impairment that substantially limits one or more major life activities of [an] individual.”).

[23] See EEOC, Enforcement Guidance on Reasonable Accommodation and Undue Hardship under the ADA, EEOC-CVG-2003-1, Oct. 17, 2002 (“May an employer ask an individual for documentation when the individual requests reasonable accommodation? . . . Yes. When the disability and/or the need for accommodation is not obvious, the employer may ask the individual for reasonable documentation about his/her disability and functional limitations.”).

[24] See id.

[25] For analysis of an analogous question, see, for example, EEOC v. Baystate Med. Ctr., Inc., No. 3:16-cv-30086, Dkt. No. 125 (D. Mass. June 15, 2020) (Order upholding policy that required unvaccinated healthcare workers to, as a condition of employment, wear masks even though vaccinated colleagues were not required to) [Order text accessible via PACER and CM/ECF and partially reprinted at Vin Gurrieri, “EEOC Religious Bias Suit Over Hospital Worker Firing Tossed,” Law360 (June 16, 2020), available at https://www.law360.com/articles/1283456/eeoc-religious-bias-suit-over-hospital-worker-firing-tossed]; see also Holmes v. Gen. Dynamics Mission Sys., Inc., No. 19-1771, 2020 WL 7238415, at *3 (4th Cir. Dec. 9, 2020) (suggesting that as “long as [a workplace safety] requirement is valid, any employee who is categorically unable to comply . . . will not be considered a ‘qualified’ individual for ADA purposes,” and so may independently be denied a particular requested accommodation on such basis) (internal punctuation and citation omitted).

[26] Specifically, EEOC guidance indicates such protections extend to “[r]eligious beliefs include theistic beliefs (i.e. those that include a belief in God) as well as non-theistic ‘moral or ethical beliefs as to what is right and wrong which are sincerely held with the strength of traditional religious views.’” EEOC, Questions and Answers: Religious Discrimination in the Workplace, EEOC-NVTA-2008-2 (July 22, 2008), available at https://www.eeoc.gov/laws/guidance/questions-and-answers-religious-discrimination-workplace/.

[27] Id.

[28] See EEOC, Section 12 Religious Discrimination, EEOC-CVG-2008-1 (July 22, 2008), available at https://www.eeoc.gov/laws/guidance/section-12-religious-discrimination.

[29] Id.

[30] See EEOC, Enforcement Guidance on Reasonable Accommodation and Undue Hardship under the ADA, EEOC-CVG-2003-1 (Oct. 17, 2002), available at https://www.eeoc.gov/laws/guidance/enforcement-guidance-reasonable-accommodation-and-undue-hardship-under-ada.

[31] EEOC, Questions and Answers: Religious Discrimination in the Workplace, EEOC-NVTA-2008‑2 (July 22, 2008), available at https://www.eeoc.gov/laws/guidance/questions-and-answers-religious-discrimination-workplace/.

[32] See, e.g., Robinson v. Children’s Hosp. Bos., No. CV 14-10263-DJC, 2016 WL 1337255, at *10 (D. Mass. Apr. 5, 2016) (finding that for Title VII purposes, healthcare worker’s requested accommodation of non‑vaccination based on religious beliefs would have imposed “undue hardship” on employer and so did not need to be granted).

[33] Andrea Kane, “Federal government says it will pay for any future coronavirus vaccine for all Americans,” CNN (Oct. 28, 2020), available at https://www.cnn.com/2020/10/28/health/cms-medicare-covid-vaccine-treatment/index.html.

[34] Katie Connor, “Coronavirus vaccines may be free, but you could still get a bill. What we know,” CNET (Dec. 7, 2020), available at https://www.cnet.com/personal-finance/coronavirus-vaccines-may-be-free-but-you-could-still-get-a-bill-what-we-know/.

[35] Noah Higgins-Dunn, “Trump COVID Vaccine Chief Says Everyone in U.S. could be vaccinated by June,” CNBC (Dec. 1, 2020), available at https://www.cnbc.com/2020/12/01/trump-covid-vaccine-chief-says-everyone-in-us-could-be-immunized-by-june.html.

[36] 29 U.S.C. § 157.

[37] See, e.g., Board Opinion, NLRB Case No. 12-CA-196002, Argos USA LLC d/b/a Argos Ready Mix, LLC and Construction and Craft Workers Local Union No. 1652, Laborers’ International Union of North America, AFL‒CIO, Cases 12–CA–196002 and 12–CA–203177 (Feb. 5, 2020), at 4, available at https://apps.nlrb.gov/link/document.aspx/09031d4582f8f960 (finding, in the context of cellphone-while-driving rules, that workplace rules that “ensure the safety of [workers] and the general public” do not interfere with the exercise of Section 7 rights).

[38] See, e.g., OSHA Standard 1910.1030 App A – Hepatitis B Vaccine Declination (requiring workers who opt out of the bloodborne pathogen vaccine to attest that they understand the medical risks of declining a vaccine should they decide to do so).

[39] See, e.g., Richardson v. Island Harvest, Ltd., 166 A.D.3d 827, 828-29 (N.Y. App. Div. 2018) (reasoning that employers and employees are in unequal bargaining positions, and that therefore prospective liability waivers for negligent employer conduct would be held unenforceable).

Gibson Dunn lawyers are available to assist in addressing any questions you may have about these developments. Please contact the lawyer with whom you usually work in the firm’s Labor and Employment practice group, or the authors:

Jessica Brown – Denver (+1 303-298-5944, jbrown@gibsondunn.com)
Lauren Elliot – New York (+1 212-351-3848, lelliot@gibsondunn.com)
Daniel E. Rauch – Denver (+1 303-298-5734 , drauch@gibsondunn.com)

Please also feel free to contact the following practice group leaders:

Labor and Employment Group:
Catherine A. Conway – Co-Chair, Los Angeles (+1 213-229-7822, cconway@gibsondunn.com)
Jason C. Schwartz – Co-Chair, Washington, D.C. (+1 202-955-8242, jschwartz@gibsondunn.com)

Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice. Please note, prior results do not guarantee a similar outcome.

On December 4, 2020, the Securities and Exchange Commission (“SEC”) announced its first enforcement action against a public company for misleading disclosures about the financial effects of the pandemic on the company’s business operations and financial condition. In a settled administrative order, the Commission found that disclosures in two press releases by The Cheesecake Factory Incorporated violated Section 13(a) of the Exchange Act and Rules 13a-11 and 12b-20 thereunder. Without admitting the findings in the order, the company agreed to pay a $125,000 penalty and to cease-and-desist from further violations.[1] In March 2020, the SEC’s Division of Enforcement formed a Coronavirus Steering Committee to oversee the Division’s efforts to actively look for Covid-related misconduct.

The Company’s Form 8-Ks

On March 23, 2020, the company furnished a Form 8-K to the Commission, disclosing, among other things, that it was withdrawing previously-issued financial guidance due to economic conditions caused by Covid-19. As an exhibit to the Form-8-K, the company included a copy of its press release providing a business update regarding the impact of Covid-19. The press release announced that the company was transitioning to an “off-premise” model (i.e., to-go and delivery) that would enable the company to continue to “operate sustainably.” This press release did not elaborate on what “sustainably” meant. The release also disclosed a $90 million draw down on the company’s revolving credit facility, and stated that the company was “evaluating additional measures to further preserve financial flexibility.”

On March 27, 2020, in response to media reports, the company filed another Form 8-K, disclosing that it was not planning to pay rent in April and that it was in discussion with landlords regarding its rent obligations, including abatement and potential deferral. The company also disclosed that as of April 1, it had reduced compensation for executive officers, its Board of Directors, and certain employees, and that it furloughed approximately 41,000 employees.

On April 3, 2020, the company furnished another Form 8-K to the Commission that attached a copy of an April 2, 2020 press release. This press release provided a preliminary Q1 2020 sales update, which reflected the impact of Covid-19. The release stated that “the restaurants are operating sustainably at present under this [off-premise] model.”

The SEC found that the March 23 and April 3 Form 8-Ks – but not the March 27 Form 8-K – were materially misleading.

What the Company Did Not Disclose

The company’s disclosures on March 23 and April 3 did not disclose:

a March 18, 2020 letter from the company to its restaurants’ landlords stating that it was not going to pay its rent for April 2020;
that the company was losing $6 million in cash per week;
that it had only approximately 16 weeks of cash remaining even after the $90 million revolving credit facility borrowing; and
that it was excluding expenses attributable to corporate operations from its claim of sustainability.

The SEC’s Findings

The SEC found that the company’s March 23 and April 3, 2020 Forms 8-K were materially false and misleading in violation of Section 13(a) of the Exchange Act and Rules 13a-11 and 12b-20 thereunder. These sections require that every issuer of a security registered pursuant to Section 12 of the Exchange Act file with the Commission accurate and current information on its Form 8-K, including material information necessary to make the required statements made in the reports not misleading.

Observations and Takeaways

Although this is the first enforcement action against a public company based on disclosures about the financial effects of the pandemic, the findings against the company are fairly unusual.

Two observations:

First, the SEC’s order focuses on two press releases included as exhibits in Form 8-Ks that are deemed to be “furnished,” and not “filed,” under the Exchange Act. Specifically, one was filed under Item 7.01 and the other under Item 2.02. Because these Form 8-Ks are not deemed to be “filed” for purposes of Section 18 of the Exchange Act, there is no private right of action under Section 18 that can arise in connection with these Form 8-Ks. So, although “furnishing” reports results in lower liability exposure, it does not mean that the SEC cannot take enforcement action if it believes the disclosure is misleading.
Second, the language at issue in the two Form 8-Ks is the word of the moment, “sustainably,” as in “operating sustainably.” It should be noted that, nine months after the disclosures were made, the company remains in business (and did not file for bankruptcy) and, in fact, as of the close of trading on December 4, 2020, its stock price closed near the high of the 52-week range. The concept of sustainability is generally thought to encompass the concept of over the long- or longer term, so it is not self-evident that these disclosures were materially misleading.

Some takeaways:

In using the word “sustainably” without further qualification or explanation, issuers run the risk of being misunderstood. Sustainably in what sense (as a synonym for liquidity?) or to which degree? Over what period of time? It is not self-evident what sustainability entails.
Where the subject matter involves the impact of Covid, the Commission’s order certainly demonstrates its willingness to take action even if, at worst, the disclosure at issue is vague or unclear. This was not a case in which the company claimed it had no liquidity issues when, in fact, it was experiencing significant liquidity issues. Put another way, this case raises the question as to whether Covid disclosures are attracting greater scrutiny than other corporate disclosures in the current climate.
To state the obvious, the Commission brought this action for a reason: to underscore the importance of carefully drafted disclosures with respect to the impact of Covid on issuers’ results of operations, financial condition and liquidity; and to signal its willingness to take action if issuers’ Covid-related disclosures are not carefully drafted. A quote from the SEC Chair in the press release announcing this action is a further indication of the importance the SEC is placing on this area of enforcement.[2]

_______________________

[1] Order Instituting Cease-and-Desist Proceedings, Securities Exchange Act of 1934 Release No. 90565 at 4 (Dec. 4, 2020).

[2] Press Release, Securities and Exchange Commission, SEC Charges The Cheesecake Factory For Misleading COVID-19 Disclosures (Dec. 4, 2020), available at https://www.sec.gov/news/press-release/2020-306.

Gibson Dunn’s lawyers are available to assist with any questions you may have regarding these issues. To learn more about these issues, please contact the Gibson Dunn lawyer with whom you usually work in the firm’s Securities Enforcement or Securities Regulation and Corporate Governance practice groups, or the following authors:

Thomas J. Kim – Washington, D.C. (+1 202-887-3550, tkim@gibsondunn.com)
Mark K. Schonfeld – New York (+1 212-351-2433, mschonfeld@gibsondunn.com)
Barry R. Goldsmith – New York (+1 212-351-2440, bgoldsmith@gibsondunn.com)
Richard W. Grime – Washington, D.C. (+1 202-955-8219, rgrime@gibsondunn.com)
Elizabeth Ising – Washington, D.C. (+1 202-955-8287, eising@gibsondunn.com)
James J. Moloney – Orange County, CA (+ 949-451-4343, jmoloney@gibsondunn.com)
Ronald O. Mueller – Washington, D.C. (+1 202-955-8671, rmueller@gibsondunn.com)
Lauren Myers – New York (+1 212-351-3946, lmyers@gibsondunn.com)

Please also feel free to contact the practice group leaders:

Securities Enforcement Practice Group Leaders:
Barry R. Goldsmith – New York (+1 212-351-2440, bgoldsmith@gibsondunn.com)
Richard W. Grime – Washington, D.C. (+1 202-955-8219, rgrime@gibsondunn.com)
Mark K. Schonfeld – New York (+1 212-351-2433, mschonfeld@gibsondunn.com)

Securities Regulation and Corporate Governance Group:
Elizabeth Ising – Washington, D.C. (+1 202-955-8287, eising@gibsondunn.com)
James J. Moloney – Orange County, CA (+ 949-451-4343, jmoloney@gibsondunn.com)
Lori Zyskowski – New York, NY (+1 212-351-2309, lzyskowski@gibsondunn.com)

Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

Decided November 25, 2020

Roman Catholic Diocese of Brooklyn, New York v. Cuomo, No. 20A87

On Wednesday, November 25, 2020, the Supreme Court ruled in favor of Gibson Dunn client The Roman Catholic Diocese of Brooklyn, New York, holding that provisions of a New York Executive Order that imposed “severe” fixed-capacity restrictions on attendance at religious services likely violate the Free Exercise Clause of the First Amendment, were causing irreparable harm, and must be enjoined pending appeal.

Background:
New York Governor Andrew Cuomo’s Executive Order 202.68 was issued on October 6, 2020, in response to localized upticks in COVID-19 cases. The Executive Order imposes 10- and 25-person fixed-capacity caps on “house of worship” attendance in so called “red” and “orange” zones throughout New York State.

On October 8, The Roman Catholic Diocese of Brooklyn, New York (the “Diocese”), represented by Gibson Dunn partners Randy M. Mastro and Akiva Shapiro, filed suit in the U.S. District Court for the Eastern District of New York. The Diocese alleged that the fixed-capacity restrictions—which applied to “houses of worship” alone, while many secular businesses in those same “zones” remained free to operate without restriction—violated the Free Exercise Clause as applied.

Despite finding that the Diocese had adequately alleged irreparable harm, the district court declined to enter a preliminary injunction. A divided Second Circuit panel denied the Diocese’s motion for an injunction pending appeal, along with a parallel motion brought by an Orthodox Jewish organization and synagogues. Among other things, the lower courts held that the Executive Order was facially neutral because some secular businesses were shut down entirely, and that the State’s interest in combating the pandemic outweighed any harm to religious organizations and their congregants.

Issue:
Whether the provisions of Executive Order 202.68 that limit in-person “house of worship” attendance to 10 or 25 people, but allow numerous secular businesses to operate without capacity restrictions, violate the First Amendment’s Free Exercise Clause and should be enjoined on an emergency basis pending appeal.

Court’s Holding:
Yes. The Diocese made a strong showing that the challenged restrictions likely violate the First Amendment because they single out houses of worship for especially harsh treatment. And denying emergency relief would cause irreparable injury, while granting such relief would not harm the public interest, justifying the issuance of an injunction pending appeal. In a companion order, the Court granted the same relief to the synagogues.

“[E]ven in a pandemic, the Constitution cannot be put away and forgotten. The restrictions at issue here, by effectively barring many from attending religious services, strike at the very heart of the First Amendment’s guarantee of religious liberty.”

Per Curiam Opinion of the Court

What It Means:

Executive Order 202.68’s 10- and 25-person fixed-capacity caps cannot be enforced during the pendency of appellate proceedings, allowing New Yorkers to prudently attend services in churches, synagogues, and other houses of worship, while complying with all social distancing, mask-wearing and other safety protocols, as well as generally applicable percentage-capacity restrictions.
The five-Justice majority held that strict scrutiny applies where restrictions “single out houses of worship for especially harsh treatment.” Slip. op. 3. Under the Executive Order, for example, while churches in a red zone may not admit more than 10 persons, businesses “such as acupuncture facilities, camp grounds, garages, as well . . . all plants manufacturing chemicals and microelectronics and all transportation facilities” may “admit as many people as they wish.” Ibid. And because the restrictions are “far more severe than has been shown to be required to prevent the spread of the virus” at religious services, they likely violate the First Amendment. Slip. op. 4 (internal quotation marks omitted).
The majority rejected the dissenting Justices’ view that emergency relief was unwarranted simply because the restrictions had been modified during the litigation to temporarily allow gatherings at the affected churches and synagogues. As the Court explained, “injunctive relief is still called for because the applicants remain under a constant threat that the area in question will be reclassified as red or orange.” Slip. op. 6.
In a concurring opinion, Justice Gorsuch took issue with Chief Justice Roberts’s May 2020 concurrence in South Bay Pentecostal Church v. Newsom, 140 S. Ct. 1613 (2020), which has been cited by a number lower courts around the country as affording blanket deference to state-imposed restrictions on religious worship during the COVID-19 pandemic. Justice Gorsuch cautioned that, “[r]ather than apply a nonbinding and expired concurrence from South Bay, courts must resume applying the Free Exercise Clause,” and that “[e]ven if the Constitution has taken a holiday during this pandemic, it cannot become a sabbatical.” Slip. op. at 3 (Gorsuch, J., concurring).
Justice Kavanaugh also concurred, acknowledging the seriousness of the pandemic but concluding that the Governor’s “restrictions on houses of worship are not tailored to the circumstances given the First Amendment interests at stake.” Slip. op. 3 (Kavanaugh, J., concurring). Like Justice Gorsuch, Justice Kavanaugh cautioned that “judicial deference in an emergency or a crisis does not mean wholesale judicial abdication, especially when important questions of religious discrimination, racial discrimination, free speech, or the like are raised.” Ibid.
Chief Justice Roberts dissented solely on the procedural ground that the applicants’ houses of worship are not presently in “red” and “orange” zones, but agreed that the fixed-capacity caps “seem unduly restrictive” and “raise serious concerns under the Constitution.” Slip. op. 1-2 (Roberts, C.J., dissenting).
Justice Breyer, with whom Justices Sotomayor and Kagan joined, issued a separate dissent, and Justice Sotomayor issued a separate dissent joined by Justice Kagan. These dissenters would have denied the injunction on procedural and substantive grounds.

The Court’s opinion is available here.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding developments at the Supreme Court. Please feel free to contact Randy M. Mastro (+1 212.351.3825, rmastro@gibsondunn.com) or Akiva Shapiro (+1 212.351.3830, ashapiro@gibsondunn.com), the Gibson Dunn partners representing the Diocese, or the following practice leaders:

Appellate and Constitutional Law Practice

Allyson N. Ho
+1 214.698.3233
aho@gibsondunn.com

Mark A. Perry
+1 202.887.3667
mperry@gibsondunn.com

Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.