Category Archives:Legal Update

By Bill Haut

Now that we’ve closed our business or substantially reduced our operations, and customers have done the same, substantially reducing sales and revenue, what do we do about all the contractual commitments we’ve made? Do have we still have to pay X? And deliver Y?

These are just a couple of the questions businesses are confronting among the many other realities resulting from the coronavirus pandemic. Rather than trying to decide what an appropriate unilateral course of action would be in the context of your contractual obligations, the best first step is almost always to communicate directly with the other party in an effort to reach a mutually acceptable resolution. Even if the ideal win-win situation is not possible, a genuine effort by the parties to actively address and resolve an issue at an early stage generally results in an effective solution much sooner at significantly less cost than a protracted dispute.

“Standstill” agreements have been used for years in an effort to preserve the status quo among contracting parties, and they may prove to be very help in the wake of the coronavirus pandemic. As business owners work through the many operational and financial issues created by statewide stay-at-home directives and related business closures, there is a model form of contract they can employ to maintain the status quo of their contractual relationships for a limited period of time.

Created by lawyers Jonathan Lipson and Norman Powell, the model agreement was recently published by the Business Law Section of the American Bar Association and can be found here. As counseled by the drafters, it is recommended that you use the agreement with the assistance of your legal counsel, but the model agreement should be helpful in saving time and money.

The COVID-19 pandemic led to the signing of the new Families First Coronavirus Response Act (the “Act”) to provide for new employee leave requirements. The Act was signed by the President on March 18, 2020, and the employee leave provisions are effective from April 1, 2020, through December 31, 2020.

Federal, state, and local government action in response to the coronavirus pandemic is occurring at a rapid pace and this summary is based on currently available information. The U.S. Department of Labor has issued, and has been regularly updating, FAQs on its website (www.dol.gov) addressing leave requirements under the Act. The DOL’s guidance has been helpful and has answered several initial questions employers were facing as they reviewed and began implementing the new leave requirements. We encourage employers and their human resource managers to continue to monitor the DOL’s website for updates as they are published, and we will update this memorandum in the event of any material changes or significant developments.

Executive Summary

The leave provisions under the Act require employers to provide paid leave to employees under specific circumstance if the employer has fewer than 500 employees. Corresponding tax credits are granted to employers to cover the cost of the paid leave. In all cases, the need for the leave must be related to COVID-19.

Federal Action

• Paid Sick Leave

• Leave must be taken for one of six specific reasons.
• All employees on an employer’s payroll are eligible.
• Paid sick leave equals up to 80 hours for full-time employees and the average number of hours worked over a two-week period for part-time employees.
• Sick pay and the corresponding tax credits are capped at $511/day ($5,110 in total) for leave taken for the employee’s own COVID-19 condition, and $200/day ($2,000 in total) for leave taken by an employee to care for others.

• Expanded FMLA Leave

• Expanded FMLA leave is available for just one reason – the employee is unable to work (or telework) due to a need to care for a child because school or child care is closed (or child care provider is unavailable) for reasons related to COVID-19.
• Eligible employees include all employees employed for at least 30 days before the need for the leave commences.
• The initial 10 days is unpaid (although an employee may substitute any accrued vacation, personal, or other leave under the employer’s policy, and they may take the new paid sick leave during the initial 10 days of expanded FMLA leave).
• The remaining 10 weeks is paid in an amount not less than two thirds of an employee’s regular rate of pay based on the number of hours the employee would otherwise be normally scheduled to work. Paid leave is capped at $200/day and $10,000 in total for each employee.

State Action

• Primarily limited to so-called “stay-at-home” orders or directives issued by the governor.
• Action varies by state; in some locations (e.g., San Francisco, CA), there has been action at the local level.
• Indiana’s governor signed a “stay-at-home” order on March 23, 2020, which became effective on March 25, 2020, and ends May 1, 2020 (extended twice from the original April 7, 2020, expiration date).
• Key employer action includes a determination as to whether the employer may continue operating as an “essential” business and the definitions vary by state.
• Failure to honor a governor’s order can result in local law enforcement action to ensure compliance with the applicable order. In Indiana, the Indiana State Police will work with local law enforcement agencies as necessary to enforce the order.

More Detailed Information – Federal Action

Emergency Paid Sick Leave Act

This portion of the Act establishes a new law requiring certain employers to provide paid sick leave to employees unable to work (or telework) due to a need for leave for one of six reasons related to COVID-19.

• Effective Date: April 1, 2020 to December 31, 2020.

• Employer Threshold: Applicable to employers with fewer than 500 employees; consider only employees employed within any State of the U.S., the District of Columbia, or any Territory or possession of the U.S. Additionally, employers with affiliate entities will need to evaluate whether employees of an affiliate must be included using the “single enterprise” analysis required under the Fair Labor Standards Act. Employers are encouraged to consider any prior positions they and any affiliates may have taken on this issue.

• Eligible Employees: All employees from the first date of employment. No minimum duration of employment or minimum number of hours is required to be an eligible employee.

• Eligible Leave & Pay Requirements: Paid sick leave is required to the extent the employee is unable to work (or telework) due to a need for leave because of one of the following six conditions:

Employee’s Own Condition:

• Quarantine Order. The employee is subject to a federal, state, or local quarantine or isolation order related to COVID-19. The amount of paid sick leave is the employee’s regular rate of pay up to $511/day and $5,110 in total for each employee.

• Advised to Self-Quarantine. The employee has been advised by a health care provider to self-quarantine due to concerns related to COVID-19. The amount of paid sick leave is the employee’s regular rate of pay up to $511/day and $5,110 in total for each employee.

• Symptoms & Seeking Diagnosis. The employee is experiencing symptoms of COVID-19 and seeking a medical diagnosis. The amount of paid sick leave is the employee’s regular rate of pay up to $511/day and $5,110 in total for each employee.

Caring for Others:

• Caring for Another. The employee is caring for an individual who is the subject of a quarantine order or has been advised to self-quarantine. The amount of paid sick leave is two-thirds of the employee’s regular rate of pay up to $200/day and $2,000 in total for each employee.

• School or Child Care Closed; Potential Exemption for Employers with Fewer Than 50 Employees. The employee is caring for the employee’s child if the school or place of child care has closed, or a child care provider is unavailable, due to COVID-19 precautions. The amount of paid sick leave is two-thirds of the employee’s regular rate of pay up to $200/day and $2,000 in total for each employee.

Similar to the Emergency FMLA Expansion Act discussed below, the DOL has authority to exempt employers with fewer than 50 employees from this paid sick leave requirement if the imposition of this requirement would jeopardize the viability of the business as a going concern.

• Future HHS Designation. The employee is experiencing any other substantially similar condition specified by the Secretary of Health and Human Services in consultation with the Secretary of the Treasury and the Secretary of Labor. The amount of paid sick leave is two-thirds of the employee’s regular rate of pay up to $200/day and $2,000 in total for each employee.

• Duration of Paid Sick Leave

• Full-time Employees. 80 hours.

• Part-time Employees. A part-time employee is entitled to leave for his or her average number of work hours in a two-week period (using the number of hours the employee is normally scheduled to work). If the normal hours scheduled are unknown, or if the part-time employee’s schedule varies, employer’s may use a six-month average to calculate the average daily hours. If the employee has not been employed for at least six months, use the number of work hours agreed upon when the employee was hired; in the absence of such an agreement, use the average hours per day the employee was scheduled to work over the entire term of employment.

• Other Paid Leave Available. An employer cannot require an employee to use other available paid leave (such as vacation or other paid time off) before using this new paid sick leave.

• Termination of Paid Sick Time. An employer’s obligation to provide the required paid sick time ends beginning with the employee’s next scheduled work shift immediately following the end of the need for the leave.

• Model Notice. Employers are required to post a model notice describing the paid sick leave requirem. An employer may satisfy the posting requirement by emailing or direct mailing the notice to employees, or posting the notice on an employee information internal or external website. (Links to the DOL’s model notice for both Paid Sick Leave and Emergency FMLA Expansion Leave, as well as FAQs regarding the notice, are at the end of this memorandum.)

Emergency Family and Medical Leave Expansion Act

This portion of the Act amends the existing Family and Medical Leave Act of 1993 (“FMLA”) to require job-protected paid leave for employees impacted by COVID-19 as a result of school or child care closures.

• Effective Date. April 1, 2020 to December 31, 2020.

• Employer Threshold. Applicable to employers with fewer than 500 employees; consider only employees employed within any State of the U.S., the District of Columbia, or any Territory or possession of the U.S. (This varies from the normal 50 or more employee threshold for the FMLA to apply to an employer.) Additionally, employers with affiliate entities will need to evaluate whether employees of an affiliate must be included using a slightly different analysis under the FMLA, referred to as the “integrated employer” analysis, which includes consideration of whether there is common management, interrelation of operations, and centralized human resources functions. Employers are encouraged to consider any prior positions they and any affiliates may have taken on this issue.

• Eligible Employees. Employees employed for at least 30 calendar days by the employer. (This varies from the normal 12-month employment period required for other forms of FMLA leave.)

• Leave Eligibility Requirements. The requested leave must be for a “qualifying need related to a public health emergency,” which means the employee is unable to work (or telework) due to a need to care for a child under 18 years of age if the child’s school or place of care has been closed, or the child care provider is unavailable, due to an emergency with respect to COVID-19 declared by a federal, state, or local authority. (Under the Act, a “child care provider” means a provider who receives compensation for providing child care services on a regular basis. There were some initial questions as to whether an individual who regularly provides child care at no cost, such as a grandparent or neighbor, would qualify as a “child care provider” under the Act and DOL FAQ #68 confirms that such individuals do qualify.)

• Exceptions to New Leave Requirement. While the details of two potentially applicable exceptions to the new leave requirement are not yet available, the Secretary of the U.S. Department of Labor has been granted authority to (1) exclude certain health care providers and emergency responders from the definition of an eligible employee, and (2) exempt businesses with fewer than 50 employees if the leave requirements “would jeopardize the viability of the business as a going concern.” We do not have an estimated timetable for additional guidance on these exceptions, but will continue to monitor the situation and provide updates as they become available.

• Job-protected Leave. If an employee is eligible for the new leave, other than the potential exception for employers with fewer than 25 employees, the same job-restoration requirements (i.e., same or equivalent position) as normally apply under the FMLA apply to this new leave requirement.

Exception to Job-protected Leave Requirement for Employers with Fewer than 25 Employees. The normal job restoration requirement is not applicable to employers with fewer than 25 employees if the position held by the employee when the leave commenced does not exist when the leave ends due to economic conditions or other changes in the operating conditions of the employer that affect employment and are caused by a public health emergency during the leave.

In such a case, the employer must make reasonable efforts to restore the employee to a position equivalent to the position held when the leave commenced, with equivalent benefits, pay, and other terms and conditions of employment. If such efforts fail, the employer must make reasonable efforts during the one-year period beginning the earlier of the date the need for such new leave concludes or the date that is 12 weeks after the date such new leave commenced.

• Paid Leave. The requirement of paid leave under the FMLA is new.

• Initial 10 Days is Unpaid. The initial 10 days of leave may be unpaid, but the employee may elect to substitute any accrued paid vacation, personal leave, or medical or sick leave for unpaid leave consistent with current FMLA law and the employer’s FMLA policy and practices.

• Paid After Initial 10 Days. After the initial days of the leave, the employer must provide paid leave for each day of leave for this new leave requirement (i.e., not other forms of FMLA leave) in an amount not less than two thirds of an employee’s regular rate of pay based on the number of hours the employee would otherwise be normally scheduled to work. Paid leave is capped at $200/day and $10,000 in total for each employee. (See discussion above regarding calculating hours for part-time employees.)

• General FMLA Leave Requirements Continue to Apply. Employers should remember that the current FMLA requirements continue to apply and an employee may be eligible for FMLA leave due to the employee’s own serious medical condition under the FMLA.

Tax Credits

• Employers are granted a 100% tax credit for “qualified sick leave wages” and “qualified family leave wages” up to the paid leave caps. The credit is applied against the employer’s share of applicable social security taxes for each quarter during which such leave wages are paid.

• Guidance issued by the IRS and DOL on March 20, 2020 (IR-2020-57) permits employers paying such leave to retain the amount of the payroll taxes equal to the amount of the qualifying leave paid rather than deposit them with the IRS. If there are not sufficient payroll taxes to cover the cost of the paid leave, employers will be able to file a request for an accelerated payment from the IRS. Additional guidance expected soon.

Prohibited Acts

• Not a new concept, but employers must not discharge, discipline, or in any manner discriminate against any employee exercising the new leave rights.

Additional COVID-19 Related Action

• Coverage of Testing for COVID-19. The Act requires group health plans and health insurance issuers offering group or individual health insurance coverage to provide coverage for COVID-19 testing (without deductibles, copayments, coinsurance or other cost-sharing requirements).

• Disaster Relief Lending. The Small Business Administration is now accepting applications for disaster relief loans. Here’s a link to the SBA site for additional information: https://www.sba.gov/funding-programs/disaster-assistance. (The SBA has stopped accepting applications for the $10,000 payment under its Economic Injury Disaster Loan (EIDL) program based on “available appropriations funding.”)

• Federal Income Tax Filing and Payment Relief. The deadline for filing federal income tax returns is now July 15, 2020. Most state deadlines have been extended but vary by state.

Links to Additional Resources Regarding the Act’s Leave Requirements

DOL FAQs: https://www.dol.gov/agencies/whd/pandemic/ffcra-questions.

DOL Fact Sheet: Employer Paid Leave Requirements: https://www.dol.gov/agencies/whd/pandemic/ffcra-employer-paid-leave.

DOL Fact Sheet: Employee Paid Leave Rights: https://www.dol.gov/agencies/whd/pandemic/ffcra-employee-paid-leave.

DOL Model Notice:  https://www.dol.gov/sites/dolgov/files/WHD/posters/FFCRA_Poster_WH1422_Non-Federal.pdf.

Model Notice FAQs: https://www.dol.gov/agencies/whd/pandemic/ffcra-poster-questions

Future Action

Please keep in mind future action will take place as federal, state, and local governments respond to the coronavirus pandemic, such as state implementation of guidelines for reopening businesses. Therefore, we will provide updates of material changes as they occur, and we encourage you to keep abreast of future developments and contact us with any questions.

by William Haut, Densborn Blachly LLP

The start of 2020 brings new rules and regulations that may impact business and financial planning. To understand how these impact you, it is wise to consult with qualified legal, tax or other professional advisors. 

Joint Employment

The topic of joint employment is not necessarily one that excites business managers, but it is a topic that may arise more frequently as the manner in which businesses employ human capital continues to evolve. In light of the Department of Labor’s (DOL) recently announced final rule addressing joint employment under the Fair Labor Standards Act (FLSA), the following is a reminder about the joint employment doctrine and its potential impact on applicable employment practices.

• Joint Employment Basics. Briefly, joint employment exists when an individual employed by one employer can also be considered employed by another employer. In this context, both employers are two independent entities, rather than related entities under common ownership and control. The relationship between an employer and a staffing agency supplying employees to the employer is a common situation giving rise to joint employment considerations. If a joint employment relationship exists, both employers must comply with various federal, state and local labor and employment laws with respect to their joint employees. For example, aggregation of the joint employees can result in application of certain laws to small employers that would not otherwise be subject to such requirements (for example, the 15-employee threshold under Title VII of the Civil Rights Act of 1964 prohibiting discrimination based on race, color, religion, sex or national origin, and the 50-employee threshold under the Family and Medical Leave Act).

• New DOL Rule for FLSA. The DOL recently announced a final rule updating and clarifying its standard for determining joint employment status under the FLSA, which is the federal law establishing minimum wage, overtime pay, recordkeeping requirements and child labor standards. The final rule becomes effective on March 16, 2020. The DOL had not revised its standards in this area in over 60 years.

• New Rule Basics. In short, the final rule is intended to provide guidance on joint employment status in two common joint employment scenarios. First, the new rule contains a four-factor balancing test for determining joint employment status in situations where one employer hires an employee to work, and another person simultaneously benefits from that work. Second, the new rule provides guidance for determining whether multiple employers are joint employers if they are sufficiently associated in situations where they employ the employee to work a separate set of hours in the same workweek. If the multiple employers are joint employers, they must aggregate the hours worked for each of them to comply with the FLSA. Because courts have considered guidance under the FLSA when faced with cases addressing other employment-related laws (the Family and Medical Leave Act, for example), courts may consider the guidance provided by this new rule in future joint employment cases.

Overtime – Increased Compensation Levels for Certain Exemptions

Effective Jan. 1, 2020, the minimum salary threshold (referred to as the “standard salary level” by the U.S. DOL) for employees to be exempt from federal overtime pay requirements as executive, administrative and professional employees increased to $684 a week (equivalent to $35,568 annually). Additionally, the total annual compensation threshold for the highly compensated employee exemption is now $107,432 and requires weekly pay on a salary or fee basis of at least $684. 

• Administration of the Rule. Employers may use nondiscretionary bonuses and incentive payments, including commissions, that are paid at least annually, to satisfy up to 10% of the minimum salary threshold for exempt executive, administrative and professional employees. If, despite such payments, an employee’s salary falls short of the minimum threshold, an employer may make a final catch-up within one pay period after the end of that period (i.e., the next standard payroll payment made by the employer).

• Update Exempt Classifications. Employers that have not already updated their exempt classifications to reflect the new minimum salary threshold should do so. Keep in mind that paying an employee on a salaried basis does not make the employee exempt; the salary component is just one part of the analysis. It is also important to ensure correct classification of individuals as employees versus independent contractors. The costs for misclassifying employees as exempt or non-exempt employees for overtime purposes, and as employees rather than independent contractors, can be substantial.

Retirement Planning

The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 was signed into law in December 2019. The Act and a recent appropriations act made significant changes to the rules governing employer-provided retirement plans and IRAs. Here are a few key highlights.

• Required Minimum Distributions (RMDs). The age at which retirement plan participants, including IRA account owners, must start receiving RMDs increased from 70½ to age 72. This applies only to those reaching age 72 after Dec. 31, 2019.

• Elimination of Stretch IRAs. Unless the beneficiary is an eligible designated beneficiary (i.e., surviving spouse, minor child, disabled or chronically ill individual), the account balance must be distributed within 10 years of the participant’s date of death. The 10-year rule applies regardless of whether the participant is receiving RMDs at the time of death.

• Elimination of Age Limit on IRA Contributions. As long as an IRA account owner has earned income, he or she can continue to make IRA contributions. Previously, the individual could not make contributions after age 70½.

Densborn Blachly is here to support you with any questions related to these new rules and regulations. 

The information contained in this publication should not be construed as legal advice or opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are encouraged to consult your own legal counsel on any legal questions you may have concerning your particular situation. Please see our disclaimer.