Cape Fear Business Law Alert
The Coronavirus outbreak has small businesses looking for information important to them. Reiss & Nutt offers this newsletter to keep them informed of developments on the legal front.
Reiss & Nutt offers this newsletter to keep small businesses informed of developments on the legal front.
Q&A: Employer Liability for Virus Exposure
Q: Can an employer be sued by employees or customers if they get the virus at a business?
4/3/20 - The coronavirus pandemic has raised alarms among employers concerned about their liability to employees and members of the public for exposure to the virus while they continue to operate.
As general rule, employees injured on the job are limited to the "exclusive remedy" provided by North Carolina's worker's compensation laws and cannot sue their employer in a court of law. Workers in the healthcare field that require close contact with infected individuals may be subject to the worker's compensation laws because exposure would be considered within the course and scope of their regular job duties. It appears less likely that employees such as cashiers and delivery drivers exposed to Covid-19 while performing their job duties would be covered by worker's compensation during a pandemic, because the North Carolina statutes exclude "ordinary diseases of life to which the general public is equally exposed outside of the employment."
Regardless, worker's compensation does not shield an employer who “intentionally engages in misconduct knowing it is substantially certain to cause serious injury or death to employees and an employee is injured or killed by that misconduct.” To limit potential liability, employers should avoid engaging in any course of conduct that would knowingly expose an employee to another individual who is known to be infected, symptomatic, or has been exposed to an infected person. Employers should also be mindful of the OSHA "general duty" clause, which requires employers to provide a workplace “free from recognized hazards … likely to cause death or serious physical harm.” OSHA has published its own guidance on preparing workplaces for Covid-19, which can be accessed here.
Members of the public may also have recourse against any business that negligently exposes them to infection. Employers should implement workplace policies designed to minimize risk of exposure to customers and the public, and should ensure employees are notified, trained, and practice such policies.
In any case, a plaintiff would be required to prove the employer or business was "a proximate cause" of the plaintiff's injury; in other words, that some negligent or intentional action or inaction caused the plaintiff to become infected. As a practical matter, proving that exposure through the business was a "cause" of infection may become increasingly difficult as the number of confirmed cases rises and other vectors of transmission cannot be ruled out. Individuals practicing recommended social distancing measures that can establish a single point of exposure with the employer, however, may still be able to make out a strong case.
Ultimately, businesses who follow federal, state, and local orders and guidance for prevention of the spread of Covid-19 will limit any potential liability to employees, customers, and members of the public for what is clearly a highly communicable and pervasive disease sweeping the country.
SBA Loosens Loan Criteria
3/30/20 - The Small Business Administration is practically begging all small business owners to apply now for disaster assistance loans.
Patrick Rodriguez, SBA Senior Area Manager, told North Carolina business owners March 24 that the agency is being very lenient on certain requirements to obtain low-interest loans to cover capital losses, such as the credit review, and encouraged owners to apply now even if they might not use the money. A requirement that the business first seek and be denied a private loan has been waived for coronavirus assistance.
Small businesses can apply for up to $2 million in loans bearing interest of 3.75%, and non-profits can borrow at a rate of 2.75%. Repayment does not begin until 2021, and business owners offered money after applying are not obligated to use it. (Note that the new loan program established by the CARES Act passed on March 27 is a different program with a component for limited loan forgiveness).
Loans of $25,000 or less do not require collateral, but loans that otherwise require collateral are not turned down because no collateral exists. The SBA will, however, require collateral for larger loans when such property is available.
These are working capital loans to pay fixed debt, payroll, accounts payable, and other bills that could not have been paid due to the outbreak. The money is not to replace lost profits or sales.
Applications can be filed at disasterloan.sba.gov, and free assistance in gathering required documents and applying can be found at Small Business Development Centers, SCORE, and several other business assistance organizations.
SURE YOU'RE INSURED?
3/30/20-Business owners with business disruption coverage should check their policies and with their insurance carriers to determine if they are covered for business lost due to COVID-19. Insurance companies are reportedly denying such claims based on language that at least arguably doesn’t include losses from a disease outbreak.
Trouble Bubbles Beneath Business Loan Program
4/3/20 - The Treasury Department issued interim final rules Friday that hold lenders harmless if they approve fraudulent or erroneous loans under the new Paycheck Protection Program in response to complaints from banks that participating in the CARES Act refundable loan program for small businesses could expose them to liability.
Banks are supposed to begin accepting applications for the Paycheck Protection loans today through June 30. They are meant to cover two months of payroll costs for businesses under 500 employees, but there is now serious concern that the $349 billion fund will become a cash grab for the first in line.
The Treasury Department has issued an application that largely cuts and pastes language from the law Congress passed March 17, making it a very minimalist paper that relies heavily on the honor system—applicants must initial and sign certifications that they need the loans and have submitted accurate information.
Private banks that will take the applications and administer the loans are responsible for validating any supporting documentation required and sorting meritorious claims from the fraudulent ones. Bust based on their complaints about assuming potential liability under various laws covering money laundering and consumer privacy that could come from accepting that role in exchange for the limited fees they could make under the new law, the department rule lets them off the hook.
The Small Business Administration could not begin to handle the expected deluge of applications on its own. It remains to be seen if this will assuage most lenders and encourage their participation. Lenders that are expected to participate appear ready to limit acceptance of applications to their existing customers. Gaps in participation could cause gaps in access by small businesses in need.
Beach Rental Bans May Test Limit of Emergency Powers
3/30/20 - Beach towns along the North Carolina coast are taking the extraordinary step of banning short-term rentals in the belief that doing so would reduce the risk that COVID-19 will spread in their communities, presumably because infected renters would bring it with them.
But these decisions may be testing the boundaries of our statutes and the North Carolina Constitution.
The towns, including Bald Head Island, Oak Island, Sunset Beach, and Topsail Beach, are invoking powers under state law providing local authorities mechanisms to deal with a state of emergency. Sunset Beach even ordered renters to vacate with just 48-hours notice if their lease wasn’t for longer than 90 days.
Many of these declarations and ordinances were imposed over the last week or so before a single case of COVID-19 was reported in their communities. They tend to be temporary, purporting to last a month or so. But once cases actually appear in those communities, which seems likely even with rentals banned during that time, it may not be a politically popular move to lift those restrictions.
COVID-19 is projected to be with us for quite some time, and so, too, may bans on vacation rentals.
Our courts historically have been very deferential to the use of emergency powers to keep law and order. They may approve of these ordinances as well. But they raise important questions about whether they are permitted by statute and tailored to address the problem at hand or their terms are unauthorized and arbitrary reactions to an understandably scary time.
One thing is clear: anyone who thought they might rather shelter in place on a beach-front porch than in an urban condo is quickly running out of options.
Extra Leave for Working Parents (and other acts of Congress)
3/30/20 - Continued school closures and other disruptions keeping kids at home will provide additional paid leave to working parents under the first COVID-19 response bill passed by Congress and signed into law on March 18. The law expands paid leave under the Family and Medical Leave Act to include up to 12 weeks for an employee who cannot work in order to provide child care lost to COVID-19 related closures (thought the first 10 days is unpaid). This provision generally applies to employers with fewer than 500 workers but allows rules to be written exempting small businesses under 50 employees if enforcement "would jeopardize the viability of the business as a going concern." Lots of contingencies in this bill so beware.
3/30/20 - According to the Congressional Research Service, the new CARES Act passed on March 27 provides an employee retention credit for employers subject to closure due to COVID-19, which:
Would create a refundable payroll tax credit computed as 50% of wages paid by eligible employers. Up to $10,000 in qualified wages could be taken into account per employee in determining the credit amount. Health plan expenses can be treated as wages when computing the credit.
Eligible employers are those who (1) were required to fully or partially suspend operations due to a COVID-19-related order (includes nonprofit employers); or (2) have gross receipts 50% less than gross receipts in the same quarter in the prior calendar year.
Qualified wages depend on the number of employees the employer had during 2019. If the employer had more than 100 full-time employees, qualifying wages are wages paid when employee services are not provided, limited to 30 days per employee. If the employer had 100 or fewer full-time employees, all employee wages paid by eligible employers are credit-eligible.
New Loans Include Forgiveness
3/30/20 - One of the biggest components of the CARES Act, the largest business and individual bailout law in our history, is a $349 billion pot of loan funds to businesses under 500 employees with a partial forgiveness component - but that forgiveness may be more limited than most people realize.
Employers can receive up to $10 million or maximum amounts calculated by using a company's average annual payroll costs, whichever is less. Interest is capped at 4%, but the loans don't require collateral or personal guarantees.
That could be attractive enough for many, but funds spent on eligible expenses during the eight weeks after the loan is made also will be forgiven. This is not necessarily a blanket forgiveness plan for small businesses that some on the Hill had pressed for, however.
To entice employers to rehire and retain workers, the forgiven amounts are reduced by changes to payroll numbers or wages since the outbreak.
Small businesses are going to want to compare the pros and cons of this program and the existing SBA disaster loan program, or decide to use both.