Gravel & Shea PC

March 2020

March 18, 2020 Client Bulletin: Employer Tax Credit for Wages Paid Under the Families First Coronavirus Response Act

Congress and the President recently enacted the Families First Coronavirus Response Act (the “Act”). Division C of the Act requires employers with fewer than 500 employees to provide emergency paid sick leave and emergency paid family leave to qualified employees who are unable to work due to health or family care obligations related to coronavirus (“Paid Leave”). Division G of the Act compensates employers for expenditures on Paid Leave with a corresponding payroll tax credit. A detailed explanation of the new law, which goes into effect on April 2, 2020, is available here.

Any employer who pays an employee under the Act is entitled to a tax credit (the “Tax Credit”) equal to the full amount of wages paid under the Act, subject to certain limitations. For purposes of the Tax Credit, the term “wages” includes an employee’s salary and other compensation and the pro rata cost of an employee’s group health insurance for the period coinciding with the Paid Leave he or she receives under the Act. However, for purposes of the Tax Credit, the term wages does not include tips or reimbursed expenses.

The Tax Credit is a quarterly credit based on the amount of wages paid under the Act as Paid Leave. The Tax Credit is refundable if it exceeds the total of the employer’s portion of Social Security payroll taxes for that quarter, net of any tax credits for employing veterans or for small business research expenses. The Tax Credit is also limited to the amount of Paid Leave payable under the Act, meaning that an employer will not receive a Tax Credit for any sick or family leave the employer voluntarily pays (such as under an existing employee leave policy) but which was not required Paid Leave under the Act. Employers also must add the amount of the Tax Credit into their reportable gross income for that year.

The Tax Credit will remain in effect for all wages paid under the Act between April 2, 2020 and December 31, 2020. The Treasury Department is working to issue further regulations and guidance with respect to this Tax Credit.

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FOR MORE INFORMATION

Please contact Heather Rider Hammond or your attorney at Gravel & Shea PC if you have questions.

www.gravelshea.com

802.658.0220

Note: The information provided in this Bulletin is general in nature and is not offered, and should not be construed, as tax or legal advice with respect to any particular matter

March 18, 2020: Trump Signs Families First Coronavirus Bill – Effective on April 2, 2020

Public Health Emergency Leave

This is an amendment to FMLA, which gives eligible employees 12 weeks of job-protected leave for a qualifying condition.  Under the Act, the leave is extended to include “an employee who is unable to work (or telework) due to a need for leave to care for the son or daughter under 18 years of age of such employee if the school or place of care has been closed, or the child care provider of such son or daughter is unavailable,” due to the COVID-19 public health emergency.  Under the terms of this provision, the first ten days of the leave are unpaid, but the employee can substitute any paid leave provided by the employer, or the new federally-mandated Paid Sick Leave described below.  After ten days, the employer is obligated to pay the employee an amount not less than two-thirds of the employee’s regular rate of pay, with a cap of $200 per day, with a total cap per employee of $10,000 aggregate.

All employers with fewer than 500 employees are covered by this provision; however, the law gives the US Department of Labor the authority to issue regulations exempting employers with fewer than 50 employees, if the imposition of these requirements would jeopardize the viability of the business as a going concern.  Those regulations have not been issued, but I will continue to follow this closely.

All employees who have worked for at least 30 days are covered.  This is much different than FMLA, which requires a one-year waiting period.   The normal job restoration requirements of the FMLA are in effect, but do not apply to employers of less than 25 employees if the employee’s position no longer exists.

This law becomes effective 15 days after enactment of the law, or April 2, 2020.

Emergency Paid Sick Leave Act

Employers must provide to each employee paid sick leave if the employee is unable to work (or telework) due to a need for leave because:

  • The employee is subject to a state or federal quarantine or isolation order related to COVID-19;
  • The employee has been advised by a health care provider to self-quarantine due to concerns related to COVID-19;
  • The employee is experiencing symptoms of COVID-19 and is seeking a medical diagnosis;
  • The employee is caring for an individual who is subject to a quarantine order or has been advised by a medical professional to self-quarantine; or
  • The employee is caring for a son or daughter of such employee if the school or place of care of that son or daughter has been closed, or the child care provider is unavailable, due to COVID-19 concerns.

For reasons number 1-3, the pay is capped at $511 per day (or $5,110 in the aggregate).  For reasons (4) and (5), the amount is capped at $200 per day.

For full-time employees, the paid sick leave is capped at 80 hours at the employee’s regular rate of pay.  For part-time employees, employers would average their wages over a two-week period.  Importantly, this leave is in addition to any paid leave time provided by the employer, and the employer cannot require an employee to use other leave time first.

There is no waiting period for the paid sick time, regardless of how long the employee has worked for the employer.  All employers with fewer than 500 employees are covered.

The US Department of Labor will issue a notice, which will need to be posted.

This law also becomes effective 15 days after enactment, or April 2, 2020.

The Department of Labor is directed to issue regulations before the effective date.  I will continue to look for those and update you as soon as they are launched.

Employers must pay for these benefits, but will receive a tax credit for doing so.

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March 17, 2020: Client Bulletin: Coronavirus, Contracts and “Force Majeure”

The novel coronavirus and COVID-19 pandemic are causing widespread disruption, not only in our daily lives, but also in our businesses and commercial arrangements.  As this disruption spreads, contractual obligations and expectations are being stressed, if not broken.  Supply chains face delays.  Meeting specified performance dates becomes problematic.  In some sectors, such as travel, entertainment, and lodging, outright cancelation is becoming frequent.

All of this puts a spotlight on contracts:  how enforceable are they under these circumstances?  What happens if it is hard or even impossible for me to deliver?  What happens if the government forbids me from or advises me against going forward?  And what leverage or recourse do I have if my counterparty threatens non-performance?  To a large extent, the answers depend on legal doctrines known as “impossibility,” “impracticability,” “frustration,” or “force majeure.”

EXECUTIVE SUMMARY

Inability to fulfill contractual obligations (or to timely deliver or perform under a contract) due to unforeseen circumstances may be excused under force majeure, either by reference to a specific contract provision or as a matter of general contract law.  The governing law applicable to a contract affects the likelihood that such a claim will prevail in litigation.  Many contracts specify which state’s law to apply.  If not, then a factual analysis must be used to determine which states’ laws could apply, considering factors such as where the parties entered the contract, where contract performance will occur, where the parties operate, and a variety of other factors.

Many states only modify or excuse contractual duties under force majeure if the event that is preventing performance is one of the types of events listed or clearly implied from those stated in the force majeure clause of the contract.  (Remember, that the pandemic itself is not the only event that may be preventing performance.  Consider all of the factors disrupting your business, as government orders or actions, in particular, may also apply.)  Virtually all jurisdictions require that the risk was unforeseen by the parties at the time when they entered the contract.  Some states, including New York, also require performing the contract to be completely impossible before force majeure applies.

A more detailed review of the legal and factual considerations to evaluate when considering the application of force majeure to contracts disrupted by the current pandemic follows.

  1. The Concept of Force Majeure and Its Application

The basic concept behind force majeure and its related doctrines is that a party to a contract may be excused from its obligations when an event occurs which makes it effectively impossible to fulfill the contract, as long as the event is (i) clearly outside of that party’s control and (ii) outside of the normal performance risks associated with that kind of contract.  This principle may apply because of a specific provision in the contract or as a general provision of law.  Force majeure clauses in contracts often list wars, rebellions and terrorism, natural disasters (such as earthquakes), actions by government, strikes and labor disputes as excusing events.  Sometimes epidemics are included as well.  Courts usually enforce these clauses, but they are often read strictly and interpreted to require the event to truly be beyond the party’s control and outside of the normal range of anticipated risks.  If the doctrine is invoked for a contract without a force majeure clause, results vary considerably by jurisdiction.

Presence of an Express Provision

Longer contracts often include an express provision providing some level of relief, or excusing partial or late performance, if certain general or specific events occur.  A typical clause states what constitutes an excusing event, often using general language followed by a set of non-exclusive examples.  While courts sometimes give effect to the general clause, having the event specifically listed greatly increases the odds of enforcement.  Looking to see if there is a force majeure clause in the contract and, if so, evaluating its effects in this particular emergency is the first step in any analysis.

A review of sample clauses suggests that even lengthy clauses frequently fail to mention epidemics specifically.  Although careful drafting of future contracts will not help mitigate the business harms of the current coronavirus pandemic, the pandemic should at least encourage businesses to take a closer look at force majeure clauses in their contracts going forward.

Looking at existing agreements, if the provision doesn’t mention health emergencies, other specified events might still apply to our current crisis, such as governmental action or a failure of supply.  A thoughtful review is necessary.

The degree to which both specific and general language will be enforced varies from jurisdiction to jurisdiction, so the next step is to determine what law governs the contract and then to research how narrowly or broadly that law interprets both explicit and general language force majeure clauses.  Later in this memorandum we will survey Vermont and New York law as examples that may be of particular interest.

In the Absence of a Direct Provision

In the absence of a direct contractual provision, consider applying general principles of contract law.  Here, too, the result varies between legal systems.  In the United States, many states apply some version of the force majeure/impossibility standard as part of the common law of contracts.  The requirement for strict, limited application appears widespread.  The discussion of New York and Vermont, set out below is illustrative.

For particular kinds of contracts, there may be statutory authority that could also excuse contract performance.  For instance, in the context of sales of goods governed by Article 2 of the Uniform Commercial Code, Section 2-615(a), “Excuse by Failure of Presupposed Conditions”, reads:

(a) Delay in delivery or non-delivery in whole or in part by a seller who complies with paragraphs (b) and (c) is not a breach of his duty under a contract for sale if performance as agreed has been made impracticable by the occurrence of a contingency the non-occurrence of which was a basic assumption on which the contract was made or by compliance in good faith with any applicable foreign or domestic governmental regulation or order whether or not it later proves to be invalid.

In international law, the idea has been codified in Article 7.1.7 of the UNIDROIT Principles of International Commercial Contracts.  It provides relief from performance if a “party proves that the non-performance was due to an impediment beyond its control and that it could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract or to have avoided or overcome it or its consequences.”

Here, too, the result is likely to turn on the degree to which the event was beyond the control of the party and whether it was beyond the issues the parties likely contemplated as a possibility when entering into the deal.

  1. Analysis of the Doctrine in New York and Vermont Law

Different states apply different legal standards to evaluate claims of force majeure.  New York applies a strict (or narrow) standard.  To be excused from contractual duties under force majeure under New York law, a contracting party must satisfy a three-part test.  First, the event that prevents performance either must be one of the specific types of events listed in the force majeure clause or clearly intended by its language.  Second, the contractual duties must be objectively impossible to perform for that reason, not just much more difficult or much more expensive than expected.  Third, the event that makes it impossible to perform must not have been one that was reasonably foreseeable when the parties entered the contract; otherwise, they will be assumed to have allocated the risk of its occurrence under the contract terms.

The label of force majeure is not often applied by Vermont judges, who instead use the related doctrine of impossibility or impracticability of contractual performance.  Under Vermont law, a party may breach a contract when her own performance has become impracticable or impossible due to an unforeseeable change in circumstances.  Courts narrowly apply this doctrine by verifying that performance has become unreasonably difficult due to an extreme hardship that was unforeseeable to the parties when they formed the contract.  Courts also consider such things as extreme or unreasonable difficulty, expense, injury, or loss.

Thus, under New York law, performance is likely required if COVID-19 makes contractual performance more difficult but not truly impossible, whereas under Vermont law, performance is likely required unless it has become either impracticable or impossible.  Moreover, performance is likely required under either Vermont or New York law if the effects of COVID-19 or a similar pandemic were foreseeable to the parties when the contract was formed, regardless of whether performance is now impossible.

  1. Practical Considerations for Dealing with Problems Arising from the Pandemic

A plunge in the stock market is generally not an excusing event; a government shutdown of a business sector may well be.  A facts and circumstances analysis will be necessary for any given example.  However, when evaluating a particular force majeure clause, if it does not mention epidemics or health crises, it is worth considering whether other specified events, such as government action or supply chain interruption, are present in the effects of the crisis on the particular transaction.

How do we deal practically with these doctrines, either asserting them as a defense or dealing with them when a counterparty asserts them?  In either event, the starting point is the contract itself:  does it have a force majeure clause, and, if so, what does it say?  Does it specifically mention epidemics or other health crises?  Do other mentioned events apply instead (e.g. government order)?  Is relying on general language or on general doctrines of impossibility necessary?

Next, what law applies?  Does the contract elect a specific jurisdiction or is that a matter of implication and interpretation?  What does the applicable law say about the application of force majeure principles?

Once the strength or weakness of the position has been determined, a choice can be made on whether to invoke the doctrine or on how to evaluate it if used by the counterparty.

The next step will often be negotiation.  In a time of commercial distress, getting to a reasonable and feasible outcome may be in everyone’s best interest.  Preserving good relations with suppliers and customers may outweigh short-term enforcement or excuse.  During negotiation, it is prudent to make it clear that unless and until the parties agree to a modification, willingness to bargain does not constitute a surrender of existing rights.

It will also be useful to look into insurance coverage.  Business interruption insurance may apply, as may other kinds of coverage.   Check your insurance policies, and speak to your insurance agents for more information.  Meeting the requirements of any applicable insurance coverage should be a background consideration for all actions, including negotiations and, if necessary, litigation.

Litigation may be a final resort in attempting to enforce a contract.  Here, too, assessing the strength of the defense and the necessary factors for asserting force majeure is critical.

  1. Conclusions

In the present crisis, many contractual obligations will become hard to fulfil.  As parties on both sides of this problem consider their options, the related doctrines of impossibility, impracticability, frustration, and force majeure should be kept in mind.

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FOR MORE INFORMATION

Please contact authors Catherine Burke, Oliver Goodenough, and Chase Whiting or your attorney at Gravel & Shea PC if you have questions or would like assistance with evaluating a particular contract.

www.gravelshea.com

802.658.0220

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March 15, 2020: Attorney Heather Rider Hammond Provides Guidance on COVID-19 in the Workplace

When COVID-19 Hits Your Workplace – Some FAQ’s

We have all been bombarded with information over the last few weeks about the novel coronavirus. I would encourage all of you to keep close, daily tabs on the advice pushed out by the CDC and your state’s Department of Health.  I also thought it might be helpful to provide some guidance on some frequently asked questions I have received over the last week.  This is a fast-moving event, and my thoughts as set forth below may change as the environment changes.  I would appreciate hearing from any of you with additional thoughts on this.

As always, please reach out at any time with questions or concerns.

Does our company need to have a plan?

Yes, you do.  You need to tell your employees that you are paying attention to the guidance from the CDC and the Department of Health, and are taking steps to keep them healthy.  This includes telling them to stay home if they are exhibiting symptoms, and preparing internally for sick and/or quarantined employees.  You should also be thinking about communicating to customers and vendors, as well as ensuring that you have a business continuity plan in place.

Do we need to pay employees who self-quarantine?

There is no legal obligation to pay employees who are not sick, but who are advised to self-quarantine due to potential exposure to the virus.  Of course, employees can use accrued PTO for this purpose, but I would also encourage you to think about whether and how your company may be able to help them financially.  This can be a full paycheck, a stipend, payment for their health insurance. . .. It is in your best interest to encourage employees to be forthcoming if they have been exposed and they may not do so if they are afraid to be without an income for two weeks or more.

Would an employee’s absence from work due to quarantine be covered by FMLA or PFLA?

If the employee or her family member were not sick, the absence from work would not be covered by FMLA.

What about Vermont’s paid sick time?

If an employee or her family member were sick, that absence would be covered by VESTA.  Remember also that VESTA can be triggered when a school or day care is closed.

What about employees who are just too scared to come to work?

Certainly, no one should be forced to come to work.  However, if there has been no evidence of exposure and no obligation to self-quarantine, those employees should understand that they will need to use their PTO for this absence.

What about employees who still choose to travel to an affected area?

If employees are choosing to travel to a region of the country or the world with a high rate of illness from this virus for a vacation or other non-essential reason, you can advise them that they may need to self-quarantine upon their return, and that they may be asked to use their PTO for that purpose.

Can we take employees’ temperatures, or require them to undergo medical screening?

As of now, you cannot take employees’ temperatures as a screening measure.  The ADA allows that type of procedure only when the World Health Organization has declared a global pandemic, which it hasn’t done so far.  If an employee falls ill at your workplace and cannot leave on his or her own accord, you should try to isolate that person and call 911, rather than examining that person yourself.

Can I ask for a doctor’s note before a sick employee can return to work?

While many employers have policies that allow them to request a doctor’s note if an employee has been out sick for several days, consider being flexible in the event an employee stays home because they are sick.  It may be unreasonable for an employee who simply has a bad cold (or who may have a mild case of COVID-19) to go into his or her primary care physician, urgent care or the emergency department.  The current advisories are telling people to recuperate at home, and not risk infecting others.

What do I do about employees gossiping about each other?

Certainly, employees these days may have a heightened awareness of their co-worker’s health status and travel plans!  Supervisors and managers should be prepared to shut down gossip, but to bring the issue to human resources or upper management.  If an employee appears to be coughing and feverish, that person is entitled to some privacy from their co-workers, but human resources should be prepared to discreetly remove him or her from the workplace.

Pay particular attention to employees raising concerns that could give rise to discrimination claims.  For example, be sure you are listening for hostility exhibited towards employees of Asian descent or older workers.

Does my company have an obligation to tell employees if there has been exposure at the workplace?

You should take the advice and follow the guidance of your local health department.  If there is a confirmed case of COVID-19 at your workplace, you will be asked to work with local health officials to provide them with information, and they will take the lead on what information should be provided to whom.

What about OSHA?

We all know that OSHA requires employers to provide a safe and healthy workplace for its employees.   Unless the workplace requires close, physical contact with potentially ill people, there are no specific OSHA standards covering COVID-19.  I would encourage you to keep up to date on the current information on the OSHA website (https://www.osha.gov/SLTC/covid-19/) and your state’s guidelines.

Remember to keep in mind OSHA’s anti-retaliation provisions.  If employees come to you with complaints that you are not doing enough to “keep them safe,” listen compassionately and objectively.  Refer them to the CDC website so they can be assured that you are on top of things.  Ask them for specific ideas – they may have thought of something you haven’t!

Hang in there, everyone!  We’ll get through this. . .

Click here to to find out more about Heather Rider Hammond, Employment & Labor Relations attorney.

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