FAQs: Impact of Covid-19 On Commercial Real Estate

2020 Coronavirus Guidance header 2

By Phillips Murrah Directors Sally A. Hasenfratz and Bobby Dolatabadi, and the Real Estate Practice Group 

The impact of COVID-19 on the commercial real estate industry is unprecedented. We have been asked a broad range of questions as a result of the pandemic, some of which include:

What if a tenant cannot pay rent?

Many landlords and tenants are seeking counsel about what happens if a commercial tenant cannot pay rent. Some considerations include:

Are commercial transactions being closed?

  • Many commercial purchase and sale transactions have reached a screeching halt, with buyers terminating agreements and lenders having underwriting concerns. Often buyers are terminating during an inspection period where they are entitled to a return of earnest money. In instances where an inspection period is not available or has expired, buyers are looking for conditions precedent to closing, such as a material adverse change, which would excuse performance. Otherwise, on a unilateral termination, buyers may face a loss of earnest money or trigger a default under the agreement.
  • For some transactions that appear to be moving forward, there remains uncertainty as to whether the County recording offices will be open at the time of closing for the filing of deeds, loan instruments, and other closing documents. Accordingly, parties should consult with their title companies and underwriters in order to determine if and how the title company will facilitate a closing in the event of a shutdown of the recording office.  Also paramount will be issues relating to “gap coverage” as a result of potential delays between closing and recording documents, as well as use of online remote notaries and other logistics for closings.
  • Most purchase and sale agreements contemplate a specific list of closing deliveries for each party, together with a “catch-all” requiring such other documents as are reasonably requested by the other party and/or title company. In light of the uncertainties regarding whether a recording office will be open or shut-down on the closing date, title companies may require new, additional indemnities and covenants from the parties at closing in order to achieve closing, which documents may prohibit, for instance, a seller (whom still may appear in the real estate records as the fee owner) from executing any other conveyances concerning the property. Parties should consider expanding the “catch-all” clause accordingly.
  • For transactions that are teetering, sellers and buyers should consider agreeing to extend the inspection period or the time to close to let the pandemic subside prior to any such closing. Any such extensions should be in writing.
  • In lieu of closing or extending, buyers may move to the sidelines, waiting for values to decline and proceeding after the pandemic is resolved.

How are lenders and borrowers handling the consequences of the pandemic?

  • Bank regulators have provided guidance encouraging financial institutions to cooperate with customers dealing with the adverse economic effects of COVID-19.
  • For borrowers unable to make debt service, we are seeing short-term accommodations, such as interest only or reduced payments for 3 months, with full payments continuing after that time.
  • Should the pandemic prove to have more long-term effects, we would expect to see forbearance agreements, workouts and bankruptcies. Time will tell whether these more drastic measures will be necessary. If so, the tax consequences of these arrangements should not be ignored.
  • Prior to exploring any of these options, it is prudent to thoroughly review all loan documents, with emphasis on restrictions on transfer, default, notice and cure and force majeure provisions.
  • For non-recourse loans, documents should be thoroughly reviewed so as not to inadvertently trigger recourse liability. For example some non-recourse loans have “bad boy” carve-outs which trigger full or partial recourse liability to borrowers and guarantors where a borrower (i) admits in writing the inability to pay its debts as they come due; or (ii) makes a “transfer” which is not permitted by the loan documents. A “transfer” is often broadly defined as including making amendments to lease agreements without the lender’s consent. Accordingly, borrowers should exercise caution in taking actions to renegotiate loan documents or compromise lease obligations, which in certain circumstances, could trigger recourse liability.

Are Force Majeure clauses available to delay or terminate performance obligations?

  • Force Majeure clauses are contractual clauses that extend or in some instances terminate performance obligations when “acts of god” or other named events prevent or delay a party’s ability to perform their obligations. Force Majeure clauses appear in many, but not all, types of real estate contracts and such clauses are limited to the exact language, which may not be standard from agreement-to-agreement and in most cases don’t appear broad enough to include the current pandemic situation. For example, Force Majeure clauses are typically not in short-term agreements such as purchase and sale agreements, but may be included in loan agreements, leases, construction agreements and the like.
  • Each Force Majeure clause should be carefully reviewed to determine whether it applies in this situation and if so, whether any notices need to be given to the parties under the agreement.
  • Use of Force Majeure clauses in the future should be considered, with expressly including references to epidemics, pandemics or other health related crises beyond the control of the parties.

What else should be considered in light of the pandemic?

  • Business interruption insurance policies should be reviewed to determine whether there may be coverage.
  • For property management, responsibility should be evaluated to identify whether there are special duties to maintain health and cleanliness.

For more information on how the COVID-19 pandemic may affect your business, please contact:

Portrait of Sally A. Hasenfratz

 

Sally A. Hasenfratz
Director
405.552.2431
EMAIL

 

 

Portrait of Bobby Dolatabadi

 

Bobby Dolatabadi
Director
405.606.4742
EMAIL

 

 


Keep up with our ongoing COVID-19 resources, guidance and updates at our RESOURCE CENTER.

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Tax Law Q&A: COVID-19 Tax Issues for Businesses

What are some of the recent tax changes designed to help businesses?

As part of the Families First Coronavirus Response Act (the “FFRCA”) and the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, Congress made a number of favorable changes to the Internal Revenue Code that benefit both businesses and individuals.  Specifically with respect to businesses, the following provisions may be extremely helpful during the economic crisis stemming from COVID-19:

    • Credits for paid sick and FMLA leave and for employee retention
    • Delay of payment of employer payroll taxes
    • Relaxation of limits on business losses and business interest
    • Delay of payment for employer payroll taxes
    • No cancellation of indebtedness income for certain government-provided relief loans and grants
Phillips Murrah attorney Jessica Cory

Jessica N. Cory represents businesses and individuals in a wide range of transactional matters, with an emphasis on tax planning.

 What are the new payroll tax credits and how do I qualify for them?

Congress enacted three new payroll credits as part of the FFCRA and the CARES Act.  These three credits are (1) the paid sick leave credit, (2) the paid family leave credit, and (3) the employee retention credit.

 The Paid Sick and Family Leave Credits

The first two credits, for paid sick and family leave, are intended to help businesses provide the paid leave required by the FFCRA.  Under the FFRCA, certain small and medium size employers must now provide workers with approximately two weeks of paid sick leave and 10 weeks of paid family leave.  In exchange, these employers can take a dollar for dollar credit in an amount equal to 100% of the leave wages paid by the employer with respect to a calendar quarter, up to certain limits.

For purposes of the paid sick leave credit, qualifying sick leave wages are wages and compensation paid by an employer, as required by the FFCRA, because the employee (1)  is under a quarantine or isolation order related to COVID-19, (2) has been advised by a health-care provider to self-quarantine due to COVID-19 related concerns, (3) is experiencing symptoms of COVID-19 and is seeking a diagnosis, (4) is caring for an individual who is subject to such a quarantine or isolation order or who has been advised to self-quarantine, or (5) is caring for the employee’s child due to school or child care closures or unavailability stemming from COVID-19 precautions (or a substantially similar situation, to be set out in the Regulations).

For purposes of this credit, an employer can count sick leave wages paid between April 1, 2020 and December 31, 2020, up to $511/day for an employee falling under categories (1) through (3), and up to $200/day for an employee falling into categories (4) or (5), for up to 10 days of work. For purposes of the paid family leave credit, qualifying family leave wages are wages and compensation paid by an employer, as required by the FFCRA, to an employee who is unable to work or telework due to a need to care for a child under 18 whose school or childcare is closed or unavailable due to an officially declared public health emergency with respect to COVID-19.  This type of paid leave is available to an employee for up to 10 weeks but may not exceed $200/day and $10,000 in the aggregate.

The Employee Retention Credit

The third credit, the employee retention credit, is designed to encourage employers to retain employees despite a significant decline in business or closure due to COVID-19.  This credit is available to employers (1) whose business is fully or partially closed during any calendar quarter pursuant to a government order limiting commerce, travel, or group gatherings due to COVID-19, or (2) who have suffered as significant decline of at least 50% in gross receipts as compared to the same calendar quarter in the prior year.  Employers can take a credit equal to 50% of the amount of qualified wages paid to an employee from March 12, 2020 to January 1, 2021, for wages paid up to $10,000.  This provides an employer with a credit equal to $5,000/employee.  However, it is important to note that an employer cannot take advantage of this credit and the new SBA Payroll Protection Program, which provides certain small and medium businesses the ability to borrow funds on extremely favorable terms (including the possibility of tax-free loan forgiveness) to cover costs such as payroll, health care benefits, other compensation, mortgage interest obligations, rent payments, utilities, and certain interest payments.  Accordingly, this credit may be most useful to employers would not qualify for this program, such as large employers with more than 500 employees.

Is there any other relief for current payroll tax obligations?

Yes, in addition to the three new payroll tax credits, there is also a new provision allowing an employer to delay making certain payroll tax payments over two years.  Generally, employers must regularly deposit payroll taxes representing both the amount withheld from employee checks and a portion paid directly by the employers.  Under the CARES Act, employers can now delay payment of the employer-paid portion of these taxes incurred this year.  For employers who choose to defer payroll taxes during 2020, the first 50% of the deferred amount must be paid by December 31, 2021, and the other 50% must be paid by December 31, 2022.  Self-employed individuals can likewise defer up to 50% of the self-employment tax they would otherwise be required to regularly deposit through estimated tax payments.

Do the limitations on business losses and interest expense deductions still apply this year?

Not completely, no.  Under the Tax Cuts and Jobs Act (“TCJA”) enacted by Congress at the end of 2017, certain limitations were imposed on how businesses use losses and the amount businesses could deduct for their interest payments.  The CARES Act relaxes these restrictions, amending the Internal Revenue Code to allow most businesses to carry back losses arising in taxable years beginning after December 31, 2017 and before January 1, 2021 to each of the five taxable years preceding the loss year.  Carrying losses back allows a business to take advantage of a loss sooner, as compared to pre-CARES Act law, which only permitted businesses to carry losses forward.  Likewise, the CARES Act also permits businesses to use losses to offset more than 80% of taxable income, and modifies the limitations on business interest expense deductions.  Under the rules set out in the CARES Act, businesses can now figure their business interest expense by looking at 50% of adjusted taxable income (“ATI”), versus only 30% before, and based on 2019 ATI instead of 2020, given that many taxpayers may have significantly reduced income in 2020.

Should I worry about any unexpected tax if I have an SBA loan forgiven under the new Paycheck Protection Program (“PPP”)?

 No, the debt forgiveness built into the SBA loans covered by the CARES Act will not trigger additional tax.  Normally, when a lender forgives an outstanding debt, the borrower must pay tax on the forgiven portion of the liability, as taxable “cancellation of indebtedness” income.  In this case, however, the CARES Act specifically provides that any forgiveness or cancellation of SBA loans made pursuant to its terms will not be treated as income for federal tax purposes.


For more information on this alert and its impact on your business, please call 405.552.2472 or email me.

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Q&A about SBA Loans related to the newly passed CARES Act

2020 Coronavirus Guidance header 2

By Attorneys Alison J. Cross & Kara K. Laster

CARES Act: SBA Loans Q&A

On March 27, 2020, Congress passed the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). Small business owners, in particular, are anxious to receive relief under the Act. The Small Business Administration (SBA) is implementing regulations regarding the historic legislation. Even though the program is to kick off April 3, some details reportedly remain to be worked out and finalized. Below is a summary of what we know, currently:

What types of SBA loans are available to businesses related to COVID-19?

The CARES Act expanded both the SBA’s existing loan program under Section 7(a) of the Small Business Act, referred to as the Paycheck Protection Program (“PPP Loans”), as well as its Economic Injury Disaster Loan Program (“EIDL Loans”).

Can a business apply for both types of loans?

Yes, but only under very limited circumstances:

  • A recipient of an EIDL Loan made between January 31, 2020 and June 30, 2020 is eligible for a PPP loan during the covered period.
  • The funds from a PPP Loan cannot be used for the same purpose as another SBA loan.

What other relief can a business get under the CARES Act?

Businesses may also receive an Emergency Economic Injury Grant of $10,000 provided within three days of application for an EIDL Loan and no requirement to repay the advance even if the EIDL Loan is ultimately declined.

Paycheck Protection Program

When can I apply for a PPP Loan?

Small businesses and sole proprietorships may apply beginning April 3, 2020, while independent contractors and self-employed individuals may apply beginning April 10, 2020. Businesses should apply as soon as possible because there is a funding cap. The deadline to apply for a loan is June 30, 2020.

Where can I apply?

Any SBA-certified lender can make a loan. Additionally, any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating can make a loan.

Who is eligible for a PPP Loan?

Businesses (a) with no more than 500 employees per physical location, (b) that were operational prior to February 15, 2020, and (c) that had employees on payroll and paid wages and payroll taxes are eligible.

How is the loan amount determined?

Businesses may receive the lesser of (a) 2.5 times the average monthly payroll costs during the prior year or (b) $10,000,000.

What line item expenses are included in monthly payroll costs?

Each of the following is a line item expense included in the calculation of payroll:

  • Salaries, wages, commissions, vacation and sick pay (not to exceed $100,000 per employee) and exclusive of qualified sick or family leave
  • Group health insurance
  • Retirement benefit costs
  • State/local taxes on employee compensation
  • Self-employed income (and subcontractors) not to exceed $100,000 per year

How can PPP loan funds be used?

Businesses may use the loans for payroll costs, health care, interest on mortgage payments, rent, utilities, and interest on any other debt.

What do I need to show when I apply?

Businesses must certify that (a) the uncertain economic conditions make the loan necessary to support ongoing operations, (b) the funds will be used to retain workers and maintain payroll, or make mortgage payments, lease payments, and utility payments, (c) the business does not have an application pending for a loan under Section 7(a) for the same purpose, and (d) that the business has not received funds under Section 7(a) between February 15, 2020 and December 31, 2020 that would be duplicative.

What do I need to apply?

Businesses will need to submit a Paycheck Protection Program loan application along with payroll documentation to an approved lender.  The application can be accessed HERE.

 What are the terms of the loan?

  • There are no personal or collateral guarantee requirements, as well as no prepayment penalty. Payment obligations are deferred for six months to one year.
  • There is no requirement that a business try to obtain funds from other sources.
  • Maximum interest rate and term loan to be finalized.

 Can the loans be forgiven?

Yes, but only certain payments made during the first eight weeks of the loan are eligible for forgiveness. The funds must be used for payroll costs, excluding employees who have an annual salary over $100,000. Additionally, funds used for interest on debt obligations and rent and utilities in place before February 15, 2020 may be forgiven. The amount forgiven will decrease in proportion to a reduction in the number of employees as well as a reduction in compensation in excess of 25% for employees making less than $100,000 annually. Lenders must respond to a request for forgiveness within 60 days.

Am I still eligible for forgiveness if I already laid off my employees?

If a business rehires employees who were laid off by June 30, 2020, it still qualifies for forgiveness.

Can a business receive both an employee retention tax credit and a PPP loan? 

No.

Economic Injury Disaster Loan Program

Who is eligible for an EIDL loan? 

Businesses with no more than 500 employees in existence as of January 31, 2020 who have suffered substantial economic injury from COVID-19 are eligible.

How is the loan amount determined?

Businesses may receive up to $2,000,000 with interest rates of 3.75% for small businesses and 2.75% for nonprofits. Loan amounts are based on actual economic injury.

How can EIDL loan funds be used?

Businesses may use the loans for working capital.

Who makes the loans?

Applications for EIDL Loans should be submitted directly to the SBA.

Will someone need to guarantee the loan? 

No, so long as it is made before December 31, 2020 and loan is $200,000 or less.

Mid-Sized Businesses

What if my business has more than 500 employees?

The CARES Act also provides relief to businesses with between 500 and 10,000 employees. These mid-sized businesses are eligible for direct loans under the Emergency Relief and Taxpayer protections part of the CARES Act.

What do I need to show to receive this type of loan?

Businesses must certify that (a) the uncertain economic conditions make the loan necessary to support ongoing operations, (b) the funds will be used to retain at least 90% of the workforce at full compensation and benefits until September 30, 2020, (c) the business will restore not less than 90% of the workforce that existed as of February 1, 2020 with compensation and benefits no later than four months after the termination of the public health emergency, (d) the business has significant operations and employees in the United States, (e) the business is not a debtor in a bankruptcy proceeding, (f) the business is incorporated in the United States, (g) the business will not pay dividends or repurchase any equity security while the loan is outstanding, (h) the business will not outsource jobs for the term of the loan and for two years after repaying the loan, (i) the business will not abrogate existing collective bargaining agreements for the term of the loan and for two years after repaying the loan, and, finally, that (j) the business will remain neutral in any union organizing effort for the term of the loan.

What are the terms of the loan?

The maximum interest rate is 2%. No payments due for at least six months after a direct loan is made.

Can the loans be forgiven?

No. Unlike PPP loans, direct loans under this program may not be forgiven.


For more information on how to navigate the process of obtaining an SBA loan, please contact:

IN DALLAS

Phillips Murrah attorney Alison Cross

 

Alison J. Cross
Director
214.613.0585
ajcross@phillipsmurrah.com

 

IN OKLAHOMA CITY

Phillips Murrah attorney Kara Laster

 

Kara K. Laster
Attorney
405.606.4762
kklaster@phillipsmurrah.com

 


Keep up with our ongoing COVID-19 resources, guidance and updates at our RESOURCE CENTER.

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Employer Essentials Resource Package

 2020 employer essential promotion gfx

ALERT: On April 1, 2020, the Emergency Paid Sick Leave Act (EPSLA) and the Emergency Family Medical Leave Expansion Act (EMFLA), both part of the Families First Coronavirus Response Act, go into effect.


At Phillips Murrah, we understand the importance of prompt employer compliance with new requirements provided by the U.S. Department of Labor in reaction to the COVID-19 pandemic. We are also conscious of the added pressures during these extraordinarily difficult times. To meet the challenges of expediency and affordability, we offer the Employer Essentials Resource Package.

Attorneys in our Labor & Employment Practice Group have prepared a package of fundamental items and legal guidance for employers of all sizes. Included are template policies that can be revised to meet a specific employer’s needs, as well as additional documents that address the most relevant issues for covered employers of all sizes.

The package includes:

  • TEMPLATE POLICIES – Our Template Policies help bring employers into compliance with the EPSLA and EFMLA and can be tailored to meet specific needs.
  • FACT SHEETS – Our Fact Sheets provide Employers with a summary of the new law to assist in implementation of the policies in compliance with EPSLA and EFMLA, as well as a list of Dos and Don’ts for employers.
  • NOTICES – We provide Notices that employers are required to give employees under the EFMLA.
  • CERTIFICATIONS – We provide Certifications that employers are required to give employees under the EFMLA.
  • FAQs – We provide a collection of up-to-date answers to some of the more pressing questions regarding enforcement of the EPSLA and the EFMLA.

Attorneys on Phillips Murrah’s Labor and Employment team stand ready to assist employers with compliance regarding these new leave laws. Contact us to find out how we can help your company through this unprecedented time.

For more information, please contact us at 405.235.4100 or employmentlaw@phillipsmurrah.com.

Senate Approves CARES Act: Key Tax Changes

Late Wednesday evening, the Senate passed a third stimulus bill in the wake of the public health crisis and economic fallout stemming from the COVID-19 outbreak.  The new bill, the Coronavirus Aid, Relief, and Economic Security (or “CARES”) Act has not yet been voted on by the House, although a vote is expected by Friday.

As it currently stands, the bill provides both individuals and businesses with robust economic support, including through changes to the federal tax code.

Phillips Murrah attorney Jessica Cory

Jessica N. Cory represents businesses and individuals in a wide range of transactional matters, with an emphasis on tax planning.

Two of the key tax changes include:

  • Recovery Rebates for Individual Taxpayers.  The CARES Act would provide a $1,200 refundable tax credit for individuals (or $2,400 for joint taxpayers), plus an additional $500/child for taxpayers with children.  Taxpayers would not have to include these rebates in taxable income on their 2020 tax returns and the rebate would be refundable for taxpayers with no offsetting tax liability.  To be eligible, an individual must have earned qualifying income on a 2018 or 2019 tax return, which includes both earned income and certain retirement benefits, including Social Security payments.  The credit begins to phase out for individuals with adjusted gross income of at least $75,000 (or $150,000 for joint taxpayers, or $112,500 for heads of household), with the credit reduced by 5% for each additional dollar of income over that amount.  Currently, the credit is intended to be a one-time rebate, although lawmakers may consider additional rebates in the event of a prolonged downturn.
  • Employee Retention Credit for Employers.  Under the CARES Act, employers would be eligible to take a 50% refundable payroll tax credit on up to $10,000 of wages paid during the crisis, for a credit of up to $5,000/employee.  This credit would be available to employers whose business is forced to close, or partially close, due to virus-related shutdown orders, or which has a significant decline in gross receipts, meaning a decrease of 50% or more when compared to the same quarter in the prior year.  Employers with more than 100 employees would qualify for the credit for wages paid to employees retained but not currently working due to the crisis.  Smaller employers would qualify for the credit for all employee wages paid.

The CARES Act also includes a number of other helpful provisions for both individuals and businesses.  For example, certain individuals affected by COVID-19 could take up to $100,000 of early distributions from qualified retirement plans without the normal 10% penalty, with the ability to repay these amounts within three years of withdrawal, or recognize the distribution in taxable income over a three-year period.  In addition, the CARES ACT would also create a new above-the-line charitable contribution for individuals who do not itemize, allow individuals who do itemize to take increased charitable contribution deductions, and permit individuals to exclude up to $5,250 of employer-provided student loan repayment from income.  For businesses, the CARES Act would modify the limits on net operating losses for corporations (and the limitation on losses for taxpayers other than corporations) enacted as part of the 2017 Tax Cuts and Jobs Act (the “TCJA”), modify the TCJA’s limitation on business interest expense deductions, and make other technical amendments.  Finally, both individuals and businesses would be able to delay certain tax payments, including employer-side Social Security taxes and 50% for self-employed individuals’ Social Security tax.


For more information on this alert and its impact on your business, please call 405.552.2472 or email me.

Keep up with our ongoing COVID-19 resources, guidance and updates at our RESOURCE CENTER.

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Senate Approves CARES Act: Important SBA Loan Information

By Phillips Murrah Attorney Kara K. Laster

Late last night, the Senate unanimously approved the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), which is set for a House vote on Friday. The legislation authorizes $349 billion for loans to be distributed under Small Business Administration’s 7(a) program. Some of the important information for small businesses is highlighted below:

Phillips Murrah attorney Kara Laster

Kara K. Laster represents individuals and businesses in a broad range of transactional matters including real estate and mergers and acquisitions.

  • Eligible businesses are those with 500 or fewer employees.
    • To be eligible, businesses must have been operational as of February 15, 2020.
    • Sole proprietors, independent contractors and self-employed individuals are also eligible to apply for the loans.
    • Exceptions apply for industries in which the SBA size standard allows more than 500 employees.
  • Small businesses may receive loans of up to $10 million under the new maximum loan amount.
    • Lenders will determine the proper loan amount by using a formula that takes into account past payroll expenses.
  • In addition to existing allowable uses, businesses may use the money from loans for payroll; paid sick, medical, or family leave; continuation of group health care benefits; mortgage, rent, and utility payments; and other debt.
  • Loan forgiveness is available to businesses that retain workers or rehire workers who were laid off.
    • Businesses will not have to repay loans used for payroll costs, interest payments on mortgages incurred before February 15, 2020, rent under a lease in force before February 15, 2020, and utilities for which service began prior to February 15, 2020.
    • Only payments made during the 8-week period beginning on the date of the origination of the loan will be forgiven.
    • The amount forgiven will decrease in proportion to a reduction in the number of employees.
  • Small businesses will be able to apply through banks, credit unions and other lenders.
    • Approximately 1,800 private lenders are already approved to issue 7(a) loans, and Treasury Secretary Steven Mnuchin stated that new regulations will make it possible for almost all FDIC-insured banks to make SBA loans.
  • Special terms include a maximum interest rate of 4%, no prepayment penalty, no personal or collateral guarantee requirement, and the ability to defer payments for six months to a year. The maximum term of the loan is 10 years.

The CARES Act also includes assistance for mid-sized businesses with between 500 and 10,000 employees. The Secretary of the Treasury will implement a program that provides financing to banks and other lenders that make direct loans to mid-sized businesses. The annual interest rate for these loans will not exceed 2% and no interest payments will be due for at least 6 months after a loan is made. The funds must be used to retain at least 90% of the workforce with full compensation and benefits until September 30, 2020. In addition, businesses seeking loans must not outsource or offshore jobs for the term of the loan plus 2 years after repayment, and may not issue dividends for up to a year after repayment.


For more information on this alert and its impact on your business, please call 405.606.4762 or email me.

Keep up with our ongoing COVID-19 resources, guidance and updates at our RESOURCE CENTER.

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What are considered “essential services” in Oklahoma during COVID-19?

Due to the horrible effects of the COVID-19 global pandemic, Oklahoma Governor Kevin Stitt has ordered that all businesses not identified as being within a critical infrastructure sector to close. Understandably, the order has a lot of Oklahomans wondering who and what falls into the category of being considered as a part of the critical infrastructure sector.

On Mar 25, Oklahoma Governor Kevin Stitt offered clarity on the form of the Executive Department Amended Executive Memorandum 2020-01 in which he outlined “critical infrastructure sectors,” as copied from The Order, below:


Kevin Stitt
Office of the Governor
State of Oklahoma

FILED MAR 25 2020
OKLAHOMA SECRETARY OF STATE
EXECUTIVE DEPARTMENT AMENDED  EXECUTIVE  MEMORANDUM 2020-01

Stitt Amended Exec Order 032420

Click to view primary document.

On March 25, 2020, the 164th case of a novel coronavirus (“COVID-19”), was confirmed in the State of Oklahoma. As noted in a previous Executive Order, the United States Centers for Disease Control and Prevention has identified the potential public health threat posed by COVID-19 as “high” both globally and in the United States. In addition, on March 14, 2020, the President of the United States declared a national health emergency in the United States as a result of the national spread of COVID-19.

On March 15, 2020, I issued Executive Order 2020-07 declaring an emergency caused by the impending threat of COVID-19 to the people of this State and the public’s peace, health, and safety. And, on March 24, 2020, I issued the Fourth Amended Executive Order 2020-07. Paragraph 20 of the Fourth Amended Executive Order 2020-07 ordered all businesses not identified as being within a critical infrastructure sector as defined by the U.S. Department of Homeland Security (USDHS) and located in a county experiencing community spread of COVID-19, as identified by OSDH on its website, to close.

In addition to those critical infrastructure sectors identified by USDHS, I hereby add the following:

HEALTHCARE/ PUBLIC HEALTH

    • Health care providers (e.g. physicians, dentists, psychologists, mid-level practitioners, nurses and assistants, infection control and quality assurance personnel, pharmacists, physical and occupational therapists and assistants, social workers, speech pathologists and diagnostic and therapeutic technicians and technologists).
    • Manufacturers, technicians, logistics and warehouse operators, and distributors of personal care/hygiene products.
    • Behavioral health workers (including mental and substance use disorder) responsible for coordination, outreach, engagement, and treatment to individuals in need of mental health and/or substance use disorder services.
    • Workers who provide support to vulnerable populations to ensure their health and well-being including family care providers.
    • Medicinal marijuana dispensaries and all licensed medicinal marijuana companies that are in the supply chain for any medicinal marijuana dispensary
    • Workers supporting veterinary hospitals and clinics.

LAW ENFORCEMENT, PUBLIC SAFETY, FIRST RESPONDERS

    • Including front line and management, personnel include emergency management, law enforcement, Emergency Management Systems, fire, and corrections, search and rescue, tactical teams including maritime, aviation, and canine units.
    • Workers at Public Safety Answering Points.
    • Fire mitigation activities.
    • Private security, private fire departments, and private emergency medical services personnel.
    • State and County workers responding to abuse and neglect of children, elders and dependent adults.
    • Animal control officers.

FOOD AND AGRICULTURE

    • Farm supply and hardware stores
    • Groves, greenhouses, nurseries, and vineyards
    • Agriculture, Forestry, Fishing and Hunting
    • Food manufacturing
    • Beverage and tobacco product manufacturing
    • Manufacturing of fiber and forestry products
    • Veterinary services
    • Certified farmers’ markets, farm and produce stands
    • Food cultivation, including farming, livestock and fishing
    • Support of agricultural production including manufacturers, processors, sellers, transporters, and suppliers of livestock, poultry, feed, seed, water, fertilizer, herbicides, or insecticide and those that care for animals, crops, groves, greenhouses, nurseries, vineyards, forests, farms, and ranches
    • Hardware stores, farm stores, and garden centers

ENERGY

Electricity Industry:

    • Acquisition (SCADA) systems, and utility data centers; Cybersecurity engineers, cybersecurity risk management.
    • Power Generation, Transmission
    • Safety and environmental personnel, and those who support and ensure the supply chain and supply chain management
    • These categories of workers applies to all wind, solar, gas, hydroelectric and coal facilities.

Petroleum Workers:

    • Midstream Companies
    • Liquids or produced water/waste storage facilities
    • Petroleum refinery fractionators, blenders
    • Produced water waste facilities, including UIC wells and transportation
    • Brine separation and processing facilities
    • Transportation maintenance and inspection workers
    • Pipeline maintenance and construction workers who may be required to traverse state lines to maintain facilities that cross state lines
    • Workers who maintain supply chain for these facilities
    • Petroleum security operations employees and workers who support emergency response services

Natural and Propane Gas Workers:

    • Other compression facilities
    • Processing, refining, and transporting natural gas liquids, including propane gas, for use as end-use fuels or feedstocks for chemical manufacturing
    • Propane gas storage, transmission, and distribution centers
    • Compressed natural gas, liquefied natural gas, and propane gas retail and non-retail fuel stations, depots, and truck stops, that serve the public as well as private stations that support local and regional transportation companies such as transit authorities, refuse fleets, and freight haulers

WATER AND WASTEWATER

    • Drinking water and wastewater
    • Drinking water plant superintendents, managers, operators and maintenance technicians
    • Drinking water distribution system operators and maintenance technicians
    • Wastewater plant superintendents, managers, operators and maintenance technicians
    • Wastewater collection system operators and maintenance technicians
    • Laboratory certified operators and employees of a government or privately­ owned laboratory that are accredited to analyze routine compliance drinking water or municipal wastewater samples
    • Rural water association staff and technical support staff
    • Rural water districts, including all facilities

TRANSPORTATION AND LOGISTICS

    • Taxis, transportation services including Transportation Network ComTaxis, transportation services including Transportation Network Companies, and delivery services, including Delivery Network Companies.
    • Wholesale trade
    • Transportation and warehousing
    • Postal services and distribution centers

PUBLIC WORKS

    • Solid waste & hazardous waste
    • Utilities
    • Underground damage prevention services
    • Operational staff for solid waste pick-up
    • Operational staff at solid waste transfer and disposal facilities
    • Operational staff at hazardous waste treatment, storage, and disposal facilities, including underground injection control sites

COMMUNICATIONS AND INFORMATION TECHNOLOGY

    • Broadcasting
    • Publishing industries
    • Telecommunications
    • Data processing, hosting, and related services
    • Software publishers
    • All other miscellaneous schools and instruction
    • Computer systems design and related services

OTHER COMMUNITY-BASED GOVERNMENT OPERATIONS AND ESSENTIAL FUNCTIONS

    • Faith-based services that are provided through streaming or other technology.
    • Critical government workers, as defined by the employer and consistent with Continuity of Operations Plans and Continuity of Government plans.
    • Workers supporting public and private childcare establishments, pre-K establishments, K-12 schools, career and technology centers, colleges, and universities for purposes of distance learning, provision of school meals, or care and supervision of minors to support essential workforce across all sectors.
    • County workers responsible for determining eligibility and safety net benefits.
    • The Courts, consistent with guidance released from the Oklahoma Supreme Court and Oklahoma Court of Criminal Appeals.
    • Tag agencies
    • Workers and instructors supporting academies and training facilities and courses for the purpose of graduating students and cadets that comprise the essential workforce for all identified critical sectors.
    • Hotel Workers where hotels are used for COVID-19 mitigation and containment measures, including measures to protect homeless populations.
    • Hotels
    • Construction Workers, including residential and commercial, and workers who support the construction, operation, inspection, and maintenance  of construction sites and construction projects (including housing construction and heavy and civil engineering construction)
    • Businesses and workers that support the supply chain for commercial and/or residential construction and development
    • Workers such as plumbers, electricians, exterminators, and other service providers who provide services that are necessary to maintaining the safety, sanitation, construction material sources, and essential operation  of construction sites and construction projects (including those that support such projects to ensure the availability of needed facilities, transportation, energy and communications; and support to ensure the effective removal, storage, and disposal of solid waste and hazardous waste).
    • Oklahoma One-Call or OKIE 811
    • Commercial Retail Stores, that supply essential sectors, including convenience stores, general merchandise stores, liquor, pet supply stores, auto supplies and repair, hardware and home improvement, and home appliance retailers.
    • Motor vehicle and parts dealers
    • Workers supporting the entertainment industries, studios, and other related establishments, provided they follow covid-19 public health guidance around social distancing.
    • Workers critical to operating Rental Car companies that facilitate continuity of operations for essential workforces, and other essential travel.
    • Workers that provide or determine eligibility for food, shelter, in-home supportive services, child welfare, adult protective services and social services, and other necessities of life for economically disadvantaged or otherwise needy individuals (including family members).
    • Workers at animal care facilities that provide food, shelter, veterinary and/or routine care and other necessities of life for animals.
    • Public and private golf courses, public parks, and workers needed to maintain normal operations.
    • Workers involved with home repair and maintenance including roofing, lawn care, foundation repair, and similar businesses whose work is primarily performed out of doors.
    • Executive, legislative, and other general government support
    • Administration of human resources programs
    • Administration of environmental quality programs
    • Administration of   housing   programs, urban planning, and community development
    • Administration of economic programs

CRITICAL MANUFACTURING

    • Paper manufacturing
    • Printing and related support activities
    • Plastics and rubber products manufacturing
    • Mineral product manufacturing
    • Primary metal manufacturing including equipment

FINANCIAL SERVICES

    • Finance and Insurance
    • Real estate and Leasing services
    • Management of companies
    • Business associations
    • Financial advisory

CHEMICAL

    • Petroleum and coal products manufacturing
    • Chemical manufacturing

COMMERCIAL AND PROFESSIONAL SERVICES

    • Professional (such as legal and accounting), scientific, and technical services
    • Administrative and support services
    • Waste management and remediation services
    • Death care services
    • Dry cleaning and laundry services
    • Repair and maintenance

DEFENSE INDUSTRIAL BASE

    • Explosives manufacturing
    • National security and international affairs

ABLE permits beer and wine sale from licensed restaurants closed to dine-in service due to COVID-19

Oklahoma City and Tulsa, and many other cities in Oklahoma, have closed restaurants to dine-in service and permit only delivery, take-out or curb-side pickup. Beer and wine is still available to consumers from certain restaurants that are closed to dine-in service.

The Oklahoma Alcoholic Beverage Laws Enforcement (ABLE) Commission will permit such restaurants who already have an on-premises beer and wine or mixed beverage license to allow sealed beer and wine (no spirits) sales with food sales and to take-out or curb-side customers only.

Those beer sales can include draft beer in growlers or other sealed containers, but only from kegs that were tapped as of 3/20/20.

No alcohol sales are permitted with deliveries (either by the restaurant directly or through a commercial delivery service such as Door Dash or Postmates) and no take-out or curb-side alcohol sales are permitted by bars at all.


Phillips Murrah attorney Ellen SpiropoulosLauren Hanna

Ellen assists local and national businesses in the restaurant, entertainment and hospitality industries with obtaining applicable operating licenses and permits for food and alcoholic beverage service as well as any related compliance or enforcement issues.

For more information on this alert and its impact on your business, please call 405.552.2422 or email me.

Keep up with our ongoing COVID-19 resources, guidance and updates at our RESOURCE CENTER.

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Oklahoma Department of Commerce to host teleconference series on SBA Economic Injury Disaster Loans

By Phillips Murrah Attorney Kendra M. Norman

For Oklahoma businesses interested in more information about the U.S. Small Business Administration (SBA) Economic Injury Disaster Loan Program, The Oklahoma Department of Commerce is hosting three teleconferences that will cover the application process.

Also, according to their website, Commerce Director of Business Retention and Expansion, Ray Little, and SBA Office of Disaster Assistance Public Information Officer, Susheel Kumar, will be on the calls to provide information and answer questions.

Upcoming Calls will occur on the following three days:

  1. Thursday, March 26 from 2 to 3 p.m.
  2. Tuesday, March 31 from 2 to 3 p.m.
  3. Thursday, April 2 from 2 to 3 p.m.

To register, go to this website: https://www.okcommerce.gov/oklahoma-small-business-teleconference-sba-economic-injury-disaster-loan-application-and-program/

@OKcommerce on Twitter

@OKcommerce on Facebook


Kendra Norman Web

Kendra M. Norman represents individuals and businesses in a broad range of transactional matters.

For more information on this alert and its impact on your business, please call 405.606.4726 or email me.

Keep up with our ongoing COVID-19 resources, guidance and updates at our RESOURCE CENTER.

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Cybersecurity during COVID-19 transition to remote work policies

By Phillips Murrah Director Cody J. Cooper

Cody Cooper online photo

Cody Cooper is a Director in the Intellectual Property Practice Group and represents individuals and companies in a wide range of intellectual property matters, including patent, trademark and copyright matters. His practice also includes commercial litigation.

The pandemic spread of the COVID-19 virus brings with it threats to the physical health of employees and the financial health of employers. It also brings an increased data security risk for both individuals and companies.

If you are like me, you have received countless emails from every store, restaurant or business you have ever visited, passed by or looked at (I still can’t figure out how some of these companies have my email address) explaining how they are address the pandemic situation.

Add in the communications regarding the 2020 census, and there are countless opportunities for ill-intending individuals to try to steal your personal information. It is important to be especially vigilant at these times and not click on emails or links in emails or texts unless you are absolutely certain they are legitimate. The best practice is to err on the side of caution and assume anything remotely questionable should not be opened.

For companies, responding to the pandemic situation means having to rethink traditional work settings and moving employees out of the office and enabling them to work from home. With this comes the obvious preparation to allow employees access to company information outside of the company’s network. But, it is incredibly important to recognize that this comes with an increased risk of data security issues.

Allowing employees access to information outside of a company’s traditional network ultimately means that the company has had to store company information on a medium that is accessible through the Internet. Companies should revisit security policies to make certain that they have in place the appropriate measures to prevent unwanted third-parties from accessing this information or employees’ inadvertent misuse of sensitive information.

Companies can take several steps to put themselves in the best position to allow employees to work remotely and while also putting themselves in the best place to continue to secure the company’s sensitive data.

The easiest and most important steps a company can and should take are:

(1) limit access to only employees that need it and only the data they need to perform their job;

(2) set security settings to require password logins (whether through a company device or personal device);

(3) where possible, turn on multi‑factor authentication to ensure a high level of security over the most sensitive data;

(4) decrease the time before device lock out the user and require re-entry of their password.

For companies with the financial and technology capability, they can also deploy data loss prevention (DLP) products such as mobile device management systems or cloud access security broker to add extra layers of data protection. Companies can also run security tests, i.e. fake phishing attempts, during this time to test which employees are practicing safe data security practices and remind those that are not of their responsibilities. It is always good practice to regularly circulate a newsletter with security updates and reminders, and that practice should continue – or or even increase – while employees are working remotely.

Unfortunately, there may be layoffs of employees during this crisis. While employers hope to avoid this at all costs, it is also important to remember to have a plan in place to protect and recoup company devices and data in the even that remotely working employees are terminated. During that time, it is important to terminate access to company data and to recover any outstanding devices. Hopefully these measures will not be necessary, but it is important to have a plan in the event they do occur.

Companies and individuals are in a state of triage trying to address the most pressing needs as they arise. It is especially important at this time for everyone to remain vigilant about their cybersecurity and data security practices, to be proactive, and put plans in place to address potential developments.


For more information on this alert and its impact on your business, please call 405.552.2405 or email me.

Keep up with our ongoing COVID-19 resources, guidance and updates at our RESOURCE CENTER.

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Department of Labor Issues Interim Guidance on Recently-Enacted Coronavirus Response Act

By Phillips Murrah attorney Lauren Barghols Hanna

Phillips Murrah attorney Lauren Hanna

Lauren Barghols Hanna counsels and represents management in all phases of the employment relationship, including litigation matters.

Earlier today, the United States Department of Labor issued its first guidance on the implementation of the recently-enacted Families First Coronavirus Response Act.  The DOL is expected to issue formal implementation regulations later this week.  Some of the important information in this initial compliance assistance document is highlighted below:

  • Act goes into effect on April 1, 2020—applies only to leave taken between April 1st and December 31st
  • Act applies to all businesses that employ fewer than 500 full-time and part-time employees within the United States at the time leave will be taken
    • Employees on leave, temporary employees, jointly-employed employees (regardless of whose payroll they are on—FLSA joint-employer test), and day laborers count toward employee count.
    • Independent contractors not counted as employees
    • FMLA integrated-employer test to determine whether two or more entities are separate employers
  • Small businesses who are concerned that providing paid leave will jeopardize the viability of their business should document why the business meets the DOL criteria for an exemption (criteria will be detailed in upcoming regulations)
  • Regular rate of pay for purposes of the Act is the average of the employee’s regular rate over the six months prior to date leave is taken (including commissions, tips, and piece rates)
  • When employees would normally have been scheduled to work more than 40 hours a week, the eFMLA requires that normal overtime hours be included, however the premium for overtime hours need not be paid. However, Emergency Paid Sick Leave only requires payment of up to 80 hours of sick leave over a 2-week period.
  • Emergency paid sick leave—Employee (paid at the greater of the employee’s regular rate of pay, the federal minimum wage, or applicable State or local minimum wage, subject to cap of $511 per day/$5,110 total) may be taken if an employee is unable to work or telework because the employee:
    • is subject to a Federal, State, or local quarantine or isolation order related to COVID-19;
    • has been advised by a health care provider to self-quarantine due to concerns related to COVID-19; or
    • is experiencing symptoms of COVID-19 and are seeking medical diagnosis
  • Emergency paid sick leave—Caring for Family Member (paid at 2/3 of the greater of the employee’s regular rate of pay, the federal minimum wage, or applicable State or local minimum wage, subject to cap of $200 per day/$2000 total) may be taken if an employee is unable to work or telework because the employee is:
    • caring for an individual who is subject to a Federal, State, or local quarantine or isolation order related to COVID-19 or an individual who has been advised by a health care provider to self-quarantine due to concerns related to COVID-19;
    • caring for your child whose school or place of care is closed, or child care provider is unavailable, due to COVID-19 related reasons; or
    • experiencing any other substantially-similar condition that may arise, as specified by the Secretary of Health and Human Services
  • Emergency Family and Medical Leave—School Closing/Childcare (paid at 2/3 of the greater of the employee’s regular rate of pay, the federal minimum wage, or applicable State or local minimum wage, subject to cap of $200 per day/$12,000 total for twelve weeks, when combined with paid sick leave) may be taken if an employee is unable to work or telework because the employee is unable to work or telework because they need to care for their child(ren) whose school or childcare is closed/unavailable due to COVID-19.
    • First 10 days of eFMLA is unpaid, or an employee may substitute any accrued vacation leave, personal leave, or medical/sick leave

Keep up with our ongoing COVID-19 resources, guidance and updates at our RESOURCE CENTER.

For more information on this alert and its impact on your business, please call 405.606.4732 or email me.

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Senate reaches bipartisan deal on CARES Act

By Phillips Murrah attorney Lauren Barghols Hanna

Early this morning, the Senate reportedly reached a bipartisan deal to finalize and pass the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), a $2 trillion stimulus package seeking to address the widespread economic damage caused by the ongoing coronavirus pandemic.  In addition to directly sending $1,200 checks to many Americans, the legislation reportedly creates a $367 billion loan program for small businesses, supplements state unemployment insurance benefits, directs $150 billion to state and local stimulus funds, and forms a $500 billion fund for industries, cities and states.

The Senate is expected to vote on the CARES Act on Wednesday afternoon.

Phillips Murrah will keep you advised as the CARES Act advances through Congress. Keep up with our ongoing COVID-19 resources, guidance and updates at our RESOURCE CENTER.


Phillips Murrah attorney Lauren Hanna

Lauren Barghols Hanna is an attorney in the Labor & Employment Practice Group. As a part of her employment practice, Lauren counsels and represents management in all phases of the employment relationship, including litigation matters involving discrimination, retaliation, harassment and wrongful discharge claims, whistleblower claims, claims related to employment agreements and theft of trade secrets, and other disputes arising from the workplace.

For more information on this alert and its impact on your business, please call 405.606.4732 or email me.

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OTC issues tax notice related to curbside or drive-through sales of packaged beer and wine

By Phillips Murrah Director Dawn M. Rahme

The ABLE Commission recently issued an advisory letter allowing restaurants holding mixed beverage licenses to sell packaged beer and wine in conjunction with food sales through curbside pickup or drive-through.

In response, the Oklahoma Tax Commission issued a notice dated March 20, 2020 addressing the mixed beverage tax related to curbside or drive-through sales of packaged beer and wine.  The Oklahoma Tax Commission’s notice provides that such sales do not constitute mixed beverages that are subject to the 13.5% mixed beverage tax. However, the sale of packaged beer and wine in these instances should be treated as a retail sale subject to regular sales tax.


Dawn Rahme Oklahoma City tax law

Dawn M. Rahme is a Director and a member of the Firm’s Executive Committee. She represents individuals and businesses in an array of transactional matters with a focus on assisting corporations, partnerships and individuals in general tax planning.

For more information on this alert and its impact on your business, please call 405.606.4770 or email me.

Keep up with our ongoing COVID-19 resources, guidance and updates at our RESOURCE CENTER.

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Court-ordered custody visitation issues during COVID-19 pandemic

By Phillips Murrah attorney Robert K. Campbell

As you are aware, Governor Stitt issued Executive Order 2020-7 on March 15, 2020, declaring an emergency in all 77 Oklahoma Counties due to the impending Covid-19 threat to the people of Oklahoma. On March 16, 2020, the Oklahoma State School Board ordered all accredited public schools in the state to cease operations for students and educators until April 6, 2020 in response to the Covid-19 novel coronavirus.

For families dealing with a court-ordered visitation schedule due to divorce, paternity actions, guardianships, or otherwise, there was no clear direction on how they should continue with their current court-ordered visitation schedule that primarily revolved around start and stop dates correlating with the minor child(ren) school calendar.

Attorney Robert Campbell

Robert K. Campbell practices in the area of family law, specifically concentrated in matters of divorce, legal separation and custody issues. He represents clients by providing steady, thoughtful and resourceful counsel to advise them through significant family and life transitions.

For instance, this is a time in which most schools are experiencing Spring Break or should be beginning classes following Spring Break. Typical visitation schedules provide that Spring Break begins when school lets out for the break and ends when school resumes. Some may be wondering what this mean for parents who were set to begin their regular visitation on the date in which the school calendar provided for school to resume after the break.

Due to the Oklahoma State School Board’s mandate that school operations cease until April 6th, does that mean that a parent who has their child(ren) for Spring Break does not have to return the child(ren) to the other parent until “school resumes” as many visitation schedules order?

The answer is no. On March 23, 2020, the Oklahoma Supreme Court issued its Second Emergency Order Regarding the Covid-19 State of Disaster. This Order applies to, and clarifies, visitation or parenting time schedules in Family/Domestic Relations/Dissolution of Marriage/Paternity/Guardianship and/or any other cases concerning custody and visitation of minor children, wherein a school schedule is used to determine visitation and/or custody.

This Order provides that, for purposes of determining a person’s right to custody and visitation, the original published school schedule shall control in all instances. A person’s right to visitation is not to be affected by the school’s closure that arise from the Covid-19 pandemic.

What this means is that visitation, which is determined based on school schedules, is to remain on schedule as if the schools had not closed and ceased operations. Therefore if one parent’s visitation schedule for Spring Break was to end when “school resumes” from the break, then that is when the regular visitation schedule is to begin again, regardless of a school’s current closing.

This applies to upcoming holidays, and most likely summer break, if schools remain closed.

For all intents and purposes, visitation schedules that are dependent upon school calendars for visitation beginning and ending points, the school schedule will continue to govern the beginning and ending of holiday breaks and summer.

Nothing in the Second Emergency Order prevents parties from mutually agreeing to a different schedule by written agreement, if allowed by the assigned judge. However, only written modifications which are filed will be enforced.


For more information on this alert and its impact on your family, please call 405.606.4797 or email me.

Keep up with our ongoing COVID-19 resources, guidance and updates at our RESOURCE CENTER.

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State-by-State breakdown of COVID-19 tax relief to taxpayers

By Phillips Murrah Director Dawn M. Rahme

Over thirty states and municipalities are offering tax relief to taxpayers in connection with the COVID-19 outbreak. Attached (click HERE) is a summary of the various state and local actions as of March 24, 2020 that was prepared by Thompson Reuters Checkpoint.  So far, Oklahoma has provided two relief measures.

First, Oklahoma is following the federal deadlines and will be extending the due date from April 15 to July 15  for filing your Oklahoma income tax return and payment of any Oklahoma income taxes.

Second, for transportation carries of materials, equipment and supplies that are used for direct assistance in support of emergency relief efforts for COVID-19, Oklahoma is temporarily suspending any costs and fees for oversize or overweight permits.

More relief efforts are underway, and as they become available, we will share them with you.


Dawn Rahme Oklahoma City tax law

Dawn M. Rahme is a Director and a member of the Firm’s Executive Committee. She represents individuals and businesses in an array of transactional matters with a focus on assisting corporations, partnerships and individuals in general tax planning.

For more information on this alert and its impact on your business, please call 405.606.4770 or email me.

Keep up with our ongoing COVID-19 resources, guidance and updates at our RESOURCE CENTER.

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Understanding Paid Sick Leave Tax Credits for Employers

By Phillips Murrah Director Dawn M. Rahme

The Families First Coronavirus Response Act (FFCRA) was signed into law on March 18, 2020 and includes both the Emergency Paid Sick Leave Act, which provides for paid sick leave, as well as the Emergency Family and Medical Leave Expansion Act, which provides for expanded paid leave.  The Act provides employers relief in the form of tax credits to offset the cost of wages.

Employer Procedure

Guidance for claiming the tax credits will come from the Internal Revenue Service (IRS) in the next 2 weeks. However, we already know a key component of how the tax credits will work. Employers will be allowed to retain payroll tax payments equal to the amount of qualifying paid sick and child care leave that the employer pays, as laid out below.

The tax payments the employer may retain include both the employee and employer shares of social security and Medicare taxes for ALL employees whether or not those employees were paid qualifying sick and child care leave. If the paid sick and child care leave exceed the amount of payroll taxes due, the employer can request a payment from the IRS.

Qualifying employers include all American businesses with fewer than 500 employees. According to the IRS, “The legislation will enable employers to keep their workers on their payrolls, while at the same time ensuring that workers are not forced to choose between their paychecks and the public health measures needed to combat the virus.”

Dawn Rahme Oklahoma City tax law

Dawn M. Rahme is a Director and a member of the Firm’s Executive Committee. She represents individuals and businesses in an array of transactional matters with a focus on assisting corporations, partnerships and individuals in general tax planning.

Scenario A: Paid Sick Leave 

Employee is unable to work because the employee is quarantined, and/or experiencing COVID-19 symptoms, and seeking a medical diagnosis.

Employee Benefit:

100% pay for 10 days (up to 80 hours)

Employer Paid Sick Leave Tax Credit:

Eligible employers may receive a refundable sick leave credit for sick leave at the employee’s regular rate of pay, up to $511 per day and $5,110 in the aggregate, for a total of 10 days

Scenario B: Emergency Paid Sick Leave 

Employee is unable to work because of a need to care for an individual subject to quarantine, to care for a child whose school is closed or child care provider is unavailable for reasons related to COVID-19, and/or the employee is experiencing substantially similar conditions as specified by the U.S. Department of Health and Human Services.

Employee Benefit:

2/3 pay for 10 days (up to 80 hours)

Employer Paid Sick Leave Tax Credit:

Eligible employers will receive a payroll tax credit for 100% of employee’s qualified sick leave, capped at $200 per day for 10 days ($2,000 total); plus eligible employers may receive a tax credit determined based on costs to maintain health insurance coverage for the eligible employee during the leave period.

Self-Employed:

Equivalent income tax credit amounts are available to self-employed individuals under similar circumstances.

Scenario C: Emergency FMLA Expansion 

Employee who is unable to work due to a need to care for a child whose school is closed, or child care provider is unavailable for reasons related to COVID-19.

Employee Benefit:

2/3 pay for up to an additional 10 weeks

Employer Child Care Leave Tax Credit:

Eligible employers may receive a payroll tax credit of 100% of eligible wages paid, capped at $200 per day up to $10,000 per employee in total. Up to 10 weeks of qualifying leave can be counted towards the child care leave credit.

Self-Employed:

Equivalent income tax credit amounts are available to self-employed individuals under similar circumstances.


For more information on this alert and its impact on your business, please call 405.606.4770 or email me.

Keep up with our ongoing COVID-19 resources, guidance and updates at our RESOURCE CENTER.

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DOL seeks public input on Family First Coronavirus Response Act

Wage and Hour release graphicThe U.S. Department of Labor (DOL) Wage and Hour Division (WHD) reached out on Monday seeking pubic input on how to implement The Families First Coronavirus Response Act (FFCRA). The feedback will be used to “assist employers and employees in understanding their responsibilities and rights under the FFCRA,” according to the release from the DOL’s Wage and Hour division.

Message from the U.S. Department of Labor Wage and Hour Division release:

The U.S. Department of Labor will be hosting a national online dialogue to provide employers and employees with an innovative opportunity to offer their perspective as the Department develops compliance assistance materials and outreach strategies related to the implementation of the Families First Coronavirus Response Act (FFCRA).

The ideas and comments gathered from this dialogue will inform compliance assistance guidance, resources, and tools, as well as outreach approaches, that assist employers and employees in understanding their responsibilities and rights under the FFCRA.

We need your input by March 29, 2020. Anybody who is interested can participate online at https://ffcra.ideascale.com from March 23 through March 29, 2020 or can join a Twitter chat hosted by @ePolicyWorks on March 25, 2020 at 2 p.m. using the hashtag #EPWChat.

WHD is initiating and inviting public engagement for one week via ePolicyWorks Online Dialogue Communities, which helps policymakers collect feedback through online crowdsourcing and social media platforms.

President Trump signed FFCRA into law on Wednesday, Mar 18. It requires certain employers to provide employees with expanded family and medical leave for specified reasons related to COVID-19. WHD is tasked with administering and enforcing these provisions, which will apply from their effective date through the end of the year.

For more information on this alert and its impact on your business and employees, please call 405.235.4100 or email us.

Keep up with our ongoing COVID-19 resources, guidance and updates at our RESOURCE CENTER.

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COVID-19 Resource Center

Oklahoma Governor Announcement: Healthcare occupational licenses extended during the emergency

By Phillips Murrah attorney Mary Holloway Richard

Announcement for all Licensed Healthcare Providers regarding Expiration of Licenses

Oklahoma Opioid Decision by Phillips Murrah healthcare attorney Mary Holloway

Mary Richard is recognized as a pioneer in healthcare law in Oklahoma. She has represented institutional and non-institutional providers of health services, as well as patients and their families.

On March 17, 2020, Governor Stitt issued Amended Executive Order 220-7 which provided additional responses to the current pandemic.  The Order applies to all 77 counties and positions state agencies and departments to respond to the emergency with new hires and purchases as necessary.  One portion of the order focuses on the providers in the front lines—physicians and nurses.  While there is much for health care providers to worry about—office closings, staff, patient access to providers, and safety—providers will likely not be thinking about the status of license applications or the need to renew them.  This executive order offers a grace period by providing the following guidance to providers with those state licensure issues:

Any medical professional who holds a license, certificate, or other permit issued by any state that is a party to the Emergency Management Compact evidencing the meeting of qualifications for the practice of certain medical services, as more particularly described below, shall be deemed licensed to practice in Oklahoma so long as this Order shall be in effect, subject to the following conditions:

    1. This shall only apply to Medical (MD) and Allied Licenses issued by the Board of Medical Licensure and Supervision, Licenses issued by State Board of Osteopathic Examiners, and Licenses and Certificates issued by the Board of Nursing, all three shall collectively be referred to as “Boards”;
    2. Any medical professional intending to practice in Oklahoma pursuant to this Order, hereinafter referred to as “Applicant,” shall first apply with and receive approval from appropriate Board;
    3. It is the responsibility of each Board to verify the license status of any applicant and, upon verification of good standing, shall issue a temporary license to practice within this State; and
    4. Any applicant licensed under this Order shall be subject to the oversight and jurisdiction of the licensing Board, which includes the ability of the Board to revoke said license and to initiate any administrative or civil proceeding related to any alleged misconduct of applicant.

All occupational licensed of this type shall be extended during the emergency and shall expire fourteen (14) days following the withdrawal or termination of Amended Executive Order 2002-07.

In addition, this Executive Order, supports The Centers for Medicare and Medicaid Services’ (CMS) Section 1135 Waiver in eliminating the current requirement that a preexisting patient relationship exist in order for treatment to continue via telehealth.

Potential Legal Recourse for COVID-19 Losses

By Phillips Murrah Director, Clayton D. Ketter

The continuing uncertainty surrounding the COVID-19 global pandemic is causing significant disruption to business operations.  In addition, recent restrictions on operations is likely to further cause various businesses to lack the financial capabilities to meet ongoing obligations.  Such business may have various contractual and legal rights that may serve to ease their financial pain.  Several of these are analyzed below.

Clayton Ketter

Clayton D. Ketter is a Director and the Firm’s Litigation Practice Group Leader. Clay has extensive experience in financial restructurings and bankruptcy matters.

A. Business Interruption Insurance

The first place many businesses may look for relief when forced to temporarily close due to the COVID-19 pandemic and related government restrictions is a business interruption insurance policy.  Business interruption insurance generally compensates a business for lost income suffered in the event the business is forced to temporarily cease operations due to an unforeseen event such as a fire or natural disaster.  Some policies also provide coverage for issues with a business’s supply chain that are outside of the business’s control.

Every business interruption insurance policy will contain various exclusions from coverage.  After the SARS outbreak in 2003, it became common for insurance companies to seek to exclude from coverage losses sustained from communicable disease outbreaks, such as the current COVID-19 pandemic.  Such exclusions may prevent coverage in the current situation.

Many business interruption policies also require that covered losses be tied to physical damage to a business.  A typical example would be a business that was forced to close because its building was damaged by a fire or natural disaster.  A general slowdown in business related to a broad disaster is unlikely to meet this requirement, because there is no corresponding physical damage to the specific business.  Some policies also provide coverage when ingress or egress to a business is limited or prohibited by a governmental authority.  Those too, though, often require some specific physical damage to have been suffered.

However, the precise wording of the insurance policy, which will vary from policy to policy, is critical to determining coverage.  Even small variations in policy language can have large impacts, particularly in an unprecedented situation such as the one we are currently facing.  Thus, business owners should carefully review their specific policy and seek legal counsel for any potential issues.

B. Force Majeure Clauses

Another potential source of relief for specific contractual obligations is a contractual provision known as a force majeure clause.  The term force majeure covers a broad range of provisions that generally excuse a party’s performance under a contract when external events, such as an act of god, have rendered such performance impossible.  While there is no single standard force majeure clause and they can take many forms, a common example would be a provision providing:

In the event either party is unable to perform its obligations under the terms of this Contract because of acts of god or other causes reasonably beyond its control, such party shall not be liable for damages to the other for any damages resulting from such failure to perform or otherwise from such causes.

Specific clauses may explicitly set out circumstances that constitute a force majeure event, such as strikes, wars, and natural disasters.  It is also common for provisions to set out certain obligations that are not excused by a force majeure event.  For example, commercial real property leases often provide that a tenant’s obligation to pay rent is not excused by a force majeure event.

While force majeure clauses are common, most do not explicitly provide that a global pandemic will constitute a force majeure event.  Without a specific reference, parties seeking to invoke such a provision will have to rely on general terms such as act of god.  Such general terms are subject to differing interpretation by courts.  For instance, the Oklahoma Supreme Court has defined an act of god as “some inevitable accident that could not have been prevented by human care, skill and foresight, but which results exclusively from nature’s cause, such as lightning, tempest and flood.”  City of Purcell v. Subblefield, 139 P. 290 (Okla. 1914).  Whether a global pandemic such as COVID-19 would fit within that definition remains to be seen.

Another issue with the applicability of a force majeure clause is the extent that performance was affected.  Specific clauses will use a variety of standards to excuse performance, such as impracticability, impossibility, or illegality.  These differences will have a significant impact on whether a force majeure clause applies.  For example, restrictions on how businesses are permitted to operate in the current environment continue to evolve.  Those restrictions may make performance of a contractual obligation impracticable, but not necessarily impossible or illegal.  Thus, a business that has been statutorily restricted from operating would likely have a stronger argument that a force majeure clause applies than one whose operations have been impaired by the restrictions.

Ultimately, whether a party’s performance under a contract will be excused due to the COVID-19 pandemic is going to largely depend on the terms of the specific contract coupled with the facts of each party’s individual situation.  Thus, it is recommended that a contracting party carefully review the language of the contract at issue with a legal professional.

C. Governmental Taking

There may be other contractual provisions that could also provide relief.  For instance, it is common for commercial real property leases to excuse performance when the underlying property has been taken by condemnation or eminent domain.  An enterprising tenant could attempt to argue that governmental restrictions on the business’s operations constitute a condemnation because the tenant’s rights have been “taken” for the greater good of the public.  Such arguments appear to be completely untested.  However, as with the other issues raised herein, the ability to utilize such arguments is going to heavily depend on the specific terms of the agreement at issue.

D. Chapter 11 Bankruptcy

While the forced closure of a business may result in a general reduction in certain contingent expenses, fixed costs such as rent and loan payments are likely to continue.  Upon reopening, many business, despite being profitable, are likely to face liquidity issues due to the temporary cessation in income.  For such businesses, the first step should be to attempt to reach a consensual resolution whereby the outstanding obligations are restructured by agreement.  However, when an out of court workout cannot be reached, a bankruptcy under Chapter 11 may present a viable option.

Chapter 11 is designed to allow a debtor to restructure its debts so that it can repay creditors in an orderly manner.  Often, this involves extending the period for repayment.  For instance, a business that is facing a large amount of debts currently due, might be able through a Chapter 11 bankruptcy to repay those debts over time through a series of payments.  Thus, Chapter 11 may provide an otherwise profitable businesses that has incurred substantial debts as a result of the current crisis a path to continue operating and repay its debts in a structured manner.

E. Conclusion

Ultimately, a party’s rights and obligations will depend on the specific facts and circumstances at issue, including the language of the parties’ agreement.  To the extent a business is facing such issues due to the current pandemic and associated response, it is advisable to discuss the specific situation with a qualified legal professional.

Disaster Loan Info: U.S. Small Business Administration (SBA) lending programs

[THIS ARTICLE IS OUT OF DATE. PLEASE SEE UPDATED INFORMATION HERE.]

 


By Phillips Murrah attorney Kendra M. Norman

SBA Loans

The U.S. Small Business Administration (SBA) has several lending programs. A full list of the loan programs offered by the SBA and eligibility requirements can be found here, however its main programs are as follows:

Kendra Norman Web

Kendra M. Norman represents individuals and businesses in a broad range of transactional matters.

General Small Business Loans 7(a)

This is the SBA’s main lending program. This loan that can be used for various business expenses including expansion/renovation/new construction; purchase of land or buildings; refinancing of debt for compelling reasons; a seasonal line of credit; etc. While the lenders participating have unique eligibility requirements, generally the business must be an officially registered for-profit business, do business in the United States, the business owner must have invested equity into the business, and the business must have exhausted its financing options such that it cannot obtain funds from any other financial lender. Assuming a 3.25% market prime rate (effective March 16, 2020), the SBA 7(a) loan rates are 6% to 8%.

 Real Estate & Equipment Loans: CDC/504

The CDC/504 Loan is for business borrowers looking to buy land, buildings or major equipment with long-term, fixed-rate financing. To be eligible for a 504 loan, your business must be operated for profit and have a tangible net worth not more than $15 million, and an average net income of $5 million or less after federal income taxes for the preceding two years prior to application. Loans cannot be made to businesses engaged in nonprofit, passive or speculative activities.

 Assuming a 3.25% market prime rate (effective March 16, 2020), the SBA CDC/504 loan rates are 3.63% to 6.112%.

Economic Injury Disaster Loans

Congress has approved additional SBA loan funding under the Coronavirus Preparedness and Response Supplemental Appropriations Act. Therefore, the SBA is offering designated states and territories low-interest Economic Injury Disaster Loans for working capital to small businesses suffering substantial economic injury as a result of the Coronavirus (COVID-19).

SBA’s Economic Injury Disaster Loans offer up to $2 million in assistance and can provide vital economic support to small businesses to help overcome the temporary loss of revenue they are experiencing. These loans may be used to pay fixed debts, payroll, accounts payable and other bills that cannot be paid because of the disaster’s impact. The interest rate is currently 3.75% for small businesses and 2.75% for non-profits. The SBA offers loans with long-term repayments up to a maximum of 30 years. Terms are determined on a case-by-case basis, based upon each borrower’s ability to repay.

On March 17th, Governor Kevin Stitt submitted a request to the SBA for a declaration under the Economic Injury Disaster Loan Program. On March 20th, the SBA issued the declaration making Oklahoma businesses affected by COVID-19 eligible to apply for the SBA Economic Injury Disaster loans. You can fill out the loan application will here. The Oklahoma Department of Commerce has issued SBA Loan FAQs here.

 

 

(UPDATE Mar19) Emergency Coronavirus Response Bill: Employers Must Provide Paid Leave To Employees Impacted by COVID-19

By Lauren Barghols Hanna

Phillips Murrah attorney Lauren Hanna

Lauren Barghols Hanna

On March 18, President Trump signed the Families First Coronavirus Response Act into law. It applies to all private employers with fewer than 500 employers.  Paid sick time will be permitted to employees regardless of tenure, while employees with at least 30 days on the job will be eligible for the amended FMLA leave connected to the coronavirus.

We expect the effective date for compliance will be April 2, 2020. We will continue to advise as regulations are released.

As of publication, there are more than 240,000+ confirmed cases of COVID-19, the respiratory disease caused by the novel coronavirus, in 135 countries around the world, with the United States currently confirming more than 11,500+ cases.  On Friday, March 13, 2020, President Trump declared a national state of emergency in response to this pandemic.  In response, the Department of Labor, CDC, OSHA, and the EEOC have issued helpful guidance for employers seeking to clarify permitted/required office safety measures and leave obligations applicable to employers and offices affected by the coronavirus.

In addition to ensuring free coronavirus testing regardless of insurance coverage and food assistance for needy families, the Coronavirus Response Act provides for expansive and unprecedented employment protections for eligible individuals impacted by COVID-19 who work for employers that employ fewer than 500 employees, including:

  • Paid sick time (up to 80 hours or two weeks of wages)
  • Family and Medical Leave (up to 12 weeks—10 of which shall be paid by the employer)

The below-described employee leave programs and protections must be implemented by covered employers (those who employ fewer than 500 employees) soon after enactment—so employers should begin drafting policies and procedures for full implementation now.

Paid Sick Time

The Act provides that all public employers and all private employers that employ fewer than 500 employees must immediately provide eligible full-time and part-time employees who are unable to work or telework due to the coronavirus up to 80 hours of paid sick time (full-time employees) or 2 weeks of wages (part-time employees), regardless of how long the employee has been employed by an employer.

Although all employers with fewer than 500 employees are covered by the current version of the Act, the Secretary of Labor will have the option of exempting certain small businesses with fewer than 50 employees.  Employers have the authority to exempt certain health care providers and emergency responders from the definition of “eligible employees” under the Act.

Paid sick time may be used by an employee if:

  • Employee must self-isolate after diagnosis with coronavirus or to obtain diagnosis or care for the symptoms of coronavirus,
  • Employee’s presence in the community may jeopardize the health of others because they have been exposed to or have the symptoms of the coronavirus,
  • Employee must care for an individual who must self-isolate after diagnosis with coronavirus or who must obtain medical diagnosis or care related to the coronavirus.
  • Employee must care for their child(ren) if their school or childcare is closed due to the coronavirus or they have been exposed to the coronavirus

All paid sick time must be paid at 100% of the employer’s regular wages for absences related to the employee’s need to self-isolate or seek medical care related to their own exposure to coronavirus.  However, any sick time provided for an employee to care for a family member in connection with exposure to the coronavirus or school/childcare closings must be paid at two-thirds of the employee’s regular wages.

Paid sick time will be capped at $511/day and up to $5,110 total for absences associated with an employee’s own diagnosis or need to quarantine, with caps of $200/day and up to $2,000 total for all other paid sick time.

An affected employee may first use this paid sick time for eligible purposes related to the coronavirus pandemic.  Employers may not require an employee to use otherwise accrued sick time or other paid leave before using the paid sick time granted by the Act.  Further, an employer may not require that an employee search for or find a replacement to cover the hours taken by the employee as paid sick time.

Employers are prohibited from taking any disciplinary action or discriminating in any manner against an employee who takes leave in accordance with the Act and has filed a complaint or instituted any proceeding under or related to this Act or has testified or is about to testify in any such proceeding.

Information regarding employee eligibility for paid leave under the Act must be posted where employee notices are customarily posted. The Secretary of Labor will make available a compliant model notice no later than 7 days after the date of enactment of the Act.

An employer who does not permit its eligible employees to take sick leave time under the Act will be deemed to be in violation of the Fair Labor Standards Act and be subject to penalties for that violation.

Emergency Paid Leave—Amendment to the Family and Medical Leave Act

The Act also amends the federal Family and Medical Leave Act and creates a new subsection of paid medical leave under the FMLA to provide up to 12 weeks of family and medical sick leave during a public health emergency related to the coronavirus to all eligible employees, 10 weeks of which must be paid by the employer at a rate of no less than two-thirds of the employee’s usual pay.  This extended paid leave is available only to employees who work for companies employing fewer than 500 employees.

Although all employers with fewer than 500 employees are covered by the current version of the Act, the Secretary of Labor will have the option of exempting certain small businesses with fewer than 50 employees, if it determines that providing paid leave under the Act “would jeopardize the viability of the business as a going concern.”  Additionally, employers with fewer than 50 employees would not be subject to private lawsuits filed by employees for violations of this Act–only actions brought directly by the Department of Labor.

The first 10 days for which an eligible employee impacted by the coronavirus takes the public health emergency FMLA leave related to the coronavirus may be unpaid.  Alternatively, an employee may elect to substitute any accrued vacation leave, personal leave, or medical or accrued sick leave or the above-described paid sick time for the unpaid leave.  However, an employer may not require an employee to substitute paid leave for unpaid public health emergency FMLA leave related to the coronavirus under the Act.

An employee will be eligible for this public health emergency FMLA leave related to the coronavirus if they have been on the job for at least 30 days and the employee needs to stay at home because their child(ren)’s school or childcare facility has closed unexpectedly due to the coronavirus.

Employers have the authority to exempt certain health care providers and emergency responders from the definition of “eligible employees” under the Act.

Examples

Scenario 1:  A long-time employee of a private company with fewer than 500 employees receives news that their elderly parent must self-isolate due to potential exposure to the coronavirus at a doctor appointment.  Employee’s parent is worried that they will not be able to perform all self-care or prepare meals if their friends and home aide must stay away during the incubation period.  Employee decides to move in with their elderly parent for the two-week incubation period to take care of their parent’s daily needs and potentially help if they become symptomatic.  Employee is absent for the duration of their parent’s two week incubation period and then Employee promptly returns to work.

Wages:  Employee would be paid 2/3 of their typical wages (subject to the above-described caps) for the 2 weeks that Employee was caring for their parent as a Paid Sick Time benefit.

 

Scenario 2:  Long-time Employee of a private company with fewer than 500 employees travels to Washington for spring break, returns home, and then learns of a positive test in the area they stayed on spring break.  Based on news reports and a health department press release, Employee believes they may have been in close proximity to one or more persons with a positive COVID-19 test.  Employee and family self-isolate and wait to take the COVID-19 test.  Employee eventually tests negative, but employee’s 17 year old child tests positive.  Employee is absent a total of two weeks for their own self-isolation and another one week caring for their child until the child makes a full recovery.

Wages:  Employee would be paid 100% of their regular wages for the first 80 hours they were absent from work (subject to the above-described caps) due to self-isolation due to their own exposure.  Employee will not be eligible for extended FMLA leave caring for the Employee’s child beyond that two weeks, unless the child’s school is also closed during that period.

 

Scenario 3:     Employee hired sixty days ago has three children and all three children have a school closure from March 13, 2020 through April 15, 2020.  There has been no known exposure to the coronavirus or positive diagnoses of COVID-19 at the children’s school.

Wages: Employee would be eligible for payment of 2/3 of their wages during from March 13, 2020 to March 29, 2020 as paid sick time and 2/3 of their wages (all subject to the above-described caps) from March 30, 2020 to April 15, 2020 under the amended Family and Medical Leave Act.

 

Scenario 4:  Employee hired 5 days ago recently traveled through a major airport and begins to develop symptoms of a respiratory infection.  Employee decides to stay at home until they can obtain testing for coronavirus.  Employee ends up testing positive for COVID-19 and must be absent from work for a total of five weeks.

Wages:  Employee would be eligible for payment of 100% of their wages (subject to the above-described caps) for the first two weeks of absences.  After that time, Employee is not eligible for any further paid leave or job protection under the amended Family and Medical Leave Act because they were not employed by the company for at least 30 days prior to their absence.  Before immediately terminating employment, however, the Company must consider whether the Employee may be eligible for other paid/unpaid leave benefits through established company policies, state or local paid leave laws or the ADA (and state equivalents).

 

Scenario 5:  A part-time Employee hired 15 days ago must stay at home to care for their child who has not been exposed to the coronavirus, but whose childcare facility has closed due to multiple diagnoses of COVID-19 in your community.  Employee advises that they cannot return to work for at least a month, as that is when the childcare facility will re-open.

Wages:  Employee is entitled to 2/3 of their usual wages for all scheduled/typically-worked hours over a two-week time period.  After the two weeks have elapsed, the Employee is not eligible for additional paid leave under the amended Family and Medical Leave Act, as they have not worked for the Company at least 30 days.  Employee also would likely not be eligible for ADA or other state or local sick/disability leave, as their absence was not caused by their own or their immediate family’s illness.  Before terminating employment, however, the Company needs to review whether the Employee may be eligible for unpaid leave through any established Company policy or course of performance or state/local leave entitlement.

Refundable Tax Credits for Employers

The Act provides for refundable tax credits for employers who are required to provide the above-described paid sick time and paid family and medical leave.  These refundable tax credits will be allowed against the employer’s portion of Social Security taxes.

Under the Act, employers will be entitled to a refundable tax credit equal to 100% of the qualified sick leave wages paid by employers for each calendar quarter for paid sick time. Sick leave wages will be capped at $511 per day (or $200 per day if the leave is for caring for a family member or child) for up to 10 days per employee in each calendar quarter.

Similarly, employers will receive a refundable tax credit equal to the qualified family leave wages paid by employers for each calendar quarter in accordance with the amended Family and Medical Leave act. However, the family leave wages will be capped at $200 per day for each individual up to $10,000 total per calendar quarter.

Prepare Now for Implementation Within 15 Days

Employers will have to move quickly to achieve full compliance with their paid leave obligations.  The Department of Labor has promised additional guidance soon after enactment.

As with any national health emergency, this situation is fluid and employer best practices evolve with increased understanding of the spread of the coronavirus, both throughout the United States and within specific communities.   Based on today’s statements from both the Senate Majority Leader and the President, it is highly likely that additional measures affecting employers will be put forward by the Senate this week.

Phillips Murrah’s labor and employment attorneys continue to monitor new developments and stand ready to assist your company timely and efficiently implement these expansive new leave obligations as they are signed into law.

 

To find out more about how this affects your business, please contact:

Lauren Barghols Hanna

Oklahoma City
lbhanna@phillipsmurrah.com
405.606.4732

Janet A. Hendrick

Dallas
jahendrick@phillipsmurrah.com
214.615.6391

Kathryn D. Terry

Oklahoma City
kdterry@phillipsmurrah.com
405.552.2452

Byrona J. Maule

Oklahoma City
bjmaule@phillipsmurrah.com
405.552.2453

Lauren Symcox Voth

Oklahoma City
lsvoth@phillipsmurrah.com
405.606.4740

 

President Signs Amended Coronavirus Response Act Providing Paid Sick Leave to Eligible Employees

By Lauren Barghols Hanna

Phillips Murrah attorney Lauren Hanna

Lauren Barghols Hanna

On March 18, President Trump signed the Families First Coronavirus Response Act into law. It applies to all private employers with fewer than 500 employers.  Paid sick time will be permitted to employees regardless of tenure, while employees with at least 30 days on the job will be eligible for the amended FMLA leave connected to the coronavirus.

We expect the effective date for compliance will be April 2, 2020. We will continue to advise as regulations are released.

The coronavirus relief package provides the following paid leave benefits to eligible employees:

Paid Sick Time (up to 80 hours/2 weeks paid leave)

  • Employees paid full wages for absences related to their own diagnosis/quarantine and 2/3 of wages for absences related to caring for family members or their child’s school closures
  • Caps to paid sick time are $511/day and up to $5,110 for employee’s own illness/quarantine and $200/day and up to $2,000 total for all other qualifying leave
  • Secretary of Labor has the authority to issue regulations exempting small employers (fewer than 50 employees) from providing paid sick leave. DOL regulations are expected within 7 days of enactment
  • Paid leave time available only to workers who are unable to work or telework due to a more-tightly defined coronavirus-related absence
  • Healthcare professionals and emergency responders may be excluded from eligibility
  • New cap for tax credit permitted for self-employed individuals

Paid FMLA Leave (up to 10 additional weeks of paid leave related to coronavirus emergency)

  • Paid FMLA leave available only to employees who are unable to work or telework due to caring for a minor child due to school closing or childcare unavailability
  • Paid leave capped at 2/3 of an employee’s wages, up to $200/day or $10,000 total
  • Secretary of Labor has the authority to issue regulations exempting small employers (fewer than 50 employees) from providing paid FMLA leave. DOL regulations are expected within 7 days of enactment
  • Healthcare professionals and emergency responders may be excluded from eligibility

Senator Mitch McConnell (R-KY), advised in a speech Wednesday morning just prior to voting for this Act, that he does not consider the above employee protections to go far enough to protect either individual employees or small business owners—and that the Senate will not be adjourning until additional legislation is passed to address additional needs.

Please follow this link to a more detailed article providing additional information regarding the Act and helpful scenarios explaining how leave will be paid under the Act.

Phillips Murrah’s labor and employment attorneys continue to monitor new developments and stand ready to assist your company timely and efficiently implement these new paid leave obligations and answer your other pressing employment questions arising from this national public health emergency.


To find out more about how this affects your business, please contact:

Lauren Barghols Hanna

Oklahoma City
lbhanna@phillipsmurrah.com
405.606.4732

Janet A. Hendrick

Dallas
jahendrick@phillipsmurrah.com
214.615.6391

Kathryn D. Terry

Oklahoma City
kdterry@phillipsmurrah.com
405.552.2452

Byrona J. Maule

Oklahoma City
bjmaule@phillipsmurrah.com
405.552.2453

Lauren Symcox Voth

Oklahoma City
lsvoth@phillipsmurrah.com
405.606.4740

 

Can Employers Take an Employee’s Temperature and Other COVID-19 Questions

By Lauren Symcox Voth

Lauren Voth

Lauren Symcox Voth

EEOC Publishes Guidance on Pandemic Preparedness

The World Heath Organization (WHO) has declared COVID-19 an international pandemic and as a result the Federal, Local, and State governments have declared a state of emergency across the country. Employers have received guidance from multiple sources about what to do next.  In light of the advice given by WHO, the Centers for Disease Control and Prevention (CDC), government officials, doctors, and employers should remember that they must still comply with employment laws, including the Americans with Disabilities Act (ADA).

The U.S. Equal Employment Opportunity Commission (EEOC) published its Pandemic Preparedness in the Workplace and the Americans with Disabilities Act in 2009, after the H1N1 outbreak. This guidance applies equally to the current COVID-19 pandemic. The EEOC’s guidance outlines questions and answers to guide employers before, during, and after a pandemic.

Here are highlights from the EEOC’s guidance for employers during a pandemic:

  • Employers may send home employees with COVID-19-like symptoms. If an employer sends an employee home with symptoms, employers may permit the employee to take applicable paid leave for the time off work.  At this time Non-Exempt employees are not required to be paid for any time off work.  Exempt employees must be paid for any week in which the employee performs work.  Please see our story: “House Sends Amended Coronavirus Response Act to Senate with Significantly Reduced Employee Paid Leave Protections – Vote Expected Today” for any changes related to employers’ obligations to pay employees for COVID-19 related absences.
  • Employers should not ask employees if they have COVID-19. However, employers may ask employees if they are experiencing COVID-19-like symptoms such as a fever, sore throat, cough, or shortness of breath.  Employers must maintain all employee provide health information separately with medical records in compliance with the ADA.
  • Employers may take an employee’s temperature. Under normal conditions, an employer is not permitted to take an employee’s temperature because it is considered a medical examination. However, in this pandemic the EEOC agrees that since the CDC has issued precautions to employers, employers may measure an employee’s temperature. Be aware that, according to the EEOC and CDC, some people with COVID-19 do not have a fever.
  • Avoid asking employees to disclose any condition. Employers should not ask employees to disclose any condition that may be vulnerable to COVID-19, as this is still considered a disability-related inquiry. Employees may voluntary disclose conditions that may be vulnerable to COVID-19. Employers may then engage in the interactive reasonable accommodation process and ask the employee if they require any assistance such as telecommuting or other leave as an accommodation.
  • Employers may require employees to provide a doctor’s note certifying the employee’s fitness for duty before returning to work. However, the EEOC states that employers must be flexible and open to other approaches for obtaining a fitness for duty certification.  Doctors will likely be overwhelmed and not able to provide proper documentation immediately or documentation may be on standard return to work forms.

Employers can view the full guidance on Pandemic Preparedness at: https://www.eeoc.gov/facts/pandemic_flu.html#q6.

An EEOC summary on What You Should Know About the ADA, the Rehabilitation Act, and COVID-19 can be found here:  https://www.eeoc.gov/eeoc/newsroom/wysk/wysk_ada_rehabilitaion_act_coronavirus.cfm

 

House Sends Amended Coronavirus Response Act to Senate with Significantly Reduced Employee Paid Leave Protections – Vote Expected Today

banner for coronavirus breaking news red banner

By Lauren Barghols Hanna

Phillips Murrah attorney Lauren Hanna

Lauren Barghols Hanna

Late last evening, the U.S. House of Representatives passed an amended version of the Families First Coronavirus Response Act, originally passed by the House on Saturday.  Although the amended bill was labeled as “technical corrections,” it makes broad substantive changes to the paid leave protections originally provided to employees.

Some provisions remain the same.  The amended Act still applies to all private employers with fewer than 500 employers.  Paid sick time will still be permitted to employees regardless of tenure, while employees with at least 30 days on the job will be eligible for the amended FMLA leave connected to the coronavirus.

However, the amended Act made several important revisions, primarily acting to reduce and restrict the benefits previously afforded employees:

Paid Sick Time (up to 80 hours/2 weeks paid leave)

  • Secretary of Labor now has the authority to issue regulations exempting small employers (fewer than 50 employees) from providing paid sick leave
  • Clarifies that paid leave time available only to workers who are unable to work or telework due to a more-tightly defined coronavirus-related absence
  • Healthcare professionals and emergency responders may be excluded from eligibility
  • Introduces new caps to paid sick time ($511/day and up to $5,110 for employee’s illness/quarantine and $200/day and up to $2,000 total for all other qualifying leave)
  • New cap for tax credit permitted for self-employed individuals

Paid FMLA Leave (up to 10 additional weeks of paid leave related to coronavirus emergency)

  • Extended paid FMLA leave is no longer available to employees for their own COVID-19 treatment or quarantine or care for their family members.
  • Paid FMLA leave available only to employees who are unable to work or telework due to caring for a minor child due to school closing or childcare unavailability
  • Healthcare professionals and emergency responders may be excluded from eligibility
  • Tightens the definition of “parent” to remove prior coverage for employees caring for next of kin and grandchildren
  • Paid leave capped at 2/3 of an employee’s wages, up to $200/day or $10,000 total

The bill is set to be taken up by the Senate this morning, with some reports indicating that the Senate is prepared to adopt it in its current form, allowing President Trump to enact it without the delay of a typical reconciliation process.

Phillips Murrah’s labor and employment attorneys continue to monitor new developments and stand ready to assist your company timely and efficiently implement these new paid leave obligations as soon as the final bill is signed into law.

 

Emergency Coronavirus Response Bill: Employers Must Prepare for Potential Paid Leave Obligations

By Lauren Barghols Hanna

Phillips Murrah attorney Lauren Hanna

Lauren Barghols Hanna

As of publication, there are 167,517 confirmed cases of COVID-19, the respiratory disease caused by the novel coronavirus, in 135 countries around the world, with the United States currently confirming more than 3,000 cases.  On Friday, President Trump declared a national state of emergency in response to this pandemic.  In response, the Department of Labor issued helpful Q&A guidance for employers seeking to clarify current payroll and leave obligations to employees and offices affected by the coronavirus.

On Saturday, the U.S. House of Representatives approved the Families First Coronavirus Response Act—an emergency spending bill that provides free coronavirus screening tests and paid employment leave for individuals affected by COVID-19.

The Families First Coronavirus Response Act (H.R. 6201) received bipartisan support and has already received support from President Trump, who tweeted Friday that he “look[s] forward to signing the final Bill, ASAP!”  Sen. Mitch McConnell (R-Ky) has also advised that he believes “the vast majority of senators in both parties will agree we should act swiftly to secure relief for American workers, families, and small businesses.”  The Senate is expected to consider the bill early this week.

In addition to ensuring free coronavirus testing regardless of insurance coverage, the Coronavirus Response Act provides for expansive and unprecedented employment protections for eligible individuals impacted by COVID-19 who work for employers that employ fewer than 500 employees, including:

  • Paid sick time (up to 80 hours or two weeks of wages)
  • Family and Medical Leave (up to 12 weeks—10 of which shall be paid by the employer)

As currently drafted, these employee leave programs and protections must be implemented by covered employers (those who employ fewer than 500 employees) no later than 15 days after enactment—so companies should assess potential implementation challenges now, while waiting for the final version to be passed by the Senate and signed into law.

Paid Sick Time

The Act provides that all public employers and all private employers that employ fewer than 500 employees must immediately provide eligible full-time and part-time employees affected by coronavirus up to 80 hours of paid sick time, regardless of how long the employee has been employed by an employer.

Paid sick time may be used by an employee if:

  • Employee must self-isolate after diagnosis with coronavirus or to obtain diagnosis or care for the symptoms of coronavirus,
  • Employee’s presence in the community may jeopardize the health of others because they have been exposed to or have the symptoms of the coronavirus,
  • Employee must care for their child(ren) if their school or childcare is closed due to the coronavirus or they have been exposed to the coronavirus
  • Employee must care for a family member who must self-isolate after diagnosis with coronavirus or who must obtain medical diagnosis or care related to the coronavirus.

All paid sick time must be paid at 100% of the employee’s regular wages for absences related to the employee’s need to self-isolate or seek medical care related to their own exposure to coronavirus.  However, any sick time provided for an employee to care for a family member in connection with exposure to the coronavirus or school/childcare closings must be paid at two-thirds of the employee’s regular wages.

With respect to any employer that currently provides paid leave, the paid sick time under this Act must be in addition to the existing paid leave—the employer may not change existing paid leave after enactment of the Act to avoid this provision.  Further, the Act specifically provides that it does not preempt any existing state or local paid sick leave benefits.

An affected employee may first use this paid sick time for eligible purposes related to the coronavirus pandemic.  Employers may not require an employee to use otherwise accrued sick time or other paid leave before using the paid sick time granted by the Act.  Further, an employer may not require that an employee search for or find a replacement to cover the hours taken by the employee as paid sick time.

Employers are prohibited from taking any disciplinary action or discriminating in any manner against an employee who takes leave in accordance with the Act and has filed a complaint or instituted any proceeding under or related to this Act or has testified or is about to testify in any such proceeding.

Notice Requirements

Information regarding employee eligibility for paid leave under the Act must be posted where employee notices are customarily posted. The Secretary of Labor will make available a compliant model notice no later than 7 days after the date of enactment of the Act.

Penalties

An employer who does not permit its eligible employees to take sick leave time under the Act will be deemed to be in violation of the Fair Labor Standards Act and be subject to the penalties for that violation.  An employer who willfully discriminates or retaliates against an employee in connection with this Act will be deemed to have violated Section 15(a)(3) of the FLSA and will be subject to the penalties associated with that violation.

Emergency Paid Leave—Amendment to the Family and Medical Leave Act

As approved by the House of Representatives, the Act amends the federal Family and Medical Leave Act and creates a new subsection of paid medical leave under the FMLA to provide up to 12 weeks of family and medical sick leave during a public health emergency related to the coronavirus to all eligible employees, 10 weeks of which must be paid by the employer at a rate of no less than two-thirds of the employee’s usual pay.  This extended paid leave is available only to employees who work for companies employing fewer than 500 employees.

Although all employers with fewer than 500 employees are covered by the current version of the Act, the Secretary of Labor will have the option of exempting certain small businesses with fewer than 50 employees, if it determines that providing paid leave under the Act “would jeopardize the viability of the business as a going concern.”  Additionally, employers with fewer than 50 employees would not be subject to private lawsuits filed by employees for violations of this Act–only actions brought directly by the Department of Labor.

The first 14 days for which an eligible employee impacted by the coronavirus takes leave may be unpaid.  Alternatively, an employee may elect to substitute any accrued vacation leave, personal leave, or medical or accrued sick leave or the above-described paid sick time for the unpaid leave.  However, an employer may not require an employee to substitute paid leave for leave under the Act.

An employee will be eligible for this emergency paid sick leave if they have been on the job for at least 30 days and:

  • The employee needs to be quarantined for potential exposure to or treated for COVID-19,
  • The employee needs to stay home from work to care for a family member quarantined due to exposure to or symptoms consistent with COVID-19, or
  • The employee needs to stay at home because their child(ren)’s school or childcare facility has closed unexpectedly due to the coronavirus.

Certain health care providers and emergency responders are not included within the definition of “eligible employees” under the Act.

Examples

 

Scenario 1:  A long-time employee of a private company with fewer than 500 employees receives news that their elderly parent must self-isolate due to potential exposure to the coronavirus at a doctor appointment.  Employee’s parent is worried that they will not be able to perform all self-care or prepare meals if their friends and home aide must stay away during the incubation period.  Employee decides to move in with their elderly parent for the two-week incubation period to take care of their parent’s daily needs and potentially help if they become symptomatic.  Employee is absent for the duration of their parent’s two week incubation period and then Employee promptly returns to work.

Wages Employee would be paid 2/3 of their typical wages for the 2 weeks that Employee was caring for their parent as a Paid Sick Time benefit.

 

Scenario 2: Long-time Employee of a private company with fewer than 500 employees travels to Washington for spring break, returns home, and then learns of a positive test in the area they stayed on spring break.  Based on news reports and a health department press release, Employee believes they may have been in close proximity to one or more persons with a positive COVID-19 test.  Employee and family self-isolate and wait to take the COVID-19 test.  Employee eventually tests negative, but employee’s 17 year old child tests positive.  Employee is absent a total of two weeks for their own self-isolation and another one week caring for their child until the child makes a full recovery.

Wages:  Employee would be paid 100% of their regular wages for the first 80 hours/2 weeks they were absent from work due to self-isolation due to their own exposure.  Employee will also receive 2/3 of their typical wages for the third week while caring for their child under the Emergency Paid Leave amendment to the Family and Medical Leave Act.

 

Scenario 3: Employee hired sixty days ago has three children and all three children have a school closure from March 13, 2020 through April 15, 2020.  There has been no known exposure to the coronavirus or positive diagnoses of COVID-19 at the children’s school.

Wages: Employee would be eligible for payment of 2/3 of their wages during from March 13, 2020 to March 29, 2020 as paid sick time and 2/3 of their wages from March 30, 2020 to April 15, 2020 under the amended Family and Medical Leave Act.

 

Scenario 4: Employee hired 5 days ago recently traveled through a major airport and begins to develop symptoms of a respiratory infection.  Employee decides to stay at home until they can obtain testing for coronavirus.  Employee ends up testing positive for COVID-19 and must be absent from work for a total of five weeks.

Wages:  Employee would be eligible for payment of 100% of their wages for the first two weeks of absences.  After that time, Employee is not technically eligible for any further paid leave or job protection under the amended Family and Medical Leave Act because they were not employed by the company for at least 30 days prior to their absence.  Before immediately terminating employment, however, the Company must consider whether the Employee may be eligible for other paid/unpaid leave benefits through established company policies, state or local paid leave laws or the ADA (and state equivalents).

 

Scenario 5:  A part-time Employee hired 15 days ago must stay at home to care for their child who has not been exposed to the coronavirus, but whose childcare facility has closed due to multiple diagnoses of COVID-19 in your community.  Employee advises that they cannot return to work for at least a month, as that is when the childcare facility will re-open.

Wages:  Employee is entitled to 2/3 of their usual wages for all scheduled/typically-worked hours over a two-week time period.  After the two weeks have elapsed, the Employee is not eligible for additional paid leave under the amended Family and Medical Leave Act, as they have not worked for the Company at least 30 days.  Employee also would likely not be eligible for ADA or other state or local sick/disability leave, as their absence was not caused by their own or their immediate family’s illness.  Before terminating employment, however, the Company needs to review whether the Employee may be eligible for unpaid leave through any established Company policy or course of performance or state/local leave entitlement.

Refundable Tax Credits for Employers

The Act provides for refundable tax credits for employers who are required to provide the above-described paid sick time and paid family and medical leave.  These refundable tax credits will be allowed against the employer’s portion of Social Security taxes.

Under the Act as currently written, employers will be entitled to a refundable tax credit equal to 100% of the qualified sick leave wages paid by employers for each calendar quarter for paid sick time. Sick leave wages will be capped at $511 per day (or $200 per day if the leave is for caring for a family member or child) for up to 10 days per employee in each calendar quarter.

Similarly, employers will receive a refundable tax credit equal to 100% of the qualified family leave wages paid by employers for each calendar quarter in accordance with the amended Family and Medical Leave act. However, the family leave wages will be capped at $200 per day for each individual up to $10,000 total per calendar quarter.

The specifics of the tax credit allowances and when businesses will be able to take advantage of these credits will likely change as the Senate considers the bill this week.

Prepare Now for Potential Implementation Challenges

As with any national health emergency, this situation is fluid and employer best practices evolve with increased understanding of the spread of the coronavirus, both throughout the United States and within specific communities.   Based on the bipartisan support and forward-looking statements from both the Senate Majority Leader and the President, it is highly likely that a version of the Act providing paid sick time and extended paid sick leave for companies with fewer than 500 employees will be enacted in the near future.  The Department of Labor has promised additional guidance upon enactment, but the current bill only allows companies 15 days after enactment to achieve full compliance with their paid leave obligations.

Phillips Murrah’s labor and employment attorneys continue to monitor new developments and stand ready to assist your company timely and efficiently implement these expansive new leave obligations as they are signed into law.

Emergency Coronavirus Response Bill: Brief Overview of Employer-Paid Sick Leave Obligations

By Lauren Barghols Hanna

Phillips Murrah attorney Lauren Hanna

Lauren Barghols Hanna

As of publication, there are 167,517 confirmed cases of COVID-19, the respiratory disease caused by the novel coronavirus, in 135 countries around the world, with the United States currently confirming more than 3,000 cases.  On Friday, President Trump declared a national state of emergency.  In response, the Department of Labor issued helpful Q&A guidance for employers seeking to clarify current payroll and leave obligations to employees and offices affected by the coronavirus.

On Saturday, the U.S. House of Representatives approved the Families First Coronavirus Response Act—an emergency spending bill which would provide free coronavirus screening tests and guarantee employer-paid employment leave for individuals affected by COVID-19.  The Senate is expected to consider the bill early this coming week.

As currently drafted, the below provisions will apply to public employers and all private employers with fewer than 500 employees and may be offset by refundable tax credits. Below are the main takeaways of the employer-paid leave provisions of the bill, as it was passed by the House of Representatives:

Paid Sick Time

All employees, regardless of tenure with the company, may take up to two weeks of paid sick leave for the following reasons:

  • To self-isolate due to exposure to or symptoms of the coronavirus;
  • To care for an at-risk family member who is following a required or recommended period of self-isolation due to exposure to or symptoms of coronavirus; and
  • To care for a child of the employee, if the child’s school or childcare has been closed or is unavailable due to the coronavirus.

Employees will be paid at 100% of their regular wages to self-isolate due to exposure or to symptoms of the coronavirus and at 2/3 of their regular wages to care for a family member for such purposes or to care for a child whose school or childcare facility is closed or unavailable.

Amendment to the Family and Medical Leave Act

Employees who have worked at least 30 days may take up to 12 weeks of leave to be used in any of the circumstances outlined above in the paid sick time section.

After the employee’s first two weeks of leave, employers must provide paid leave for the duration of the employee’s need at a rate of no less than two-thirds of the employee’s usual pay.

Next Steps

As currently drafted, these employee leave programs and protections would need to be implemented by covered employers (those who employ fewer than 500 employees) no later than 15 days after enactment—so companies should begin assessing potential implementation challenges now, while waiting for the final version to be passed by the Senate and signed into law.

Phillips Murrah’s labor and employment attorneys continue to monitor new developments and stand ready to assist your company timely and efficiently implement these expansive new leave obligations as they are signed into law.  For more detailed information about this expansive new employer-paid sick leave program and examples of how paid leave would be calculated in various scenarios, please follow this link.

Medicare Reimbursement Actions by the Government: Relief for Providers?

This article was originally published in the American Bar Association’s Health eSource newsletter in February 2020.


Oklahoma Opioid Decision by Phillips Murrah healthcare attorney Mary Holloway

Mary Richard is recognized as one of pioneers in health care law in Oklahoma. She has represented institutional and non-institutional providers of health services, as well as patients and their families.

By Mary Holloway Richard, Phillips Murrah, and
Anna Stewart Whites, Attorney at Law, Frankfort, KY

The tension between the government’s need to ensure appropriate use of Medicare funds and the need of providers to receive reasonable compensation for services to Medicare beneficiaries is an ongoing issue.  Providers are subject to demands for repayment or recoupment of compensation paid to providers based upon claims filed.  Providers are also pressed to keep up with the continually developing arsenal of vast data mining, increasingly restrictive federal reimbursement policies, and oversight tools, including a plethora of audit options available to the Department of Health and Human Services (HHS) and Centers for Medicare & Medicaid Services (CMS) programs that can lead to penalties and mandatory exclusion.  Locating the applicable guidance — statutes, regulations, guidelines, reimbursement policies — can be challenging, with the information upon which CMS actions are based sometimes emanating from data gathered across the country, which allows for identification of trends to be pursued by the regulators.

The focus of this article is to explore the tools available to counsel for providers seeking to place appropriate limits on CMS in connection with statutory and regulatory limits on HHS rulemaking authority as interpreted by recent case law.

Proper Rulemaking as a Limit to Regulatory Authority

Providers who have received payment under the CMS fee schedules may, even years later (1) be faced with demands by CMS for repayment of amounts received due to an after-the-fact reduction in the fees payable to the provider, or (2) experience a downward adjustment in payments.1  These changes by CMS, both prospective and retrospective, are frequently transmitted via electronic manuals or by local or national coverage determinations (LCDs or NCDs).

Providers argue that the retrospective changes by fiat can be likened to ex post facto laws penalizing the provider for actions occurring before the regulation, policy or change in interpretation of the law existed.  When a government entity or agency determines that such a change is necessary, and when those changes are substantive or can adversely impact providers or patients, an opportunity for all affected parties to comment is advisable to support wise decision-making within the government’s scope of authority, and to facilitate smooth transitions within the industry.2  The existing structured rulemaking process offers providers and other interested parties the opportunity to comment on the proposed change prior to its implementation, thereby facilitating the avoidance of bad rulemaking or rulemaking with unintended consequences.

The Rulemaking Process:  An Overview

The rulemaking process is formal and includes the notice-and-comment period so that public awareness and input are parts of the making of any enforceable regulatory change.3  Under the Social Security Act, a notice-and-comment period is required for a “rule, requirement or statement of policy” that establishes or changes a “substantive legal standard governing the scope of benefits, the payment for services, or the eligibility of individuals, entities, or organizations to furnish or receive services or benefits.”4 This requirement is stricter than the more common notice-and-comment requirements of the Administrative Procedures Act (APA). The APA employs different nomenclature and holds that no notice-and-comment period is required where the change is merely an “interpretive rule” or “general statement of policy.”  That exception had been relied upon by agencies to change rules via policy manual updates or internal regulatory interpretations.5

Informal rulemaking under the APA requires development of a proposed rule and a published notice of the proposed rule or changes to an existing rule.  Following that, there is a comment period of at least 30 days.  Members of the public, including but not limited to those impacted by the change, have the opportunity to comment on the proposal. Codification of the final rule may take place only after the comment period has passed and the agency has made any final revisions to the rule.6 Typically, rule and regulation changes have a future, rather than retroactive, effective date.  Where the change to a law or regulation is “substantive,” formal rulemaking under the APA requires an additional opportunity for an agency hearing on the proposal before it can be made effective.

Historically, providers faced with recoupment demands from a federal payor had little choice but to accede to the payor’s demands within a specified, limited timeframe.  Providers could argue against such recoupment or denial, but such arguments in reality were limited to proving that the recoupment demand was in error.. The provider was thus placed in a defensive posture and required to operate from the premise that the recoupment request was correct, but for an obvious calculation or medical necessity oversight by the payor during its review.8

From the agency perspective, however, rulemaking takes significant time and effort and can be administratively debilitating.  It requires publication of the proposed changes, a lengthy comment period (often as much as several months long), opportunity for live comments as well as written comments, and then an analysis of the comments by the agency and publication of the agency’s responses to the comments.  If the comments result in an amendment to the policy, the rulemaking process may have to begin again to allow comment on those amendments newly proposed or on the resolution of issues raised during the comment period.  Because of the complexity of that rulemaking, agencies may choose to draft minor changes instead, and implement those via an announcement to providers/patients, thereby eliminating any delay in implementation or any requirement that those affected be allowed to speak.  Implementing minor changes is a necessary way to keep policies and regulations current, and is an acceptable part of the agency’s process.  Over time, however, there may be a blurring of the applicable procedures, where an agency implements a substantive change informally for an item that required the complete rulemaking process, particularly under the Medicare Act.  Providers have begun to pay more attention to the correct application of the rulemaking process and to challenge agencies ignoring required rulemaking.

Judicial Interpretation of Rulemaking Requirements Related to Healthcare

In Clarian Health West, LLC v. Hargan,9 the Court required adherence to the rulemaking process before a recoupment of payments could be enforced.  Under Part A of the Medicare program, hospitals are compensated prospectively based on the estimated likely cost of patient care.10 The hospitals may also receive supplemental or “outlier” payments.11 The regulatory changes enacted by HHS in 2003, which included notice-and-comment rule making, altered the way such “outlier payments” are calculated.12  The Court found that an agency decision is arbitrary and unenforceable as such where the agency “has relied on factors which Congress has not intended it to consider, entirely failed to consider an important aspect of the problem, offered an explanation for its decision that runs counter to the evidence before the agency, or is so implausible that it could not be ascribed to a difference in view or the product of agency expertise.”13

Two recent cases, Azar v. Allina Health Services14 and Polansky v. Executive Health Resources, Inc.,15 have provided validation for that argument, finding that absent the required rulemaking process and an opportunity for providers to comment on and be aware of the effect of the changes to the law, recoupment of funds properly paid exceeds CMS authority.

Provider Litigation to Enforce Rulemaking

In Azar v. Allina Health Services, the United States Supreme Court held that the decision to retroactively reduce Medicare disproportionate share hospital (DSH) payments according to a newly revised formula and practice must be vacated due to HHS’s failure to provide an opportunity for notice and comment in the context of revised payment rules.16 The DSH payment is calculated based upon a Medicare Fraction which establishes a proportion of low income patients provided services at the hospital for a certain time period and is the basis for the hospital’s final reimbursement adjustments.

By way of explanation, a DSH payment is a sum awarded a hospital pursuant to 42 C.F.R. 412.106.  Under Section 1886(d) (5) (F) of the Medicare Act, hospital DSH payments are calculated by the formula:

  • DSH Patient Percent = (Medicare SSI Days / Total Medicare Days) + (Medicaid, Non-Medicare Days / Total Patient Days)17

A new CMS rate calculation affected the way the applicable payments were made, and was therefore considered by the Court to be a ‟substantive legal standard” under the Medicare Act requiring notice-and-comment rulemaking prior to enforcement.18  The Court found that HHS had promulgated a retroactive Medicare rate calculation methodology and that this was not a change that could be enacted without opportunity for comment and discussion.As explained by the Court of Appeals for the D.C. Circuit, in 2004 HHS decreed that Medicare Part C patients would now be included in DSH calculations along with patients entitled to Medicare Part A benefits, and this change would have been applied prospectively for all Medicare Fraction calculations from 2005 onward. However, this change was successfully challenged and vacated by the D.C. Circuit.19 In response, in 2013 HHS promulgated the same rule to be applied prospectively from 2014. This left fiscal year 2012 at issue, and in 2014 HHS posted the Medicare Fraction on the CMS website, including Part C patients and Part A patients.20

CMS clarified that the 2012 determination that Medicare Part C days would be included in the calculations, thereby lowering the DSH calculation by including Medicare Advantage subscribers who generally represented higher income, resulting in a reduction of the DSH payments to hospitals.21

The proposed change underwent notice and comment in 2013 and eventually was adopted as a valid way to calculate those payments prospectively, beginning in 2014.  Rather than simply implementing the changed standard from 2014 onward, CMS looked back at earlier years and claimed that the change should apply retroactively.  There was no notice and comment period in 2012 on that change.  Following the changes, CMS used this ability to look back and demanded recoupment from provider hospitals, applying the changed law or interpretation of the law retroactively to 2012.

A group of  hospitals  challenged the changes made without notice and the opportunity to comment and sought to stop the recoupment, which represented billions of dollars.22  They argued that absent such timely rulemaking procedures, the change should not apply to years prior to 2014. HHS’s response was that it was not required to hold a notice-and-comment period for the new rule, since it was only advising the public on an existing interpretation of the law.  HHS relied on the less stringent standards of the APA23 to permit the recoupment.

The DC Circuit Court ruled in favor of HHS, and the hospitals appealed to the United States Court of Appeals for the District of Columbia, which reversed the lower court ruling and held that the new payment schedule amounted to a “statement of policy” that required the notice-and-comment period specified by the Social Security Act.24

The Supreme Court, quoting the Social Security Act, held that “[n]o rule, requirement, or other statement of policy (other than an NCD) that establishes or changes a substantive legal standard governing the scope of benefits, the payment for services, or the eligibility of individuals, entities, or organizations to furnish or receive services or benefits under this title shall take effect unless it is promulgated by the Secretary by regulation.…”25 “Substantive rules” refer to the Supreme Court phrase “substantive legal standard” as encompassing more than just the “substantive rules” that already require notice and comment under the APA.26 The Supreme Court noted in particular that the many manuals that provide guidance to participants in the Medicare program might contain substantive legal standards that require notice and comment, and that its decision applied broadly across those fields.27

The Allina ruling established that substantive changes to the law should not be applied retroactively to time periods in which there has been no rulemaking process.  Providers faced with any retroactive application of a change in the law that occurred after a payment to the provider which was valid at the time of payment could now claim that absent rulemaking at that time, the change should only be prospectively applied.

That doctrine was expanded in Polansky v. Executive Health Resources, Inc.,28 where the provider faced a False Claims Act (FCA) action based upon allegations that the provider’s billing was fraudulent for failure to comply with Medicare reimbursement guidelines. The provider argued that the Medicare criteria being applied had not gone through appropriate rulemaking prior to implementation.  The Court agreed, holding that Medicare reimbursement criteria must be established through notice-and-comment rulemaking to provide the basis for enforcement actions under the FCA. Because the reimbursement policy at issue had been established solely in the 1989 edition of the Medicare Hospital Manual and not via the rulemaking process including questions and comments, the court found that it “cannot withstand scrutiny under Allina’s interpretation of the Medicare Act.”29

The Court based its findings in part on Bowen v. Michigan Academy of Physicians,30 which held that a provider demanding administrative or judicial review of a recoupment of a Medicare Part B claim or payment must show that the matter is reviewable by challenging the method by which the claim was determined under 42 U.S.C.A. § 1395ff(b)(1)(C) (Supp.1990).  While courts may not “improperly impose on agencies an obligation beyond the `maximum procedural requirements’ specified by [statute or regulation],” the rulemaking standards must have applied to the creation of the statute or regulation.31  The District Court in Polansky relied upon the Allina decision to grant summary judgment in favor of the defendant, holding that the method by which a change is implemented may be challenged by an affected party where the agency failed to comply with the process required.32  The provider must show first that this is a matter to which the rulemaking standard applies, and secondly, that the method used by the agency was flawed in that it did not use the correct standard, before being allowed to attack the change or any related financial impact created by the change.33

The Allina and Polansky decisions establish an additional strategy for providers to defend enforcement actions that are part of a recoupment or recalculation, rather than attempting to prove that the government’s audit determinations or interpretations are in error. This, in effect, places the burden of defense back on CMS (or another governmental agency or payor) by requiring it to prove that the law or regulation was properly created in compliance with required rulemaking procedures.  Importantly, these decisions offer that, where providers did not have opportunity to comment on or object to implementation of a rule or regulation, they should not be found to have either had notice of it or be bound by its terms.

In response to Allina, the Department of Justice (DOJ) provided notice of DOJ policy in a memorandum to U.S. Attorneys from former Associate Attorney General Rachel Brand dated January 25, 2018. Known as the Brand Memo, it announced that “Department litigators may not use noncompliance with guidance documents as a basis for proving violations of applicable law in affirmative civil enforcement (ACE) cases.”34 The effect of the Brand Memo is to place agencies on notice that they may not rely upon sub-regulatory guidance to re-frame, expand, or enforce requirements established by statute or regulation.35  Specifically, the Brand Memo prohibits coercing regulated parties from taking or refraining from taking actions beyond the requirements of applicable statute or “lawful regulation.”36 The Brand Memo further pointedly provides that “the Department may not use its enforcement authority to effectively convert agency guidance documents into binding rules.”37

A new internal memorandum from HHS dated October 31, 2019 is instructive. That Memo says that it’s important for CMS to conform its guidance documents to the rulemaking obligations set forth in Allina.  For instance, HHS personnel are discouraged from basing enforcement actions on guidance documents, specifically the Internet-only manuals, that are not “closely tied to statutory or regulatory standards.”38  This Memo suggests to counsel for providers a few new tools when dealing with Medicare payment issues, including the limits of the impact of formerly formidable sub-regulatory or “non-regulatory” guidance, the amelioration of LCDs as the single basis for enforcement actions and judicial support for these limitations.

Conclusion

Recoupment and reimbursement demands, audits, exclusions, prosecutions and targeting by CMS, its contractors or other federal and state agencies are substantive, significant matters.  Adherence to the regulatory protections, including the notice and opportunity to provide input, allows all affected parties to have an understanding of the law or regulation and to be prepared for its impact.  The Allina case and its progeny are likely to benefit providers and patients alike as the country continues to grapple with healthcare reform.

  1. 42 U.S.C. § 1886(d)(5)(F); 42 C.F.R. § 412.106.
  2. See discussion below comparing the rulemaking requirements of the Medicare Act, 42 U.S.C. § 1395(h), which was passed as an amendment to the Social Security Act, 5 U.S.C. Chapter 5, §§ 551-559.
  3. See generally, https://www.federalregister.gov/uploads/2011/01/the_rulemaking_process.pdf, “A Guide to the Rulemaking Process” (last accessed Jan. 24, 2020).
  4. 5 U.S.C. § 1395hh(a)(2)  (emphasis added).
  5. See, e.g., acus.gov/research-projects/agency-guidance-through-interpretive-rules, “Agency Guidance Through Interpretive Rules” (Administrative Conference of the United States) Adopted June 13, 2019 (last accessed Jan. 19, 2020).
  6. 5 U.S.C. §§ 551-559.
  7. 5 U.S.C. § 553.
  8. See, e.g., “Tricare Recoupment Steps Outline”(Guidance provided to Tricare Beneficiaries), https://tricare.mil/Resources/Recoupment?p=1 (last accessed Jan. 15, 2020).
  9. 878 F3d. 346 (D.C. Cir. 2017).
  10. 49 Fed. Reg. 234 (Jan. 3, 1984); 42 U.S.C. § 1395ww(d)(2), “Prospective Payment for Medicare Inpatient Hospital Services.”
  11. 42 U.S.C. § 1395ww(d)(5)(A)(ii); See also Dist. Hosp. Partners, L.P. v. Burwell, 786 F.3d 46,  49 (D.C. Cir. 2015).
  12. See Change in Methodology for Determining Payment for Extraordinarily High-Cost Cases (Cost Outliers) Under the Acute Care Hospital Inpatient and Long-Term Care Hospital Prospective Payment Systems Final Rule.  Fed. Reg. June 9, 2003 at 34493-515; https://www.ncbi.nlm.nih.gov/pubmed/12795306 (last accessed Dec. 27, 2019).
  13. See Hawaii Helicopter Operators Ass’n v. F.A.A, 51 F.3d 212, 214-15 (9th Cir.1995). See also n. 1 supra and accompanying text.
  14. 863 F.3d 937 (D.C. Cir. 2017), aff’d, 139 S.Ct. 1804 (2019).
  15. 2019 WL 5790061 (E.D. Pa. Nov. 5, 2019).
  16. 587 U.S. ___, 139 S.Ct. 1804 (2019), 42 U.S.C. §§ 1395 ww(d)(5)(k)(I); 42 C.F.R. § 412.106; cms.gov/Medicare/Medicare.Fee.For.Service.Payment /Acute InpatientPPS/dsh (last accessed Jan. 15, 2020).  See S.Ct. at 1309 quoting Petition for Cert; “So counting makes the fraction smaller and reduces hospitals’ payments considerably–by between $3 and $4 billion over a 9-year period, according to the government.”
  17. https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInPatientPPS/dsh. Hospitals rely on DSH payments, as calculated annually, for a significant part of the yearly budget and income. The change in the method in which HHS was calculating those payments, applied retroactively, reduced the sum HHS found should have been paid each hospital in 2012 and 2013, resulting in a CMS demand for recoupment (paying back) of those funds to Medicare. There is an alternate special exception method for large urban hospitals that can demonstrate that more than 30 percent of their total net inpatient care revenues come from state and local governments for indigent care (other than Medicare or Medicaid). Because Medicaid monies are funds designated to serve a specific group in accordance with CMS payment guidelines, CMS is permitted up to 10 years to recoup funds which it believes were paid in error.
  18. Allina at 1810-1815.
  19. Allina Health Services v. Sebelius, 746 F.3d 1102, 1107-9 (D.C. Cir. 2014), as quoted in Allina Health Services v. Sebelius, 863 F.3d 937 (D.C. Ct.App. 2017).
  20. Allina at 1810.
  21. Part A Benefits refers to inpatient benefits (42 U.S.C. § 1395ww(9)(5)(F)(vi)(I). Part C Benefits refer to Medicare Advantage beneficiaries, who generally have more financial resources. Including Part C patients in the DSH calculation lowers hospital payments markedly. See Northeast Hospital Corp. v. Sebelius, 657 F.3d 1, 5 (D.C. Cir. 2011).
  22. See n. 17 and accompanying material.
  23. 42 U.S.C. Chapter 5, §§ 551 – 559. See Allina at 1813.  See also Perez v. Mortgage Bankers Ass’n, 575 U.S. 92, 95 (discussion of “interpretive rules” to which the APA notice and comment rulemaking requirements do not apply.)
  24. See Allina Health Servs. v. Price, 863 F.3d 937, 949 (D.C. 2017).
  25. 42 U.S.C. § 1395hh(a)(2) (emphasis added).
  26. See Allina Health, 139 S. Ct. at 1814.
  27. Id. At 1816.
  28. No. 12-4239, 2019 WL 5790061 (E.D. Pa. Nov. 5, 2019).
  29. Polansky at 7. See generally Allina at 1816. (discussion of CMS Provider Manual).
  30. 476 U.S. 667, 106 S.Ct. 2133, 90 L.Ed.2d 623 (1986).
  31. See Perez v. Mortg. Bankers Ass’n, 135 S.Ct. 1206, 191 L.Ed.2d 186 (2015).
  32. ___ F.Supp.3d___, 13 (2019); 2019 WL 579006 (at 12-13).
  33. Id. at 16.
  34. https://www.justice.gov/opa/press-release/file/1028756/download . See also Executive Order, https://www.whitehouse.gov/presidential-actions/executive-orders-promoting-rule-law-improved-agency-documents/.
  35. See Attorney General Memo on the Prohibition on Improper Guidance Documents, https://www.justice.gov/opa/press-release/file/1012271/download (last accessed Dec. 27, 2019).
  36. Brand Memo at Page 1.
  37. Id. at Page 2. The Brand Memo has been incorporated into the Justice Manual, the guidebook for DOJ attorneys. See https://www.justice.gov/jm/1-20000-limitation-use-guidance-documents-litigation (last accessed Dec. 27, 2019).
  38.  https://fcablog.sidley.com/wp-content/uploads/2019/11/1222000-1222453-allina-memo-cms.pdf.

About the Authors

Mary Holloway Richard represents both institutional and non-institutional providers of health services. Her career has included work at hospitals, outpatient clinics, behavioral health facilities and rehabilitation facilities and clinics. She has significant experience in health services contracting, reimbursement audits and appeals, OIG investigations, and regulatory and corporate matters. She lectures and has written on numerous healthcare topics including nonprofit operations, telehealth and behavioral health law, confidentiality and criminal justice reform. She was the driving force behind the first Oklahoma Women’s Law Manual as well as a contributor and editor.  She is currently a member of the faculty of the Oklahoma City University School of Law teaching an introduction to Healthcare Law and Behavioral Health Law. She has been in the leadership of the Behavioral Health Task Force of the American Hospital Association since its inception and is currently Vice Chair. She is Chair of the Oklahoma Bar Association’s Health Law Section. She may be reached at mhrichard@phillipsmurrah.com.

Anna Whites is the owner of Anna Whites Law Office and a graduate of Centre College and the University of Kentucky College of Law.  Her practice concentrates on health law, with a focus on laboratories, rural hospitals and behavioral health.  She advises providers on reimbursement, compliance and transactional issues.  Ms. Whites works with the Kentucky State Legislature and advocates in Kentucky and nationally to advance policies on prompt payment, uniform provider credentialing, telehealth advances and laws providing broad coverage to vulnerable populations. She is the Co-Chair of the Rural Health Subcommittee of AHLA’s Behavioral Health Task Force and speaks and writes for HCCA, ABA and AHLA on behavioral and compliance health law topics. She may be reached at annawhites@aol.com.

Banks may be liable for negligent transfer of hacked accounts

This column was originally published in The Journal Record on March 9, 2020.


Justin G. Bates is a litigation attorney who represents individuals and both privately-held and public companies in a wide range of civil litigation matters.

By Justin G. Bates, Phillips Murrah Attorney

When asked by a reporter why he robs banks, notorious criminal “Slick Willie” Sutton replied, “Because that’s where the money is.” While banks still have the money, the nature of the crime has evolved with technology. Today’s modern bank robber is often armed with nothing more than a mouse and keyboard, and the preferred tools and techniques of their trade are phishing and malware.

Hackers infiltrate businesses and individuals alike, typically using “social engineering” tactics to gain trust and access to an employee’s email account, to cite a common example, and re-route money from the rightful owner’s bank account to their own. While there are stiff penalties for a criminal caught in the act, it may come as a surprise that a bank that authorizes a wire transfer to a hacker’s account could be liable to the rightful owner.

Article 4A of the Uniform Commercial Code was enacted in response to the growth of electronic funds transfers and the crime that evolved in its wake. Under Article 4A, a bank is liable to a customer for the full amount of a negligently processed wire received by a hacker, including interest.

In the most basic terms, a bank is liable to its customer for a negligent wire transfer when (1) the customer did not authorize the transfer and (2) the transfer cannot be enforced against the customer because either (a) the transfer was not authorized by an employee of the customer or (b) a third party (outside hacker) initiated the transfer. At first glance, this may seem to be a slam-dunk trigger for liability to an aggrieved customer. But banks can take proper steps to insulate themselves from any liability under Article 4A.

To avoid liability, the bank must first prove three things: First, that it and the customer had an “agreed security procedure,” which are steps put in place, to which both the bank and customer agree by contract, to verify that a payment order or communication is between the bank and the customer. This is most commonly accomplished in the customer and bank’s initial account agreement.

Second, the bank must prove that it complied with the agreed security procedure and that such procedure is “commercially reasonable.” In other words, the procedures are to be in line with that which someone familiar with the industry would regard as sufficient and realistic. Examples of what constitutes “commercially reasonable” are explored below.

Finally, the bank must prove that it not only followed the security procedure, but that it initiated the wire transfer in “good faith.” In other words, the bank must prove that it acted with honesty in fact and observance of reasonable commercial standards of fair dealing.

So how does a bank best avoid liability?

In practice, cases under Article 4A often hinge on whether the bank’s security procedure is commercially reasonable. In order to meet this threshold, a bank is expected to have better than single-factor identification. The wire transfer should require the customer to input at least two of the following: (1) something the customer knows, such as a password; (2) something the customer has, such as an IP address; or (3) something the customer is, such as a fingerprint or voice scan.

With cybercrime on the rise, it is crucial for any bank to both protect its customers and insulate itself from potential liability. Requiring multi-factor identification is no guarantee for a bank to avoid liability under Section 4A, but it is one relatively easy way for a bank to better protect itself and its customers.

Justin G. Bates is a civil litigation attorney at the law firm of Phillips Murrah in Oklahoma City.