Our COVID-19 Experience At Pasha Law
On April 2, 2020, Gov. Abbot issued his first executive order detailing the requirements for non-essential workers to stay-at-home and directing most businesses to indefinitely shut their doors. Like many offices around the country, once the full gravity of our international crisis began to dawn on most of us, the first question Pasha Law asked, with most of the staff being in Houston, Texas, was, are we essential? Before we could answer that question, we had already begun fielding calls from clients who suddenly had to deal with more pressing concerns related to telecommuting, testing, sick workers, and government aid. What if an employee refuses to come back to work due to safety concerns? How do you get out of this contract due to the pandemic? We quickly learned that not only were we essential under the law, but clients were in critical need.
Only weeks prior, COVID-19 was merely a news topic at Pasha Law. It did not take long until every single interaction, meeting, or phone call was occupied with jokes about social distancing or the elbow bump. After shut-downs started to occur nationwide, our first prediction was a dramatic slowdown at the office—we were incredibly wrong.
Practicing business law in the age of COVID-19 requires diligence. Lawyers are unable to rely on their experience. We are now having to apply a completely novel factual circumstance to old and rapidly evolving laws. Federal, state, and local agencies continue to develop new regulations and executive orders while legislatures pass new and sometimes overriding law.
The legal issues that businesses have dealt with in the last few months are novel like the virus that caused them. In looking back, our firm wanted to break down some of these issues as we reflect on Pasha Law’s perspective of a new normal.
1. How had Covid-19 Affected Employment Policies and Procedures?
Employment issues are always one of the biggest liabilities both financially and legally to any business. COVID-19 made a complex area of law that much more nuanced.
Fighting COVID-19 at the workplace takes a significant amount of self-control and a reigning-in of basic impulses. Though best practice is to ensure the health and safety of the employee when in the midst of a pandemic, businesses have struggled in dealing with employees having to miss time at work, whether it’s in recovery or working from home during a quarantine period, which can severely impact the client’s revenue and productivity.
For example, as stay-at-home orders were issued, some clients reported measurable 30-40% drops in work productivity by non-sick employees who were working from home. These lowered levels of productivity happened across the spectrum for our clients, and when the stay-at-home orders were lifted, they worked towards bringing employees back. This came with the new obstacle, however, of working out policies to deal with potential outbreaks or individuals feeling ill at the office.
2. How are our Clients Dealing with Testing Employees?
At the beginning of the COVID-19 pandemic, most of our clients required their employees to work from home out of a sense of preventing the spread of the virus. However, as states and localities began to reopen, or if the employee was an essential worker, some employers required COVID-19 testing as part of their protocol to maintain a safe work environment. For many employers, beginning employee-wide testing was essential to not only keeping employees safe, but to continuing business in a prudent manner, especially in safeguarding client confidence in the company’s ability to maintain the status quo.
Questions on how to implement these policies were left unanswered by regulatory bodies early in the pandemic. For example, the legal hurdles of whether testing could be mandated by an employer, while also ensuring that the results of the test remain confidential, were challenging to many employers.
Only in April 2020 did the EEOC release guidance making it clear that mandatory testing was appropriate. The challenges of requiring employees to be tested included ensuring all employees actually were tested or had been tested recently, creating waivers for employees if they had an objection, ensuring that test results were confidential, and establishing a protocol if an employee tested positive for COVID-19.
3. When Can Employees Return to Work?
The Center for Disease Control and Prevention (the “CDC”) shifted the goalposts on employers multiple times during this pandemic, thus putting pressure on companies to develop a workable policy and stick to it despite the CDC’s changing recommendations. Employers initially required employees to have two negative tests after an employee tested positive, which was later softened, to only require employees to quarantine for 10 days for persons who never develop symptoms after their first positive test or 20 days for persons with severe illness after symptom on-set.
Our clients largely tracked the CDC’s guidelines, first requiring testing prior to returning to work and then forgoing the testing as the CDC removed its suggestion. We worked with various clients to tailor the approach to their individual levels of risk tolerance. Most settled with policies straddling the two guidelines: they adopted the shorter 10-day period of quarantine if an employee was exposed, along with the initial testing criteria requiring a negative test to return to work.
4. What are the Recommended Protocols for Employees and Visitors?
Businesses began scrambling to modify their on-premises practices as COVID-19 made elbow-to-elbow workspaces and conference room settings rife with the potential to spread tiny droplets containing coronavirus. Our clients have implemented safety protocols, such as mandatory temperature checks, frequent handwashing, hand sanitizer stations, social distancing, and mask-wearing. Temperature checks are usually required at the front door before employees and visitors enter the workplace and the results are kept in a confidential log. The go-to recommendations from our office were to follow CDC guidelines, but that advice was not a panacea, given disparate regional and local requirements.
For example, Harris County in Texas issued a mask order on April 22, 2020, prior to any state-wide mandate that trumped any CDC guidelines at the time. This mask order was later prohibited by Gov. Abbot, only to later be reinstated after Abbot issued an executive order allowing such mask orders.
California also had its own conflicts between state- and local-level orders. Though generally, all counties enforced the statewide mask order at some level, the severity of the fine and level of enforcement varied greatly.
5. What Does the CARES Act Say About Waivers and Reimbursement?
Many of our healthcare clients attempted to sort through the extensive and lengthy language contained within the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) to determine if the patient’s cost-share would be covered and how they may get reimbursed when providing a COVID test. Our advice is simple: if the patient is arriving to be tested for diagnostic purposes, then the patient’s cost-share, deductible, and copay should not be collected; however, if the patient is there for screening purposes, then those amounts may be collected from the patient.
What is the difference between diagnostic testing and screening testing? Simply put:
Diagnostic testing involves:
1. Patient showing symptoms consistent with COVID-19,
2. Asymptomatic individuals who have known or suspected exposure to COVID-19, or
3. Patients who had COVID-19, and testing is done to determine if the patients can no longer spread the virus.
Screening tests involve:
1. Testing done on asymptomatic individuals who have no known or suspected exposure to COVID-19, or
2. Testing is conducted on an asymptomatic individual for surveillance, such as mandatory workplace screenings for health and safety reasons.
According to the CARES Act regulations and FAQs, if a patient comes in for COVID testing, it’s clear that if the healthcare provider determines that other tests, such as influenza or blood tests should be performed to help determine whether COVID-19 diagnostic testing should be conducted and if a diagnostic COVID test is actually ordered, the plan must cover those services in full, including any facility charge.
A common situation that our clients have run into is: if an individual is being treated in the emergency room and the attending provider orders a number of services to determine whether a COVID-19 diagnostic test is appropriate, such as diagnostic test panels for influenza A and B and respiratory syncytial virus or a chest x-ray, and ultimately orders a COVID-19 test, the plan or issuer must cover those related items and services without cost-sharing, prior authorization, or other medical management requirements. This includes any physician fee charged to read the x-ray and any facility fee assessed in relation to those items and services.
Finally, how should the facility be paid? The CARES Act limits payment to either a pre-negotiated rate or lacking that, at the cash price listed by the facility on their website. This cash price is important, as the CARES Act requires all providers to list their cash price for a COVID-19 test on their website. In our experience, this cash price becomes either the basis for the payment to our clients or is the starting point for a negotiated payment down the road.
6. Did Businesses Participate in the Paycheck Protection Program (PPP) and Economic Injury Disaster Loans (EIDL)?
As soon as the EIDL and PPP opportunities were announced and eventually implemented, it was a scramble for businesses to determine how they were going to acquire access to these funds and whether they even qualified. A huge hurdle for most was the application process itself. The SBA site often crashed and was having issues accepting the EIDL applications for the $1,000 per employee grant (which was later revised to be restricted to a max of $10,000). Then business owners had difficulty finding banks that would actually take them in to do a PPP loan unless they were a customer. It was first come, first serve which did not bode well for those in dire need that did not have a community bank relationship.
Though access was a huge issue, many businesses that qualified and needed the funds eventually received them, with the program ending with more than 130 billion left to be funded. Though PPP forgiveness is still an open question for many, the U.S. Treasury’s periodic update to regulations related to the PPP has been daunting to keep up with.
One of the major questions early on regarding qualifications concerned small businesses that happen to be backed by private equity—would they qualify for PPP loans given the SBA’s affiliation rules? What about these large companies that were publicly traded? Putting aside the susceptibility of fraud with little-to-no liability of banks stamping these loans, early applicants who were unsure whether they qualified were faced with the decision to push through the PPP process and see what came of it. Before the affiliation rules were eventually clarified to exclude most private equity-backed business and to discourage public companies or other businesses that had access to other capital, some opted not to apply at all and others who did go through the process ended up returning the money promptly.
7. How has Raising Capital and M&A Changed in the Age of COVID-19?
Any business, regardless of whether they are a startup or a well-established company, needs capital in order to function. In normal times, any startup business would have difficulties in raising capital. During the pandemic’s social-distancing restrictions, raising capital has been challenging for even well-established companies. Convincing potential investors to invest means building a trusting relationship and having face-to-face interactions to cultivate that relationship. Face-to-face meetings with a potential investor allowed both companies to garner whether a potential investor was a good fit with the company, and allowed investors to get a “feel” for the company’s potential. However, COVID-19 made these interactions nearly impossible. As Zoom meetings, and other means of teleconferencing, became more commonplace, companies had to become creative in attracting investors. For some of our clients, that meant raising capital in ways that they had not historically engaged in.
Companies have been actively engaging social media, email campaigns, and other electronic means to attract potential investors in lieu of face-to-face interactions, but this meant casting a wider net to attract investors, and depending on what type of fundraising campaign the company was engaging in, the company could be restricted in who they were soliciting. As a law firm, we made certain that our clients were compliant with federal and state securities laws for raising capital in private placement offerings for general solicitations. Compliance with the securities laws included ensuring that our clients included in all electronic communications to potential investors the appropriate disclaimers, the offering memorandum contained sufficient information for the potential investor to make an informed decision, and informing the potential investors which type of investors could purchase the offering.
The second quarter of 2020 did have quite a significant comeback in both M&A deals and some IPO activity, but the sentiment of our firm’s clients is that deal activity has not necessarily slowed, just changed. Valuations, for example, have to be looked at in the context of both pre- and post-COVID activity.
8. Does COVID-19 Qualify as a Force Majeure Event?
When the pandemic first hit, Pasha Law fielded many calls from clients concerned about other parties in their agreements trying to wiggle out of their contractual obligations. This resulted in the firm turning to the back pages of such agreements to review what is called a force majeure clause. In a nutshell, this clause governs situations when a party is excused from performance, either partially or entirely, where circumstances occur that renders the performance impossible or impracticable.
When discussing this clause with clients in the pandemic context, the analysis usually boiled down to two considerations: whether COVID-19 qualified as a force majeure event, and if triggered, what did it excuse in terms of performance? What most clients found out was that a pandemic was not listed as a force majeure event, which makes sense in the pre-COVID world. Where the triggering event was in play, the analysis then turned to whether the clause allowed merely a delay in the party’s performance or excusing performance altogether.
What our office observed to be the common theme was that the force majeure clause would excuse performance in general, but payment would be carved out, meaning the other parties were still obligated to make timely payments to our clients. Not only did our firm handle these concerns in a reactive context, but we also incorporated these lessons in a proactive capacity in contracts moving forward.
9. Can I File a Claim with my Business Interruption Insurance?
Similar to force majeure, business interruption policies were challenged with the fact that many excluded plagues and pandemics for coverage. For government orders that mandated closure and a dramatic restriction to conduct business, Pasha Law reviewed insurance policies for possible coverage as a “business interruption.” Even though most policies had exclusions, different factual and legal theories became prevalent in the market, leading to hundred of lawsuits being filed related to COVID-19, many of which related to business interruption coverage.
The two leading angles were to either argue that coverage should be granted because the loss was due to a civil order, similar to a “taking,” by stay-at-home orders, or that somehow the virus itself caused “direct physical loss,” for which the latter was the weaker option. Prominent companies like In-N-Out and even the Houston Rockets have sued their insurance carrier for coverage.
These are unprecedented times, with many unknowns and ever-changing laws, policies, executive orders, and regulations that not only affect individuals but also businesses. As more information is learned about how COVID-19 is spread, and illnesses continue to increase, compliance with the seemingly daily changes in the laws and regulations is a moving target. Even more so, the health and safety of employees, clients, and customers, and preventing the spread of COVID-19, is the utmost priority for businesses.
From healthcare to oil and gas to retail industries, COVID-19 affected every business, and issues that seemed before to be inconsequential are now determinants as to whether the business can survive to see a post-COVID world. We have not been untouched by the effects of this virus, and we know that conducting business may never be the same again. Our commitment to our clients is to maintain as much of a status quo as possible, and our resolve to helping them navigate these difficult times is paramount.