Staying Open in California (and Elsewhere) During Mandatory Coronavirus-Related Closures (US)
At last count, ten counties in Northern California have issued Health Orders dictating the mandatory shut down of all but “Essential Businesses”. The Counties are Alameda, Contra Costa, Sacramento, Santa Clara, Marin, San Mateo, San Francisco, Sonoma, Monterey, and San Benito. These Orders are substantially similar and, as drafted, specify numerous exceptions to permit Essential Businesses to continue to operate. Counties, in particular Santa Clara, have been issuing some FAQs to try to help the community understand what the Orders mean. For simplicity sake, this blog will cite the Santa Clara Order and FAQs. While other counties are all very similar, FAQs and interpretation may start to vary over time so be sure to check your specific county Order and FAQs.
If you have operations in an area subject to one of these orders and are contemplating staying open, there are several important things to note.
Am I an Essential Business?
Look closely at the definitions in section 10 and consider the related FAQs to determine if you are an Essential Business. For example, the Santa Clara Order quite predictably deems Healthcare Operations to be Essential. But when you look at the definition of Healthcare Operations, you see it goes far beyond just hospitals, clinics, and the like. It also covers “pharmaceutical and biotechnology companies” and “healthcare suppliers.” The Order does not distinguish between companies working on coronavirus vaccines or addressing urgent health needs versus companies doing long term development of other drugs or medical devices. As written, many life science companies may be able to remain open.
Similarly, the typical Order considers Essential Businesses which “provide any services or perform any work necessary to the operations and maintenance of ‘Essential Infrastructure.’” Again, the definition is important. In addition to obvious infrastructure like water, sewers, and gas, the Order lists, “internet, and telecommunications systems (including the provision of essential global, national, and local infrastructure for computing services, business infrastructure, communications, and web-based services).” Many different businesses have roles in furthering the operation of the Internet and those business may be able to remain open.
A third category of business deemed essential is “Businesses that supply products needed for people to work from home.” WiFi routers, laptops, cell phones and myriad other devices could fall into this category. Indeed, in their FAQ, Santa Clara County specifically states, “If your business is primarily engaged in supply or repair of cell phones or other telecommunication devices, then it is essential and may continue to operate under this Order.”
Potentially the most important exception is for “Businesses that supply other essential businesses with the support necessary to operate.” This exception allows the supply chain of other Essential Businesses to operate too.
It is important to note, these exceptions only allow you to operate to the extent of what is essential. If you manufacture six products and only two are part of the supply chain of an Essential Business, you will likely only be able to maintain production of the two products and stand down employees who work on the other products. And you should be prepared to maximize social distancing for the employees who do come into your facility. Employers should specifically warn employees that failure to abide by hygiene and social distancing rules will be grounds for discipline up to and including discharge.
There are many other exemptions and each company should go through the entire list to see whether any might apply to them. For example, there is specific guidance in the Santa Clara County FAQs for government contractors.
What If I’m Not an Essential Business?
The Health Orders also permit businesses to maintain “Minimum Basic Operations.” These are generally defined as “minimum necessary activities to maintain the value of the business’s inventory, ensure security, process payroll and employee benefits, or for related functions.” This does not usually mean that you can maintain production, but it does mean that you are able to keep security guards, access the space to pay your employees, maintain servers necessary to support teleworkers, etc. If your production equipment is such that it may be materially damaged by standing idle, you may be permitted to operate it for brief periods to maintain it.
Should I Open?
Writing this from my home, with one son in the dining room watching his lectures from UC Berkeley and my other son upstairs taking an AP Psychology quiz remotely, I feel compelled to try to answer this last question. All of our lives have been turned upside down. Our retirement savings are dwindling. Our businesses do not look remotely like what we thought they would when the year began. In other words, we need to beat this virus.
As businesses weigh whether to push the envelope regarding exceptions to these order, we all need to remember, if the exceptions to these Health Orders swallow the rule, three things are likely to happen. First, the authorities will issue new even more draconian rules. While that might be good news for lawyers, it will not be good news for business. Second, the Orders may be extended which will be even worse for business because while some firms will continue to operate in some reduced capacity, the overall recovery of the economy will be postponed. Third, and most significantly to the clients we have been advising this week, we are making decisions that do not just impact livelihoods. In a real and imminent sense, lives are at stake.
These are hard issues to balance and they require thoughtful consideration by business leaders.