Federal Developments
DOT Releases Guidance Related to COVID-19.
On March 23, DOT released guidance related to COVID-19 that can be retrieved at:
https://www.transportation.gov/sites/dot.gov/files/2020-03/DOT_Guidance_on_Compliance_with_Drug_and_Alcohol_Testing_Regulations.pdf
EEOC Updates 2009 Pandemic Preparedness Guidance
The EEOC issued more guidance! On March 19, 2020, the Equal Employment Opportunity Commission updated its 2009 Pandemic Preparedness Guidance to address questions concerning the COVID-19 pandemic. The document is entitled, “What You Should Know About the ADA, the Rehabilitation Act, and COVID-19.” This COVID-19 communication repeatedly references the EEOC’s 2009 pandemic guidance, which was originally released in connection with the H1NI outbreak.
The EEOC’s revised pandemic guidance states that the COVID-19 pandemic meets the direct threat standard based on the guidance of the CDC and public health authorities. This statement affects the analysis of many of the questions and answers posed in pandemic guidance. Employers should read the revised guidance thoroughly and consult counsel, however, as the EEOC’s guidance does not address state-specific concerns or provide comprehensive information about other legal requirements related to employee privacy, compensation, etc.
Many of the significant additions are included below, with COVID-19 updates in bold (quoted verbatim):
- May an ADA-covered employer send employees home if they display influenza-like symptoms during a pandemic?
Yes. The CDC states that employees who become ill with symptoms of influenza-like illness at work during a pandemic should leave the workplace. Advising such workers to go home is not a disability-related action if the illness is akin to seasonal influenza or the 2009 spring/summer H1N1 virus. Additionally, the action would be permitted under the ADA if the illness were serious enough to pose a direct threat. Applying this principle to current CDC guidance on COVID-19, this means an employer can send home an employee with COVID-19 or symptoms associated with it.
- During a pandemic, how much information may an ADA-covered employer request from employees who report feeling ill at work or who call in sick
ADA-covered employers may ask such employees if they are experiencing influenza-like symptoms, such as fever or chills and a cough or sore throat. Employers must maintain all information about employee illness as a confidential medical record in compliance with the ADA.
If pandemic influenza is like seasonal influenza or spring/summer 2009 H1N1, these inquiries are not disability-related. If pandemic influenza becomes severe, the inquiries, even if disability-related, are justified by a reasonable belief based on objective evidence that the severe form of pandemic influenza poses a direct threat.
Applying this principle to current CDC guidance on COVID-19, employers may ask employees who report feeling ill at work, or who call in sick, questions about their symptoms to determine if they have or may have COVID-19. Currently, these symptoms include, for example, fever, chills, cough, shortness of breath, or sore throat.
- During a pandemic, may an ADA-covered employer take its employees’ temperatures to determine whether they have a fever?
Generally, measuring an employee’s body temperature is a medical examination. If pandemic influenza symptoms become more severe than the seasonal flu or the H1N1 virus in the spring/summer of 2009, or if pandemic influenza becomes widespread in the community as assessed by state or local health authorities or the CDC, then employers may measure employees’ body temperature.
However, employers should be aware that some people with influenza, including the 2009 H1N1 virus or COVID-19, do not have a fever.
Because the CDC and state/local health authorities have acknowledged community spread of COVID-19 and issued attendant precautions as of March 2020, employers may measure employees’ body temperature. As with all medical information, the fact that an employee had a fever or other symptoms would be subject to ADA confidentiality requirements.
- When an employee returns from travel during a pandemic, must an employer wait until the employee develops influenza symptoms to ask questions about exposure to pandemic influenza during the trip?
No. These would not be disability-related inquiries. If the CDC or state or local public health officials recommend that people who visit specified locations remain at home for several days until it is clear they do not have pandemic influenza symptoms, an employer may ask whether employees are returning from these locations, even if the travel was personal.
Similarly, with respect to the current COVID-19 pandemic, employers may follow the advice of the CDC and state/local public health authorities regarding the information needed to permit an employee’s return to the workplace after visiting a specified location, whether for business or personal reasons.
- May an employer covered by the ADA and Title VII of the Civil Rights Act of 1964 compel all of its employees to take the influenza vaccine regardless of their medical conditions or their religious beliefs during a pandemic?
No. An employee may be entitled to an exemption from a mandatory vaccination requirement based on an ADA disability that prevents him from taking the influenza vaccine. This would be a reasonable accommodation barring undue hardship (significant difficulty or expense). Similarly, under Title VII of the Civil Rights Act of 1964, once an employer receives notice that an employee’s sincerely held religious belief, practice, or observance prevents him from taking the influenza vaccine, the employer must provide a reasonable accommodation unless it would pose an undue hardship as defined by Title VII (“more than de minimis cost” to the operation of the employer’s business, which is a lower standard than under the ADA).
Generally, ADA-covered employers should consider simply encouraging employees to get the influenza vaccine rather than requiring them to take it. As of the date, this document is being issued, there is no vaccine available for COVID-19.
- During a pandemic, must an employer continue to provide reasonable accommodations for employees with known disabilities that are unrelated to the pandemic, barring undue hardship?
Yes. An employer’s ADA responsibilities to individuals with disabilities continue during an influenza pandemic. Only when an employer can demonstrate that a person with a disability poses a direct threat, even after reasonable accommodation, can it lawfully exclude him from employment or employment-related activities.
If an employee with a disability needs the same reasonable accommodation at a telework site that he had at the workplace, the employer should provide that accommodation, absent undue hardship. In the event of undue hardship, the employer and employee should cooperate to identify an alternative reasonable accommodation.
The rapid spread of COVID-19 has disrupted normal work routines and may have resulted in unexpected or increased requests for reasonable accommodation. Although employers and employees should address these requests as soon as possible, the extraordinary circumstances of the COVID-19 pandemic may result in a delay in discussing requests and in providing accommodation where warranted. Employers and employees are encouraged to use interim solutions to enable employees to keep working as much as possible.
- If an employer is hiring, may it screen candidates for symptoms of COVID-19?
Yes. An employer may screen job candidates for symptoms of COVID-19 after making a conditional job offer, as long as it does so for all entering employees in the same type of job. An employer may screen job candidates for symptoms of COVID-19 after making a conditional job offer, as long as it does so for all entering employees in the same type of job. This ADA rule allowing post-offer (but not pre-offer) medical inquiries and exams apply to all candidates, whether or not the candidate has a disability.
- May an employer take an candidate’s temperature as part of a post-offer, pre-employment medical exam?
Yes. Any medical exams are permitted after an employer has made a conditional offer of employment. However, employers should be aware that some people with COVID-19 do not have a fever.
- May an employer delay the start date of an candidate who has COVID-19 or symptoms associated with it?
Yes. According to current CDC guidance, an individual who has COVID-19 or symptoms associated with it should not be in the workplace.
CDC has issued guidance applicable to all workplaces generally but also has issued more specific guidance for particular types of workplaces (e.g. health care employees). Guidance from public health authorities is likely to change as the COVID-19 pandemic evolves. Therefore, employers should continue to follow the most current information on maintaining workplace safety. To repeat: the ADA does not interfere with employers following recommendations of the CDC or public health authorities, and employers should feel free to do so.
- May an employer withdraw a job offer when it needs the candidate to start immediately but the individual has COVID-19 or symptoms of it?
Based on current CDC guidance, this individual cannot safely enter the workplace, and therefore the employer may withdraw the job offer.
Finally, it is noteworthy that the EEOC prefaced its updated pandemic preparedness guidance by stating “[e]mployers and employees should follow guidance from the Centers for Disease Control and Prevention (CDC) as well as state/local public health authorities on how best to slow the spread of this disease and protect workers, customers, clients, and the general public. The ADA and the Rehabilitation Act do not interfere with employers following advice from the CDC and other public health authorities on appropriate steps to take relating to the workplace.”
Please be aware that substantial changes in the governmental guidance and even in the underlying laws are occurring on almost a daily basis, which will impact the analysis of the legal issues related to COVID-19.
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The Department of Homeland Security (DHS) announced that it will defer the in-person requirement associated with the Form I-9.
Employers with employees taking social distancing precautions due to COVID-19 will not be required to review the employee’s identity and employment authorization documents in the employee’s physical presence. This policy will remain in effect for a period of 60 days beginning March 20th or until three business days after the termination of the National Emergency, whichever is first. Once normal operations resume, all employers who were onboarded during this time must report to their employer within three business days for in-person verification of the document(s) presented for section 2 of the Form I-9. And, it is important for employers to understand that although the in-person requirement is waived, the Form I-9 must still be completed within three business days of hire. Click here to read more and click here for a full overview of COVID-19 related guidance issued by DHS addressing Form I-9 and E-Verify compliance.
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In response to COVID-19, U.S. Citizenship and Immigration Services (USCIS) has suspended routine in-person services until at least April 1st.
USCIS staff will continue to perform duties that do not involve contact with the public and will continue to provide emergency services in limited situations. This means that the service centers will continue to process nonimmigrant petitions such as H-1B and L petitions. It also means that the H-1B random lottery will take place later this month. Click here and here to read more.
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Get Familiar with OSHA’S Guidance on Preparing Workplaces for COVID-19
OSHA released it updated Guidance, Preparing Workplaces for COVID-19 last week. (https://www.osha.gov/Publications/OSHA3990.pdf). The guidance does not create new legal obligations for employers but, rather provides practical advice on measures we can take to limit the risk of exposure and infection for our employees and how to respond if an employee does become ill.
The Guidance identifies a range of levels of risk exposure: Very High – for those employees with a high potential for exposure, such as doctors or healthcare personnel who have direct contact with COVID-19 patients – to Lower Exposure Risk – workplaces which do not involve frequent contact with the public or COVID-19 patients. For each level of risk exposure, the Guidance details the steps we can implement to best manage the risk of exposure. As a starting point, OSHA recommends that all employers develop an infectious disease preparedness and response plan that complies with the latest Guidance. This will include encouraging employees to use proper hygiene practices and encouraging (requiring) sick employees to remain at home. The Guidance is not the law or mandatory, but it is a useful tool to use in navigating through this pandemic.
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State Developments
Alabama Senate Passes Medical Marijuana Bill, Legislation Now Moves to the Alabama House
A bill that would legalize medical marijuana in Alabama cleared yet another hurdle late last week when it passed the Alabama Senate by a vote of 22 to 11. The bill now heads to the Alabama House, where it likely faces steeper opposition than in the Senate. The medical marijuana bill passed by the Senate, SB165, provides a regulatory framework similar to that imposed by other states’ legislation. For a more detailed description of the bill, please see our previous articles here and here. The version of SB165 the Senate passed differs from the version that was passed out of the Senate Judiciary Committee in several key ways:
- Candidates for cultivation and processing licenses must have worked full time in either commercial horticulture or agronomic production for the eight years preceding their application;
- 20-25% of all licenses granted by the Medical Cannabis Commission must be awarded to minority-owned businesses;
- The power to add qualifying conditions now rests solely with the state legislature — all rule-making power in this area previously granted to the Medical Cannabis Commission is revoked;
- Menopause and premenstrual syndrome are added as qualifying conditions; and
- A consumption cap of 75mg a day for all users is imposed, and the bill restricts minors’ consumption to cannabis containing a maximum of 3% THC.
New Jersey Division on Civil Rights Releases Enforcement Guidance on State Equal Pay Act
The New Jersey Division on Civil Rights (DCR) has released 25-page guidance explaining its enforcement policies with respect to the state’s equal pay law. The guidance provides much-needed direction to companies navigating the pitfalls associated with compensation systems and policies. The guidance addresses questions ranging from multistate employees to affirmative defenses to the role of employer self-evaluations in the agency process. Furthermore, the DCR offers a guide to employer self-evaluations; however, it also cautions that such self-evaluation “is not, in and of itself, an affirmative defense to a claim brought under the Diane B. Allen Equal Pay Act.”
Overview of the Law
The guidance’s overview section includes a general explanation of the terms of the Equal Pay Act and the key differences between the state law and its federal counterpart. For example, the state law applies to all protected traits under the New Jersey Law Against Discrimination (LAD), which include traits not covered by federal law, such as military status. The state law also prohibits pay disparities for substantially similar work, as opposed to equal work under the federal law.
The DCR references figures from the U.S. Bureau of Labor Statistics, which show that Hispanic women earn only 62 percent of the compensation of white men, for example. The agency states that it intends to enforce the Equal Pay Act to address any such unlawful disparities that may exist.
Additionally, the DCR explains the Act contains a six-year lookback period for damages, rather than a six-year statute of limitations. The guidance makes clear that the Act allows “an employee who establishes discrimination in compensation to recover up to six years of back pay as long as the discrimination was continuous and the most recent violation occurred within the LAD’s two-year statute of limitations.”
The guidance concludes the overview section with discussions on anti-retaliation, remedies, and reporting requirements. Significantly, the DCR explains the anti-retaliation provisions apply to all employee actions concerning requests for information or legal counsel “related to a job title or compensation of employees or former employees, as well as the ‘gender, race, ethnicity, military status, or national origin’ of those employees, even if the employee’s action is unrelated to a claim for equal pay” (emphasis added). The DCR also explains that while a jury must award treble damages in the event of a violation, the DCR may award treble damages in the event of a violation.
The guidance’s Frequently Asked Questions (FAQs) section is key. It explains that:
- The Act applies to out-of-state companies if the company maintains employees with a primary workplace in New Jersey.
- Out-of-state employees may bring claims under the Act if they have a primary workplace in New Jersey. The DCR explains, by way of example, “an employee who lives in Pennsylvania but works in New Jersey several days a week is protected by the Equal Pay Act” (emphasis added).
- Compensation under the Act includes not only the obvious (e.g., base wages, commissions, overtime pay, bonus pay, merit pay, and stock options), but such non-cash benefits as insurance, vacation time, and retirement funding.
- Positions may meet the substantially similar threshold despite minor differences in skill, effort, and responsibility.
- Skills not necessary to perform the functions of a particular job are irrelevant to the determination of whether positions are substantially similar (e.g., if an employee possesses a degree not relevant to the job performed).
- Positions with separate functions may meet the substantially similar threshold. The DCR provides two examples of apparently different responsibilities that may meet the threshold: (1) contract review attorneys and litigators; and (2) janitors and food service employees.
- The DCR will not rely solely on position descriptions and job titles in any enforcement matter; however, “they may be relevant to assessing whether two jobs require a similar degree of skill, effort, and responsibility.”
Significantly, on whether geographic differences constitute a bona fide reason for a pay disparity, the DCR answers in the affirmative. However, it cautions, if a company’s pay disparity stems from cost-of-living or demand differences, for example, the company also must demonstrate: (1) cost-of-living or demand are not based on and do not perpetuate an unlawful pay differential; (2) the factors were applied reasonably; (3) the factors account for the entire differential; and (4) the factors are job-related and based on business necessity. The DCR also notes that objective matters such as “sales numbers” constitute a bona fide reason for pay disparities.
Finally, while not expressly prohibiting ad hoc compensation decisions, the FAQs discuss the hallmarks of a seniority or merit system a company may rely on in defense against claims under the Act as being “predetermined or predefined by the employer” and uniformly applied without regard to employee membership in a protected class. The guidance cautions that individual determinations regarding an employee’s “worth” do not satisfy the requirement for a defense under the Act.
The DCR directs companies to the New Jersey Civil Service Commission’s “Guide to Self-Evaluations for Public Sector Employers,” which provides basic instructions on the steps involved in self-evaluation. However, the DCR cautions that any self-evaluation, or actions taken to address a pay disparity, do not constitute an affirmative defense to a claim under the Equal Pay Act.
Indeed, the only affirmative defenses under the Act are those in the statute: the differential must be based on a seniority or merit system or the disparity is:
- Based on a legitimate factor other than the protected trait (e.g., training, education, experience, or productivity);
- The legitimate factor is not based on or does not perpetuate a compensation differential based on a protected trait;
- Each factor is applied reasonably;
- One or more factors account for the entire wage differential; and
- The factors are job-related with respect to the position and based on business necessity.
The DCR, however, will not consider any adjustments to compensation as an admission as to liability in any proceedings before the agency.
Key takeaways for companies from the DCR guidance include:
- Revisit position descriptions to accurately capture skill, effort, and responsibility. Differences in anticipated physical exertion, mental exertion, supervisory responsibilities, credentials required to perform the functions of the position, and so on should be captured in the description.
- An employee census focused on the location of work (rather than any reporting structure) is the most important factor inapplicability of the Act.
- To the extent demand or geography requires pay differentials, ensure that a uniform disparity explains the gap.
- Do not rely on a self-evaluation as an affirmative defense. While self-evaluations are recommended to limit any potential liability, any back pay does not shield an employer from legal action.
The guidance serves as a useful direction to employers seeking to ensure compliance efforts meet requirements under the Act. Please contact a Jackson Lewis attorney with any questions about the Act or the guidance.
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Pre-Employment Testing for Marijuana in NYC?
In May 2019, Section 8-107 of title 8 of the NYC admin code was amended to make it unlawful for an employer and others to test for marijuana or THC as a condition of employment. This law becomes effective on May 10, 2020. The NYC Commission on Human Rights is promulgating rules for the implementation of this law. There was a public hearing on Jan. 9, 2020 concerning potential exceptions to the general prohibition on pre-employment testing to which written testimony by interested parties was submitted. There will be another opportunity for public comment if proposed rules are published, so keep an eye out for further notice from the commission. In the meantime, only the following exceptions which have been written into the law apply, such that pre-employment drug testing for marijuana or THC is permitted for the following jobs:
- As police officers or peace officers, or in a position with law enforcement or investigative function at the department of investigation
- Construction workers
- Operators of vehicles requiring a commercial driver’s license
- In any position requiring the supervision or care of children, medical patients or vulnerable persons
- Or in any position with the potential to significantly impact the health or safety of employees or members of the public, as determined by: (i) the commissioner of citywide administrative services for the classified service of the city of New York, and identified on the website of the department of citywide administrative services or (ii) the chairperson, and identified in regulations promulgated by the commission
The legislation also permits pre-employment drug testing for marijuana and THC if required pursuant to:
- Federal, state, or city department of transportation regulations or rules
- Any federal contract or grant
- Any federal or state statute, regulation, or order that requires drug testing of prospective employees for purposes of safety or security
- a valid collective bargaining agreement that specifically addresses the pre-employment drug testing of such candidates
Utah State Legislature Clarifies: Private Employers Not Required to Accommodate Use of Medical Cannabis; Public Employers Held to Different Standard
Utah’s medical cannabis program officially launched this month, and the Utah State Legislature timely enacted Senate Bill 121, which amends and clarifies various provisions of Utah’s medical cannabis laws, including a pronouncement that private employers are not required to accommodate the use of medical cannabis.
The Utah Medical Cannabis Act (the “Act”) passed in 2018 contained, among other things, antidiscrimination provisions protecting public employees. Under the Act, state and political subdivision employees cannot be discriminated against on the basis of their use of medical cannabis, as long as they are otherwise in compliance with the law. The law was, however, previously silent as to whether private employers would also be obligated to accommodate or tolerate medical cannabis use by candidates or employees.
Senate Bill 121, signed into law by Governor Gary Herbert on February 28, 2020, amends the law to make it clear that private employers are not required to accommodate the use of medical cannabis. The new provision states: Nothing in this section requires a private employer to accommodate the use of medical cannabis or affects the ability of a private employer to have policies restricting the use of medical cannabis by candidates or employees. According to the Utah Department of Health, this means that “Private employees are subject to their employers’ policies, which may include zero-tolerance for cannabis and/or drug testing.” Senate Bill 121 also amended the law to amend the scope of the protections for public sector marijuana users. The law now provides that “[a] state or political subdivision employee who has a valid medical cannabis card is not subject to adverse action … for failing a drug test due to marijuana or tetrahydrocannabinol without evidence that the employee was impaired or otherwise adversely affected in the employee’s job performance due to the use of medical cannabis.” However, the protection for public employees does not apply where the use of medical cannabis would jeopardize federal funding, a federal security clearance, or any other federal background determination required for the employee’s position, or if the employee’s position is dependent on a license that is subject to federal regulations.
The obligation for public employers to accommodate the use of medical cannabis in Utah differs from current federal law. Although the Americans with Disabilities Act (ADA) requires employers to make reasonable accommodations for qualified employees with a disability, the ADA does not protect or require accommodation of illegal drug use. Although the ADA protects status-based discrimination against drug-dependent individuals in recovery, marijuana is still an illegal drug under federal law with no exception for medical use recognized under the ADA.
Key Takeaways
Private employers in Utah now definitively know that they are under no legal obligation to accommodate employee use of medical cannabis, either at the workplace or away from work. Employers that do not intend to accommodate the use of medical marijuana are advised to clearly communicate their policies so employees are aware that the use of marijuana, medical or otherwise, violates company policy. Be aware that employees who ask about medical cannabis may also have underlying disabilities that may qualify them for reasonable accommodations in addition to or other than the ability to use marijuana and marijuana products. Regardless of the choice each employer makes, managers and HR professionals should be prepared to answer questions about the company policy on medical marijuana and to engage in the interactive process with employees who raise questions about the policy due to a disability. Employers are encouraged to consult with counsel in drafting and implementing these policies and procedures.
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City of San Francisco to Provide Paid Sick Leave for Private Sector Workers Impacted by COVID-19
On March 16, 2020, San Francisco Mayor London Breed announced the Workers and Families First Program, which will provide paid sick leave to private-sector workers who have been impacted by the COVID-19 pandemic. The plan includes $10 million in public funding that will provide businesses and nonprofits with financial assistance to provide an additional five days of sick leave pay to workers beyond their existing policies.
All San Francisco businesses will be eligible, with up to 20% of funds reserved for small businesses with 50 or fewer employees. The City will contribute up to one week (40 hours) at the city’s minimum wage of $15.59 per hour per employee, or $623 per employee. The employer will be responsible for paying the difference between the minimum wage and an employee’s hourly wage.
This program will provide funds if 1) the employee has exhausted his or her currently available sick leave, 2) the employee has exhausted or is not eligible for federal or state supplemental sick leave, and 3) the employer agrees to extend sick leave beyond current benefits. The program is available pursuant to San Francisco’s Paid Sick Leave Ordinance and the guidance issued by San Francisco’s Office of Labor Standards Enforcement (OLSE) on March 9, 2020, or any subsequent guidance released by OLSE, including when employees are:
- Sick,
- Self-quarantined to prevent spread,
- Caring for a sick family member,
- Home because of a temporary work closure in response to a public official’s recommendation, or
- Caring for a child who is home because of school/daycare closures in response to a public official’s recommendation.
The news release from the Office of the Mayor can be found here: Office of the Mayor of San Francisco
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A coalition of businesses has asked the California Attorney General to delay enforcement of the California Consumer Privacy Act (CCPA) in light of the strain that COVID-19 is putting on businesses.
The CCPA, which took effect on January 1, 2020, allows the Attorney General to begin enforcement actions on July 1, 2020. The coalition urges the Attorney General to delay the enforcement date arguing that “[d]eveloping innovative business procedures to comply with brand-new legal requirements is a formidable undertaking on its own, but it is an especially tall order when there is no dedicated, on-site staff available to build and test necessary new systems and processes.” The coalition also points to the ongoing revisions to the draft regulations which complicate compliance efforts even further. Click here to read more.
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Court Cases
The Ninth Circuit Has Spoken, Again: Salary History Cannot Be Used to Justify Pay Differentials
Just as it did in 2018, the Ninth Circuit disagreed with the county’s position, holding that prior salary alone or in combination with other factors cannot justify a wage differential. On April 9, 2018, the eve of Equal Pay Day, the United States Court of Appeals for the Ninth Circuit in Rizo v. Fresno County Office of Education held that under the Equal Pay Act, prior rate of pay is not a “factor other than sex” and only job-related factors may serve as affirmative defenses to Equal Pay Act claims. However, in late February 2019, the United States Supreme Court vacated that decision and directed the Ninth Circuit to reconsider the issue because the opinion had been published days after the death of its author, the late Judge Stephen Reinhardt. On February 27, 2020, nearly two years after the Ninth Circuit’s initial decision in Rizo, and almost one year to the date of the Supreme Court vacating the decision and remanding the case, the Ninth Circuit reached the same conclusion again.
Case Background
Aileen Rizo was hired as a math consultant by the Fresno County Office of Education in 2009. Rizo’s salary upon joining the county was determined in accordance with the county’s Standard Operating Procedure 1440 (SOP 1440), which dictates that a new hire’s salary is determined by adding 5 percent to their previous salary. Fresno County did not take experience into consideration.
In 2012, Rizo learned that her male colleagues subsequently had been hired in the same position at higher salaries. Rizo complained about the disparity and was told by the county that all salaries had been set in accordance with SOP 1440. Rizo filed suit, alleging that such a system violates the Equal Pay Act.
The county argued it was justified in paying Rizo less than comparable male employees for the same work because the discrepancy was based on her prior salary. In relevant part, the Equal Pay Act provides that employers can pay men and women differently for the same work only if such a payment is made pursuant to (i) a seniority system; (ii) a merit system; (iii) a system which measures earnings by quantity, quality or production; or (iv) a differential based on any factor other than sex. The county contended that an employee’s prior salary constitutes a “factor other than sex.”
The Court’s Decision
Just as it did in 2018, the Ninth Circuit disagreed with the county’s position, holding that prior salary alone or in combination with other factors cannot justify a wage differential. Instead, the court concluded again that “’ any factor other than sex” is limited to legitimate, job-related factors such as a prospective employee’s experience, educational background, ability or prior job performance.
In the Ninth Circuit’s most recent decision, the majority acknowledged that prior pay could potentially be viewed “as a proxy” for job-related factors such as education, skills or experience related to an employee’s prior job and that prior pay can be a function of factors related to an employee’s prior job. The court held, however, that “prior pay itself is not a factor related to the work an employee is currently performing, nor is it probative of whether sex played any role in establishing an employee’s pay.”
The court explained: “The express purpose of the act was to eradicate the practice of paying women less simply because they are women. Allowing employers to escape liability by relying on employees’ prior pay would defeat the purpose of the act and perpetuate the very discrimination the EPA aims to eliminate.”
Two judges partially dissented, arguing that prior salary was a business reality and could be used in certain circumstances, but ultimately agreed that solely relying on prior pay to justify salary differentials violates the Equal Pay Act.
Implications for Employers
The Second, Eighth, Tenth and Eleventh Circuits all have reached similar conclusions that prior salary alone cannot justify a compensation disparity―consistent with the view of the dissenting judges in the Ninth Circuit’s most recent decision in Rizo. However, the Ninth Circuit’s decision has taken it a step further in its holding that prior salary alone, or in combination with other factors, cannot justify a wage differential. This holding, which ultimately would preclude employers from even considering past pay as a factor in setting initial wages, is directly at odds with the Seventh Circuit, which has held that prior salary is always a “factor other than sex.” While employers may have gotten a brief reprieve after the Supreme Court vacated the Ninth Circuit’s initial decision in early 2019, this case shows that state and federal courts in California continue the trend line of cases that construe longstanding practices in public and private sector employment as unlawful when viewed through a 2020 lens. Coupled with the various salary history ban laws that have been instituted across the country (e.g., New York City, Washington state, Delaware, California, Philadelphia, San Francisco, Massachusetts, and Oregon), this decision emphasizes the importance of relying on job-related factors other than an individual’s past salary when determining their new pay. The decision also serves as a reminder that employers should conduct pay equity audits to ensure that any differentials have been lawfully made, are currently supportable and are lawful under the Equal Pay Act and state and local law equivalents. In conducting pay equity reviews, employers may want to work with counsel so that their review may be conducted under attorney-client privilege.
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9th Circ. Pares Damages in $60M TransUnion FCRA Verdict
A Ninth Circuit panel found Thursday that a California federal jury’s $60 million awards were too high for a class of consumers who say TransUnion violated the Fair Credit Reporting Act by confusing their names with those of people on a terrorist watch list, reducing the per-member payout by about one-third.
In a published, partially split decision, the majority affirmed much of the jury’s and lower court’s findings, but knocked punitive damages from $6,353.08 per class member down to $3,936.88 per class member, noting that the 6.45-to-1 ratio between punitive damages and statutory damages was higher than the 4-to-1 benchmark. And given the high statutory award, this ratio couldn’t be justified, the panel said.
“Although TransUnion’s conduct was egregious … the jury’s compensatory award was substantial — near the high end of the statutory range,” the majority said. “Moreover, when viewed in the aggregate, $8 million in statutory damages is quite substantial.” Based on the 8,185-member class size, and the per-member reduction, the panel’s finding should knock about $20 million off the roughly $52 million punitive awards while preserving the whole of the $8 million statutory awards. The panel vacated the punitive damages, remanding it to the lower court with instructions to reduce them to $3,936.88 per member.
“This litigation has already spanned a number of years, and we do not think a new trial would bring to light any new evidence that might permit a ratio higher than 4 to 1,” the panel said. TransUnion has argued that there was no proof individual class members were injured in the same manner as named plaintiff Sergio L. Ramirez and that the award was “untethered” to the evidence. But the panel majority shot this down, despite a partial dissent from U.S. Circuit Judge M. Margaret McKeown. The jury handed up an award of $8.1 million in statutory damages and $52 million in punitive damages in June 2017 after finding TransUnion had willfully violated the FCRA by linking law-abiding consumers to similarly named criminals and terrorists in the U.S. Department of the Treasury‘s Office of Foreign Assets Control database. In the suit filed in February 2012, Ramirez said he was prevented from buying a car in 2011 because TransUnion told lenders he potentially matched two entries on the OFAC list. Ramirez said that when he tried to get off of the credit reporting agency’s list, the company’s customer service agents gave him “the runaround” and didn’t explain how the error could be corrected. The class argued that TransUnion didn’t ensure accuracy as required by the FCRA by cross-checking OFAC name hits with other results, such as birth dates. TransUnion has said there was no evidence to support the damages, arguing Ramirez was eventually able to buy the car and that 80% of the class members did not claim damages at all. The company also argued the FCRA violations weren’t willful, saying it reformed its practices after facing similar litigation over the OFAC practice. While affirming the jury’s findings as to the reasonable procedures claim, the Ninth Circuit panel found that TransUnion’s actions created risk for class members. “TransUnion — one of the nation’s largest consumer reporting agencies — made all class members’ reports available to potential creditors or employers at a moment’s notice, even without the consumers’ knowledge in some instances,” the majority said. And this is where Judge McKeown dissented, noting that such a possibility of injury doesn’t amount to material risk. “Because no evidence in the record establishes a serious likelihood of disclosure, we cannot simply presume a material risk of concrete harm,” she said. Judge McKeown spent much of the dissent noted that at trial plaintiffs’ counsel focused on Ramirez and his “unique circumstances.” “The story of the absent class members, in contrast, went largely untold,” she said. “The jury learned class members requested a credit report from TransUnion and were sent separate mailings. The trial featured no evidence that absent class members received, opened, or read the mailings, nor that they were confused, distressed, or relied on the information in any way.” Perhaps they were, she said, but no evidence was presented tying their experiences to those of Ramirez, leaving the jury to assume that the injury was the same. “Trial attorneys understand the importance of a narrative, and ‘the story of Mr. Ramirez’ has all the compelling elements: a sympathetic protagonist, a corporate antihero, and thousands of unseen victims,” she said. “The purpose of a trial, however, is to evaluate evidence, not produce a satisfying plot.”. The case is Sergio L. Ramirez v. TransUnion LLC, case number 17-17244, in the U.S. Court of Appeals for the Ninth Circuit.
Federal Circuit Courts’ Differing Interpretations of Scope and Application of Article III Standing after Spokeo Leaves Defendants with Uncertainty
In Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016), the Supreme Court held that Article III requires plaintiffs to establish a “concrete and particularized” injury-in-fact, “even in the context of a statutory violation.” Although the Supreme Court noted that “intangible” injuries, including the “violation of a procedural right”, can be sufficient in some circumstances, the Supreme Court made clear that “a bare procedural violation, divorced from any concrete harm” to the plaintiff cannot satisfy the injury-in-fact requirement. Given the limited guidance provided by the Supreme Court, the circuit courts have taken differing approaches to what constitutes an injury-in-fact that satisfies Article III standing. In particular, courts are wrestling with whether a bare violation of a statute constitutes a concrete injury under Article III. Courts have taken different approaches when looking at whether a statute itself creates a protected interest that relieves the need to show any additional harm or injury. The differing approaches make it difficult for defendants to predict whether a plaintiff’s lawsuit may survive a Rule 12 attack.
No Article III Standing with Bare Statutory Violation: The Sixth, Seventh, and Eleventh Circuits have found that bare violations of certain consumer protection statutes did not constitute injuries under Article III. In Huff v. Telecheck Services, Inc., the plaintiff filed a putative class action alleging violation of the Fair Credit Reporting Act (“FCRA”) because Telecheck provided him an incomplete report of its records about his check-writing history and accounts. 923 F.3d 458, 461-62 (6th Cir. 2019). In that case, the Sixth Circuit held that the plaintiff could not satisfy his Article III standing requirement because the alleged statutory violation did not harm the plaintiff’s interests under FCRA since there were no adverse consequences. Id. at 466. The Court reasoned that “Congress cannot conjure standing by declaring something harmful that is not, by saying anything causes injury because the legislature says it causes injury.” Id. at 465.
Similarly, in Casillas v. Madison Avenue Associates, Inc., the Seventh Circuit found that the plaintiff had not satisfied her Article III standing requirements with a Fair Debt Collection Practices Act (“FDCPA”) claim. 926 F.3d 329, 331 (7th Cir. 2019). There, the plaintiff brought a putative class action predicated on allegations that the debt-collection letter violated the FDCPA because it failed to disclose that the plaintiff “had to communicate in writing to trigger the statutory protections” to verify her debt. The Seventh Circuit held that because the plaintiff did not allege that “she tried to dispute or verify her debt orally and therefore lost or risked losing the statutory protections,” the defendant’s “mistake didn’t put [plaintiff] in harm’s way, [so] it was nothing more than a ‘bare procedural violation.’” Id. at 334. This was not sufficient to establish Article III standing.
Along similar lines, in Salcedo v. Hanna, the plaintiff filed a putative class action under the Telephone Consumer Protection Act (“TCPA”) based upon receipt of a single unsolicited text message. 936 F.3d 1162, 1165 (11th Cir. 2019). The Eleventh Circuit found that single unsolicited text message did not satisfy Article III’s injury-in-fact requirement, noting that “an act of Congress that creates a statutory right and a private right of action to sue does not automatically create standing.” Id. at 1167.
Article III Standing with Bare Statutory Violation: The Second, Third, Fourth, and Ninth Circuits have taken a different approach, and have found Article III standing can be satisfied even with bare procedural violations by focusing on the underlying language in the statute created a protected interest. The Ninth Circuit initially led the charge in Van Patten v. Vertical Fitness Group, LLC, finding that a violation of the TCPA, standing alone, categorically causes concrete injury sufficient for Article III standing. 847 F.3d 1037, 1043 (9th Cir. 2017). This conclusion was based on the finding that “Congress identified unsolicited contact [under the TCPA] as concrete harm.” Id. at 1043.
The Third Circuit followed suit. In Susinno v. Work Out World Inc., the Third Circuit found that a “single prerecorded telephone call” under the TCPA was sufficient to confer Article III standing. 862 F.3d 346, 351-52 (3d Cir. 2017). Then, the Second Circuit adopted both Van Patten and Susinno. In Melito v. Experian Marketing Solutions, Inc., the Court concluded that the “receipt of the unsolicited text messages [under the TCPA], sans any other injury”, was sufficiently concrete to establish standing. 923 F.3d 85, 88 (2d Cir. 2019).
Finally and most recently in Krakauer v. Dish Network, L.L.C., the Fourth Circuit again considered whether a bare violation of the TCPA’s private right of action in a putative class action satisfies Article III’s standing requirement. 925 F.3d 643 (4th Cir. 2019). Consistent with the Second, Third, and Ninth Circuits, the Fourth Circuit concluded that the TCPA’s private right of action, by itself, “plainly satisfies the demands of Article III.” Id. at 653. It reasoned that receipt of a call on a residential line that the called party “previously took steps to avoid,” (i.e. by listing it on the Do Not Call Registry) imposes a “concrete burden on his privacy” that is sufficient to confer standing.
On December 16, 2019, the Supreme Court denied Dish Network’s petition for certiorari. By declining the take, the appeal, the Supreme Court leaves unresolved for now this growing circuit split on whether a bare procedural violation under various consumer protection statutes constitutes an injury-in-fact under Article III. Until this split is resolved, defendants should stay vigilant in assessing Article III standing, and consider which circuit the case arises in to determine whether a bare violation of a particular statute is sufficient for Article III standing.
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New Jersey Medical Marijuana User May Proceed with Discrimination Claim
The New Jersey Supreme Court affirmed an appellate court ruling allowing a medical marijuana user to proceed with his disability discrimination claim under the New Jersey Law Against Discrimination (“LAD”). Wild v. Carriage Funeral Holdings, Inc., No. 082836 (Mar. 10, 2020).
The plaintiff, a cancer patient and lawful user of medical marijuana, was involved in a motor vehicle accident while at work. He told a hospital physician that he possessed a license to use medical marijuana; however, the physician decided not to order a drug test because “it was clear” that the plaintiff was not under the influence of marijuana at that time. The plaintiff subsequently was required to submit to drug testing by his employer before returning to work. The employer claimed it terminated the plaintiff’s employment due to his failure to disclose his lawful use of marijuana, not the positive drug test result.
The plaintiff filed a suit alleging disability discrimination and failure to accommodate under the LAD. At that time, the state medical marijuana law (Compassionate Use Medical Marijuana Act, “CUMMA”) did not provide employment protections to users of medical marijuana.
The trial court granted the employer’s motion to dismiss after determining that the CUMMA “does not contain employment-related protections for licensed users of medical marijuana.” But the Appellate Division reversed, as we discussed in our earlier blog post, Medical Marijuana Users May Not Be Discriminated Against In New Jersey. After that decision, the CUMMA was amended expressly to prohibit employers from taking adverse employment actions against a medical marijuana user if that adverse employment action is “based solely on the employee’s status” as a medical marijuana patient. See our article on the amendment, New Jersey Amends Medical Marijuana Law to Provide Job Protections, Include Drug Testing Procedures.
The New Jersey Supreme Court affirmed the Appellate Division’s ruling, concluding that the plaintiff stated a LAD claim that was sufficient to survive a motion to dismiss. Specifically, the plaintiff’s discrimination claims “derived in part from [the plaintiff’s] assertion that, outside the workplace, he lawfully used medical marijuana” for medical reasons, that is, to treat the symptoms of his cancer. Moreover, there is no conflict between the CUMMA and the LAD, although there are two provisions of the CUMMA that could affect a plaintiff’s claim in certain settings, specifically: (1) the CUMMA does not require an employer to accommodate an employee’s use of medical marijuana in the workplace; and (2) CUMMA does not require an employer to permit any person to “operate, navigate or be in actual physical control of any vehicle, aircraft, railroad train, stationary heavy equipment or vessel while under the influence of marijuana.”
The Court’s decision reminds employers to ensure company policies and protocols regarding medical marijuana meet the requirements in the CUMMA (now known as the Jake Honig Compassionate Use Medical Cannabis Act). More importantly, this case serves as a caution to employers that regardless of the language in a state’s medical marijuana statute, a plaintiff may assert a disability discrimination claim in connection with their disability and related use of medical marijuana. Proper policies, compliant protocols, and training for management and human resources professionals are recommended to avoid potential claims.
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International Developments
Countries and regions have enacted extensive travel restrictions in an effort to curb the spread of COVID-19.
The European Union (EU) has banned all nonessential travel into Europe for at least 30 days. There are exemptions for long-term residents of the EU, health care workers, and the transport of goods. Meanwhile, the U.S. State Department has issued a Level 4 travel advisory that advises U.S. citizens to avoid all international travel and asks U.S. citizens abroad to arrange for an immediate return to the U.S. or risk being forced to remain outside the United States for an indefinite timeframe. And, the United States has reached agreements with both Canada and Mexico to limit travel across their respective borders to “essential travel.” Click here and here and here to read more.
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Countries are using location data collected from individuals’ mobile phones to monitor the spread of COVID-19.
Israel, China, and South Korea are all using mobile data to track the movements of individuals who have tested positive for the coronavirus and to monitor those with whom they have been in contact. In what appears to be a more privacy-conscious approach, the U.S. government is in talks with Facebook, Google, and other tech companies to use aggregated anonymized location information to help health authorities determine the impact of social distancing, without sharing data about any individual’s location, movement, or contacts. Click here and click here to read more.
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Other Developments
Coronavirus: An Employer’s Action Guide
As the coronavirus continues to spread, employers should continually evaluate whether their prevention and response efforts are sufficient and appropriately tailored based on the latest information on the virus and their own business considerations. Here is our latest guidance, which may further inform your own response plan.
This is a follow up to our posts on March 4, 2020 and February 14, 2020. Our full Employer’s Action Guide can be found here.
What degree of coronavirus exposure should cause employers to send employees home or deny visitors access to our worksite, and for how long should site access restrictions remain in place?
This is very much a judgment call. The nearly limitless variety of scenarios that may occur makes it difficult to establish clear and objective rules to follow in assessing reported situations.
Exposure may occur due to personal contact or through surface contamination, although the CDC advises that close personal contact is the greatest risk. In either case, exposure may be firsthand or of a second or third-degree — i.e., via contact with a person who had recent close personal contact with someone diagnosed with coronavirus, or with a person who has had recent contact with another person diagnosed with coronavirus, etc.
Some employers are requiring employees and visitors with up to second-degree exposures to remain offsite until the transmission threat is mitigated. We have seen few employers sending people home with lesser degrees of exposure. If the only known exposure is via potential surface contamination, employers often restrict worksite access only if the exposure was firsthand.
Much depends on how disruptive it is to operations if high numbers of employees may work only remotely, if at all. Some businesses can manage under such an arrangement, but others such as manufacturers, health care providers, and warehouse operations require a mostly-onsite workforce to function. For them, the primary strategy is likely to be mitigation (reducing exposure risks for workers onsite) rather than containment (removing known and even potential exposure sources from the worksite).
Employers adopting a mitigation strategy for business reasons are focusing more and more on sending home only employees with symptoms consistent with coronavirus, such as fever of 100.4 degrees or more, coughing or shortness of breath, and possibly also those with recent Level 3 country or cruise ship travel.
As to the period of time to require someone to remain offsite, the latest Centers for Disease Control and Prevention (CDC) guidance indicates that symptoms may not appear for two to 14 days after exposure, so many employers are following the more conservative 14-day time frame.
Can a company ask its employees to submit health declaration forms that provide personal data — for instance, whether they are experiencing symptoms and have traveled to, or been in close contact with persons who have traveled to, regions affected by the novel coronavirus?
Yes, those specific questions are permissible given the level of threat (severity and apparent ease of transmission) of this particular virus. For symptoms, it should be limited to asking if they are experiencing any of the symptoms associated with COVID-19, i.e., coughing, fever of 100.4 degrees or above or shortness of breath. (That is based on the CDC’s latest guidance, which should be monitored for potential updating). We recommend limiting the inquiry to activities or symptoms within the last 14 days, which seems to be the best available information about when transmission may occur. Medical inquiries that go beyond this should be further reviewed to determine whether they are permissible under the Americans with Disabilities Act (ADA). Under the California Consumer Privacy Act (CCPA), those employees residing in California should be provided notice, explaining the categories of personal information collected and the purposes for which the information was collected.
Can employers force employees to come to work, even if there is a known exposure-potential situation?
Currently, yes, employers can generally require employees to continue working their scheduled hours as assigned, onsite, as a condition of continued employment, with absences addressed under the applicable attendance policy. If the employee cites a medical impairment that could qualify as a disability as the reason for the reluctance to come to work, the employer should follow the ADA’s interactive process to determine whether a remote work arrangement or some time off work in hopes that the risk level will soon be alleviated would be a reasonable form of accommodation.
Before issuing an ultimatum, however, we recommend communication to employees about what the employer is doing to mitigate the risk to the extent reasonably possible. This may allay fears enough that the employee will be willing to meet attendance expectations.
In situations of known potential exposure, can employers require employees to be tested for coronavirus?
No. Only health care providers can order testing, and with tests still in short supply, even individuals with symptoms consistent with coronavirus may not be tested if, based on age and medical condition, it is unlikely they would suffer severe effects even if infected.
Based on CDC advice that older people, as well as those with serious chronic medical conditions, stay home as much as possible if coronavirus is spreading in their communities, should employers require all employees age 60 or older to work remotely (if at all) in areas where coronavirus cases are being reported?
We do not recommend taking that action based on federal, state and local protections against age discrimination as well as disability discrimination laws intended to provide equal employment opportunities to the disabled. These disability discrimination laws generally do not allow employers to remove employees from situations based on a medical condition for preventive purposes unless and until the situation poses a direct that to the employee’s health and safety that cannot be effectively alleviated through other measures. Circumstances could conceivably rise to that level at some point, but as things stand now, presence in most workplaces would not rise to that “direct threat” standard.
May and should employers revise paid sick time policies to allow for “quarantine” situations?
Many employers are offering relaxed and/or additional paid leave benefits in response to the current situation. Most common is allowing the use of paid sick time to cover time off work due to restrictions against coming onsite for coronavirus prevention purposes. Paid sick time may also be allowed for other coronavirus-related reasons for absence, such as the need to care for children whose schools are closed — and keep in mind that some states, such as New York, require a minimum amount of paid time off each year that may be used for such a purpose. Some employers are simply paying for “quarantine time” separately from any existing paid time off policies, but that is not always feasible, especially given the uncertainty about the potential total cost at a time when revenues may be down. Some employers are considering adopting “leave-sharing” programs to allow employees to donate a portion of their paid time off to coworkers who are off work for extended periods due to the coronavirus. Because leave-sharing programs can be complex to administer, and if not properly designed, donor employees may be subject to payroll taxes on donated leave, we advise consulting benefits counsel before adopting such a program.
How may employers incentivize employees who are working long hours to cover for absent colleagues?
We are seeing a variety of incentives including some “bonus” paid time off to be used once the absence rate is back to normal, and monetary incentives such as a certain dollar amount or percent of pay for people working over a certain number of hours in a workweek. Do keep in mind that monetary incentives paid to non-exempt employees should be taken into account in calculating the regular rate for purposes of calculating overtime payments due, per requirements of the Fair Labor Standards Act. State law requirements may also apply.
If an employee contracts coronavirus through exposure at work, would that be treated as a workers’ compensation claim?
Likely not. Typically, workers’ compensation covers occupational diseases that are contracted or aggravated due to the nature of a particular kind of work — for example, a hospital worker who gets stuck by a needle and contracts a disease. Illnesses transmitted among workers would generally not be covered. State workers’ compensation laws differ, however, so it is a good idea to consult your workers’ compensation insurance carrier for guidance.
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COVID-19: DOL Reminds Employers of Their Duties Under the FMLA, ADA, and FLSA
In addition to guidance given to employers by the Occupational Health and Safety Administration, the U.S. Department of Labor’s Wage & Hour Division (WHD) issued several reminders to employers regarding their duties under the Family and Medical Leave Act (FMLA), Americans with Disabilities Act (ADA), and Fair Labor Standards Act (FLSA) in the wake of the COVID-19 pandemic outbreak, addressing topics such as:
- Circumstances in which FMLA coverage and protection would be available for employees who have contracted COVID-19 or who are caring for family members that have contracted COVID-19;
- Whether employees can use FMLA leave to avoid exposure to COVID-19. Even if they cannot, be attuned to potential ADA obligations;
- Use of paid sick leave when available;
- Revising paid sick leave policies to address work shortages or financial issues;
- Preventing abuse of leave;
- Whether employers can require employees who are out sick with COVID-19 to provide a doctor’s note, submit to a medical exam, or perform a self-quarantine;
- The use of “volunteers” or temporary employees in the event a business has a shortage of workers;
- Whether employers can require salaried, exempt employees to take a vacation or unpaid leave during an office closure resulting from the COVID-19 pandemic without impacting the employees’ exempt status;
- Use of teleworking and FLSA-related issues; and
- An employer’s FLSA-related obligations to employees under government-imposed quarantine.
More information is available on the WHD’s website:
Additionally, the World Health Organization (WHO) has declared COVID-19 to be a global pandemic. That declaration reflects the spread of the disease, not its severity. However, it is a first step toward allowing employers greater flexibility in monitoring employees for symptoms of COVID-19. Equal Employment Opportunity Commission guidance states that when a pandemic is declared by WHO and the Centers for Disease Control and Prevention, employers in areas of a widespread outbreak may take additional measures, such as taking employees’ temperatures, in order to reduce the spread of the disease in the workplace.
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Will traditional business insurance policies apply to claims related to the Coronavirus?
In the coming weeks and months, we expect to see a lot of discussions, and ultimately litigation, concerning the interpretation of insurance policy provisions and whether Coronavirus-related claims will be covered. We expect to see both first-party claims and third-party claims. A number of publications have recently suggested that it is unlikely that coverage will apply under many traditional policies. Nonetheless, insureds should not assume that suggestion to be true for their policies and should not make any statements concerning the possible inapplicability of coverage. Ultimately, determinations will likely be made in the courtroom if coverage is denied by the insurer. It is important to analyze your policies closely because the language within policies can differ, the interpretation of policy language is usually controlled by state law (which can vary widely), and coverage is often fact-dependent.
First-Party Policies
First-party policies concern losses suffered by your business. Sometimes these are described as commercial property or all-risk policies, depending on the scope of coverage. They are mostly known for covering damage to your property, but can also include coverage for additional losses, which might be relevant to the Coronavirus outbreak. These policies might include the following relevant coverages:
Business Interruption
Business Interruption provides coverage for lost income and extra expenses incurred in attempting to continue your business operation following a covered loss. Many policies require the interruption to be caused by a direct physical loss or damage to your property. For instance, if your business cannot operate because a fire destroyed your property, you might be afforded coverage for lost income while you rebuild.
Litigation under these policy provisions is likely to turn on whether (1) the Coronavirus has caused a physical loss or damage to your property and (2) whether such physical loss or damage is a direct cause of your business’s interruption.
Perhaps a hotel or restaurant that is contaminated with the virus might meet the test for having physical loss or damage to its property and receive coverage for the short period of time while disinfecting takes place, but the fact that most businesses are currently experiencing a downturn while customers practice social-distancing is unlikely to trigger coverage.
Experts seem to think that the most prominent argument will be that insureds’ HVAC systems were “damaged” by the presence and spread of respiratory droplets containing the virus.
Contingent Business Interruption and Supply Chain
Contingent Business Interruption and Supply Chain provide coverage for lost income and extra expenses when a supplier or customer experiences a loss that disrupts their supply chain. Many Contingent Business Interruption policies will limit coverage to instances where a direct customer or supplier has suffered a physical loss or damage to its property within a specific geographic area. Supply Chain policies can be a variation of CBI by covering specific products or specific suppliers during certain events, such as a pandemic or civil action.
Ingress and Egress
Ingress/Egress provides coverage for the business interruption that arises when you cannot come and go from your property. Imagine, for example, that the only road to your warehouse is closed. This type of policy may contain a mileage limit. The policy language may or may not require damage to your property. If current government bans expand in scope, this type of coverage may gain importance for Coronavirus claims.
Civil Authority
Civil Authority provides coverage for the business interruption that arises from “civil authority” orders. This coverage typically requires government action that impairs or prevents access to an insured’s property as a result of physical damage to property at or nearby the insured’s location. Although recent government orders have shut down restaurants and bars, it is unlikely that those orders will trigger this coverage without satisfying the property damage element.
Event Cancellation
Event Cancellation is designed to protect against expenses and lost revenue from the cancellation of an event that is beyond the insured’s control, such as hurricanes, terrorism, labor strikes, or the non-appearance of a celebrity. These policies can be written to cover all events during a policy period or specific events. Some policies permit optional coverage for an additional expense to cover communicable/infectious diseases. Reports indicate that there was a growth in the purchase of this type of coverage following the SARs outbreak, but it has declined recently.
Liability (Third-Party) Policies
Commercial General Liability Policies (“CGL”)
CGL policies cover claims for bodily injury or property damage brought by a third-party. Importantly, they often include coverage for costs to defend claims, including attorneys’ fees. Therefore, these may be the first line of defense against Coronavirus claims if a third-party alleges that a business’s negligence caused them bodily injury. We have already seen the filing of at least one lawsuit claiming a million dollars in damage due to a cruise ship company’s negligence in dealing with the Coronavirus outbreak.
Coverage will depend on whether contracting the Coronavirus is considered an “occurrence” within the policy. An occurrence is usually defined as an accident. The question has been argued in courts for decades with various results. With respect to the Coronavirus, the answer will likely turn on whether the insured foresaw that the claimant would contract the virus — which could be hard to defend against if certain businesses remained open after the recent government guidance and forced closures to prevent the spread of the virus. Notably, some of these policies are written on a “claims made” or “claims made and reported” basis, which seek to impose limitations on when and how many claims may be asserted. In addition, the scope of coverage can depend on whether the policy is written to allow claims “because of” or “for” bodily injury/property damage.
It is important for companies to make sure that they comply with all notice requirements and other conditions within their policy so as to not waive coverage.
Directors & Officers Liability Policies
As described, these policies are designed to protect against claims concerning how directors and officers acted or failed to act. Potential claims against directors and officers are expected to vary widely concerning the Coronavirus, but will likely include suits brought by shareholders alleging that these individuals failed to act reasonably in anticipating and/or responding to the impacts of the Coronavirus. Such claims might be made based on a business’s decision to remain open, inadequate precautions, reporting errors, inaccurate or inadequate disclosures, or failure to comply with government orders.
Errors & Omissions Liability Policies
These policies typically cover claims alleging that professionals made errors and/or omissions in rendering services. Illegal acts and purposeful wrongdoing are typically excluded. These claims might come into the discussion concerning how medical professionals, accountants, and universities responded to the Coronavirus.
Exclusions
It is important to note that coverage may be disclaimed under some or all of these policy provisions based on specific policy language. Some policies contain exclusions under general terms, such as for losses caused by viruses, communicable/infectious diseases, bacteria, mold, fungi, spores, any microorganism that causes harm to human health, contamination, pollution, government quarantine, and pandemics. Some policies contain exclusions on a more specific basis, such as for losses caused by SARs, Ebola, or Zika. We may see disputes as to whether there is a difference between bacteria-borne illnesses and viral infections under exclusion language. It is important to review your policy language.
Other Considerations
It has recently been reported that certain legislative bodies are seeking to enact legislation to retroactively apply insurance coverage to Coronavirus claims, despite exclusions for viruses. Whether such legislation will become law and whether it will ultimately be challenged by insurers in court remain to be seen.
Recommendations
- Do not assume that coverage will be disclaimed under your policies.
- Do not make statements concerning the inapplicability of coverage.
- Review your policy language for coverage and exclusions.
- Provide timely notices to your insurer and fulfill all conditions of your policies to prevent a waiver of coverage.
- Document your losses, such as lost profit.
