COVID-19 Update: Do Shelter-In-Place or Stay-At-Home Orders Require My Business to Close?

What are these orders?

California counties began issuing shelter-in-place orders early last week, and by March 19, a statewide stay-at-home order was issued. Other states and local governments followed suit, with Illinois, Connecticut, New York, New Jersey, Pennsylvania, Ohio, Louisiana, Michigan, Delaware, Kentucky, Oregon, Massachusetts, Nevada, Tennessee, and Wisconsin issuing similar types of orders.

While the titles and substance of these orders vary, the orders generally instruct nonessential businesses to cease activities, but permit businesses essential or critical to infrastructure to continue to operate. (Note that nonessential businesses may continue to operate as long as employees work from home).

Because the orders all differ to some degree, you should fully read each order that might apply to your business. If your business does work in multiple counties or multiple states, different standards may apply to different projects or employees.

Are the orders enforceable?

Depending on the state or issuing authority, individuals and businesses who do not comply with these orders risk misdemeanor convictions that result in fines or imprisonment. Although some local governments, and even the state of California, have indicated that they will not yet enforce the orders, some are written in such a way that they could potentially be enforced at any moment.

Moreover, although these orders are tremendously ambiguous now, these orders will eventually be interpreted in civil litigation, hearings, and in the court of public opinion. Criminal liability is not the only thing at stake. Noncompliant businesses run a great risk of bad publicity, OSHA violations, labor and employment penalties, and civil liability.

In addition, your business’s insurance policies may have provisions that require you to comply with all state, federal, and local laws and regulations. If an accident, claim, or other insurable event occurs while you improperly remain open, it could be grounds for your insurance carrier to deny your claim. Insurance carriers are likely to read the orders broadly to require most businesses to shut down, permitting them to potentially exclude more claims. You should take this into consideration when deciding whether to stay open, especially if you are not sure whether you qualify as an essential or critical business.

Similarly, your business contracts may have provisions that require you to comply with all state, federal, or local laws and regulations during their performance. If you do have a contract with this provision, make sure that the other party will not use such a provision to withhold payment or other performance if you stay open and continue to perform.

Do state orders preempt county and local orders?

Unless a state order expressly preempts county and local orders by its language, the question is complex and will depend on the laws of your state.

In California, it is an open question as to whether the state order preempts the local county orders. As of the date of this writing, the California governor himself seems unsure of the answer, which may suggest that the statewide order does not preempt county orders.

Regardless, from a practical standpoint, preemption may not matter right now. Although the orders differ, they pose the same analyses and risks. All of the orders require businesses to determine whether they are essential and critical, and an inaccurate determination risks criminal liability, civil liability, denial of insurance coverage, and poor publicity. Additionally, the orders overlap in many respects, and it may be that compliance with one will result in compliance with the others. At this point, the best practice is to assume that both state and county/local orders apply.

How can I tell if my business is required to close?

Essential and Critical Businesses

The California state and county orders rely on different standards to determine whether a business is “essential” or “critical” such that they may continue to operate.

Generally, the California county orders permit “Essential Businesses” and “Essential Infrastructure” to continue operations. Under the California statewide order, only businesses “needed to maintain continuity of operations of the federal critical infrastructure sectors” may continue to operate. It is popularly understood that certain businesses, such as hospitals, pharmacies, grocery stores, utilities, and banks, may continue operations under both types of orders. If you run one of these businesses, the chances are that you already know that your business is considered critical or essential and can proceed with operations.

However, if you are not sure whether your business qualifies as an Essential Business or falls within a “federal critical infrastructure sector,” consider stopping operations immediately and make a plan for closing. In the meantime, review any applicable orders for potential exemptions that may allow your business to continue to operate. The orders issued by California’s various counties identify more than 20 types of Essential Businesses, including a broad category of “[b]usinesses that supply other essential businesses with the support or supplies necessary to operate.” This category could potentially encompass many different types of businesses.

In addition, the “federal critical infrastructure sectors” consist of sixteen broad categories, such as “financial services,” “commercial facilities,” “energy,” “and “critical manufacturing.” A list of the sectors can be found at California Governor Issues Statewide Lockdown. This list is further clarified in a Department of Homeland Security memorandum that identifies essential critical infrastructure workers. The memorandum can be found at Memorandum on Identification of Essential Critical Infrastructure Workers during COVID-19 Response, A California memorandum identifying essential critical infrastructure workers can be found at Essential Workforce.

Note that some other states have even broader exemptions that California’s orders, so businesses should be sure to read the orders that apply to any states in which they operate.

If you think your business may be essential or critical, or if you think your business may provide necessary supplies or support to essential or critical businesses, consider closing temporarily and providing notice to the ordering authority of the basis for your belief and of a timed-reopen. Additionally, if you believe your business supports essential or critical businesses, obtain letters of support from those businesses explaining your crucial role. If you are concerned that those businesses would decline to provide letters of support, or they actually decline to provide them, you should strongly consider staying closed.

In general, the harder you have to work to find an exemption or reason for you to stay open, the greater your risk in staying open.

Limits on Essential and Critical Businesses

The California orders do not expressly place limitations on the types of operations that essential or critical businesses can conduct. However, the stated intent of the orders is to keep people at home to stop the spread of the Coronavirus. In addition, the orders generally require individuals—employees—to stay at home. Thus, in a case where a critical business has both critical and noncritical types of operations, the orders strongly imply an intent to shut down the noncritical or nonessential portions of the business.

Accordingly, in a hypothetical situation where 70% of a company’s operations are essential and the other 30% is nonessential, the company should strongly consider shutting down the 30% of nonessential operations, including by sending nonessential employees home. This is true no matter what the relative percentages are—essential or critical businesses should strongly consider stopping any noncritical aspects of their business.

On a similar note, if your business sometimes performs essential or critical work, but is not performing any at present, you should strongly consider closing down for the time being.

Recall that although these orders are ambiguous now, failure to comply with their intent may result in adverse opinions in civil and employment litigation, insurance investigations, and public relations in the future.

Minimum Operational Functions in California

Notably, some California county orders permit all businesses—regardless of whether they qualify as “essential” or not—to continue minimum operational functions, such as processing payroll and employee benefits or facilitating employees’ abilities to work from home. California’s statewide order contains no such express language. Thus, there is an open question as to whether nonessential California businesses can even proceed with minimum operations outside of homes and residences. Nonessential California businesses that continue to proceed with minimum functions therefore run at least a theoretical risk of violating the statewide order.

If my essential or critical business does not need to close, do I need to do anything else?

Social Distancing Requirements

At a minimum, critical or essential businesses that remain open must comply with Social Distancing Requirements. In the California county shelter-in-place orders, Essential Businesses are required to comply with Social Distancing Requirements “to the greatest extent feasible,” which is an extremely ambiguous, yet high, standard. Accordingly, Essential Businesses that do not make efforts to comply with this standard not only risk misdemeanor liability, but also future civil liability.

Social Distancing Requirements have so far been defined as “maintaining at least six-foot social distancing from other individuals, washing hands with soap and water for at least twenty seconds as frequently as possible or using hand sanitizer, covering coughs or sneezes (into the sleeve or elbow, not hands), regularly cleaning high-touch surfaces, and not shaking hands.”

At a minimum, businesses must ensure that they have implemented procedures and protocols for employees to comply with the above requirements “to the greatest extent feasible.”

Identification of Sick Employees

The Centers for Disease Control and Prevention (CDC) has issued guidelines that direct businesses to send sick employees home immediately. Failure to comply with these guidelines could eventually result in litigation, civil liability, OSHA violations, or violations of employment and labor codes. However, given that even asymptomatic employees can spread the illness, this guideline can be difficult to put into practice.

As a result, businesses should consider implementing the CDC’s recommendation to certain regions in California and Washington and require temperature and respiratory health screenings before employees begin work. These health screenings should be given to every employee, not just those who are symptomatic. Of course, businesses must ensure that these screenings are conducted in a non-invasive, private fashion, and that any results are kept as confidential as possible. Ensure that employees are warned in writing and with posted notices that by coming to work, and by recommendation of the CDC, employees will be monitored and screened for asymptomatic (non-obvious) symptoms, including the taking of temperatures.

In addition, ensure that you are complying with all OSHA requirements and the latest CDC recommendations. Remember that failure to comply with any of these requirements runs the risk of employment and labor code violations, civil liability, rejected insurance claims, and poor publicity.