What is a PRI?
A PRI is a type of investment made by a private foundation with the primary goal of accomplishing its charitable mission.  It can take many forms, including equity, debt or a loan guarantee.  PRIs were codified as part of the US Tax Reform Act of 1969. This landmark legislation changed the regulatory landscape for private foundations in many ways.  Under the terms of the Act, certain excise taxes are imposed on private foundations for making “jeopardizing investments”, which are investments that jeopardize the foundation’s ability to carry out of its exempt purposes. However, the Act specifically carved out PRIs as an exception to the jeopardizing investment rules.

PRIs are treated more favorably than other types of foundation investments.  Unlike non-PRI investments, PRIs count toward the private foundation’s annual requirement to distribute, for charitable purposes, an amount equal to 5% of the fair market value of its assets,  other than those which are used (or held for use) directly in carrying out a foundation’s exempt purpose (known as the annual minimum distribution requirement).  This treatment reflects the view that PRIs are more akin to grants as they are motivated by the goal of accomplishing the foundation’s mission without regard to their return on investment.

Foundation managers looking to expand their impact may find that PRIs offer significant advantages over traditional grant-making. For example, grants are not repaid, whereas PRIs allow private foundations to make an impact, while generating some degree of financial return that can be recycled for use in a future grant or investment, thereby deepening the foundation’s impact. Traditional grants are also generally limited to charitable grantees (e.g., public charities), whereas PRIs can be issued to any entity pursuing a project that aligns with the foundation’s mission, including for-profit companies.

How do PRIs work?
To better understand how a PRI works, consider this hypothetical:
X is a private foundation with the mission of creating better living conditions for those living in poverty.  X decides to make a $1 million loan to Y, an organization that builds affordable housing for those living below the poverty line in the city of Z.  The loan is made at a below market rate, meaning that X could receive a better interest rate if it invested the funds somewhere else at a market rate.    X is making the loan for the reason that the loan furthers its mission.  As a result of the loan made by X, other investors begin to make loans to Y as well.  As a result, Y is able to build thousands of affordable homes for individuals living in Z.  Eventually, Y repays the loan to X.  Because of the repayment, X is able to use those resources again to make other investments or grants that advance its mission.  The funds are recycled for future use.

How does an investment qualify as a PRI?
To qualify as a PRI, an investment must meet a three-pronged test:

• The primary purpose of the investment must be to further one or more exempt purposes of the foundation;
• The production of income or the appreciation of property may not be a significant purpose of the investment; and
• The PRI cannot be used to fund electioneering or lobbying activity.

The first two prongs of the test warrant further examination.  The first prong, commonly known as the “primary exempt purpose test,” is subjective in that it is specific to each foundation.  It is actually a two-part test.  First, the investment being considered must significantly further the foundation’s exempt activities.  Second, the contemplated investment must be such that the foundation would not make it but for its relationship to the foundation’s exempt purposes.

The second prong of the test states that the production of income or the appreciation of property cannot be a significant purpose of the investment.  This test is more difficult to prove and often generates some degree of confusion.  After all, it is not always easy to determine that return was not a significant motivator is making an investment.  The easiest example of an instrument that would pass this test would be a below-market loan to an organization.  However, PRIs are not limited to loans.  As the Internal Revenue Service and Treasury Department has indicated in previously issued guidance, there are a number of forms a PRI can take, including equity investments, and loan guarantees.  In the final regulations issued by the IRS regarding PRIs, a common element to all of the examples included is that they all have the ability to generate some degree of financial return.  The use of PRIs can be a very effective way of deploying philanthropic capital.

Who uses PRIs?
With all of the benefits of engaging in a PRI, it’s surprising to learn that many private foundations do not use PRIs.  In fact, according the National Center for Family Philanthropy, as of 2017, less than 2% of the country’s more than 87,000 foundations use PRIs.  The larger players in the philanthropic world use them regularly.  For example, the Ford Foundation, a widely recognized trailblazer in the sector, has established a $200 million dollar pool of resources within its endowment for use as capital for PRIs.  On an annual basis, it awards nearly $17 million in PRIs.  In 2020, the Gates Foundation allocated in excess of $10 million to PRIs. The largest foundations avail themselves of this strategic philanthropic tool regularly. But what about the others?  When PRIs are used in concert with more traditional means of philanthropy, it can lead to a more powerful strategy with greater impact.

If a private foundation determines that deploying capital through a PRI should be a priority, the foundation may need to allocate resources toward building a team with the financial and legal knowledge to engage in a PRI strategy.  Effecting a program-related investment requires a fairly significant level of due diligence in order to ensure that the criteria are fully met, and include expenditure responsibility oversight requirements similar to that required of certain foundation grants. In some instances, the use of third-party advisors may prove critical to an effective PRI strategy.  Given the potential for PRIs to have a multiplier effect on social impact, foundation board members and management who have not yet delved into the world of PRIs should consider evaluating whether impact investing through PRIs would enhance programmatic success.

The post Are You Looking to Make an Impact? Consider a Program Related Investment appeared first on Perlman & Perlman.

In response to the enactment of New York State’s law, New York City also amended its own Paid Safe and Sick Leave Law and on October 21, 2020, New York City updated its Notice of Employee Rights which must be distributed to all employees in both English and the employee’s primary language –once the document has been translated by New York City’s Department of Consumer and Worker Protection  (“DCWP”) into that language on its website.  Below are some questions and answers relating to the New York City law which covers all employers–non-profit and for-profit– with employees working in New York City.

When Does the Amendment to NYC’s Law Take Effect?

The amendment to New York City’s Paid Safe and Sick Leave law (“PSSL”) took effect on September 30, 2020.  Specifically, as of September 30, 2020, employers must: 1) allow employees to use safe and sick leave as it is accrued; 2) reimburse employees for costs associated with getting documentation from a health care provider or other provider after the employee has taken more than three consecutive workdays of sick/safe leave; and 3) list on employees’ paystubs each pay period (or another document issued during each pay period) the amounts of accrued and used leave and the total balance of accrued leave.  With respect to the paystub information requirement, employers that could not satisfy that requirement by September 30, 2020 but are working in good faith on implementation had until November 30, 2020 to ensure compliance without a penalty.

How Much Leave is Required?

Just like New York State’s Paid Sick/Safe Leave law, under PSSL, the amount of leave required to be provided depends on the number of employees and/or net income of the organization:

• Employers with 100 or > employees in any calendar year must provide covered employees with: Up to 56 hours of paid sick/safe leave each calendar year;*
• Employers with fewer than five employees and net income of more than $1 million in prior calendar year: Up to 40 hours of paid sick/safe leave in each calendar year;*
• Employers with between 5-99 employees in any calendar year: Up to 40 hours of paid sick/safe leave in each calendar year; and
• Employers with fewer than five employees and less than $1 million in net income in prior calendar year: Up to 40 hours of unpaid sick/safe leave in each calendar year.                                                                                                                                                                                                                                            * These two requirements take effect on January 1, 2021.

What Can the Leave Be Used For?

Sick leave may be used for medical, health and emergency safety reasons.  Specifically, leave may be taken: 1) for an employee’s health, including to get medical care or to recover from illness or injury; 2) to care for a family member who is ill or has a medical appointment; 3) when an employee’s workplace or child’s school or childcare provider closes due to a public health emergency; or 4) for the safety of an employee or employee’s family member because of domestic violence, unwanted sexual contact, stalking, or human trafficking.   In the case of COVID-19, employees may use this leave if they feel ill or show COVID-19 symptoms, get tested for the flu or COVID-19, are under quarantine or self-isolating for preventative purposes, or are caring for a family member under a mandatory or precautionary order of quarantine.  (This leave is not limited, however, to COVID-related illness and is separate and apart from New York State’s own COVID-19-Paid Sick-Leave Law).

May an Employer Front-Load the Leave at the Beginning of a Calendar Year Rather than Require Employees to Accrue the Leave?

Yes.  An employer may elect to provide its employees with the total amount of sick/safe leave required to fulfill its obligations at the calendar year start, provided, however that the employer may not reduce or revoke any such leave based on the number of hours actually worked by an employee during the calendar year.

May an Employer Require Advance Notice for the Leave?

Yes, where the need for leave is foreseeable, an employer may require at least 7 days’ advance notice, but if the need for leave is unforeseeable, then the employee needs to give notice of leave as soon as practicable (reasonable).  The employer may also require an employee to provide written verification that the leave was taken for authorized sick or safe leave purposes.

May an Employer Require an Employee to Provide Documentation about the Nature of the Employee’s Illness as a Condition of Providing Sick Leave?

No, but an employer is permitted to require an employee to provide documentation from a licensed health care provider confirming the amount of sick leave used and whether the leave was used for an authorized purpose under the law: 1) after an employee uses more than three (3) consecutive workdays as sick/safe leave (and no less than seven (7) days after the employee returns to work under NYS law); and 2) for safe leave, reasonable documentation from a social service provider, attorney, court, law enforcement, clergy member, or notarized letter by employee indicating the need for safe leave (but not setting out the reason for the leave).   Under PSSL, employers may not, however, require that the documentation specify the reason for safe or sick leave.  NYC’s DCWP — which enforces this law– advises employees not to include details of their medical or personal situation in the documentation provided to the employer nor the reason for taking safe leave.

Does the Law Require Employers to Allow Carry Over Unused Sick/Safe Leave?

Yes.  Remember, however, that:

• An employer with fewer than 100 employees may limit the use of sick leave to 40 hours per calendar year; and
• An employer with 100 or more employees may limit the use of sick leave to 56 hours per calendar year.

Additionally, if the leave is front-loaded at the beginning of the calendar year fully available for use without the need to accrue it, there would not be a reason for an employee to carry it over.

Is the Leave Job-Protected and Are Employees Protected From Retaliation for Taking Leave?

Yes, an employee must be restored to their position following return from safe/sick leave with the same pay and other terms and conditions of employment.  The PSSL prohibits employers from discriminating or retaliating against an employee for exercising their rights, including, but not limited to, for requesting and using sick leave and reporting violations.  More specifically, the amendment to the PSSL prohibits employers from taking an adverse action that penalizes an employee for, or is reasonably likely to deter an employee from, exercising or attempting to exercise their rights under the law.  An “adverse action” is broadly defined to include, but not be limited to, threats, intimidation, discipline, reduction in hours or pay, informing another employer of an employee’s exercise of rights, blacklisting, and maintaining or applying an absence control policy that counts protected leave for safe/sick time as an absence that may lead to or result in an adverse action. Adverse actions include actions related to perceived immigration status or work authorization (like threatening to report an undocumented worker to the authorities).

What Information Must an Employer Provide to an Employee About Their Rights?

Employers must provide employees with a written safe and sick leave policy that explains how to use their benefits and inform employees of the amount of their sick/safe leave use and balance.  Employers may not require an employee to find coverage for that employee in order to take the sick/safe leave.  Additionally, the law prohibits retaliation against employees, as noted above. (Remember too, that under NYS law, employers must also provide a summary of the accrued and used sick leave amounts, if requested by the employee, within three business days of such request.)

Are There Additional Penalties Under the Amendment to NYC’s Paid Sick/Safe Leave Law?

The amendment to the PSSL includes a new remedy: For each employee covered by an employer’s official or unofficial policy or practice of not providing or refusing to allow the use of accrued safe/sick time, $500.

As you may recall, NYC Department of Consumer and Worker Protection’s Office of Labor Policy & Standards (OLPS) enforces the PSSL. Employers who fail to provide compensation for the leave may owe three times the wages that should have been paid (or $250, whichever is greater), fines for each instance where an employer denies the leave or  unlawfully conditions the leave upon an employee searching for or finding a replacement worker, or for each instance an employer requires an employee to work additional hours without the mutual consent of such employer and employee to make up for the original hours during which such employee is absent. Employers are also subject to civil penalties on a per employee basis.

Employees do not have a private right of action to proceed in court but the corporation counsel may bring a civil action in court to enforce any order of OLPS or seek injunctive relief (to stop an employer from violating the law) or to sue for a pattern or practice of violations.  If a pattern or practice violation of the law is found, an employer may be subject to civil penalties of up to $15,000 plus additional relief of $500 to each employee covered by an employer’s policy or practice of not providing or refusing to allow the use of earned time.

Additionally, employers who did not provide employees with a proper notice of employee rights may receive a civil penalty of no more than fifty dollars, per each employee who was not given appropriate notice.

Finally, an employer who retaliates against an employee for exercising their rights may be liable for an employee’s lost wages and benefits, a fine, and equitable relief (like reinstatement in the case of an employee who has been unlawfully terminated).

What Should Organizations with NYC Employees Do Now?

Review, and where needed, update your employee handbooks to address New York City’s amended paid sick/safe leave law and distribute those updated policies together with the updated Notice of Employee Rights (distribute notices electronically, if employees are working remotely).  Get a signed acknowledgement of receipt (or “read receipt”) of the notice of employee rights, and train your managers regarding employees’ rights under this law, including to be free from retaliation.  Review payroll records to ensure they are consistent with the law’s new requirements.

If you seek assistance with updating your policies, training your managers on the new laws, and advising on compliance or have any questions, please contact Lisa M. Brauner, Esq., Perlman & Perlman LLP,  Head of Employment Law practice, lisa@perlmanandperlman.com, 212-889-0575.

The information provided in this document does not constitute legal advice, and is not intended to substitute for legal counsel.

The post N.Y.C. Employees Get Additional Paid Sick/Safe Leave Rights: Update Your Policies and Distribute Notices appeared first on Perlman & Perlman.

That means that organizations and companies that choose to take this payroll tax deferral would then withhold additional amounts from those affected employees’ paychecks from January 1, 2021 through April 30, 2021 to repay that deferred tax obligation.  The payroll tax deferral would not excuse the requirement of payment of such taxes. Additionally, the deferral is not retroactive meaning that an employer may only defer payment of taxes prospectively through December 31, 2020 (it may not include deferral of taxes or reimbursement of taxes to employees that were already withheld starting September 1).

There remain questions about the legality of President Trump’s memorandum in the absence of approval from Congress which constitutionally holds the power over the federal “purse strings”— to tax and spend public money for the national government. Although the Internal Revenue Service (IRS) issued guidance on August 28, 2020 (Notice 2020-65), employers are still awaiting further IRS guidance regarding how the deferral would be implemented, including whether (or how) an employee’s obligation to pay those deferred taxes or an employer’s obligation to withhold will be forgiven in the absence of Congressional approval, written confirmation that the choice of whether to implement deferrals rests with the employer, not the employee, and employer obligations with respect to such taxes if an employee is no longer employed with that employer at the time that repayment is due.

The payroll tax deferral is simply a deferral, not a forgiveness of taxes.  If an employer does not pay the deferred payroll tax to the IRS by April 30, 2021, it could potentially be liable for penalties, interest and late fees.

Organizations should confer with their legal counsel and accountant before deciding to defer payroll tax withholding and to discuss structuring any agreements with affected employees concerning repayment if those organizations do decide to defer payroll tax withholdings.

The post Employee Payroll Tax Deferral Causes Confusion and Uncertainty for Employers appeared first on Perlman & Perlman.

 I .  FOR ALL EMPLOYERS REGARDLESS OF STATE

Overview

Families First Coronavirus Response Act:  Following the devastating impact of COVID-19 on the health of American workers and the workplace, on March 18, 2020, the President of the United States signed Families First Coronavirus Response Act, or H.R. 6201 (“FFCRA” or the “Act”) into law.  The FFCRA requires employers with fewer than 500 employees –including nonprofit organizations—to provide their employees with job-protected paid sick leave and/or expanded family and medical leave where they miss work for specified reasons related to COVID-19.

The law took effect on April 1, 2020 and ends on December 31, 2020.  Among other provisions of the FFCRA, most relevant to U.S. employers are three key provisions:

• Emergency Paid Sick Leave Act (EPLSA)
• Emergency Family and Medical Leave Expansion Act, amending the Family and Medical Leave Act of 1993 (EFMLEA)
• Payroll tax credits for employer paid leave payments under EPSLA or EFMLEA

This Alert addresses these three key FFRCA provisions, some specific questions answered by the U.S. Department of Labor in its guidance, and New York State’s own COVID-19 Quarantine Paid Sick Leave Law (“NYS Paid Sick Leave”), also signed into law on March 18, 2020, and the interplay between the two laws. Regulations implementing the FFCRA are expected in early April.

NYS’s Paid Sick Leave Law also took effect on March 18, 2020, and requires employers to provide job-protected sick leave to employees and their minor children who are subject to a quarantine or isolation order due to COVID-19.

U.S. DOL Regulations and Guidance

On April 1, 2020, the U.S. Department of Labor (DOL) issued temporary implementing regulations.

Prior to that, on March 24, 28 and 29, 2020, the U.S. Department of Labor (DOL) supplemented its resources on COVID-19 and the American Workplace by issuing:

• Q & As for employers covered by FFCRA (i.e., those with fewer than 500 employees)
• FACT SHEETS FOR EMPLOYERS AND EMPLOYEES (in English/Spanish)
• MANDATORY FFCRA POSTER AND Q & A ON POSTING: Posting required by April 1^st.
• DOL FIELD ASSISTANCE BULLETIN: Providing employers with temporary non-enforcement of violations of the FFCRA by the DOL through April 17th.

Below are Q & As addressing each of those three provisions of the FFCRA affecting workers at businesses and nonprofit organizations, including some questions and answers by the DOL:

Q: Which Employers are Covered by FFCRA?

A: In general, the paid sick leave and expanded family and medical leave provisions of the FFCRA apply to employers with fewer than 500 employees (for-profit and non-profit alike), and certain public sector employees with at least 1 employee. Most employees of the federal government are covered by Title II of the Family and Medical Leave Act (FMLA), which was not amended by this Act, and are therefore not covered by the expanded family and medical leave provisions of the FFCRA. However, federal employees covered by Title II of the Family and Medical Leave Act are covered by the paid sick leave provision.

Small businesses with fewer than 50 employees may qualify for exemption from the requirement to provide leave due to school closings or child care unavailability if the leave requirements would jeopardize the viability of the business as a going concern.

Q:  What are FFCRA’s Paid Leave Entitlements?

A: Under the FFCRA, eligible employees are entitled to:

• Up to two weeks (80 hours for full-time employee) fully or partially paid leave, or a part-time employee’s two-week equivalent of paid sick leave based on the higher of their regular rate of pay, or the applicable state or Federal minimum wage, paid at:

– 100% for Qualifying Reasons #1-3 below, up to caps of $511 per day and $5,110 in the aggregate;

– 2/3 for Qualifying Reasons #4 and 6 below, up to $200 daily and $2,000 aggregate for the entire two-week paid leave period; and

– Up to 12 combined weeks of paid sick leave and expanded family and medical leave (paid at 2/3 for Qualifying Reason #5 below (2 weeks’ paid sick leave plus additional 10 weeks’ paid family leave), up to a cap of $200 per day per employee and $12,000 total (over 12-week period).

Employees need not be employed for any particular period of time to be eligible for Emergency Paid Sick Leave Act (EPSLA).  Note, however, that in order to be eligible for leave under the Emergency Family and Medical Leave Expansion Act (EFMLEA) which is an expansion of the federal Family and Medical Leave Act (FMLA), employees must be employed for at least 30 days before their leave request to be eligible for up to an additional 10 weeks of partially paid expanded family and medical leave under EFMLEA for Qualify Reason #5 below.

A part-time employee is entitled to leave for his or her average number of work hours in a two-week period.

Q: What are the Qualifying Reasons for Paid Leave Related to COVID-19?

A: An employee is entitled to take leave related to COVID-19 if the employee is unable to work (including telework) because:

(1) The employee is subject to a Federal, State, or local quarantine or isolation order related to COVID–19.

(2) The employee has been advised by a health care provider to self-quarantine due to concerns related to COVID–19.

(3) The employee is experiencing symptoms of COVID–19 and seeking a medical diagnosis.

(4) The employee is caring for an individual who is subject to an order as described above in subparagraph (1) or has been advised as described in paragraph (2).

(5) The employee is caring for a son or daughter of such employee if the school or place of care of the son or daughter has been closed, or the child care provider of such son or daughter is unavailable, due to COVID–19 precautions.

(6) The employee is experiencing any other substantially similar condition specified by the Secretary of Health and Human Services in consultation with the Secretary of the Treasury and the Secretary of Labor.

Where the paid sick leave is being used because of Qualifying Reasons #1, 2 or 3, above, the employee is eligible for his/her regular rate of pay, up to a cap of $200 per day and $2,000 in the aggregate.

Q:  How much will an employee be paid while taking paid sick leave or expanded family and medical leave under the FFCRA?

A:  The amount depends on an employee’s normal schedule as well as why the employee is taking leave.

1. If an employee is taking paid sick leave because they are unable to work or telework due to a need for leave because they (1) are subject to a Federal, State, or local quarantine or isolation order related to COVID-19; (2) have been advised by a health care provider to self-quarantine due to concerns related to COVID-19; or (3) are experiencing symptoms of COVID-19 and are seeking medical diagnosis, he/she will receive for each applicable hour the greater of their regular rate of pay, the federal minimum wage in effect under the FLSA, or the applicable State or local minimum wage. An eligible employee is entitled to a maximum of $511 per day, or $5,110 total over the entire paid sick leave period.

2. If an employee is taking paid sick leave for reasons above in #4 and 6 (i.e., specifically because he/she is: (a) caring for an individual who is: (1) subject to a Federal, State, or local quarantine or isolation order related to COVID-19 or (2) an individual who has been advised by a health care provider to self-quarantine due to concerns related to COVID-19; or (3) experiencing any other substantially-similar condition that may arise, as specified by the Secretary of Health and Human Services), the employee is entitled to compensation at 2/3 of the employee’s regular rate of pay, or federal or State minimum wage. Under these circumstances, the employee is subject to a maximum of $200 per day, or $2,000 over the entire two-weeks.

3. Similarly if an employee is taking expanded family and medical leave under Emergency Family and Medical Leave Expansion Act (EFMLEA) as they are unable to work because they are caring for their child whose school or childcare place is closed, or child care provider is unavailable, due to COVID-19 related reasons, the employee gets up to 12 weeks of paid sick leave and expanded family and medical leave combined.

The first ten (10) days of that EFMLEA leave period are unpaid (or the employee may substitute any accrued vacation leave, personal leave, or medical or sick leave under an employer’s policy, or if the leave also qualifies for paid sick leave under EPSLA, the employee can get those first 10 days paid under EPSLA’s terms), but the remaining leave will be paid at an amount no less than 2/3 of the employee’s regular rate of pay for hours he/she would be normally scheduled to work.   An employee will not receive more than $200 per day or $10,000 for the remaining weeks.

Q:  If an employee takes paid sick leave under the Emergency Paid Sick Leave Act (EPSLA), does that count against other types of paid sick leave to which an employee is entitled under State or local law, or against the employer’s own sick leave policy?

A:  No. Paid sick leave under the Emergency Paid Sick Leave Act (EPSLA) is in addition to other leave provided under Federal, State, or local law; an applicable collective bargaining agreement; or an employer’s existing company policy.

Q:  If an employee is able to telework while caring for their child, are they still entitled to paid sick leave or expanded family and medical leave?

A:  No.  To the extent an employee is able to telework while caring for their child, paid sick leave and expanded family and medical leave is not available.

Q:  Does the employee have to provide notice of the need for sick/family leave and supporting documentation?

A:  Yes,  it will be reasonable for an employer to require notice as soon as practicable after the first workday is missed, and to require that employees provide oral notice and sufficient information for an employer to determine whether the requested leave is covered by the FFCRA. It is reasonable for the employer to require the employee to comply with the employer’s usual notice procedures and requirements, absent unusual circumstances.

An employer may require an employee to provide supporting documentation for their request to take paid sick leave including the qualifying reason for the leave, dates for the leave, and a statement representing that the employee is unable to work or telework because of the COVID-19 qualifying reason.   An employee may need to provide additional supporting documentation depending on the qualifying reason for the leave.  For paid family leave, for instance, where leave is sought because a child’s school is closed, the employer may require  a notice that has been posted on a government, school, or day care website, or published in a newspaper, or an email from an employee or official of the school, place of care, or child care provider.   The employer must retain this documentation in support of leave under the FFCRA for four years.

The employee may also be required by the employer to provide the employer with supporting documentation for paid sick and expanded family and medical leave as specified in applicable IRS forms, instructions, and information.

Job Restoration

Q:  Does FFCRA guarantee job restoration for employees? 

 A: Yes, but with conditions if the employer has fewer than 25 or more employees.  The FMLA Expansion Act is an amendment to the FMLA which provides job-protected leave to employees. In most instances, an employee  is entitled to be restored to the same or an equivalent position upon return from paid sick leave or expanded family and medical leave.

However, an employer may also refuse to return an employee to work in the same position if he/she is a highly compensated “key” employee as defined under the FMLA, or if the employer has fewer than 25 employees, and the employee took leave to care for his/her own son or daughter whose school or place of care was closed, or whose child care provider was unavailable, and all four of the following hardship conditions exist:

• the position no longer exists due to economic or operating conditions that affect employment and due to COVID-19 related reasons during the period of the employee’s leave;
• the employer made reasonable efforts to restore employee to the same or an equivalent position;
• the employer makes reasonable efforts to contact the employee if an equivalent position becomes available; and
• the employer continues to make reasonable efforts to contact the employee for one year beginning either on the date the leave related to COVID-19 reasons concludes or the date 12 weeks after the employee’s leave began, whichever is earlier.

Further, an employee is not protected from employment actions, such as layoffs, that would have affected the employee regardless of whether the employee took leave. The employer can lawfully lay off employees for legitimate business reasons, such as the closure of the worksites so long as the employer can demonstrate that the employee would have been laid off even if he/she had not taken leave.

Exemptions

 Q:        Are There Any Exemptions Under FFCRA?

A:  The U.S. Department of Labor may issue regulations to (i) exclude certain health care providers and emergency responders from paid leave benefits, and (ii) exempt small businesses with fewer than 50 employees from the paid leave requirements “when the imposition of such requirements would jeopardize the viability of the business as a going concern.”

Q:  When does the small business/small nonprofit exemption apply?

A:  An employer, including a religious or nonprofit organization, with fewer than 50 employees is exempt from providing:  (a) paid sick leave due to school or place of care closures or child care provider unavailability for COVID-19 related reasons and (b) expanded family and medical leave due to school or place of care closures or child care provider unavailability for COVID-19 related reasons when doing so would jeopardize the viability of the small business as a going concern.

Furlough, Layoff, Termination

Q:  If an employer closes its worksite on or after April 1, 2020 (the effective date of the FFCRA), but before an employee goes out on leave, can the employee still get paid sick leave and/or expanded family and medical leave?

A:  No. If an employer closes after the FFCRA’s effective date (even if the employee requested leave prior to the closure), the employee will not get paid sick leave or expanded family and medical leave, but may be eligible for unemployment insurance benefits.

Q:  If an employer is open, but furloughs an employee on or after April 1, 2020 (the effective date of the FFCRA), can that employee receive paid sick leave or expanded family and medical leave?

A:  No. If an employer furloughs an employee because it does not have enough work for that employee, the employee is not entitled to then take paid sick leave or expanded family and medical leave, but the employee may be eligible for unemployment insurance benefits.

Reimbursement for Paid Leave/Payroll Tax Credits

 Q:  Is the Government Going to Help with Costs of Mandatory Paid Leave That Employers are Being Forced to Pay During this Time of Financial Hardship? 

 A:  Yes.  FFCRA provides covered employers (both nonprofit and for-profit) with refundable payroll tax credits that reimburse them for their paid sick and family leave payments under the law.  The credits are applicable to the employer’s portion of Social Security taxes for 100% of the qualified sick leave and family leave wages paid by the employer in accordance with the law, up to the appropriate per diem and aggregate payment caps.  Covered employers may seek reimbursement for these tax credits after employer pays the paid leave (whether it’s the paid sick or paid family leave) when filing their quarterly returns (IRS Form 941).  Applicable tax credits also extend to amounts paid or incurred to maintain health insurance coverage.

The IRS has issued guidance and an FAQ concerning the tax credits.  Under IRS guidance, the employment tax credits under FFCRA are available for wages paid for the period between April 1, 2020, and December 31, 2020.  (Note, however, that SBA loans under the Paycheck Protection Program may not be used to pay for leave under the FFCRA).

Penalties and Enforcement

Q:  What are the penalties for non-compliance with the Act?

 A:  Employers in violation of the EPSLA or EFLMEA, including retaliation, will be subject to penalties and enforcement by U.S. DOL’s Wage and Hour Division.  Employees may file complaints with the US DOL for violations of those laws.  With respect to violation of the EFMLEA, an employee may have a private right of action against the employer if they would otherwise be protected by the FMLA.

Q:  Is there a safe-harbor period for employers before enforcement?

 A:  Yes. On March 26, 2020, DOL issued a Field Assistance Bulletin, stating that it would not enforce the law against employers through April 17^th (30 days from the Act’s passage) where the employer has acted reasonably and in good faith to comply with the Act.

II.  FOR NEW YORK STATE EMPLOYERS

New York State Emergency COVID-19 Quarantine Paid Leave Law

On March 18, 2020, Governor Cuomo signed into law New York’s Emergency COVID-19 Paid Sick Leave law (NY Paid Sick Leave), on the same day as the FFCRA was enacted.  Unlike FFCRA which takes effect on April 1, NY Paid Sick Leave Law took effect on March 18, 2020.  Notably, NY Paid Sick Leave Law took effect before the Governor issued the “NY on PAUSE.”

Below are Q & A addressing the key components of New York State’s Emergency COVID-19 Quarantine Paid Sick Leave/Paid Family Leave law and addressing interplay with FFCRA:

Q:  Who Is Eligible for New York State’s Emergency COVID-19 Quarantine Paid Sick Leave/Paid Family Leave (NYS Paid Sick Leave Law)?

A:  Employees in New York or their minor dependent child–who are subject to an order of mandatory or precautionary quarantine or isolation due to COVID-19–may be eligible for a certain amount of job-protected sick leave and compensation through a combination of disability and paid family leave benefits, for the duration of the quarantine order.  To be eligible, a full-time employee must have regularly worked 20 hours or more per week and must have been in employment for at least 26 consecutive weeks with that employer.  A part-time employee who regularly works less than 20 hours per week must have worked 175 days to be eligible. The State guidance on the leave makes clear that employees are not eligible for this leave if they can work remotely or through other means.

Q:  If an Employee is Asymptomatic or Not Diagnosed with a Medical Condition and Is Physically Able to Work, Are They Eligible for These Benefits?

A:  No.   Benefits do not apply in cases where an employee is deemed asymptomatic or has not yet been diagnosed with any medical condition and is physically able to work while under a mandatory or precautionary order of quarantine or isolation, whether through remote access or other similar means. Benefits are also not available to employees who voluntarily traveled to a country with a level 2 or 3 health notice from the Centers for Disease Control and who were provided notice of the travel health notice and knew about this restriction in the new law.

Q:  How Does This Apply to A Minor Dependent Child?

A:  If an employee’s minor dependent child is under a mandatory or precautionary order of quarantine or isolation issued by the state of New York, the New York State Department of Health, local board of health, or any government entity duly authorized to issue such order due to COVID-19, an employee may be eligible to take Paid Family Leave to care for them. This benefit is not available to an employee able to work through remote access or other means.

Q:  How much paid leave is an eligible employee entitled to?

A: The amount of job-protected paid leave depends on employer size:

– Employers with 10 or < employees (as of 1/1/20):   New York employers already provide statutory short-term disability and Paid Family Leave benefits to their employees. This requirement has not changed with the new rules related to Coronavirus/COVID-19. Those insurance policies will provide compensation to employees who are under quarantine.  Employees complete the same form as they would if they would ordinarily be applying for paid family leave benefits.

– Employers with 11-99 employees, or employers with < 10 employees (as of January 1, 2020) and annual income > $1 million in 2019:  Employers must provide employees with at least 5 days of paid sick leave while on quarantine. If employees do not have more sick leave while on quarantine, an employer should help them apply with the employer’s Paid Family Leave and disability insurance carrier (the maximum paid family leave and disability benefit is $2,884.62 per week). Employees may not be required to use any accrued sick leave that their organization provides, but may choose to use any paid time off after exhausting the State-mandated five days of paid sick leave.

Eligible employees make a request for leave for themselves or their minor child due to COVID-19 directly to their employer who then provides them with applicable forms.

– Employers with 100 or more employees as of January 1, 2020 and public employers:  Employers must provide employees with at least 14 days of paid sick leave.   Public employers (for example, town, public school, public college or university, district, county, city, village, fire district and state), must provide at least 14 days of paid sick leave, regardless of how many employees they have.

Q:  Is There Job Protection?

A:  Yes.  Employers must reinstate the employee to the same or a comparable position, upon returning from leave, and like FFCRA, retaliation is prohibited.

Q: If An Eligible Employee Already Has Accrued Paid Sick Leave Under NYC Paid Sick Law or Under Its Own Employer Policy, Must An Employer Also Still Provide COVID-19 NY Paid Sick Leave?

A:  Yes.  COVID-19 NY Paid Sick Leave is in addition to any other paid sick leave.

Interplay Between FFCRA and NYS Paid Sick Leave Law

Q: If an Employee is Eligible for Both FFCRA and COVID-19 NYS Paid Leave, Which Leave Law Applies?

A:  Where the federal and state laws overlap on mandatory quarantine, the federal law applies. State law applies to the extent it gives employees additional benefits beyond what federal law allows.

Q:  How Do the FFCRA and NYS Paid Sick Leave Law Overlap?

A: The federal Emergency Paid Sick Leave Act and EFMLEA  (expanded FMLA) and NYS Paid Sick Leave Law overlap when the reason for leave is due to an employee being subject to a mandatory or precautionary order of quarantine or isolation due to COVID-19, as this is a reason for paid leave supported by both federal and state law.

For example, an employee works for an employer with 60 employees and is subject to a mandatory order of quarantine or isolation due to COVID-19.  Under the federal Emergency Paid Sick Leave Law, this employee is entitled to 80 hours of paid sick leave at their regular rate of pay, capped at $511 per day and $5,110 in the aggregate.  Under the NY Paid Sick Leave Law, based on employer size, this employee is entitled to 5 calendar days of paid sick leave at their regular rate of pay, and may also be eligible for disability and paid family leave benefits after the 5 days of paid leave, with a maximum of paid family leave and disability benefits payable at $2,884.62.

Thus, to the extent the employee is eligible for benefits greater than the 80 hours of paid sick leave from the New York Paid Sick Leave Law through disability and paid family leave benefits under New York law, the employee may still take advantage of those State law benefits.

Q:  What are Penalties for Non-Compliance with COVID-19 NYS Paid Sick Leave Law?

A:  If an employer does not provide the required COVID-19 paid leave under New York State’s Paid Sick Leave Law, if the employer requires employees to come to work even if the employer is not an essential business, if the employer requires employees to come to work even if they are performing business operations that are not necessary to support essential services, or is not permitting employees to telecommute or work from home where their job responsibilities would permit them to do so, an employee may file a complaint with the NYS Department of Labor who can enforce the law.

Q:  Is There Additional Guidance?

A:  For employer guidance on Emergency COVID-19 NY Paid Leave, click here and fact sheet here; or the State’s FAQ about the law, click here; and here, for guidance for New York City employers concerning COVID-19 laws.

 III.  What Should Employers Do Now?

• Prepare an emergency leave policy addressing the emergency paid sick/family and extended FMLA leaves and ensure that it aligns with existing paid time off/leave policies as well as any mandated paid leaves under State or local laws
• Communicate the updated policies and employee rights under these laws to all staff
• Inform employees how to apply for such leaves and timely respond to employee requests for leave
• Budget for the costs of paid leave for the remainder of the year
• Anticipate how staffing will be addressed to cover those employees on such leave.
• Confer with legal counsel on addressing these updates.

The information provided does not constitute legal advice, and is not intended to substitute for legal counsel.

If you have questions about the FFCRA and its exemptions, or need assistance preparing emergency paid leave policy and other policies related to COVID-19, please contact Lisa Brauner, Esq., Head of Perlman & Perlman LLP’s Employment Law Department, 212-889-0575, ext. 207, lisa@perlmanandperlman.com.  Our firm is here for you during this crisis and doing everything we can to support and guide you.

The post COVID-19 and the Workplace: What Families First Coronavirus Response Act and NYS Emergency COVID-19 Paid Leave Mean for Your Organization appeared first on Perlman & Perlman.

I. Governor’s Executive Order

 Effective Sunday, March 22, 2020 at 8 p.m., all businesses and nonprofit organizations were required to have all employees in New York staying home/working remotely due to the pandemic of COVID-19, the disease caused by the novel coronavirus,[1] except for those employees providing “essential services,”* as per an Executive Order from Governor Andrew Cuomo.  All non-essential businesses and schools in New York State must remain closed.  Additionally, all non-essential gatherings of any size for any reason are banned.[2] On Sunday, March 29th, Governor Cuomo extended all school and non-essential business closures to April 15th.

Empire State Development also issued guidance* identifying which types of for-profits businesses and non-profit organizations are considered to be providing “essential services” as per Governor Cuomo’s Executive Order and could remain open (other States should take note of the terms as well as you may be next). Exemptions from the order include: shipping, media, warehousing, grocery and food production, pharmacies, healthcare providers, utilities, banks and related financial institutions and any business with a single employee/occupant (i.e., gas station).

How Can I Seek an “Essential Function” Designation?  Notably, certain businesses and nonprofits deemed “non-essential” may request a designation from NYS State to be designated an “essential function” by completing an online form at Empire State Development’s website or emailing: covid19designations@esd.ny.gov.

Note, however, that the following may not seek an “essential function” designation:  Any business that only has a single occupant/employee (i.e. gas station) as that has already been deemed exempt and need not submit a request to be designated as an essential business; businesses ordered to close on Monday, March 15, 2020 under the restrictions on any gathering with 50 or more participants, including but not limited to, bars, restaurants, gyms, movie theaters, casinos, auditoriums, concerts, conferences, worship services, sporting events, and physical fitness centers.

Is There Any Government Guidance on the Executive Order?

 Yes, Empire State Development has issued an FAQ for businesses and nonprofit organizations.

It includes answers to common questions (excerpted here) like:

QUESTION: If my business is determined to be an “Essential Business” are all employees permitted to work at the business location?

ANSWER: No. Only those employees that are needed to provide the products and services that are essential to provide such products or services are permitted to work at the business location. In addition, Essential Businesses are still required to utilize telecommuting or work from home procedures to the maximum extent possible. Those employees who do report to work must adhere to the requirements set forth in the Department of Health guidelines, which can be found at https://coronavirus.health.ny.gov/home.

QUESTION: What if my business is not essential, but a person must pick up the mail or perform a similar routine function each day?

ANSWER: A single person attending a non-essential closed business temporarily to perform a specific task is permitted so long as they will not be in contact with other people.

Further information for New Yorkers can be found at: https://esd.ny.gov/covid-19-help

New York State’s Office of Children and Family Services has also issued guidance to a variety of different categories of non-profit organizations during New York’s “Pause.” including nonprofit organizations providing social services, during New York’s “Pause.”

II. What Else Should Employers Consider in the Face of the “New York Pause?”

 What If We Need to Close our Office and Lay off Our Employees; What Do We Do When We Lay off Employees?

       A.  NY Termination Requirements: In New York, when an organization terminates an employee, it must provide a written notice of termination containing the termination date and date any health insurance coverage so that the employee can file for unemployment insurance benefits, and provide COBRA paperwork.

      B. WARN Acts: Some organizations will also need to consider New York’s Worker Adjustment and Retraining Notification Act (WARN).  In fact, NYS Department of Labor has made clear on its website that an employer’s 90-day New York WARN notice obligations in the event of a “plant closing, mass layoff or covered reduction in work hours”– as defined by the regulations– are not suspended because of COVID-19.  Where a covered organization is forced to close unexpectedly, it still must provide a WARN notice as soon as possible and identify the circumstances that required the closure. The federal WARN Act which applies to employers with 100 or more employees and requires 60 days’ advance notice may also be applicable depending on the particular facts.

      C. Unemployment Insurance (UI) Benefits: There is no waiting period in New York for claiming unemployment insurance benefits related to COVID-19 (typically, there’s a 7-day waiting period after separation before filing for UI benefits).   Additionally, the U.S. Department of Labor issued new guidance providing flexibility to States in administering their UI programs because of the COVID-19 outbreak. For example, federal law allows states to pay benefits where: (1) An employer temporarily ceases operations due to COVID-19, preventing employees from coming to work; (2) An individual is quarantined with the expectation of returning to work after the quarantine is over; and (3) An individual leaves employment due to a risk of exposure or infection or to care for a family member. In addition, federal law does not require an employee to quit in order to receive benefits due to the impact of COVID-19.

If We Reduce Our Full-Time Staff to Part-Time, May They Collect Unemployment Insurance?

Maybe.  It will depend on how many hours they work and how much they are earning. New York State has a Shared Work Program for employers who may want to reduce the number of hours worked for employees but still allow those employees to be able to continue their health insurance benefits and collect unemployment insurance.

What Kinds of Things Should We Be Considering with Respect to Business Continuity and Logistics of Dealing with The Closure of Our Office During the “NY PAUSE”?

 There are a whole host of issues—logistical and practical—to consider when shutting the office temporarily for an indefinite period of time and working remotely.  Some include:

1. Does our business continuity plan address contingencies for pandemics?
2. What are alternative means of servicing clients?
3. How will our budget need to be modified?
4. Have we anticipated/mapped out different scenarios and consequences depending on longevity of closure by the Governor, and what, if any, staffing/personnel/restructuring changes need to be made, even if on a temporary basis, depending on how long the office shutdown is in place?
5. Insurance/Financial Assistance: Do we have business interruption insurance or other insurance that will cover any losses?  Do we need a line of credit from a bank, disaster relief loan, disaster grant (for nonprofits)?
6. How will we process payroll, send out invoices, receive our mail (and any checks)?
7. How will we access files if our landlord closes the building?
8. How will we stay connected with our clients/stakeholders/donors?
9. Will there be a rent suspension by landlords during this period we are unable to use our space due to the “NY Pause”?
10. Remote working:
    • how data will be kept secure with all of your employees working remotely: See tips here: Consider https://www.perlmanandperlman.com/covid-19-cyber-readiness-good-practices-remote-work/
    • Implement and enforce remote work policy and employee agreement
    • Implement timekeeping system to ensure nonexempt employees are tracking and reporting hours worked each day, and advance approval for overtime; prohibit off-the-clock work; consider whether to implement time-tracking software
    • Determine whether worker’s compensation policy covers office workers working remotely
    • Consider how productivity and creativity will be maintained with all staff working remotely and how you will keep employees not used to working remotely, motivated and focused; schedule regular video-conference sessions and other means to keep team connected.
11. Consider if you need to postpone or cancel events and review force majeure provisions of your contracts with event hosts to determine rights under the contract. (See more here).

III.     What Should New York Employers Do Now? 

• Institute business contingency plans in view of the Governor’s “PAUSE”
• Review applicable insurance policies for coverage
• Implement temporary remote work-from-home policies (and employee agreements) (see our earlier blog on COVID-19 and the workplace for more on that topic)
• Consider short-term and long-term staffing plans, reduction of hours, layoffs, including preparing for staff absences due to NY’s COVID-19 Quarantine Leave Law and federal Families First Coronavirus Response Act
• Post mandatory FFCRA poster by April 1, 2020 in the workplace, through email and organization intranet for those working remotely. On March 25, 2020, the U.S. Department of Labor issued a Families First Coronavirus Response Act poster explaining employee paid sick leave and family leave rights and employer responsibilities under the law.
• Confer with your legal counsel to review updated policies and agreements and any actions you are planning to take with respect to your staff during this period to ensure they comply with these new laws as well as existing laws like WARN (and State mini-WARN statutes), FMLA, ADA, wage/hour laws, and laws prohibiting disability discrimination, sex and/or caregiver discrimination.
• Consider options for financial assistance being offered through various legislation, disaster relief loans and/or grants for nonprofits when needed.

 You can subscribe to NYS’s website for updates on COVID-19 here and for NYC-specific guidance, you can check here.

If you have questions, need assistance determining whether you are an “essential business” in New York, need to prepare a temporary remote work policy or update your policies related to COVID-19, please contact Lisa Brauner, Esq., Head of Perlman & Perlman LLP’s Employment Law Department, 212-889-0575, lisa@perlmanandperlman.com.  Our firm is here for you during this crisis and doing everything we can to support and guide you. (The above does not constitute legal advice and you should confer with your attorney for legal advice on your particular situation).

[1] As of the afternoon of March 29, 2020, in New York State–the pandemic’s epicenter in the United States, there were 59,513 confirmed COVID-19 cases and 965 deaths.  New York now has the dubious distinction of having half of all COVID-19 confirmed cases in the U.S., and 5% of all cases worldwide. As of March 29th, there were 33,768 confirmed COVID-19 cases and at least 192 deaths in New York City alone.  As of March 29th, in the U.S., there are 135, 502 confirmed COVID-19 cases and 2,384 COVID-19 related deaths.  The CDC has now issued an advisory to NY, NJ and Connecticut residents not to travel domestically in light of the doubling of the U.S. death toll in just two days.

[2] Governor Cuomo’s Executive Order also:

• Bans all non-essential gatherings of individuals of any size for any reason;
• Enacts Matilda’s Law to protect New Yorkers age 70+ and those with compromised immune systems, requiring them to: Remain indoors, only go outside for solitary exercise; pre-screen all visitors by taking their temperature; wear a mask in the presence of others and stay at least 6 feet from others; not take public transportation unless urgent and absolutely necessary.
• Requires closing of all barbershops, hair salons, tattoo or piercing salons, nail salons, hair removal services and related personal care services, effective Saturday, March 21 at 8:00PM.
• Places a 90-day moratorium on evictions for residential and commercial tenants.
• Closes all casinos, gyms, theaters, retail shopping malls, amusement parks and bowling alleys until further notice. Bars and restaurants are closed, but takeout can be ordered during the period of closure.

The post COVID-19 and the Workplace: NY State Hits the “PAUSE” Button, and Extends It to April 15th– the latest information for your organization appeared first on Perlman & Perlman.

Below are some Q & As for employers to consider now.  As the situation develops, expect that the questions and answers may evolve too. 

Q:  What steps can we take now to help keep our employees safe without violating workplace laws protecting confidentiality of medical information, disabilities and other employee rights?

A:   There are four immediate steps U.S. employers can take:

1.  Prepare a written communication to employees regarding the steps your organization is taking to minimize the risk of COVID-19 spread, providing them with information from Centers for Disease Control and Prevention (“CDC”), State and local public health agencies, and OSHA, providing concrete steps to minimize risk, and providing verbal and/or written updates about COVID-19 as more public health information becomes available.
2. Prepare and execute on a plan for keeping employees safe and minimizing the risk of COVID-19 spread to employees and clients/customers, including implementing policies and procedures for employees to report when they are sick or experiencing symptoms of COVID-19.
3. Prepare: a) an Infectious Disease Preparedness and Response Plan and b) written business continuity/contingency/emergency plan in event that an employee or employees become infected with COVID-19, that your workplace must close, your employees become ill and/or schools/nursing homes/hospitals/caregiving facilities close, requiring your workers to take on care-giving or other responsibilities, and pre-plan if hosting or attending events (and confer with your legal counsel to prepare such plans if you do not have one).
4. Confer with your legal counsel on your obligations under the ADA, Rehabilitation Act, FMLA, OSHA, benefits laws, workers’ compensation, short-term disability, wage/hour laws and other potential liability

Q:  What Should We Communicate to Employees? 

A:  Here are a few suggestions regarding your written communication to employees and actions to be taken to sanitize your workplace:

Make employees aware of CDC guidance, including guidance before traveling, and other OSHA and public health recommendations (share CDC fact sheet) like:

• Wash your hands often with soap and water for at least 20 seconds. If soap and water are unavailable, use a hand sanitizer with at least 65% alcohol base. Even if employees wear gloves, they should wash their hands upon removal of the gloves in case their hand(s) became contaminated during the removal process.
• Avoid touching your face with unwashed hands.
• Stay home when you are sick.
• Avoid close contact like kissing, hugging and sharing cups or utensils, with people who are sick. CDC explains “close contact” means within about 6 feet. [1]
• Cover your cough or sneeze with a tissue, then throw the tissue in the trash. If you do not have a tissue, use your sleeve/inside elbow (not your hands).
• Keep work surfaces, telephones, computer equipment and other frequently touched surfaces and office equipment clean. Disinfect frequently touched objects and surfaces, daily.
• Use only disinfectants registered by the U.S.  Environmental Protection Agency (EPA), and follow all directions and safety precautions indicated on the label.
• CDC does not recommend face masks for those who are well in preventing the spread of COVID-19; rather, they are most effective when used appropriately by health care workers and people who are sick.
• Pay attention to your health for 14 days after returning to the U.S. from travel to areas identified by CDC with widespread sustained (ongoing) transmission or community spread.
• Stay home and seek medical advice if you get sick with fever, cough, difficulty breathing or other respiratory symptoms.
• Avoid traveling if you are sick.
• Self-monitor for signs and symptoms of COVID-19 if you suspect possible exposure.
• Consider getting a flu immunization to prevent influenza if you have not done so this season (however, there is no indication from any health agency that doing so protects against COVID-19).

Implement Communicable Disease Policies during a pandemic, requiring employees to inform management if they are experiencing symptoms of COVID-19, requiring immediate notification from supervisors to Human Resources, and requiring that management or HR notify other employees if they have been exposed to COVID-19 (while maintaining confidentiality of medical information and without identifying that infected co-worker).

Remind employees of your paid sick and other leave policies, and to stay home if they feel sick, and consider offering more flexible paid sick leave or paid time off at this time to encourage sick employees to rest until they are well. Be consistent in the application of your organization’s policies.

• Notify employees of specific actions that your organization has taken to disinfect the workplace: increasing frequency of the sanitization of common area, door handles and knobs, kitchen and restroom door handles, and elevator buttons; providing additional soap, hand sanitizer and paper towels for use when entering or exiting the premises
• Address any restrictions on work-related travel and be prepared to answer questions from employees about whether they can refuse to travel due to safety concerns for their health

Follow public health advice regarding social distancing: For instance,

• Avoid shaking hands or other physical contact (regardless of whether you know a coworker is sick);

• Reduce the frequency, proximity, and duration of contact with others (both co-workers and clients), and unnecessary social interactions. Minimize situations where groups of people are crowded together, such as in a meeting. Use e-mail, phones and text mess ages to communicate with each other. When meetings are necessary or eating meals, avoid close contact by keeping a separation of at least 6 feet, where possible, and assure that there is proper ventilation in the meeting room.

• Reconsider all situations that permit or require employees, clients, and visitors (including family members) to enter the workplace; and manage third parties who visit the workplace.

• Consider banning non-essential work travel. Consider scheduling meetings by videoconference, rather than in-person, where feasible.  Limit the number of in-person meetings or duration of contact.

• Provide clients and the public with tissues and trash receptacles, and with a place to wash or disinfect their hands.

• Refrain from using other employees’ phones, desks, offices or other work tools and equipment.

• If allowing remote work/telecommuting temporarily, you may want to address that option and the parameters/limitations of it in the communication to employees. (see below)

• Train managers on how to handle situations where employees are coughing or sneezing in the workplace

Q:  May an employer require employees to stay home if the employee is exhibiting symptoms of COVID-19?

A: Yes, according to the EEOC, the Americans with Disabilities Act (“ADA”)(which applies to employers with 15 or more employees) does not interfere with or prevent employers from following the CDC’s guidelines and suggestions about steps employers should take regarding the novel coronavirus.  Where there is factual evidence sufficient to show that the person contracted COVID-19, the employee should self-quarantine at home for 14 days and seek medical attention. The EEOC has issued guidance on dealing with pandemics as it relates to its enforcement of the Americans with Disabilities Act (ADA) that employers may wish to review to understand their legal obligations.

Before an employee returns to work, an employer may require them to bring a doctor’s note that they are fit to return to duty, subject to any State or local restrictions on how soon that documentation may be requested (however OSHA advises against insisting on such a note in view of the fact that with an epidemic such as this one, it may be difficult for an employee to get a doctor’s appointment).  Ensure that any infection control plan and the employment decisions around it comply with laws prohibiting workplace discrimination on the basis of disability, national origin, ethnicity, age, race, sex, age, color, religion, and any other legally protected category.

CDC recommends that employees who appear to have acute respiratory illness symptoms (i.e. cough, shortness of breath) upon arrival to work or who become sick during the day should be separated from other employees and sent home immediately, and OSHA also recommends separating the sick from other employees.

Q:  May an employer require an employee who has returned from travel to an area identified by the CDC as high-risk to self-quarantine at home for 14 days as a precautionary measure even if the employee shows no symptoms of COVID-19?

A:  Yes.  In fact, New York State has issued just such a precautionary quarantine, which also extends to people who are not symptomatic but have had proximate (not direct) exposure to a person who has tested positive for COVID-19 (regardless of whether they have travelled from one of the countries identified by CDC as high-risk).   The precautionary self-quarantine in New York also applies to any person who local health providers and health departments, as well as the state’s Department of Health, believe needs quarantine. Employers should be consistent, however, in applying any rule to employees.

Q:  During a pandemic, may an ADA-covered employer ask an employee why he or she has been absent from work if the employer suspects it is for a medical reason?

A:  Yes. Asking why an individual did not report to work is not a disability-related inquiry under the ADA.   An employer is always entitled to know why an employee has not reported for work.

Q:  How should employers handle work-related travel and conferences/events?

A:  Employers may want to consider limiting or canceling non-essential work travel and not attending or postponing conferences or large events, regardless of whether travel or events are international or domestic.  The C.D.C. has advised that older adults and travelers with underlying health issues (such as heart disease, chronic lung disease, diabetes, and other conditions that cause suppression of immune system) should, in particular, avoid crowded places, long plane trips, and embarking on cruise ships.

As the novel coronavirus has spread throughout the continental United States, with more than 600 confirmed cases reported as of March 10, 2020 in the U.S., in 34 States (142 cases in New York State alone), and more expected once more testing kits become available, organizations should use common sense about limiting non-essential work travel and delaying the hosting or attending of conferences or events where possible to keep employees safe.

Q:  What Should We Do If We Are Hosting an Event/Conference? 

A:  Consider postponing your event for safety reasons where possible.  If postponing or cancelling is not an option, review and follow CDC’s interim guidance on large events and gatherings and other State and local public health guidance for pre-planning to limit exposure where someone gets sick or is sick at an event.

Follow CDC Recommendations for Safety/Health/Disinfecting:  Entities may also take into account CDC’s guidance for community and business for workplace proper hygiene to reduce the risk of spread and disinfecting the venue, including, but not limited to, disinfecting “high-touch” areas—doorknobs, restroom handles, faucets, etc.,  providing alcohol-based hand sanitizer at the event and in restrooms, ensuring there is sufficient soap and water, posting public health advisories in the restrooms like “Cover Your Cough” and other applicable postings for your locale, and providing tissues and waste receptacles.  Practice “social distancing”—inform event planners that hosts, attendees, presenters, etc., should be instructed to avoid shaking hands, hugging, kissing, other physical contact, and try to keep at least 6 feet between persons, where possible.

Organizations may want to check the scope of their insurance coverage to see whether they would be covered for any such situation, including event cancellation, business interruption and general liability coverage.  Review with your legal counsel your contract with the venue to see if there’s a basis to cancel or reschedule your contract without losing your payment and to determine the scope of indemnification provisions.  Consider whether your organization is bringing independent contractors on-site for the event and if so, what safety/health precautions you are taking with respect to their interactions at the event, the risks of doing so, and how you will keep them safe as well.

 Q:  What Should I Consider with respect to Employee Benefits Issues?

 A:  In a communication to employees, employers may want to provide a copy of or information about relevant employee benefits like paid sick leave, paid time off, and if applicable based on their jurisdiction, paid family leave, or based on your employee size, Family and Medical Leave Act (FMLA) leave, if applicable.  The U.S. Department of Labor (“DOL”) has issued employer guidance on FMLA and COVID-19.  Short-term disability benefits may be relevant depending on your organization’s short-term disability plan or the State’s statutory short-term disability benefits.

Note that if an employee contracts COVID-19 while at work or performing work for their employer (particularly employees who are health care providers and first responders), depending on particular State law, they may be able to assert a claim if their illness or injury “arose out of and in the course of employment,” and then the employer may be liable to provide workers’ compensation insurance.

Q:  Do I have to pay wages to an employee who is out sick due to COVID-19?

A:  It depends.  Exempt employees must be paid for any portion of any week in which they work (so if an exempt employee works part of a week but then calls out sick due to COVID-19, that employee must be paid for the full week).  Nonexempt employees are only required to be paid for work actually done although employers may allow employees to use paid sick leave if they have it or paid time off if they do not have it.  Certain State or local jurisdictions may mandate paid sick leave.  Due to the extenuating circumstances of this epidemic, an employer might decide, depending on the circumstance, to provide a more flexible paid sick leave policy during this period of time.  The U.S. Department of Labor has recently issued employer guidance on COVID-19 and the federal Fair Labor Standards Act.

Q:  If an employee gets COVID-19, may an employer inform other employees so they can seek appropriate medical attention?

A:  Employers may and should inform employees that they have been exposed to the virus, but may not disclose to employees the identity of, or information that would reveal the identity of, the employee has contracted the virus due to federal, State and local laws requiring employers to maintain the confidentiality of employee medical information.  Employers should be vigilant about this, ensuring managers are trained that they are required to keep confidential any and all medical information they learn regarding an employee.

By law, any medical records must also be kept confidential and should be securely locked in the workplace with access only to those managers with a “need-to-know” in order to comply with the ADA and other disability discrimination and reasonable accommodation laws.

Q:  May an ADA-covered employer ask an employee to disclose if they have a weakened immune system or chronic health/respiratory condition that the CDC says could make him or her more susceptible to complications of influenza?

A:  No, according to the EEOC guidance.   An inquiry asking an employee to disclose a compromised immune system or a chronic health condition is disability-related because the response is likely to disclose the existence of a disability.  The ADA does not permit such an inquiry in the absence of objective evidence that pandemic symptoms will cause a direct threat.  Such evidence is completely absent before a pandemic occurs.

Q: During a pandemic, may an ADA-covered employer take its employees’ temperatures to determine whether they have a fever?

 A:  The Equal Employment Opportunity Commission (EEOC) considers taking an employee’s temperature to be an unlawful “medical examination” under the ADA.  The ADA prohibits employee medical examinations unless they are “job-related and consistent with business necessity.” Generally, a medical examination of an employee is job-related and consistent with business necessity when an employer has a reasonable belief, based on objective evidence, that: an employee’s ability to perform essential job functions will be impaired by a medical condition, or an employee will pose a direct threat (i.e. a significant risk of substantial harm even with reasonable accommodation) due to a medical condition.

On March 11, 2020, the World Health Organization (WHO) declared COVID-19 a pandemic.  The EEOC’s guidance on pandemics says that if pandemic symptoms become more severe than the seasonal flu or the H1N1 virus in the spring/summer of 2009 (as they have with COVID-19), or if a pandemic becomes widespread in the community as assessed by state or local health authorities or the CDC, then employers may measure employees’ body temperature.

The EEOC notes that the U.S. Department of Health and Human Services, the WHO and CDC are the definitive authorities on whether there is a pandemic.  Such an assessment by WHO, HHS or the CDC that the pandemic is significantly more severe than a seasonal flu could provide the objective evidence needed for a disability-related inquiry or medical examination of an employee as a “direct threat.”  The EEOC further notes: “During a pandemic, employers should rely on the latest CDC and state or local public health assessments. While the EEOC recognizes that public health recommendations may change during a crisis and differ between states, employers are expected to make their best efforts to obtain public health advice that is contemporaneous and appropriate for their location, and to make reasonable assessments of conditions in their workplace based on this information.”  Employers should be aware, however, that some people with COVID-19 may not have a fever.

While U.S. employers may have more flexibility to conduct such “medical examinations” under the ADA such as taking employees’ temperature now that the WHO has declared a pandemic, employers should remain mindful of State and local public health assessments about how widespread the virus is as well as State and local anti-discrimination laws that may have more stringent standards for determining when an employer may require medical examinations of asymptomatic employees to identify those a higher risk of COVID-19 complications, and confer with their legal counsel.

Q:  What Contingency Plans Should We Be Making for Alternative Work Arrangements, Less Contact and Staffing Coverage?

 A: Here are a few considerations:

• Consider allowing flexible work arrangements like allowing employees to work from home or allowing them to start and end work at staggered times or work in shifts.

• Where employees work in a crowded office area or open plan, determine if you can arrange for less than half of the employees to come to the office at a given time. Consider advising employees to take the elevator to the office in smaller numbers and not taking the elevator when it is crowded or mass public transportation at rush hour or when a subway or bus is crowded.

• Ensure that each employee in the office keeps a distance of at least 6 feet from one another.

• Cross-train employees now so that your organization has coverage if any employees are out sick.

Q:  If We Want to Institute A Temporary Telecommuting Policy, What Should We Consider?

A:  If you decide to allow employees to work remotely from home on a temporary basis during this period, here are just a few things to consider: 1) determining which positions are amenable to remote work; 2) whether you have technology that would allow employees to participate in meetings by video-conference; 3) setting forth guidelines for timekeeping/recording hours worked, considering whether to implement time-tracking software, and ensuring that nonexempt employees are informed about not working overtime without advance permission from supervisors or doing “off-the-clock” work; 4) implementing data security/data privacy measures to protect the privacy/confidentiality of data on laptops and electronic devices; 5) determining whether your worker’s compensation policy will cover at-home work for office workers; and 6) considering a telecommuting agreement with employees.  Confer with your legal counsel on any policy or agreement you develop and data security/data privacy measures to be implemented.

Q:  Can an Employer Be Legally Liable if An Employee Contracts COVID-19 at Work or on a Work-Related Assignment or Through Work Passes the Illness on to Someone Else?

A:   The federal Occupational and Safety Health Act’s (OSHA) “general duty clause” requires employers to provide a workplace free from recognized hazards that are causing or likely to cause death or serious physical harm, and failure to do can be a violation of OSHA Act resulting in monetary damages.  OSHA will look to the CDC’s own recommendations to employers, National Institute of Occupational Safety and Health, and other such agencies in determining whether an employer violated the “general duty clause” and failed to take appropriate steps to keep employees safe from recognized hazards. Employers should follow the precautionary steps recommended by the CDC, OSHA and State and local public health agencies to minimize the risk of a potential negligence claim (or potential workers’ compensation claim, depending on the jurisdiction).

OSHA recommends that employers develop an Infectious Disease Preparedness and Response Plan, Basic Infection Prevention Measures, develop policies and procedures for prompt identification and isolation of sick people, if appropriate, develop and implement workplace flexibilities and protections, and workplace controls, among other things.  OSHA also recommends moving potentially infectious people to a location away from workers, customers, and other visitors until they can be removed from a worksite, and taking steps to limit spread of the respiratory secretions of a person who may have COVID-19, like providing a face mask, if feasible and available, to that person and asking them to wear it, if tolerated. Confer with your legal counsel about developing these plans and procedures.  OSHA prohibits retaliation against an employee for complaining of a safety or health issue, which may include an employee refusing to work in the office or travel to an area due to fear if their fear is reasonable and fact-based.

Q:  What Should We Do If There is “Water-Cooler” Talk Expressing Fear of Chinese or Asians or Disparaging Comments Based on Race or National Origin in View of the Virus’ spread from China? 

A:  Because the COVID-19 epidemic originated in China and has spread to South Korea and Japan, employers and their managers need to be alert to and quash any statements or bias expressed by employees against Asians or others based on a fear that they carry the virus.  Employers may also want to consider posting CDC’s own Fact Statement about the virus to educate employees.  Failure of a manager to address such comments could make an Asian employee feel targeted or ostracized based on their race, national origin or ethnicity and negatively impact employee morale, and might also subject an employer to claims of having created or condoned a hostile work environment based on race, national origin or ethnicity.  As we know, this virus has spread globally—to Europe, Australia, and now the U.S., and affects all of us.

Q:  If a vaccine is developed, may employers require all employees to be vaccinated against the novel coronavirus?

 A:  Employers must provide employees an opportunity to opt-out from mandatory vaccinations if there is a medical reason for an employee to do so or their religion prohibits it, in order to comply with laws prohibiting workplace discrimination based on disability and religious beliefs and practices.  At this point, no vaccine yet exists.  The EEOC advises that generally employers should encourage employees to get vaccinated rather than mandating it.  There may be exceptions, of course, for federal and State regulations requiring vaccinations for certain health/safety positions.

Q:  Where Can Employers Get More Information?

A:  Employers are advised to:1) sign up for alerts from the CDC; 2) regularly check CDC’s website for additional information, including the interim employer guidance and an easy-to-follow chart, an interim guidance for schools; 3) check the website of their State and local public health departments for updates[2]  (and the World Health Organization); 4) review publications and updates from the EEOC, US Department of Labor, OSHA, and State and local anti-discrimination agencies for the latest guidance on handling COVID-19 in the workplace.

Conclusion

While we answer some questions that may arise for employers, it’s important to emphasize that employers should use good common sense about what precautions to take, without causing alarm in the workplace. So, take a deep breath, and start implementing your plans to keep your organization’s employees safe, keep your operations running, and minimize your legal risk.

For questions about this Alert or creating workplace plans or policies to plan for COVID-19 or for employee training, please contact Lisa Brauner, Esq., Head of Perlman & Perlman LLP’s Employment Law Department, lisa@perlmanandperlman.com, 212-889-0575.

[1] CDC reports that the virus is thought to spread mainly from person-to-person between people who are in close contact with one another (within about 6 feet) through respiratory droplets produced when an infected person coughs or sneezes, and that the droplets can land in the mouths or noses of people who are nearby or possibly be inhaled into the lungs.

[2] For NY State and NYC see below (contact us for information concerning other States)

New York employers and businesses can find guidance from the New York State Department of Health on COVID-19 and how to minimize the risk of spread.   New York State has also set up a hotline (1-888-364-3065) for information about COVID-19.

New York City Department of Health has also issued an updated fact sheet about COVID-19 and other interim safety/health guidance for businesses, congregate settings (like workplaces, schools, assisted living facilities, nursing homes, homeless shelters, religious services, community gatherings, large events, etc.), schools, universities, and non-healthcare settings on disinfecting and preventative measures, in a variety of languages, as well as posters like “Cover Your Cough.”   It also provides a NYC website for COVID-19 updates.  New Yorkers can also text COVID to 692-692 to get regular updates on the latest developments regarding COVID-19.   NYC is advising those with chronic lung disease, heart disease, cancer, diabetes, or a weakened immune system to avoid unnecessary events and gatherings, and if a New Yorker has family or friends who have one of these conditions, not to visit them if the New Yorker feels sick.

California (Los Angeles/San Francisco): California Department of Public Health, Updated Guidance on Schools and Large Events,  Los Angeles County Department of Public Health

LA County residents can also call 2-1-1, Workplace Posters

San Francisco Department of Public Health

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Effective January 7, 2020, pursuant to NYLL Section 203-E, employers of all sizes within New York State must notify employees of their rights under the law and remedies.  For those employers with an employee handbook, the notice of rights and remedies must be contained in that handbook.  The NYS Department of Labor has not issued any guidance yet, including whether independent contractors are encompassed by this law as “employees” and whether they must receive written notice of rights as well.

Employees may sue in court for violation of the law.  Violation of the law can result in damages, including, but not limited to, back pay, benefits and reasonable attorneys’ fees and costs for a prevailing plaintiff, injunctive relief against an employer, reinstatement; and/or 100% liquidated damages of the award for damages unless an employer proves a good faith basis to believe that its actions were in compliance with the law.  The law also contains civil penalties against employers that retaliate against an employee for complaining of a violation of this law.  The New York State Labor Law amendment does not exempt religious or faith-based organizations (see below for further information).  It also does not define “employee” and so it is unclear whether the mandated employee notice must also be provided to an entity’s independent contractors who are now covered by NYSHRL antidiscrimination provisions.

The justification for the law is that the federal Affordable Care Act (ACA) recently required that health insurance plans cover FDA-approved birth control methods without out-of-pocket costs to employees. Some for-profit employers have attempted to prevent employees from accessing health insurance plan coverage of FDA-approved birth control without out-of-pocket costs on the grounds that this health insurance benefit conflicts with an employer’s personal beliefs. As a result, over 100 federal lawsuits have been filed by employers to deny employees this benefit, including employers operating in New York State. New York State’s legislature seeks to ensure that employees’ decisions about pregnancy, contraception, and reproductive health are protected under state law from employment discrimination.

This amendment to New York State’s Labor Law prevents an employer from discriminating against employees based on reproductive health decisions, regardless of how the employer became aware of those decisions. Despite medical confidentiality protections under The Health Insurance Portability and Accountability Act (HIPAA), an employer does receive health insurance utilization summaries, which are distributed to each employer on a regular basis. In these reports, in some cases, an individual’s identity may be deduced by an employer based on the nature of the service and composition of the insured class reported in the summaries, and the State does not want employers using information about an employee’s reproductive health decision as a basis for discriminating against an employee or taking a negative employment action against them.

The State Labor Law amendment follows a recent amendment to New York City’s own Human Rights Law, which prohibits employers with four or more employees in New York City, labor organizations or employment agencies, from discriminating against or harassing job applicants, employees, interns, and independent contractors without employees, based on their sexual and reproductive health decisions. [1]

Note to religious/faith-based nonprofit organizations:  The State Labor Law and New York City Human Rights Law amendments are currently being challenged in federal court in New York by Evergreen Association, Inc., a nonprofit that operates pregnancy centers, and its founder and President, Chris Slattery, on the grounds that the law violates their constitutional rights to freedom of speech, freedom of association and due process, and that the term “reproductive health decision-making” is undefined, making that law unconstitutionally vague.  Stay tuned for developments in this litigation as there is no exemption for religious or faith-based organizations under the New York State Labor Law. While New York State and New York City Human Rights Laws do contain religious organization exemptions from those laws (though NYCHRL does not define a “religious organization”), those exemptions are nonetheless limited in their scope.[2]  Religious organizations, in particular, should consider the impact of the amendment to New York State’s Labor Law and consult with their legal counsel about their rights and obligations.

What Should an Employer Do Now?  Provide a written notice of employee rights and remedies as required and review and update all EEO and other policies prohibiting discrimination and employment-related hiring materials.

[1] New York City’s Human Rights Law defines “sexual and reproductive health decision” as “any decision by an individual to receive services, which are arranged for or offered or provided to individuals relating to sexual and reproductive health, including the reproductive system and its functions.” Services include, but are not limited to:

• Fertility-related medical procedures;
• Sexually transmitted disease prevention, testing, and treatment; and
• Family planning services and counseling, such as birth control drugs and supplies, emergency contraception, sterilization procedures, pregnancy testing, and abortion.

[2] NYC’s Human Rights Law does not prohibit religious organizations from limiting employment or giving preference to persons of the same religion or denomination or from making such selection as is calculated by such organization to promote the religious principles for which it is established or maintained.

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Salary Threshold Amounts: For many employers, the new increase to the federal salary threshold level for determining whether an employee is exempt from overtime pay requirements under the federal Fair Labor Standards Act (FLSA) does not impact them because the labor laws of the States in which they employ workers already require higher salary thresholds than the new federal salary threshold of $684 per week ($35,568 annually).  The FLSA and the New York State Minimum Wage Act (MWA) exempt employees who work in a bona fide administrative and executive capacity from the overtime pay requirements of the FLSA and MWA.

For example, in New York State, effective 12/31/19, the salary threshold for administrative and executive exempt employees will increase as follows:

• All New York City employers–Salary threshold: $1,125 per week ($58,500 annually)
• Long Island and Westchester: $975 per week ($50,700 annually)
• Rest of New York State: $885 per week ($46,020 annually)

Notification Requirements:  Remember that New York State requires employers to provide employees with written notice of any increase to their rate of pay at least 7 days before the rate change, unless the new pay stub reflects those changes (then written notice is not needed—except in the hospitality industry).

Avoid Common Mistakes:  Don’t make the mistake of assuming that all salaried employees are exempt from overtime pay requirements.  Employees are not automatically exempt from overtime pay laws even if their weekly pay meets or exceeds the respective federal and State salary thresholds because they must also meet a “job duties” test to determine exempt status for “executive” or “administrative” “white-collar” exemptions from overtime pay.

Nonprofit particular:  Remember that the FLSA does not apply to nonprofit organizations in the same way that it applies to for-profit businesses for those nonprofits to be covered by the law.  Specifically, nonprofit charitable organizations may be a “covered enterprise” if:  1) they engage in commercial activity resulting in sales or business done resulting in $500,000 annual gross revenues  (such as operating a gift shop in a museum or providing veterinary services for a fee) engaged in commerce or the production of goods for commerce where they have two or more employees; or 2) they are a hospital, business providing medical or nursing care for residents, school, preschool, college, and government agency.

Note that individual employees not covered under an “enterprise” basis may independently be covered under the FLSA regardless of the number of employees if they are engaged in “interstate commerce” or the production of goods for interstate commerce (which could encompass something as simple as handling credit card transactions, making interstate phone calls or sending and receiving emails across state lines).

Regardless of whether the federal FLSA applies, most nonprofit organizations will be covered by their State’s wage/hour laws (note:  in some jurisdictions like New York, a new “nonprofitmaking institution” may elect to be exempt from coverage under a State minimum wage order and State overtime pay requirements so long as they agree to pay the statutory minimum wage).

What Should Employers Do Now?   Ensure they update pay rates  accordingly, review worker classification status carefully together with updated job descriptions, and provide required postings and notices. Train managers on these legal updates. The amounts that employers can claim for tip, meal and lodging credits, and deduct for uniform allowances also changed on December 31st so employers should check the applicable New York minimum wage orders for those changes.

Please contact Lisa M. Brauner, Perlman & Perlman LLP, lisa@perlmanandperlman.com, 212-889-0575, if  you have any questions about whether your employment practices are legally compliant.

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Three Key Benefits of Establishing a Corporate Foundation

Provides Consistent Funding for Charitable Programs
A corporate foundation can be a vehicle to build up a charitable reserve in years of higher profits, allowing for a steady flow of charitable grants to organizations in leaner years.[1]  Companies can donate appreciated assets or make a large infusion of cash to establish an endowment. Corporate foundations can be used to fund grants to public charities, pay employee matching grants, or administer scholarship programs for employees’ family members.

When grants are made directly out of a corporate giving department, the funds may be required to be expended during the period for which they are budgeted.  This reduces the control the corporation has over the strategic timing of grants, including support of larger charitable projects.  It should be noted, however, that many companies simply fund their foundation with the same amount as they grant out each year. When considering the compliance obligations that come with the operation of a tax-exempt entity (see below), a company with this type of funding and grant-making strategy may not find that a corporate foundation provides sufficient value vis-à-vis the regulatory burdens.

Accomplishes Strategic Programmatic Objectives
Companies are increasing their focus on issues that align with the companies’ brand(s) and the philanthropic concerns of their customer base.  Financial institutions, for example, may emphasize financial literacy and inclusion issues, while athletic and outdoor gear companies may align their charitable giving towards healthy living and environmental protection initiatives.  In many instances, companies want to not only make strategic grants, but also to operate their own programs that further their charitable objectives. Having a dedicated charitable entity through which the program will operate can help the business maintain its charitable mission focus.

Companies that decide to establish corporate foundations must ensure that they do not use charitable assets to improperly benefit the business.  Companies should review any such initiatives with legal counsel to safeguard against violations of the IRS’s rules prohibiting self-dealing.[2]

Allows One Charitable Entity to Receive Steady Contributions Triggered by All or a Portion of Sales of the Company’s Goods or Services
A number of companies have formed corporate foundations that receive donations triggered by customer sales. Through this structure, the charitable cause becomes part of the brand identity. The IRS, recognizing that payments to charities can, in fact, benefit a business’s bottom line, issued a General Information Letter in 2016, stating that a new group of socially conscious companies formed as “benefit corporations” may treat payments to charitable organizations as a business expense rather than as a charitable donation so long as the payments “bear a direct relationship to the taxpayer’s business and are made with a reasonable expectation of a commensurate financial return.” The General Information Letter therefore clarifies that benefit corporations can take unlimited business expense deductions on their charitable contributions as opposed to limiting such deductions to the standard 10% cap for corporate donations to charitable organizations.

While IRS regulations do provide other advantages that come with the operation of a corporate foundation, such as facilitating employee matching grants and scholarship programs, today, a number of independent public charities exist that manage such programs for companies, obviating the need to form a separate foundation for this purpose.  As such, these charitable programs no longer seem to be key drivers for companies to form corporate foundations.

Three Reasons Companies May Not Want to Establish a Corporate Foundation

Meeting the Compliance Obligations of Corporate Foundations Can Be Costly and Time-Consuming
A corporate foundation is a separate legal entity, whose board members owe a fiduciary duty to act in the best interest of the foundation.  In addition, a separate annual financial report must be filed with the IRS.  Corporate foundations that fundraise, either by being the beneficiary of charitable sales promotions conducted by their founding company, or by soliciting customer donations, may need to register to solicit charitable contributions in up to 38 states, each requiring annual renewal.  The state registration process also requires the foundation to prepare and file audited financial statements, adding to the compliance burden.

Companies should evaluate whether the anticipated annual donations and the sought-after social impact outcomes are significant enough to warrant taking on the cost of compliance.  In many cases, the same results could be achieved through a direct relationship with one or more existing charities, wherein the partner charities are responsible for their own compliance.

The Self-Dealing Rules Can Be Challenging
The IRS prohibits private foundations from engaging in certain financial transactions with certain “disqualified persons,” a category which includes the founding company.  For example, the company’s provision of goods or services to the foundation at a significant discount would be a violation of the self-dealing rules (although donating such goods or services is permitted).  Companies must carefully navigate any financial transactions, including shared expenses, to ensure that the corporate foundation’s charitable assets are not used in a manner that violates the self-dealing rules.

Certain Grants Require Burdensome Oversight Obligations
International grants and grants to non-charitable entities to support charitable activities may be undertaken by corporate foundations, but the federal tax code requires the foundation to follow special grant oversight procedures.  Foreign grants also require additional oversight.  Today, a number of charities serve as charitable giving vehicles through which donors (including corporations) can make such grants, and will undertake the required grant oversight, while the corporation can receive the full tax-deductible benefits. The fees charged by these third party charities to provide grant administration and oversight services may be less than the costs of operating an affiliated foundation, and come with the benefit of staff trained in the IRS’s requirements and best practices for grantmaking.

Companies Can Achieve Their Social Impact Objectives Using Strategies That Work Alongside, or in Place Of, a Corporate Foundation

Direct Corporate Giving
Companies can make direct tax-deductible donations to 501(c)(3) tax-exempt charities, either in the form of restricted gifts (documented through a grant agreement) to support a specific charitable purpose or program, or unrestricted grants. Companies are also uniquely positioned to donate significant volumes of in-kind goods to organizations that will distribute them to individuals, families, or organizations in furtherance of charitable purposes.  Sponsorship agreements allow the company to connect its brand to the brand of a charitable partner and its programs. Many longstanding businesses strategically utilize direct corporate giving alongside the work of their corporate foundation. Walmart recently rebranded the collective corporate giving efforts of the company and its foundation under the new philanthropic name, Walmart.org.

Cause Marketing
Cause marketing campaigns, whereby the company advertises that the sale of its goods or services will result in a donation to a charitable organization or cause, or otherwise engages its customers to take actions to support a cause, can be conducted to benefit an unrelated charity or a company’s own corporate foundation.  Partnering with a reputable independent charity allows the company to benefit from a charity’s strong reputation and proven record of making a real impact on a charitable issue. During the last decade Subaru of America achieved success by donating $140 million to four national charities and hundreds of local nonprofits as part of its annual Share the Love cause marketing campaign.

While less common, a few companies have made their own corporate foundations the beneficiary of cause marketing campaigns, and either fund the foundation’s own charitable program or support other charities addressing specific causes through strategic grants. Since 2000, the Ralph Lauren Corporation has sold a line of pink products to benefit the Pink Pony Fund, a program of the Polo Ralph Lauren Foundation focused on fighting cancer.

Collaborations and Joint Ventures with Established Nonprofits
Companies can collaborate with existing nonprofits to generate social good without forming their own nonprofit entity. This collaborative strategy is increasingly evident in companies’ corporate social responsibility (CSR) reports, which often highlight partnerships with nonprofits as a core strategy for fulfilling their CSR objectives.  Given that nonprofits often have expertise and on-the-ground implementation capabilities on social and environmental issues, this strategy makes sense. In 2015, American Diabetes Association launched a joint marketing and communications initiative with the Hispanic television network Telemundo, aimed at improving overall health and wellness for Latinos in the United States. These types of collaborations are particularly successful because they leverage each partner’s core strengths in order to achieve their shared charitable and social impact objectives.  Companies have also made strategic grants to fund research that will hopefully lead to more sustainable and responsible business practices.

Determining whether a corporate foundation will provide good value for a company ultimately depends on the company’s overall objectives, and should take into account the benefits and challenges of, and alternatives to, operating a corporate foundation.  For this reason, performing a strategic assessment on whether to form a corporate foundation is a worthy upfront investment.

[1] Corporate foundations classified as private foundations under the Internal Revenue Code must distribute a minimum amount annually, equal to approximately 5% of their net investment assets each year, which must be used for charitable purposes, typically in the form of charitable grants.

[2] The IRS has carved out benefits to the company that are “incidental and tenuous” from the self-dealing prohibition, such as through positive goodwill and recognition received by the company arising from the shared name, but how that rule applies in various contexts should be carefully reviewed with legal counsel.

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Layered on top of these market drivers are journalists and the media, who investigate and report on specific instances of harmful business practices by companies and entire industries. Athletic gear company, Nike, experienced a major public scandal in the 1990s when media reports revealed abusive labor practices at factories contracted to produce Nike apparel. Nike began conducting factory audits in the early 2000s, and published a detailed report of its findings. Nike has publicly acknowledged its past failures and now publicizes their ongoing commitments, standards, and audit data as part of the company’s CSR reports.

But do CSR efforts actually pay off?  A recent research study looked at the impact of linking executive compensation to CSR criteria (known as “CSR contracting”) among all S&P 500 companies and found that this practice led to an increased long-term orientation, an increase in firm value[1], and an increase in social and environmental initiatives. On average, CSR contracting also led to companies cutting emissions by nearly nine percent, increasing green patents by three percent, and receiving a five percent higher CSR rating. These findings demonstrate that CSR efforts do, in fact, benefit society while strengthening firm value.

A company’s CSR strategy should not be equated with its corporate philanthropy or giving program. Corporate philanthropy focuses on charitable contributions, through donations of money, goods and services, as well as employee volunteer time, however, it does not generally change how a company — at its core — does business. CSR, by contrast, affects a broader group of stakeholders through the actual operation of the business, including customers, employees, shareholders, communities, and the environment. Yet it’s not just for-profit businesses that drive CSR; the nonprofit sector plays a vital role in CSR implementation. Given that nonprofits are, by their nature, exclusively dedicated to promoting and supporting charitable and educational objectives, including publicly beneficial social, economic, and environmental objectives, it should come as no surprise that nonprofits often play an integral role in driving CSR strategies.  At the same time, the tax-exempt status of nonprofits creates certain constraints on how they can support businesses as they move towards practices that are more socially and environmentally responsible. As such, knowledgeable legal counsel can help ensure a successful collaboration. This article highlights three different roles nonprofits play in helping companies achieve their CSR goals, and highlights the legal structures and parameters in which they operate.

1. Advancement of Ethical and Responsible Business Practices

The most recognized CSR strategy involves the advancement of ethical and sustainable business practices. This includes a company’s business practices with respect to the environment, labor practices and human rights, business ethics, and supply chain management. A few legislative efforts have been undertaken to push companies towards more socially responsible business practices, including the United Kingdom Modern Slavery Act 2015 and the California Transparency in Supply Chains Act of 2010 (and similar laws are being considered in Australia and Hong Kong). These laws require large retailers and manufacturers to disclose on their website their voluntary efforts taken to eradicate slavery and human trafficking in their supply chains. Unfortunately, companies can comply with these laws by simply stating that they do not undertake any verification, audits, certification, internal accountability, and training in order to mitigate the risk of human trafficking and slavery. As such, many believe these legislative efforts are insufficient to achieve their otherwise laudable goals.

By contrast, nonprofits are helping companies improve their business practices by articulating clear, objective standards for ethical and sustainable business practices, and conducting independent assessments of company practices against those standards. Consider the well-established LEED (Leadership in Energy and Environmental Design) green building rating system for building design, construction, operations and maintenance. The LEED certification standards were established, and are maintained, by the U.S. Green Building Council, a 501(c)(3) tax-exempt organization. A separate but related entity, Green Business Certification, Inc., a 501(c)(6) tax-exempt organization, administers the LEED certification program, performing third-party technical reviews and verification of LEED-registered projects.  Other well-known certification or verification programs operated by nonprofits include Fair Trade Certified, CDP (carbon footprint disclosure); The Non-GMO Project (non-GMO food supply), and Marine Stewardship Council (sustainable seafood certification). Another nonprofit, Verité, whose mission is to provide the knowledge and tools to eliminate serious labor and human rights abuses in global supply chains, provides assessments and training that focus on safe, fair, and legal working conditions for workers within business supply chains.

501(c)(3) tax-exempt nonprofits are viewed as trustworthy administrators of third party standards for ethical and sustainable business practices thanks to their legal DNA – U.S. tax-exempt nonprofits are organized (and must be operated) to further charitable and educational  purposes, not for private benefit. As such, they are prohibited from using their income or earnings to benefit private interests. Nonprofits can advocate for business practices that minimize harm to people or the environment, but only within the constraints imposed by IRS regulations.

2. Sustainability Reporting and Company-Wide Assessments

As companies work to advance ethical and responsible business practices, they also want to share successes publicly with their stakeholders, but because CSR reporting is purely voluntary, how do we know if companies are truly being good corporate citizens? A global nonprofit, Global Reporting Initiative (“GRI”), pioneered sustainability reporting in 1997, and today, they are the most widely adopted global standards for sustainability reporting.  Sustainability reporting is critical to providing transparency, and therefore public accountability. Sustainability reporting helps companies measure, understand, and communicate their economic, environmental, social and governance (“ESG”) performance. The reports also help companies set goals to continue improving their sustainability practices across economic, environmental, and social impact standards.

While organizations like GRI are creating uniform standards for reporting across ESG standards, other organizations like U.S.-based nonprofit B Lab, require a business to undergo an actual assessment of how significant a company’s current impact is across social impact areas.  Certified B Corporations must achieve a minimum verified score on B Labs’ B Impact Assessment—a rigorous evaluation of a company’s impact on its workers, customers, community, and environment—and make their assessment transparent on bcorporation.net.  [Disclosure: Perlman & Perlman, LLP is a Certified B Corp.] Athleta, a wholly-owned subsidiary of Gap, recently obtained B Corp certification.  According to Athleta’s press release announcing its B Corp certification, 40% of Athleta apparel is made of recycled and sustainable materials, and they are on track to meet their goal of 80% by 2020.

Some nonprofits are not waiting for companies to opt in to being assessed against their standards, and are instead publishing reports based on publicly available information. Environmental Working Group has been doing this for years at the product level through its Skin Deep Cosmetics Database, which combines product ingredient lists with information from more than 60 toxicity and regulatory databases to provide safety ratings for tens of thousands of personal care products. At the company-wide level, Know the Chain is helping companies and investors to understand and address forced labor risks within their global supply chains. Formed in 2013 by nonprofit, Humanity United (which is part of the Omidyar Group), Know the Chain was originally established with the goal of documenting compliance with the California Supply Chain Transparency Act. Today, Know the Chain focuses on benchmarking current corporate practices across key sectors where forced labor is particularly acute, including information & communications technology, food & beverage, and apparel and footwear, with the goal of driving corporate action while also informing investor decisions. The benchmarks are based on the disclosures of policies and practices used by select large companies. Know the Chain aims to use data and market forces to drive a “race to the top” that creates “brand reward for leaders and brand risk for laggards,” and ultimately encourages companies to adopt standards and practices that protect worker’s well-being.

3. Building Charitable Giving Into the Business Model

While sustainability reporting and assessments focus primarily on business operations, a growing number of companies have built corporate citizenship directly into their core retail sales and marketing strategy. TOMS became popular because of its “Buy One, Give One” business model, donating a pair of shoes to a person in need for every pair sold, distributed through its partnerships with global humanitarian organizations. On May 7th, TOMS announced a major overhaul of its giving model.  Based on the premise that the problems facing our world today are more complex than ever, TOMs has decided that, in addition to providing for basic human needs including shoes and clean water, TOMS is asking customers to join them in “taking a stand” on critical issues. As such, when you purchase a TOMS product, you can also pick an issue area that you stand for, such as ending gun violence, equality, mental health, or homelessness, and your purchase helps direct TOM’s giving (carried out in the form of impact grants that support sustainable and innovative strategies and solutions on leading social issues).

Food product company, Newman’s Own, recognized by its tagline, “All Profits to Charity,” has charitable giving embedded into its ownership structure — 100% of the business is owned by Newman’s Own Foundation. Newman’s Own Foundation, whose mission is “to use the power of giving to help transform lives and nourish the common good,” uses the profits to support a variety of charitable organizations. Newman’s Own’s ownership structure is supported by legislation enacted in February 2018 that allows 501(c)(3) tax-exempt private foundations to own 100% of a business under certain conditions. The foundation is now working to promote the “all profits to charity” concept by providing resources and support to other companies that have committed to donating all of their profits to charity.

A more widely adopted model of giving, albeit less deeply embedded in a company’s business structure or strategy, involves entering into a formal commitment to give a portion of company profits to charitable causes. One of the biggest advocates of this model is 1% for the Planet, a 501(c)(3) tax-exempt public charity that encourages businesses to commit to donating 1% of total sales across the company’s operations to support environmental causes.  The organization’s 1200+ members, which includes environmentally conscious brands like Patagonia, give directly to approved nonprofits, and 1% for the Planet provides third party certification of their fulfillment of this giving commitment. They also help companies identify environmental organizations that will make the greatest impact and align with corporate giving goals.  In exchange for upholding this giving commitment, members receive the right to use the 1% for the Planet logo in their marketing.

Companies looking to push their CSR efforts to the next level should be aware of the unique resources available through the nonprofit sector to help them establish and achieve corporate social impact goals. Similarly, nonprofits cannot ignore the significant effect that businesses have on the social and environmental issues they were created to address, and should consider ways they can help companies improve their impact on those issues. Given the strong consumer, investor, and employee demand for corporate social responsibility, there is no better time for companies and nonprofits to work together to help businesses operate more sustainably and responsibly.

[1] The study uses Tobin’s Q to determine firm value, and is a ratio of the market value of total assets to the book value of total assets.

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