The legal ramifications of the current Covid-19 pandemic are complex on an international level in this constantly changing landscape. The US Congress as well as US State legislatures and local governments have been moving swiftly in recent weeks to address the pandemic and provide support to businesses and individuals. Different approaches are being taken by some States and even at the city and local municipality level varying laws may apply.
There are myriad new pieces of legislation in place with potentially far-reaching consequences - general themes are financial support for small businesses, increased employee benefits and the extension of business and tax filing dates. This is a fluid and rapidly changing situation and the law, as usual, is playing catch up.
With these factors in mind, MBM’s US Team has identified some key points for UK businesses with US operations. If you have any questions or need some advice, please get in touch on 0845 345 5004 .
The CARES Act is an unprecedented $2 trillion economic relief package aimed at helping individuals and businesses in the US weather the financial impact of the pandemic.
A key feature is a loan program for eligible small business (generally, having fewer than 500 employees) for payroll obligations, emergency grants to cover immediate operating costs, and a mechanism for loan forgiveness where the small business can demonstrate that the loan proceeds were used for payroll and related costs. Loans will be made by participating commercial lenders and guaranteed by the US Small Business Administration (SBA).
The Paycheck Protection Program (PPP), administered by the SBA, is designed to provide a direct incentive for small businesses to keep their workers on the payroll. SBA will forgive loans if all employees are kept on the payroll for eight weeks and the money is used for payroll, rent, mortgage interest, or utilities.PPP loans will be made by participating commercial lenders between February 15, 2020, and June 30, 2020, subject to certain eligibility requirements, and will be 100% guaranteed by the SBA.
While the process is still new and there are several wrinkles to be worked through, if this is likely to help your US business, useful information can be found at the SBA’s here, including to help determine what qualifies a small business for emergency loans through CARES:Coronavirus (COVID-19): Small Business Guidance & Loan Resources at /www.sba.gov/funding-programs/loans/coronavirus-relief-options. The SBA issued new guidance on the Paycheck Protection Program on April 2, 2020.
***UPDATE 16 April***
On Thursday, 16 April, officials announced that the Small Business Administration (SBA) had run out of funding for its Paycheck Protection Program (PPP) and Economic Injury Disaster Loans (EIDL) after just two weeks. This means that, by law, the SBA can no longer issue new loan approvals until further appropriations are granted. Businesses that have already applied for an EIDL will continue to have their applications processed on a first come, first served basis.
Small businesses that planned on applying for a loan to continue paying their workers throughout the lockdown measures may need to consider other lenders while Congress works on a new deal to appropriate additional funds. It is expected that the Treasury Secretary and Congress will meet soon to add another $250 billion to the fund, although negotiations are being delayedas there is some disagreement about whether there should be a change in how money is being allocated.
The good news is that the Federal Reserve recently announced that its new program to buy government backed loans from banks is live, meaning that once the PPP program receives additionally funding, banks can move these loans off their balance sheets more quickly, freeing up additional liquidity for loans.
There will likely be an additional influx to the PPP in time, but it will no doubt go just as quickly as the first tranche. Small businesses in the U.S. should apply as soon as they are able to: https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/paycheck-protection-program-ppp
***UPDATE 22 April***
On Tuesday, the U.S. Senate passed an aid package worth $484 billion for coronavirus relief. It is intended to replenish the SBA PPP program after it ran out of money last week, and will also provide additional funding to hospitals and for coronavirus testing. The U.S. House of Representatives will likely pass the bill (expected to be on Thursday), with indications that the President will sign it shortly after.
The PPP will receive an additional $320 billion, and at least a fifth of the money would be set aside for smaller businesses. This earmarked sum comes on the heels of the publication of research showing that dozens of large, publicly traded companies have received millions of dollars from the PPP. At least $243 million of the $349 billion was given to such companies, despite the fact that the PPP was intended to help smaller, ‘mom and pop’ businesses get by.
It is expected that Congress will consider another $1 trillion in aid in the coming weeks as the U.S. continues to struggle with the economic crisis.
Small businesses must provide certain additional benefits to employees, including providing up to 10 business days of paid sick and public health emergency leave. Under the Families First Coronavirus Response Act (FFCRA) employers may be reimbursed for wages paid for qualifying leave between 1 April and 31 December 2020. The reimbursement is by way of a tax credit covers all of the paid sick leave wages that an employer pays to an eligible employee. Again, the rules apply to most employers with under 500 employees.
At the federal level, there are changes to the benefits that small businesses must provide to employees These include requiring employers to provide up to 10 business days of paid sick leave and public health emergency leave, with tax credits for those businesses which provide such paid sick leave and family leave. The rules apply to most employers with under 500 employees. Under the FFCRA employers can immediately be reimbursed for wages paid for qualifying leave under the FFCRA between April 1, 2020, and December 31, 2020. To obtain the tax credit, employers may claim the credits on their federal employment tax returns or by reducing their required deposits of payroll taxes that have been withheld from employees’ wages by the amount of the credit.
On April 1, 2020, the Wage and Hour Division of the Department of Labor (DOL) issued temporary regulations to implement the Public Health Emergency Leave and Emergency Paid Sick Leave benefits available under the FFCRA. The Regulations (https://www.dol.gov/agencies/whd/ffcra) expand on the DOL’s previous guidance; in some instances the Regulations are inconsistent with the DOL’s former guidance. An important take away is an employer’s record-keeping and notice obligations including retaining documentation related to an employee’s request for or entitlement to leave and recording and retaining any oral statements an employee provided to support a request for leave. An employer must post a notice regarding the FFCRA, even if the employer determines that it is exempt.
Changes to local law in certain cities and municipalities such as California continue at a rapid pace and the city of Los Angeles, and several counties and cities have enacted new ordinances and orders in response to the pandemic which supplement the FFCRA’s additional COVID-19 related sick leave requirements.
As business operations are increasingly interrupted, failure to perform or delays in providing services may lead to financial losses and disputes arising from contractual and other commercial relationships. The application of “force majeure” and other legal provisions and concepts may be relevant when external factors cause disruption. Businesses should also be considering the ways in which protections can be built into contractual arrangements which are being negotiated and entered into now.
The steps taken by the US governments, businesses and others have a significant effect on commercial relationships. Inevitably, failure to perform or difficulty in discharging legal obligations will lead to financial losses and disputes arising from contractual arrangements and other commercial relationships. Parties should be reviewing the application of “force majeure” and other provisions and legal concepts that may be relevant when external factors cause disruption.
As business operations are increasingly interrupted and supply chains threatened, some suppliers and contractors may be at risk for missing contractual deadlines.
Start by reviewing your contract terms and in particular any force majeure clauses:
- Will performance delays caused by COVID-19-related factors subject them to adverse contract actions, (g., default or contractual penalties)?
- Is performance actually impossible or merely impractical?
- Is mitigation or substitution possible?
- Consider other doctrines – frustration of purpose and commercial impracticability which are discussed in more detail here: https://mbmcommercial.co.uk/Latest-Blogs/Blogs/Frustrating-times-coronavirus-and-commercial-contracts.html
Steps that a business can take to protect itself include:
- giving or responding to notices
- taking action to mitigate losses
- renegotiating commercial arrangements
- enforcing rights or defending claims
- evaluate insurance coverage
Businesses should also be considering the ways in which protections can be built into contractual arrangements which are being negotiated and entered into now.
Where there is crisis there is opportunity, and cyber scammers may be using the chaos of the pandemic to their advantage. Remote working brings issues too. The recently enacted California Consumer Privacy Act is coming under increased scrutiny and businesses should be ensuring that their technical and organizational policies and procedures to protect its personal data are robust.
Companies should be ensuring that their technical and organizational policies and procedures are robust to protect its personal data including:
- Reiterate the importance of encryption to employees and staff if they are sending digital correspondence which contains personal data. Companies that provide support to financial services should be particularly vigilant.
- Some hackers have been disrupting teleconferences that use technology like Zoom. Teleconferences in which confidential or sensitive information should be password protected to deter hackers.
- Stay in communication with any processors that the company uses and ensure they are able to operate at a suitable level to protect your personal data during this crisis.
In addition to restrictions on travel to the US, delay in the processing of visa and citizenship applications should be factored into business planning for staff involved in US operations.
USCIS has suspended in-person services at its field offices and many visa issuing consular posts, including London, have suspended all routine visa services.
Visitors who entered the US through certain ports under the ESTA program and who are unable to depart the US before their current period of admission because of COVID-19 related issues may be eligible for an extension of up to 30 days called “satisfactory departure”. Visitors should contact their original port of entry to confirm procedures.
The US Citizenship and Immigration Services (USCIS) has suspended in-person services at its field offices, including all biometric appointments, and many visa issuing consular posts, including London, have suspended all routine visa services.
USCIS may implement certain policies in response to the pandemic that will affect their business operations, and which are likely to cause processing and adjudicating delays of petitions. For example, premium processing, a fee-based expedite service for petitions, is currently suspended.
President Trump has issued multiple proclamations in recent weeks suspending the entry into the US, as immigrants or non-immigrants, of individuals who were physically present in certain areas, including the UK, during the 14-day period preceding their entry or attempted entry into the US, subject to certain exceptions. These exceptions include US citizens, green card holders and certain others, although only a few US airports are accepting travellers who meet the exception criteria. These travellers are subject to enhanced screening on entry.
***UPDATE 23 April***
U.S. Ban on Immigration: How Far Does It Go?
On Monday evening, President Trump announced on Twitter that “In light of the attack from the Invisible Enemy, as well as the need to protect the jobs of our GREAT American Citizens, I will be signing an Executive Order to temporarily suspend immigration into the United States!” Last night, the text of the “Proclamation Suspending Entry of Immigrants Who Present Risk to the U.S. Labor Market During the Economic Recovery Following the COVID-19 Outbreak” was published. (Text available at https://www.whitehouse.gov/presidential-actions/proclamation-suspending-entry-immigrants-present-risk-u-s-labor-market-economic-recovery-following-covid-19-outbreak/).
This proclamation is valid for a period of 60 days from April 23, 2020, with the potential for extension beyond that period. It suspends the issuance of most immigrant visas at consular posts overseas until the order expires (currently on June 22, 2020). (It does not affect people who already have green cards, those who are applying for green cards through the domestic adjustment of status process, or those who have already been issued immigrant visas, but not yet entered the United States.)
The exceptions to the proclamation (i.e., those who can still obtain immigrant visas within the next 60 days) include:
- Spouses and children under the age of 21 of U.S. citizens, as well as certain children in the adoption process
- Participants in the EB-5 investor visa program
- Certain medical professionals and their immediate family members
- U.S. Armed Forces members and their immediate family members
- Individuals whose immigration is in the national interest or for law enforcement purposes
- Certain Special Immigrants
The largest categories of people who will be affected by this are family members of lawful permanent residents, extended family members of U.S. citizens (e.g., parents, siblings, and adult children), diversity visa applicants, and of course, anyone who has been sponsored for the green card by an employer. Self-sponsoring people with extraordinary ability will also be affected.
Note that the proclamation also indicates that the President intends to review nonimmigrant programs within the next 30 days, so there could be further proclamations forthcoming that limit the issuance of temporary visas. However, it has been widely reported that the U.S. business community is pressuring the White House against a ban on nonimmigrant work visas.
The United States Patent and Trademark Office (USPTO), the official government body responsible for intellectual property rights in the US, has extended the time to file certain trademark documents or to pay required fees. It has ceased any in-person meetings and is closed to the general public. If your business is up against a deadline for patent applications, the USPTO has provided some fee waivers for missed deadlines due to COVID-19.
All states are still receiving online filings rather than in-person filings. While it is effectively business as usual for new entity formations and annual filings, delays can be expected and rush time frames for expedited filings are not possible in some states.
The tax filing date has been extended and all businesses have until July 15, 2020, to file their tax returns and make any necessary payments without interest or penalties.
The passage of the CARES Act will enable the Director of the USPTO to modify any patent or trademark deadlines during the pandemic. To assert this right:
- Follow the USPTO’s announcements on its website: https://www.uspto.gov/coronavirus
- Most federal district and appellate courts have greatly reduced their dockets, and have allowed most scheduled hearings on patent, trademark or copyright disputes to proceed telephonically, though the situation is changing daily.
All deadlines or payment dates falling on or between March 27 and April 30, 2020 will be extended 30 days from the initial due date in cases where the COVID-19 outbreak has had a material adverse effect, and the required filing or payment must be accompanied by a statement that the delay was due to the COVID-19 outbreak materially interfering with or affecting the applicant or other person associated with the filing, including office closures, financial distress, inability to access files or materials, travel days or similar circumstances.
The USPTO remains open for all filings and it is our general recommendation that all filings and payments are made in a timely manner per the original deadlines unless determined the circumstances above apply.
US Entity Filing
- All states are still receiving online filings but not in-person filings and it is effectively business as usual for new entity formations and annual filings.
- However, this will vary state by state and rush time frames for expedited filings are not being guaranteed at this time.
- We will send reminders in due course relating to your US corporation’s next required annual filings.
US Tax Filing
- Tax Filing Date Extension. All businesses have until July 15, 2020, to file their tax returns and make any necessary payments without interest or penalties. Notice 2020-18 removed the prior $10 million cap on tax payments for corporate taxpayers, so currently there is no cap on the deferred payments.
This information was prepared on 8 April 2020. This is clearly a fast-moving field and we are seeing updates to the law and its interpretation on an almost daily basis. We will endeavour to update this information with any significant changes. If you have any questions regarding your business operations in the US, please do not hesitate to get in touch with a member of MBM’s US Team. You'll find our individual contact information on our profiles below, or you can email firstname.lastname@example.org.