COVID-19 Coronavirus: Key Considerations for Businesses Facing Potential Shutdown Orders

Key Takeaways

• There are two broad categories of shutdown orders. One set of orders bans public-facing businesses or businesses that attract large members of the public (such as dine-in service at restaurants and bars, gyms, theaters). The other set of orders bans all “non-essential” businesses from continuing their physical operations and spells out the distinction between “essential” and “non-essential” businesses. Jurisdictions in this second category nonetheless allow “non-essential” businesses to continue remote operations or certain minimum critical functions, such as preserving inventories and securing facilities.
• Businesses that violate shutdown orders may be subject to an array of penalties, which may include fines, citations, suspension of business or other licenses, equitable relief, or even criminal penalties.
  

Recommendations for Businesses Faced with a Shutdown Order

• Determine if your business is “essential” or “non-essential” under the relevant order and any guidance that may be issued in the jurisdictions in which your business operates.
• Evaluate your business’s role in the supply chain. Many jurisdictions permit otherwise “non-essential” businesses to continue operating as “essential” if they provide critical products or services to recognized “essential” businesses.
• Consider applying for a waiver from the shutdown order. If you think your business was omitted from the relevant definitions of “essential” businesses, you should review the waiver process in your jurisdiction. A successful waiver allows even “non-essential” businesses to continue to operate.
• Even if you are a “non-essential” business, you do not necessarily have to completely stop all operations. Most jurisdictions permit even “non-essential” businesses to continue work-from-home operations and certain minimum critical functions. “Non-essential” businesses thus should evaluate and continue their necessary operations to preserve their value and security.
• Be mindful of the consequences of non-compliance. Beyond financial or criminal penalties (usually in the form of a misdemeanor), businesses should be aware of the reputational risk for violation of a shutdown order.
  

Over the past two weeks, states, counties, and cities across the country have taken drastic (and once unimaginable) steps to slow the spread of the COVID-19 virus, including issuing large-scale bans on certain types of businesses from continuing their physical operations. In this fast-moving situation, businesses must carefully review the relevant orders in their jurisdictions to avoid potential penalties for continuing to operate in the face of a shutdown order.

In response to the unprecedented spread of the COVID-19 virus, over 70 states, counties, and cities in the last two weeks have issued orders directing certain businesses limit or stop their physical business operations. The orders fall into two broad tiers. 

Tier 1: In this tier are jurisdictions that have closed facilities that are either public-facing or attract members of the public in large numbers. These include restaurants and bars for dine-in customers and public recreational facilities (i.e., gyms, theatres, and casinos). These jurisdictions have also barred gatherings above a certain size; and have directed businesses to limit their in-person workforce and encouraged increased work-from-home capabilities. States in this category include Arizona, Florida, and Iowa, among others. We anticipate that the number of jurisdictions adopting these measures will grow and that the jurisdictions in this tier will adopt more stringent measures, as in Tier 2.

Tier 2: Jurisdictions in this category have taken the more stringent step of shuttering all “non-essential” businesses and placing strict limits on what types of “essential” businesses may continue operation. States in this category include New York, Connecticut, Pennsylvania, Delaware, Illinois, Indiana, Hawaii, Louisiana, Maryland, Massachusetts, Michigan, Nevada, New Jersey, New Mexico, Ohio, Oregon, Washington, West Virginia, Wisconsin, Colorado, Minnesota, Vermont, Idaho, and California. Cities and counties have also issued orders directing that that “non-essential” businesses shut down, including Atlanta, Georgia, Kansas City, Missouri, Mecklenburg County, North Carolina (home to Charlotte), Davidson County, Tennessee (home to Nashville), and a large number of Texas cities and counties, including Austin, San Antonio, and Dallas and El Paso Counties.

Below we briefly highlight some of the issues that businesses have been confronting in responding to these shutdown orders.

Essential vs. Non-Essential Businesses

A business’s first and most critical decision in response to a shutdown order is to determine if it is classified as “essential” or “non-essential” under the applicable order. This analysis is fact specific and has to be done for each jurisdiction in which a business operates. The vast majority of the orders apply a categorical approach—if a business is within a category that is deemed “essential” it may continue to operate. As a general matter, food purveyors, gas stations, banks and financial institutions, utilities, caregivers, and pharmacies and other healthcare facilities have been deemed “essential.” But there have been some varying approaches. Some states, such as Pennsylvania and Delaware, have issued detailed and granular list of the industries that may continue their physical operations. For example, although beverage manufacturers may continue their physical operations in Pennsylvania, tobacco manufacturers may not.¹ And Delaware permits business, professional, labor, and political organizations to continue operating, but has ordered office supply stores to close.²

Other states have opted for less specificity. For example, Illinois’s guidance defines “essential businesses and operations” with broad strokes, identifying business categories like “[c]haritable and social services,” “[s]upplies to work from home,” or “[m]edia.”³

In addition to reviewing the applicable state or local order, any business trying to determine if it is “essential” should also consult the guidance issued by the Cybersecurity and Infrastructure Security Agency (CISA), which identifies 16 critical infrastructure sectors that are “imperative during the response to the COVID-19 emergency for both public health and safety as well as community well-being.”⁴ CISA’s guidance is important because generally a business sector’s inclusion in that guidance is a good predictor of whether a state will qualify a business activity as “essential.” Indeed, many states are now expressly incorporating the CISA guidance in their orders, including California, Connecticut, Idaho, Illinois, Indiana, Hawaii, Louisiana, Maryland, Michigan, Minnesota, Nevada, Ohio, West Virginia, and Wisconsin.

Finally, “essential” businesses that continue their physical operations must continue to practice social distancing and adopt other CDC-recommended practices to ensure a safe workplace in their physical locations.

Guidance for Businesses Who are Unsure if they Qualify as “Essential” or “Non-Essential”

Many businesses may be unsure if they qualify as “essential” simply from reviewing the broad categories in the shutdown orders in their jurisdictions. One potential area of uncertainty is for businesses that may at first seem to be “non-essential” but are key suppliers to other businesses or services that are clearly “essential.” In these instances, it is important for businesses to evaluate their role in the supply chain. Generally, many of the orders specifically provide that if a business provides vital supplies or services to a business that is defined clearly as “essential,” that business would likely also qualify as “essential.”⁵

A business that remains uncertain about its status should carefully consult the guidance and FAQs that often accompany these orders. Often these supporting materials offer important details that are missing from the orders themselves. Lastly, a business that concludes that it is “non-essential” but still seeks to continue its physical operations may seek an exemption or waiver from the relevant agencies.⁶

We recommend that a business that has questions about its status should consult counsel who are familiar with these orders to offer advice and guidance and remove any lingering uncertainty, especially from customers, suppliers, and employees.

Guidance to Businesses that are “Non-Essential”

Jurisdictions that have banned “non-essential” businesses continue to permit such businesses to allow their employees to work remotely for the company. For example, Pennsylvania’s order specifically states that its “prohibition does not apply to virtual or telework operations (e.g., work from home), so long as social distancing and other mitigation measures are followed in such operations.”⁷ Likewise, jurisdictions also permit “non-essential” businesses to allow a small group of employees on-site to perform certain critical functions, such as necessary activities to preserve a business’s inventory, ensure security, process payroll and employee benefits, facilitate work-from-home abilities, and filling and processing online orders. States like Colorado, Idaho, Illinois, Indiana, Michigan, New Jersey, Ohio, West Virginia, and Wisconsin, and many local counties and cities, have taken that approach explicitly in their shutdown orders.

Consequences of Non-Compliance with the Shutdown Orders

Businesses that fail to comply with these shutdown orders face a range of penalties, which vary by jurisdiction. Typical sanctions may include fines, citations, suspension of business or other licenses, equitable relief, or even criminal penalties, which are often misdemeanors. There has already been limited litigation to enjoin enforcement. For instance, on March 22, 2020, the Supreme Court of Pennsylvania dismissed one of the few reported cases in which a business sought to challenge a state’s authority to impose a stringent shutdown order.⁸ Businesses must also consider reputational concerns. Specifically, businesses that are plainly “non-essential” and defy a shutdown order may be shamed in the press and suffer public criticism, as has already occurred in a few jurisdictions.

This OnPoint is not intended to be a complete review of all potentially applicable executive orders or of all legal issues raised by these orders. Businesses must continue to closely monitor the developments in their jurisdictions given the rapid pace of change in this area. 

Footnotes

1) Pennsylvania, Life Sustaining Business Frequently Asked Questions (Mar. 24, 2020).
2) Delaware, Essential Businesses List (Mar. 24, 2020). 
3) Illinois Dep’t of Commerce & Econ. Opportunity, Essential Businesses & Operations. 
4) U.S. Dep’t of Homeland Sec., Memorandum on Identification of Essential Critical Infrastructure Workers During COVID-19 Response, (Mar. 19, 2020).
5) See, e.g., Empire State Dev. Corp., Frequently Asked Questions for Determining whether a Business is Subject to a Workforce Reduction Under Recent Executive Order Enacted to Address COVID-19 Outbreak (Mar. 22, 2020), (“If your firm is a vendor, supplier or provides other support to an Essential Business that is required for the Essential Business’s operation, then your business is exempt from the employment reduction provisions contained in Executive Order 202.8.”); California State Pub. Health Officer, Essential Critical Infrastructure Workers (Mar. 22, 2020), (explaining, as an example, that “workers supporting groceries, pharmacies, and other retail that sells food and beverage products” are part of critical infrastructure (emphasis added)).
6) See, e.g., New York Exec. Order 202.6 (Mar. 18, 2020), (“Any other business may be deemed essential after requesting an opinion from the Empire State Development Corporation, which shall review and grant such request, should it determine that it is in the best interest of the state to have the workforce continue at full capacity in order to properly respond to this disaster.”); Pennsylvania, Life Sustaining Business Frequently Asked Questions (Mar. 24, 2020), (“Any business that does not fall within a category listed as ‘life sustaining’ on the list of life sustaining businesses, but which provides goods or services necessary to maintain operations at a business on the life-sustaining list or in one of the critical infrastructure categories outlined in the CISA Advisory should request a waiver.”).
7) Order of the Governor of the Commonwealth of Pennsylvania Regarding the Closure of All Businesses that Are Not Life Sustaining (Mar. 19, 2020). 
8) Civil Rights Def. Firm, P.C. et al. v. Wolf, No. MM 2020 (Pa. Mar. 22, 2020) (per curiam).