With the COVID-19 pandemic quickly spreading across the globe and forcing entire countries to shut down all but essential services, businesses in all sectors urgently need to make business-critical decisions to protect their workforce, implement measures to address business continuity and prepare for an economic downturn. In doing so, they face legal and regulatory issues spanning various areas of law.

With this publication, we aim to assist companies in the TMT sector in managing this difficult and constantly evolving situation now and in the near future. Attorneys from our global team of TMT specialists offer their view on how they expect the TMT sector to be impacted, highlight the key legal and regulatory issues that need attention, and share best practices for minimising negative impact and legal risk.

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Invitation to our webinar series

Join us for our webinar series EU & UK Competition Law: Essential Knowledge for In-house Lawyers (e.g. non-specialists).

Competition law remains a priority compliance area for businesses. It impacts upon a wide variety of day to day business practices, from pricing, distribution and managing suppliers and resellers, through to trade association activity, R&D collaboration and M&A activity.

Our program of basic webinars will cover the key areas of competition law in the UK and in the EU and the important issues you need to be aware of. These webinars are primarily aimed at participants who are new to competition law and/or who have not had specialist competition law training or extensive experience applying EU/UK competition law. The aim of the webinars is to equip in-house lawyers with the skills to spot the issues and avoid the pitfalls.

All webinars will begin at 11:00am BST / 12:00pm CEST (unless otherwise stated) and are scheduled to run for up to 60 minutes. If you reside in a different time zone and wish to verify your time – please see timeanddate.com for the time in your location.

All webinars are complimentary and you can sign-up for as many as you would like.

To register for this webinar series, click on the Register buttons below and provide your information. You can register for one or all webinars.

Please forward this to any of your colleagues who you think would benefit from an introduction to competition law.

We hope you will participate in and enjoy this webinar series.

Date

Session

28/4/2020 Introduction to competition law, market definition and economics
Eva Crook-Santner, Gavin Hayes, Alex Stratakis
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5/5/2020 Dealing with competitors
Irena Apostopoulos, Julian Godfray, Eren Kilich
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12/5/2020 Distribution dos and don’ts
Karoline Phillips, Sarwenaz Kiani
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19/5/2020 Handling deals and what you need to know
Anthony Gamble, Alex Findley
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26/5/2020 Dealing with dominance issues
Bethan Lukey, Meera Rolaz, Alex Stratakis
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2/6/2020 Dealing with EU antitrust investigations
Mara Ghiorghies, Sarah Crowther, Alexander Rickets
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9/6/2020 Dealing with UK antitrust investigations
Mara Ghiorghies, William Jinks
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16/6/2020 Introduction to follow-on litigation*
Jennifer Reeves, Francesca Richmond
*2pm BST London / 3pm CEST Brussels
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23/6/2020 Introduction to state aid
Alex Stratakis, Anthony Gamble, Bethan Lukey
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WEBINAR SERIES OVERVIEW

Webinar Start Time
(unless otherwise stated)

11:00am (BST) London
12:00pm (CEST) Brussels

Duration
45-60 mins

Login Details
Log-in details will be sent via email before the event.

Questions
If you have any questions regarding this webinar series, please contact:

Alex Phillips
Business Development Manager,
EU, Competition & Trade

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This alert discusses the small business loan components of the recent coronavirus stimulus package signed into law on Friday March 27, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). The alert focuses on how such provisions may be helpful for larger companies seeking to assist companies in their supply chain.

For additional information please contact any member of Baker McKenzie’s North America Transactional Groups.

Protecting Your Supply Chain Financial Support for Small Businesses under the CARES Act

On March 27, 2020, the President signed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to provide financial assistance to individuals and businesses impacted by the coronavirus pandemic. Among other financial support programs, $359 billion in federally backed loans is available under the CARES Act to assist small businesses through the Small Business Administration (SBA). These loans can be used to pay for items such as utilities, rent, mortgages, and payroll, as well as disaster relief, and the procedures to apply for these loans are expected to be finalized within 15 days.

Many large corporations have small businesses as key components in their supply chain. As the coronavirus pandemic continues and additional geographic regions and industries are impacted, weak links in these supply chains are expected to emerge. As a result, these corporations have a strong interest in supporting the key members of their supply chain, including through assisting them in securing financial support under the CARES Act. In addition to the loan programs summarized below, corporations large and small are expected to benefit from the removal of limitations on net operating losses, the $454 billion in general economic loans and employee retention credits also present in the CARES Act.

Paycheck Protection Program Loans

The CARES Act expands the ability to obtain loans under Section 7(a) of the Small Business Act through a new $349 billion Paycheck Protection Program. Under the program, small businesses are eligible for loans to cover payroll, salaries, commissions, health care costs, mortgages, rent and utility payments and interest on pre-existing debt obligations. Loans cannot exceed 2.5 times the average monthly payroll cost during the prior year to the loan date, are capped at $10 million and have a maximum annual interest rate of 4%. These loans do not require collateral, personal guarantees or any recourse to equity holders and are available through June 30, 2020, to borrowers meeting program criteria. Loan fees are waived, as are the SBA’s prior limitations on demonstrating funds are otherwise not available. The maximum loan term is ten years. A business is not eligible to receive these loans if it receives an SBA economic injury disaster loan for the same purpose.

Small Business Size Tests

Businesses with 500 or fewer employees that were operational on February 15, 2020, are eligible to participate in the program. Businesses with more than 500 employees in certain industries may also be eligible to participate under applicable SBA size standards.

The size standards are applied on an affiliate basis in accordance with existing SBA affiliation rules, except for hospitality and restaurant businesses, franchises and recipients of Small Business Investment Company investments. For these exempted businesses, the 500-employee size threshold is measured on a location-by-location basis.

Some private equity sponsors and venture capital firms have criticized the application of the SBA affiliation rules to their portfolio companies, which individually may have fewer than 500 employees but which may become ineligible to participate in the program based on their common controlling ownership.

It should also be noted that businesses that participate in joint ventures with other companies or that have minority investors may also find that they are subject to the SBA’s affiliation rules, which are complex and can be triggered in numerous situations not involving 50% or greater ownership.

It is uncertain whether the anticipated SBA implementing regulations (described below) will address the concerns that have been raised regarding the application of the SBA affiliation rules to determine eligibility to participate in the program.

Payment Forgiveness

For an initial eight week period after an SBA loan is made, the loan may be forgiven to the extent it is used to cover payroll costs, interest payments on mortgages (not including prepayments or principal), rent and utilities. Businesses must retain their employees and pay them at least 75% of their prior-year compensation in order for their loan forgiveness not to be subject to deductions.

The amount of a loan that may be forgiven is ratably reduced if the average number of full-time equivalent employees during the eight week forgiveness period is less than the average number of employees during the period from February 15, 2019 through June 30, 2019 or January 1, 2020 through February 29, 2020. The small business borrower is able to choose which period to compare.

To encourage employers to rehire workers laid off due to the coronavirus pandemic, employers that rehire previously laid off workers will not be penalized for having a reduced payroll at the beginning of the forgiveness period. If, during the period from February 15, 2020 through April 26, 2020, there is a reduction in the number of full-time equivalent employees or their compensation and the employer eliminates the reduction by June 30, 2020, the amount of loan forgiveness is determined without regard to the reduction.

To apply for SBA loan forgiveness, businesses must submit documentation regarding the eligible uses of loan funds, the amount to be forgiven and any other documentation deemed necessary by the SBA Administrator. The SBA will purchase any loan forgiveness amounts from its certified lenders, and this canceled indebtedness will not result in taxable income to the small business borrower.

Payment Deferral

For principal amounts that exist after any loan forgiveness, small businesses may defer payment of remaining principal, interest and fee balances for at least six months and up to one year.

Economic Injury Disaster Loans or EIDL Loans

In addition to the Paycheck Protection Program, the CARES Act also provides funding for up to $10 billion in economy injury disaster loans (EIDL). Such loans are designed to be quickly deployed with advances up to $10,000 distributed as soon as three days after application. The SBA’s website now shows a simplified EIDL application process with a reduced number of forms that initially need to be submitted (an application form) and a supporting information form.

SBA Regulations

The SBA is required to issue implementing regulations within 15 days after the enactment of the CARES Act (April 11, 2020).

SBA-Certified Lenders

Loans under the program will be made by over 800 SBA-certified lenders. A list of the 100 most active Section 7(a) lenders is available on the SBA’s website. The SBA also offers a lender match online referral tool to assist small businesses in contacting SBA-certified lenders. It is expected that participating lenders will await the issuance of implementing regulations by the SBA before accepting loan applications under the program. The CARES Act also permits the SBA Administrator and Secretary of the Treasury to certify additional lenders to join the program, if required.

Further information on the CARES Act and Coronavirus Pandemic Impacts

For additional information with respect to the financing programs to be provided by the Treasury Department and the Federal Reserve to non-banks such as corporate borrowers, see the Baker McKenzie client alert. If you would like to draw from our other global resources developed by Baker McKenzie on the CARES Act and COVID-19, please visit our Coronavirus Resource Centre.

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Federal Tax and Payment Deadline has been extended. The IRS, through a series of IRS Notices, has delayed certain tax return filings and payments due April 15, 2020 through July 15, 2020. Taxpayers (individuals and businesses, as well as trusts, estates, partnerships, corporations) were granted an extension of time to file certain US Federal tax returns for income tax and gift and generation skipping transfer taxes and pay 2019 taxes (and Q1 estimated tax payments) until July 15, 2020.

Further information on COVID-19 related State tax matters can be found by visiting our SALT SAVVY blog post, State and Local Tax Responses to COVID-19 and the corresponding webinar.

Baker McKenzie has put together a global resource center for all key insights and upcoming webinars as a central repository to assist our clients understand, prepare and respond quickly to the significant legal and business challenges posed by COVID-19. Please use the following link to visit the Coronavirus Resource Center for additional resources. Baker McKenzie understands that these times are challenging for all our clients and we want to assure you we are here to assist.

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The Coronavirus Aid, Relief, and Economic Security Act (the Act) was passed by the US House of Representatives by a voice vote today after being passed by the US Senate on Wednesday. The bill now heads to the White House, where President Trump is expected to sign it very soon. Below are some key retirement plan features of the Act:

  • Coronavirus-Related Distributions. The Act would allow participants in eligible retirement plans to take distributions in 2020 of up to USD 100,000 from their plan account without incurring the 10% early distribution tax that would otherwise apply to payments made before age 59-1/2. The distribution must be a “coronavirus-related distribution” which is a distribution made in 2020 with respect to a “qualified individual.” A “qualified individual” is (1) a participant who has experienced adverse financial consequences resulting from being quarantined, furloughed, laid off or having a reduction in work hours or is unable to work due to lack of childcare on account of the virus, or (2) a participant, spouse or dependent who has been diagnosed with coronavirus by a test approved by the CDC. Employers can rely on a participant certification that the distribution was a coronavirus-related distribution. The distributions would not be subject to mandatory 20% withholding. It appears that these distributions are permissive rather than mandatory. Accordingly, it appears that plans may be able to cap such distributions at something less than USD 100,000 if desired.
  • Income Inclusion Over Three Years. A coronavirus-related distribution would be included in the qualified individual’s taxable income ratably over a three-year period following distribution. However, the individual can elect to treat it as taxable in the year of distribution.
  • Repayment of Coronavirus Distributions. The Act would allow a qualified individual who takes a coronavirus-related distribution to repay it to the plan within three years of taking the distribution. Repayment will be treated as a rollover contribution to the plan.
  • Temporary Increase in Plan Loan Limits. The Act would temporarily increase the maximum amount that a qualified individual may borrow from his or her plan account balance to USD 100,000, for the period beginning the enactment of the Act is commenced and ending 180 days later. In addition, qualified individuals can borrow up to the lesser of USD 10,000 or 100% of their account balance instead of the current limit of 50% of their account balance. It appears that these provisions are permissive rather than mandatory.
  • Loan Extensions. The Act includes a one-year extension of time to repay a plan loan if the otherwise applicable due date occurs between the date the Act is enacted and December 31, 2020. It appears that remaining payments, plus applicable interest, can be re-amortized over the extended period, and that these extension rules are mandatory. This may be an important feature for employees terminated in 2020 whose loans might otherwise default in connection with their termination.
  • Required Minimum Distributions. The Act allows plans to suspend making required minimum distributions in 2020. This would include participants who turned age 70-1/2 in 2019 and have not received a 2019 distribution. Amounts distributed in 2020 that would have been required minimum distributions but for the Act, would not be treated as eligible rollover distributions and, therefore, should not require the tax notice under Code Section 402(f). This provision is substantially similar to relief that was provided in connection with the 2008 financial crisis. It appears that the suspension of required minimum distributions for 2020 is permissive rather than mandatory. Given that required minimum distributions may already be in process based on the normal distribution deadline, this provision may have limited utility.
  • Plan Amendments. Plans would need to be amended to reflect the Act changes by the last day of the plan year beginning on or after January 1, 2022 (i.e., by December 31, 2022 for calendar year plans). The Act may represent welcome relief for employers and employees dealing with the fallout from Covid-19. Ultimately, there will be policy and implementation issues for employers to consider (e.g., what provisions to implement, coordination with record keeper capacity, etc.) and appropriate employee messaging regarding these changes will be key.

Baker McKenzie understands that these times are challenging for all our clients and we want to assure you we are here to assist.

If you need more information or have any questions, please contact your Baker McKenzie attorney.

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Key Takeaway

It is vital for manufacturers of market-critical drug products to survey their supply chain and current available product supply to ensure compliance with reporting requirements. Further, while FDA inspections of manufacturing facilities in China are currently not taking place, the FDA has increased import sampling and screening in order to continue monitoring product quality. Supply chain compliance efforts must be nimble and respond to the shift in FDA monitoring efforts.

As in past instances of worldwide disturbances, COVID-19 has unveiled the vulnerabilities of the medical product supply chain. It has highlighted the industry’s reliance on a complex system of import and export regulations, skilled workers, the availability of raw materials, API and manufacturing outside of the US, and dependence on contract manufacturing organizations and other third party vendors located outside of the US. Even in the absence of a pandemic, medical product shortages occur for a variety of reasons, including quality issues and various other supply-chain-related delays. The full impact of COVID-19 is yet to be realized.

Notably, the consequence of supply chain interruptions from a compliance perspective vary slightly, depending on the type of product and its indication. Human drug products and medical device products have different requirements for reporting supply chain disruptions, and the impact of COVID-19 has cast a bright light on this inequity. Compliance with reporting requirements is important during the ongoing pandemic.

Medical product shortage reporting requirements

The Federal Food Drug and Cosmetic Act requires manufacturers of drug product that is life supporting, life sustaining, or intended for use in the prevention or treatment of a debilitating disease or condition that is not a radio pharmaceutical, including any such drug used in emergency medical care or during surgery, to report supply chain disruptions at least six months prior to the interruption, or if not possible, as soon as practicable.

As is the case with some drug products, medical devices can be life supporting and life sustaining, posing a risk to public health if essential care for patients is disrupted. No similar reporting requirements for shortages of medical device products exist. Nevertheless, the FDA advises medical device/supply manufacturers to report shortages to the Center for Device and Radiologic Health (CDRH). It also tracks shortages and supply issues for such products. Manufacturers are encouraged to respond to FDA’s requests about potential supply chain disruption so that the agency can take steps to help support awareness of potential disruption of access to critical medical products. Medical device manufacturers may report potential supply chain disruptions to the FDA’s device shortages mailbox at deviceshortages@fda.hhs.gov.

Medical product shortage compliance vulnerabilities

As early as late January, the FDA began reaching out to manufacturers to remind them of their legal reporting requirements for anticipated supply chain disruption in light of COVID-19. Because all active pharmaceutical ingredients (API), certain raw materials, excipients, components of medical devices and finished products must be manufactured in FDA-approved and inspected facilities, identifying an alternative supplier and scaling up for inspection and approval is complicated. In many cases, a supplier of APIs or other components may be single- or limited-source.

Initially, the FDA asked manufacturers to direct their supply chain inquiry to APIs and other components manufactured in China. This advisory was borne out of the FDA’s identification in late February of nearly 20 drug products with ingredients sourced from China, where COVID-19 severely impacted production. However, with the rapid spread of COVID-19, supply chain disruption concerns are no longer limited to China but have expanded globally. In fact, India’s recent curtailment of the export of 26 APIs may continue to increase vulnerabilities in manufacturers’ supply chains.

Manufacturers typically forecast their supply through firm forecasting for a certain period (generally 12 months, depending on the drug product), and distributors have certain limitations on the amount of products they can hold in their warehouses. Distributors play a key role in the supply chain and can assist manufacturers in carefully assessing the demand for medical products. Given the rapid spread of COVID-19 and its impact on the industry, it is anticipated that manufacturers’ ability to provide advance notice of supply chain disruption may be significantly hampered.

The FDA maintains a list of drug shortages at: https://www.accessdata.fda.gov/scripts/drugshortages

(Updated 7 April 2020)

The U.S. Congress deployed significant and extensive countermeasures in passing the CARES Act on 27 March 2020. Urgently signed into federal law the same day, the Coronavirus Aid, Relief, and Economic Security Act, or “CARES” Act, addresses a wide variety of issues, including drug and medical device shortage. In relevant part to this article, the CARES Act amended the Food, Drug and Cosmetic Act to aim to further mitigate drug shortages and prevent medical device shortages.

Preventing Medical Device shortages

The FDCA amended to require that manufacturers of devices (i) deemed critical to the public health during a public health emergency, including devices that are life supporting, or intended for use in emergency medical care or during surgery; or (ii) for which it is determined that information on potential meaningful supply disruptions of such device is needed during or in advance of a public health emergency provide notice of (i) permanent discontinuance in manufacture of the device (except for discontinuances as a result of an approved modification), or (ii) an interruption of the manufacture of the device that is likely to lead to a meaningful disruption in the supply of the device in the United States. (Section 3121)

Mitigating Emergency Drug Shortages

The CARES Act now requires the Secretary to not only only expedite but also prioritize (i) the review of drug applications or supplements to such drug applications that could help mitigate or prevent a shortage; or (ii) the inspection or reinspections of an establishment that could help mitigate or prevent a drug shortage. (Section 3111)

The Federal Food, Drug and Cosmetic Act is amended to require that manufacturers provide the FDA with advance notice of a shortage of any drug that is deemed critical to the public health during a public health emergency or any discontinuation or interruption in the supply of such drugs or its’ active pharmaceutical ingredients. (Section 3112)

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Earlier this week, we provided guidance on the development of an “Environmental Action Plan” to address potential environmental regulatory and compliance challenges arising from the COVID-19 crisis. Our recommendations included – in the context of limited or unavailable EHS staff or resources and in response to plant shutdown orders – (i) a prioritized assessment of potential risks to human health and the environment and compliance concerns with permits or cleanup order obligations, (ii) effective communication with applicable environmental authorities, and (iii) thorough documentation of the COVID-19 challenges and reasonable steps taken to minimize the impacts of any inevitable consequences. Yesterday, U.S. EPA issued its “temporary policy” for how it intends to approach enforcement of environmental legal obligations during the pendency of the crisis. While environmental groups were quick to criticize the Agency’s policy overnight, it appears to strike the right balance of providing necessary relief from administrative obligations while still imposing obligations on operators of industrial facilities to protect worker health and safety and the environment – embracing in many respects the spirit of our action plan recommendations.

U.S. EPA’s Expectations of Industry.

Before discussing the potential relief afforded industrial operators under this policy, we note the clear expectations imposed by U.S. EPA on regulated facilities seeking to avail themselves of the benefits of this temporary enforcement policy.

First, the policy states clearly that “EPA expects all regulated entities to continue to manage and operate their facilities in a manner that is safe and that protects the public and the environment.” In this regard, U.S. EPA expects all facilities to notify the appropriate regulatory authority – either EPA, state authorities or tribal governments – in the event that any inability to comply with environmental requirements as a result of the COVID-19 crisis could result in “acute risk” or “imminent and substantial endangerment” to human health and the environment. Similar notice is also required should the failure of pollution control equipment or other compliance systems result in exceedances of permit standards or limits. Notice to the agencies will be followed by active engagement by and between the agencies and regulated entities on actions to avoid or minimize any potential adverse consequences from any failed compliance.

Second, the policy also makes clear that regulated facilities are required in the first instance to make every effort to comply with their regulatory obligations. Where compliance is not possible due to COVID-19 causes, industrial operators must “act responsibly” in order to “minimize the effect and duration of any noncompliance caused by COVID-19.” This will require (i) prompt reporting of any noncompliance as required under applicable permits or government orders, including relevant force majeure provisions, and (ii) documentation of the impact of COVID-19 on compliance and the steps taken by the facility to return to compliance as quickly as possible.

Potential Relief from Environmental Requirements/Exercise of Agency Enforcement Discretion.

U.S. EPA’s COVID-19 enforcement policy provides that, in the event that a facility has fulfilled its obligations under the policy, the Agency will exercise its enforcement discretion and not pursue enforcement or stipulated penalties in Agency orders for compliance shortcomings caused by COVID-19. The policy notes that relief would extend to compliance monitoring and reporting, training requirements, reporting obligations and other milestones under government settlement agreements and orders, violations of 90 day hazardous waste storage requirements and exceedances of applicable permit standards. Again, the ability to garner favorable enforcement relief from U.S. EPA will depend upon a facility’s satisfaction of notice requirements in any permits, orders or the COVID-19 policy itself.

The policy also includes guidance on when after-the-fact “catch-up” reporting will be required (for reporting durations of 3 months or greater) and other relief (e.g., VSQ and SQ generators of hazardous waste will not lose their status from delays in off-site disposal of any accumulated waste).

Duration of this Temporary Enforcement Policy.

The policy is retroactive to March 13th and will remain in effect until U.S. EPA indicates otherwise, with 7 days advance notice of termination required by the Agency.

What is not Covered by the Policy.

U.S. EPA makes clear that criminal liability for the “intentional disregard of the law” is not covered. This policy also does not apply to cleanups being conducted under the Agency’s Superfund or RCRA authority, which the policy indicates will be covered in a forthcoming, separate policy document, and regulations involving the importation of products into the U.S. The policy also does not apply to state enforcement actions.

What are the States Doing?

In general, we have found most state agencies to be open to discussion and compromise when approached with COVID-19 compliance issues, especially around delays in schedules for required monitoring. This has not been not universally true, however, so active outreach is advisable and diligent documentation of any agreements on relief from compliance requirements must be done. A number of states are developing their own COVID-19 enforcement policies, examples of which include the following:

How we can Help. U.S. EPA’s new COVID-19 enforcement policy and similar actions across the states reflect a recognition of the very real environmental compliance challenges confronted by industry amidst this crisis. Relief is increasingly available, but requires careful planning, satisfaction of notice and other regulatory obligations, active engagement with the regulators and documentation of accommodations and relief granted. Baker McKenzie’s Environmental Group is available to answer any questions you might have and provide legal support and counsel as you navigate the environmental issues that arise as the COVID-19 crisis continues to evolve. Please reach out to our COVID-19 contacts should you need further assistance.

Baker McKenzie has put together a global resource center for all key insights and upcoming webinars as a central repository to assist our clients understand, prepare and respond quickly to the significant legal and business challenges posed by COVID-19. Please use the following link to visit the Coronavirus Resource Center for additional resources. Baker McKenzie understands that these times are challenging for all our clients and we want to assure you we are here to assist.

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Our latest edition covers 39 jurisdictions, answering five common data privacy and security questions employers may have in light of COVID-19.

As the world grapples with the COVID-19 pandemic and its profound impact across regions and industries, many companies are facing difficult business and legal challenges and are required to make some urgent decisions in order to keep their workforce safe and ensure business continuity. Data plays a crucial role in containing the spread of the virus but not every data processing can be justified on that basis. A balance must be found between protecting public health and personal privacy .

Baker McKenzie is pleased to provide you with a guide designed to help employers assess whether or not certain data processing they may consider in light of COVID-19 is compliant with data privacy regulation.

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Predictions about the spread of COVID-19 through significant parts of the population and its effects on American life are staggering. The Centers for Disease Control and Prevention (CDC) reports more than 54,000 confirmed cases in the United States. As countries across the world implement new, extraordinary measures in an attempt to contain the coronavirus, which infects clusters of people (including co-workers), employers face rapidly evolving compliance issues.

Employers must provide employees a safe place to work under the Occupational Safety and Health Act’s “General Duty Clause.” This catchall safety provision applies to “recognized hazards.” When OSHA addresses a pandemic, it reminds employers of their general duty to protect employees from airborne infectious diseases. Given the Act’s remedial purpose “is prophylactic in nature,” Whirlpool Corp. v. Marshall, 445 U.S. 1, 12 (1980), developing, maintaining, and implementing workplace plans to reduce worker exposure is crucial to mitigate the risk of citation.

But what about those that are already exposed despite adequate workplace measures? Many individuals are asymptomatic or can carry (and spread) COVID-19 for up to two weeks without illness. Employers should assume—and plan for the unfortunate reality—that most employees will suffer a consequence because of COVID-19.

Recent gubernatorial decisions have forced thousands of “nonessential” businesses to shut down and send employees home, threatening the economy. While other businesses providing “essential services,” such as healthcare providers, grocery stores, and restaurants, remain open, they likewise face myriad challenges. As the coronavirus pandemic escalates, so does uncertainty and risk. Adding insult to injury, litigation tends to increase in times of crisis. The coronavirus has already disrupted the workplace; it will undoubtedly continue to do so, implicating numerous employment laws that could give rise to unprecedented legal claims.

Claims arising under equal employment opportunity laws

A pandemic like COVID-19 implicates anti-discrimination statutes, including the Americans with Disabilities Act (ADA) and parallel state laws, that regulate disability-related inquiries and medical examinations, prohibit discrimination, and require reasonable accommodations for known limitations of disabled applicants and employees. The Equal Employment Opportunity Commission’s guidance suggests employers have latitude with certain risk-reduction measures that could otherwise violate the ADA, including asking employees about symptoms, taking employees’ temperatures, and sending symptomatic employees home. But it remains an open question whether COVID-19 could give rise to claims for disability discrimination or failing to provide accommodations for the disease.

The ADA defines a disability as including an impairment that substantially limits one or more major life activities. Though COVID-19 is a temporary illness that is unlikely to constitute a “disability,” longer-term consequences from it could implicate statutorily recognized major life activities, including breathing, speaking, communicating, and working. Employers must provide reasonable accommodation to qualified individuals with a disability unless doing so would cause undue hardship or present a direct threat in the workplace. As the CDC and other public health agencies learn more about the coronavirus, assessments that it meets the “direct threat” standard could change. A categorical approach to COVID-19 would ignore an employer’s duty to engage in the interactive process and assess an individual’s ability to safely perform the essential functions of his or her job.

Employers must also be conscientious of the potential for stigma and discrimination in the workplace. With the first known case of COVID-19 originating in Wuhan, China, and related geographic labels for the disease, the CDC reminds employers to avoid making determinations of risk “based on race or country of origin.” Asian-Americans have reported experiencing fear to grocery shop, travel alone, and let their children outside to play. Misconceptions about the coronavirus could lead to xenophobia in the workplace. Title VII of the Civil Rights Act of 1964 and similar state statutes obligate employers to protect employees from workplace discrimination or harassment based on their race, national origin, and other protected characteristics.

National origin discrimination includes treating an individual differently because of his or her or an ancestor’s place of origin or because the individual has physical, cultural, or linguistic characteristics of a national origin group. In reacting to COVID-19, employers should focus on applying policies fairly, uniformly, and consistently; ensure perceptions about the disease’s origin do not influence employment decisions; and promptly address any concerns of mistreatment by employees of Asian descent. Remedies for discrimination, harassment, and retaliation include back pay, reinstatement or front pay, compensatory damages, punitive damages, and attorneys’ fees; and, such claims are costly to defend.

Claims for interfering with or denying leave or sick time

As COVID-19 spreads, and workplace and school closures continue, requests for paid time off will inevitably increase. Employers must consider already complex paid sick leave laws. Many state and local laws require paid sick leave that covers preventative care, such as a quarantine to avoid exposure to the coronavirus. In addition, emergency legislation enacted in response to COVID-19 adds another layer of complexity to the patchwork of state and local sick leave laws. The new Families First Coronavirus Response Act (FFCRA) requires that employers with fewer than 500 employees make available 80 hours of paid sick leave for full-time employees or a prorated amount for part-time employees for COVID-related purposes, including to isolate per a federal, state, or local order and to care for a child whose school or childcare provider closed.

Beyond sick leave, an employee may qualify for additional leave time. Under the Family and Medical Leave Act (FMLA) and comparable state laws, covered employers (i.e., employers with 50 or more employees) must provide employees job-protected, unpaid leave (up to 12 weeks) for specified family and medical reasons. According to the Department of Labor, leave to avoid exposure does not trigger the FMLA, but complications from COVID-19 could create a “serious health condition” that does. And, the FFCRA (specifically, the Emergency Family and Medical Leave Expansion Act) expands the FMLA, providing up to 12 weeks of job-protected leave (10 of which are paid) for a “qualifying need”—i.e., for an employee who cannot work or telework because he or she needs to care for a minor child whose school or place of care closed or is unavailable due to the coronavirus.

The denial of or interference with an employee’s right to leave could give rise to claims for discrimination or retaliation, violation of wage and hour laws, and significant fines for noncompliance. As an example, some state laws presume unlawful retaliation if an employee experiences an adverse employment action within a specified timeframe of an employee invoking his or her rights under a sick leave law, and the FFCRA makes an employer liable for unpaid minimum wages and an equal amount of liquidated damages, among other penalties, for violations.

Employers should closely track employees’ entitlement to leave under the many laws that cover temporary paid family and sick leave for employees affected by COVID-19. Employers should also anticipate further legislation, with several states already introducing or enacting emergency legislation to protect employees.

Potential wage and hour violations stemming from remote work and the economic impact of COVID-19

Recent shelter-in-place orders have forced millions of employees to work at home. Remote work creates complex wage and hour issues, including:

  • The ability to adequately monitor and track time to ensure nonexempt, hourly employees are paid for all hours worked at the appropriate rate. Beyond tracking time for pay, employers must also maintain records concerning employees’ working time under the FLSA and similar state laws.
  • Reimbursement of necessary business expenses employees may incur to carry out job duties at home, where doing so may require the use of personal printers, phones, and office supplies. Under federal law, an employer cannot require a non-exempt employee to pay for business expenses if doing so reduces earnings below minimum wage or overtime compensation, and some states impose additional requirements for reimbursing business expenses.
  • Ensuring that employees continue to take meal and rest periods at the appropriate time, particularly where employees may alter schedules while juggling at-home responsibilities.

COVID-19 also presents a wide range of workforce management issues such as reductions in staff, hours, or pay, which further implicate wage and hour laws, including those governing deductions from an exempt employees’ salary; salary threshold requirements for exempt classification; advance notice of changes to hours, schedules, or layoffs; and timely pay upon termination. As an example, employers may consider reducing the work schedule and pay of exempt employees as an alternative to layoffs. Doing so could affect an exempt employee’s classification status. The analysis may differ under federal versus state law, some of which may also require advance notice. Some states and local governments also have predictive scheduling laws that require advance notice of scheduled shifts and under such laws changes could require compensation.

Wage and hour violations result in significant penalties, and often lead to class action or representative litigation. Employers should establish protocols for proper oversight to comply with federal and state wage law.

Potential violations of a Collective Bargaining Agreement (CBA)

Unionized employers must consider legal obligations under a collective bargaining agreement or other enforceable contract that could expand an employees’ rights and implicate a duty to bargain in good faith with or provide information to a union under the National Labor Relations Act. CBAs often include provisions that address scheduling, meal and rest breaks, work assignments, layoffs, and other terms and conditions of employment. Employers should consider how a contemplated change in response to COVID-19 may impact a CBA.

CBAs may also underscore an employer’s obligation to provide a safe work environment. Although “shelter-in-place” orders are a recent response to COVID-19, employees or a union may consider measures to prevent exposure inadequate or untimely under a CBA, as a labor organization recently alleged in a lawsuit filed against the State of Alaska. See Alaska State Employees Association, Local 52 v. State of Alaska, Case No. 3AN-20-5652 (Alaska Super. Ct. March 24, 2020) (alleging the State of Alaska failed to provide a safe work environment for state employees in violation of state law and the CBA by not taking adequate measures to address COVID-19).


The interplay of federal, state, and local laws is already complex. New emergency legislation and contractual obligations add yet another layer of complexity. Employers must consider several factors and unfortunately face several challenges in responding to this ongoing national emergency. Taking care in making decisions and staying informed about potential pitfalls will help avoid or mitigate against unintended legal claims.

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COVID-19 continues to wreak havoc with the global economy, disrupting all manner of business throughout the world. Stock markets have plummeted and many companies are having to grapple with the economic damage. There is a great deal of uncertainty in the transactional space, with many potential investors taking a cautious approach before committing to significant transactions.

However, this unprecedented environment could afford opportunistic buyers the chance to acquire or invest in companies that have been weakened by the crisis.  In addition, creditors may unintentionally find themselves in a position where they acquire control over a business. Assuming control or ownership upon default may well be a triggering event for foreign investment regulatory authorities where the creditor (new owner) is ultimately foreign owned, such as in the United States.

Pre-COVID-19, as the world de-globalised, rising national protectionism had been driving calls for stronger screening of foreign investment across the globe.

Now, COVID-19 has prompted some countries to take an even more stringent approach: Some national governments, notably in Europe, are now taking steps to protect companies which have become vulnerable as their economies are struggling from being taken over by foreign investors. Thierry Breton, the EU Commissioner for Internal Market and Services, has commented that the pandemic could mean that Europe needs to re-think its industrial policy in the “post-globalisation era”, and that now may be the time to take into account things like being too dependent on one country, one region, or one company1. On 25 March, the European Commission (“Commission”) published guidelines to EU Member States2 , calling on them to adopt or strenuously enforce their foreign investment screening mechanisms to protect sensitive assets from foreign takeover during the crisis.

Whilst European countries were the first to announce more restrictive foreign investment screening in response to COVID-19, other jurisdictions, such as Australia, are beginning to follow suit.

These developments highlight the need for investors to carefully consider foreign investment review risks at this highly sensitive and volatile time in respect of both deals which are currently underway and transactions being contemplated. While most cross-border transactions have a high likelihood of being approved, those in strategic sectors may encounter more scrutiny and face a prolonged approval process. Taking the time to understand the rules and identify a regulatory strategy, including appropriate messaging and communication with the relevant governmental authorities, and the consequential impact on deal documentation (such as whether any closing condition is required), early in the deal process can minimize the risk of delays, last-minute changes to the deal structure, or even failed transactions.

Some examples where countries are taking a more stringent approach toward foreign investment are set out below:

EU

On 25 March 2020, the Commission issued new guidance on foreign investment screening in response to the current health and economic crisis. The aim is to preserve EU companies and critical assets, notably in areas such as health, medical research, biotechnology and infrastructures that are essential for security and public order, without undermining the EU’s general openness to foreign investment.

The Commission calls upon Member States that already have an existing screening mechanism in place to make full use of tools available to them under EU and national law to prevent capital flows from non-EU countries that could undermine Europe’s security or public order. The Commission also calls on the remaining Member States to set up a fully-fledged screening mechanism and in the meantime to consider all options, in compliance with EU law and international obligations, to address potential cases where the acquisition or control by a foreign investor of a particular business, infrastructure or technology would create a risk to security or public order in the EU.

There is no EU-wide foreign investment screening mechanism at present, and no plans to introduce one. The current EU foreign investment screening regulation, which takes effect in October 2020, creates a cooperation mechanism in relation to foreign investment into the EU but does not give the Commission the power to block foreign investment (for further details see our previous client alert). The latest guidance does not introduce any new laws or powers in relation to foreign investment screening, either at EU or Member State level. However the message is clear: Member States should use whatever powers they have to protect strategic assets and technologies from foreign takeover at this critical time. Whilst the guidance focuses on the healthcare sector, with references to medical and protective equipment, and development of vaccines, it is important to remember that the EU foreign investment screening regulation and this latest guidance are not restricted to the healthcare sector and apply to all sectors.

This latest move by the Commission, along with measures already announced by some Member States (see below), are likely to be the start of a more restrictive approach to foreign investment review in Europe in the coming months, in response to the pandemic.

Spain

The Spanish government has responded to the health crisis and highly volatile financial markets by introducing a new temporary requirement that ex-ante approval will be required for foreign (non-EU) direct investments in strategic sectors in Spain3. This measure is designed to protect Spanish companies economically affected by COVID-19 from foreign investors and will remain in place until the Spanish government decides to withdraw it.

The measure amends the existing foreign investment regime and affects investments in Spanish companies by non-EU/EFTA entities where the foreign investor would (i) hold a stake of 10% or more in the share capital of (ii) acquire the right to participate in the management of or (iii) acquire control of a Spanish company. Such investments will be subject to ex-ante authorization in a broad range of sectors, namely:

  • Energy, transport, water, health, communications, media, data processing or storage, aerospace, defence, electoral or financial infrastructure and sensitive facilities;
  • Critical technologies and dual-use items, including artificial intelligence, robotics, semiconductors, cyber-security, aerospace, defence, energy storage, quantum and nuclear technologies, as well as nanotechnologies and biotechnologies;
  • Supply of key inputs, in particular energy, raw materials and food security; and,
  • Sectors with access to sensitive information, in particular personal data, or with the ability to control such information.

Additionally, an ex-ante authorization will also be required for foreign direct investments where:

  • The foreign investor is directly or indirectly controlled by the government, including public bodies or the armed forces, of a third country;
  • The foreign investor has already made investments or participated in business sectors affecting security, public order and public health in another EU Member State; and
  • Proceedings, either administrative or judicial, have been opened against the foreign investor in another EU Member State or in its home State or in a third State for criminal or illegal activities.

Failure to comply with the ex-ante authorization regime will mean that the foreign direct investment will not be legally valid and could be subject to administrative penalties.

France

The French government has also announced its intention to protect national companies from the threat of foreign takeover during this crisis. The French foreign investment review regime had already been significantly strengthened very recently, with new laws to widen the scope of investments covered by the regime, and requirements to provide substantial information in order to receive approval.  This new regime will take effect from 1 April 2020.

There have been no specific changes yet to the French regime as a direct result of COVID-19 (unlike in Spain). However, the French Minister of Economy has stated that the government is ready to protect important French companies by recapitalising them, buying shares or even taking them over. The government announced a series of measures in favour of French companies (notably, a EUR 300 billion plan (validated by the EU) to guarantee bank loans, postpone tax and social security payments and finance the cost of partial unemployment).

The government has also specifically stated that nationalisation of strategic companies will not be ruled out if necessary. The French State has the power to nationalise a French company if it meets a public interest objective.

No specific nationalisation is officially contemplated at this stage but it is possible that companies in strategic sectors, such as the automotive and aircraft industries, may seek support from the government, as they are directly and heavily affected by the pandemic.

Italy

Italy is also contemplating introducing measures to protect companies in strategically important sectors. The Italian government is considering possible amendments to the current Italian rules on foreign investment screening (so-called “Special Powers” of the Italian Prime Minister). The Prime Minister and the government are looking at the possibility of qualifying all Italian companies listed on the Milan Stock Exchange – including banks and financial institutions – as “strategic” for the purposes of the application of the existing Special Powers rules.

If this happens, this could mean that the current Special Powers rules on foreign investment, which currently allow the Prime Minister to veto or impose conditions in relation to certain transactions in the defence/homeland security, telecoms, energy, and transportation sectors, could be extended to foreign investment in all Italian listed entities.

Germany

In light of the COVID-19 crisis, the German government would likely restrict the acquisition of medical companies by non-EU or EFTA entities. Different to before the crisis, even the sale of a small to medium sized medical company could presumably be considered to endanger the public order and security of Germany. While many have expressed concerns that foreign investors may be acquiring German companies and have called for stronger screening of foreign investments, the German government has not indicated any changes. While to date there has been no specific changes to the German foreign investment review regime due to the pandemic, according to a proposed amendment to the German Foreign Trade and Payments Act (AWG), the scope of the review will change from an “actual risk” to public order or public security to “probable impairment”. Furthermore, the foreign investment review is to be become stricter for certain critical technologies, for example biotechnology.

Australia

The Australian Government has announced temporary changes (effective from 29 March 2020) to its foreign investment review framework so as to protect the national interest in light of the economic implications arising from the spread of COVID-19.

All proposed foreign investments into Australia subject to the Foreign Acquisitions and Takeovers Act 1975 (Cth) (“the Act”) will require FIRB approval, regardless of the value of the investment or the nature of the foreign investor, where the other conditions for notification are met.

This reflects the monetary thresholds that apply to “foreign government investors”, and private acquisitions in Australian media businesses, residential land proposals, mining and production tenements, and vacant commercial land proposals.

While the dollar sum “threshold test” will be met in relation to all acquisitions in Australian entities, businesses or land, the other conditions of a significant or notifiable action must also be met. There is no change to the meaning of “significant action” and “notifiable action” as presently provided.

As under the existing framework, acquisitions by private foreign investors of less than 20% in an Australian entity generally do not require approval (exceptions to this are Australian agribusinesses and land entities which require approval for acquisitions of more than 10%). This will continue to be the case.

To ensure sufficient time for screening applications, FIRB will extend the statutory timeframes for reviewing applications from 30 days to up to six months.

The new rules will not apply to agreements entered into prior to 10:30 pm AEDT 29 March 2020, including acquisitions that have not yet completed. FIRB has emphasised that the changes are temporary measures that will remain in place for the duration of the coronavirus crisis.

United States

Notably, the United States government has not announced additional restrictions on the acquisitions of US businesses in light of the COVID-19 crisis. The Committee on Foreign Investment in the United States (CFIUS) remains focused on national security, a concept encompassing critical infrastructure. Given the increasing awareness of vulnerabilities in the US medical supply chain, foreign investments in this sector could attract more scrutiny in the future. Further, CFIUS is continuing to process filings, notwithstanding the challenges of stay-at-home orders. At some point, there could be impacts on the ability of CFIUS to accept and process new filings.

A Global Trend?

In the last few years, some of the most influential economies have reformed their foreign investment review frameworks to allow the government more leeway to block deals or impose conditions on their completion.  For example, the US, which has long maintained an open investment policy, recently enacted the Foreign Investment Risk Review Modernization Act (FIRRMA), designed to address evolving national security concerns. Canada, Australia and Germany have not been far behind in tightening foreign investment regulations, while, as stated above, the EU recently introduced a new framework for the screening of foreign direct investments that raise security or public order concerns for the EU or its Member States,. Meanwhile, the UK and Switzerland have indicated that they will for the first time introduce standalone foreign investment screening regimes in their jurisdictions.

This trend towards increased scrutiny of foreign investment has been primarily focused on addressing national security concerns. However, it now seems that some countries are using foreign investment screening to protect wider economic and social concerns triggered by COVID-19. At first, this approach seemed to be limited to Europe, which makes sense as this region has been declared, for now, as the “epicentre” of the global pandemic.  However, as the virus continues to spread, other countries such as Australia, are beginning to  take a similar stance to protect their own national interests and economies.

Again, while most cross-border transactions have a high likelihood of being approved, those in strategic sectors may encounter more scrutiny and face a prolonged approval process at this highly sensitive and volatile time. Taking the time to understand the rules and identify a regulatory strategy, including appropriate messaging and communication with the relevant governmental authorities, and the consequential impact on deal documentation, such as whether any closing condition is required, early in the deal process can minimize the risk of delays, last-minute changes to the deal structure, or even failed transactions.

Keeping up to date on changes in foreign investment review systems in this fast changing landscape will be crucial. Equally important is to understand the limitations that are currently being placed on the movement of products now considered essential in case the target company is affected. See our alert on this.


1 Webcast, EU Industrial Policy in the Time of Coronavirus, Bruegel, Brussels, March 19, 2020; reported by MLex.

2 Royal Decree-Law 8/2020, 17 March 2020.

3 Decree 2019-1590 and a related order (arrêté) dated 31 December 2019.

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