House Passes Coronavirus Response Package

On March 14, the US House of Representatives passed the Families First Coronavirus Response Act (H.R. 6201, or the "bill") by a vote of 363-40. The House-passed bill is a compromise agreement between House Speaker Pelosi and Treasury Secretary Mnuchin. President Trump and Republican Majority Leader McConnell had signaled support for the package prior to the House vote, but the House might consider technical corrections before sending to the Senate.

The bill is the second emergency measure from Congress in response to the coronavirus. The first package, Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020 (H.R. 6074), enacted on March 6, focused on supplemental appropriations ($8.3 billion) to various federal agencies to ramp up preparedness and response efforts.   

Lawmakers already are working on drafting a third piece of legislation that reportedly will focus on industry-specific financial relief. Industries in focus may include hotels, cruise lines, airlines, and other hospitality sectors. The third bill is expected to include tax and other measures to increase cash flow to businesses.  

We will keep you posted as the legislative process unfolds.

Drafters of the third bill are looking for input from the business community about solutions that would be most helpful. Our advocacy team is in communication with congressional offices to work through these details, so to the extent you have specific suggestions or needs for this third package, please contact us directly or email Covid19@steptoe.com.

The bill consists of several different Divisions and Acts:

A. Second Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020 – Provides funding for the agencies that need to implement the bill.

B. Consists of various nutrition waivers.

- Maintaining Essential Access to Lunch for Students (MEALS) Act
- COVID-19 Child Nutrition Response Act

C. Emergency Family and Medical Leave Expansion Act – Contains amendments to the Family and Medical Leave Act of 1993 to provide for job-protected leave to care for family members as a result of a coronavirus-related quarantine or school closure (FMLA). 

D. Emergency Unemployment Insurance Stabilization and Access Act of 2020 – Provides assistance to states for unemployment insurance benefits.

E. Emergency Paid Sick Leave Act – Requires certain employers to provide paid sick leave to employees who miss work due to the coronavirus.

F. Health Provisions – Requires private and government health plans to provide coverage for COVID-19 testing and other services at no cost to the individual.

G. Tax Credits for Paid Sick and Paid Family and Medical Leave – Provides refundable payroll tax credits for employers and self-employed individuals who provide required paid sick leave or paid family leave due to coronavirus-related illness. 

Emergency Family and Medical Leave Expansion Act

The Emergency Family and Medical Leave Expansion Act, in Division C of the bill, expands the circumstances under which an employee is entitled to take leave (for a total of 12 workweeks in a 12-month period) to include "a qualifying need related to a public health emergency." This expansion for "coronavirus leave" becomes effective no later than 15 days after the bill is enacted and it expires on December 31, 2020.

The scope of the FMLA expansion is limited in the following ways:

• "Eligible employees" are those who have been employed for at least 30 calendar days by the employer granting the leave.
• It only applies to employers with fewer than 500 employees, which appears to be based on a current employee count snapshot, not on the FMLA’s usual look-back approach to the prior calendar year (also see below for potential regulatory carve-out for very small employers).
• It partially waives liability for violations of the new coronavirus provisions for employers with fewer than 50 employees. Specifically, employers who do not employ 50 or more employees for each working day during each of 20 or more calendar workweeks in the current or preceding calendar year will not be civilly liable to employees under the FMLA enforcement provisions.^[1] They will, however, still be subject to administrative and civil actions brought by the Department of Labor (DOL).
• "Qualifying need" for leave includes the need:
  1. To comply with a recommendation or order by a public official having jurisdiction or a health care provider on the basis that: the physical presence of the employee on the job will jeopardize the health of others because of exposure to the coronavirus or exhibition of coronavirus symptoms and the employee is unable to perform both his/her job functions and comply with such recommendation/order;
  2. To care for a family member^[2] who satisfies category (1); or
  3. To care for the employee's child under the age of 18 if the child's school or place of care has been closed or if the child’s care provider is unavailable due to a public health emergency.^[3] 

The FMLA expansion gives DOL authority to issue regulations without public comment or the usual 30-day pre-effective date publication period to:

• Exclude health care providers and emergency responders from the definition of "eligible employee," and
• Exempt businesses with fewer than 50 employees from the FMLA expansion requirement if it "would jeopardize the viability of the business as a going concern."

Regarding paid coronavirus leave, the FMLA expansion provides that the first 14 days of leave under this new provision may consist of unpaid leave, but employers shall provide paid leave for any additional days taken beyond 14. Employees may elect – consistent with current rules for substitution of paid leave under the FMLA – to substitute any accrued vacation, personal leave, or medical or sick leave for the unpaid leave portion, but employers may not require employees to do so.

Paid leave pay must be at least two-thirds of the employee's regular rate of pay and be based on the number of hours the employee would normally be scheduled to work. For variable hour employees, pay is based on the average number of hours scheduled per day for the prior six months, or if the employee did not work during that period, based on the "reasonable expectation" of the employee at hiring for the average number of hours per day.

The FMLA expansion contains an unusual provision relating to collectively bargained employees. Those employers may,^[4] "consistent with its bargaining obligations and its bargaining agreement, fulfill" their obligations by making contributions to a multiemployer plan, provided that the multiemployer fund complies with the requirements of the FMLA. Presumably, the employers, to do so, will need to bargain with the union, which may delay implementation.

Notably, for businesses with fewer than 25 employees, employees who take coronavirus leave are not entitled to restoration to their position or an equivalent position (as they would be under the current FMLA framework), if:

• The employee takes coronavirus leave;
• The employee’s position ceases to exist because of changes in operating conditions of the employer that impact employment and are caused by the coronavirus during the period of leave;
• The employer makes "reasonable efforts" to restore the employee to an equivalent position; and
• If those reasonable equivalent position efforts initially fail, the employer makes reasonable efforts to contact the employee about available equivalent positions for one year from the earlier of (i) the date on which the qualifying need concludes, or (ii) 12 weeks after the employee’s coronavirus leave starts. 

Emergency Paid Sick Leave Act

The Emergency Paid Sick Leave Act, in Division E of the bill, requires virtually every private sector employer that employs fewer than 500 people to provide paid sick time in connection with the coronavirus. Unlike the FMLA expansion provisions:

• An employer with fewer than 25 employees must provide paid sick leave; and
• Even if the employee has only been employed for a few days, the employee is still entitled to the required paid sick leave. 

The specific reasons allowed for the mandatory paid sick leave include time necessary:

1. To self-isolate because the employee has been diagnosed with coronavirus;
2. To obtain a diagnosis or care if experiencing symptoms of coronavirus;
3. To comply with an official order or recommendation because of exposure or symptoms, to care for or assist a family member^[5] in connection with (1) or (2) above;
4. To care for a child^[6] whose school or place of care has been closed or the child care provider is unavailable. 

The paid sick leave, for full time employees, is 80 hours. For part time employees, the required leave is the number of hours equal to the average hours the employee works over a 2-week period.^[7] The amount of the payment is based on the employee's "required compensation," which is defined as the greater of the employee's regular rate of pay as determined under the overtime provisions of the Fair Labor Standards Act (FLSA), or the minimum wage (federal or state).^[8]   

The sick leave required by the bill cannot be carried over from one year to the next.^[9] The sick leave ceases immediately following termination of the need, as described above. Thus, if a person is no longer required to be isolated four days after enactment, their sick leave is only for four days, not two weeks. It appears that as the effective date language is currently written, a person who took unpaid sick leave prior to the date of enactment or the effective date is not covered, which may be an unintended result. 

Employers who provide sick leave must provide the bill's required leave in addition to the sick leave they already provide.^[10] In addition, the bill contains certain prohibitions:

• An employer may not require the employee to take other paid leave before the paid leave required by the bill;
• An employer may not change its sick leave on or after the date of enactment to avoid these requirements—any such change will be ignored;
• An employer may not require an employee to search for or find a replacement to cover the hours during which the employee is using paid sick time. 

Employers must post a notice regarding the requirements of the Emergency Paid Sick Leave Act at its workplace, modeled on a DOL Notice required to be available within seven days after enactment. The bill has a strong anti-retaliation provision modeled after other labors laws.

Similar to the FMLA expansion, the bill permits employer signatories to collectively bargained agreements to satisfy their obligations to provide paid sick leave by making contributions to a multiemployer plan, provided that the multiemployer fund complies with the requirements of the bill.

In addition to employees of covered private sector employers engaged in commerce with fewer than 500 employees, the bill covers all employees as defined in the FLSA, as well as state employees, federal employees, and virtually every congressional employee, other than the armed services, regardless of the size of the employer. We note that the bill even appears to cover individuals employing other individuals, such as families employing nannies, or housekeepers, or drivers, etc.

Eligible employers who fail to comply with the paid sick leave provisions in the bill face stiff penalties. The bill treats the failure to provide mandatory sick leave as a failure to provide minimum wages as required by the FLSA. The bill also incorporates the remedies found in the FLSA, which include a fine of up to $10,000 for willful violation, as well as a court-imposed injunction.^[11] In addition, Section 16 of the FLSA requires that an employer who fails to pay minimum wage must pay the amount owed, plus liquidated damages in the amount of the owed wage even if the violation is not willful. Based on the incorporation of Section 16, an employee may bring an action in either state or federal court to enforce the right to sick pay under the bill and, in addition to back wages and liquidated damages, will be entitled to attorneys' fees and court costs.

Small businesses have expressed concern about the burden of providing paid leave, and the Republicans have generally expressed concern about the cost of the leave, so the scope of both the paid sick leave and family medical leave is something to watch as the bill moves through Congress.

Health Provisions

Division F of the bill requires health plans to provide coverage for testing and other services related to the coronavirus. Specifically, it requires all group health plans and health insurance issuers that offer group or individual health insurance coverage to provide coverage for certain tests and services without any cost sharing, prior authorization, or any other medical management requirements.^[12] Based on the language of the bill, it appears that even the smallest group health plan may be required to provide such coverage, likely at a substantial cost to the employer. 

The tests and services include:

• In vitro diagnostic tests that are cleared or authorized by the FDA; and
• Items and services furnished to an individual during health care provider office visits, urgent care center visits, and emergency room visits that result in an order for or administration of an in vitro diagnostic product described in (1). 

This latter category is extremely broad. Thus, an individual visiting an emergency room who is given several lab tests, an MRI, and a chest x-ray prior to the doctor reaching the conclusion that he or she should be tested, will have incurred a significant amount of costs, over and above the cost of the test, all of which may be swept into this "no cost" requirement. While there is a qualifier that the other items and services must "relate to" the evaluation, that qualifier does not seem to be very limiting. 

Enforcement of this provision is unclear. The bill delegates enforcement (as well as implementation) to the Department of Health and Human Services, DOL, and the Department of Treasury through existing mechanisms to enforce ERISA, the Internal Revenue Code (the "Code"), and the Public Health Service Act (PHSA).^[13] Generally speaking, these existing provisions allow for government enforcement only (both state and federal in the case of the PHSA) and not for actions brought by individuals, although ERISA may provide for a private cause of action.

Division F also includes significant Medicaid relief for states and territories.

Tax Credits for Paid Sick and Paid Family and Medical Leave

Division G of the bill provides refundable payroll tax credits for employers and self-employed individuals who provide required paid sick leave or paid family leave due to coronavirus-related illness. 

With respect to required paid sick leave under the Emergency Paid Sick Leave Act, the bill provides a refundable tax credit equal to 100% of qualified paid sick leave wages paid by an employer. The tax credit is allowed against the employer portion of Social Security taxes.^[14] If the credit exceeds the employer's total Social Security tax liability for all employees for any calendar quarter, the excess credit is refundable to the employer. However, paid sick leave is not itself subject to the employer portion of Social Security taxes,^[15] so the credit is applied against the taxes on other wages. The credit may be claimed quarterly, thus accelerating the ability for employers to monetize the credit, but it may not be soon enough to provide relief to small businesses. Employers may also elect for the credit not to apply. 

Tax-exempt organizations will be able to take advantage of the tax credit because it is a credit against the employer’s Social Security taxes paid rather than a credit for income taxes.

Similarly, self-employed individuals may take a refundable credit against their income taxes for qualified sick leave equivalent amounts.

The credit is limited in several ways.

• The amount of qualified sick leave wages taken into account for each employee is capped at $511 per day. For amounts paid to employees caring for a family member or for a child whose school or place of care has been closed, the amount of qualified sick leave wages taken into account for each employee is capped at $200 per day.
• Self-employed individuals caring for a family member or for a child whose school or place of care has been closed is entitled to a credit equal to 67% (rather than 100%) of qualified sick leave equivalent amounts.
• The aggregate number of days that may be taken into account is 10.
• No double benefit is allowed—for example, if the employer is entitled to a tax credit under section 45S for paid family or medical leave, or a self-employed individual is also an employee whose employer benefits from the tax credit for qualified sick leave wages. 

A similar refundable payroll tax credit is allowed for payments made under the Emergency Family and Medical Leave Expansion Act. The credit is capped at $200 per day and $10,000 in the aggregate (or 50-day total limit).

Any wages paid pursuant to the Emergency Paid Sick Leave Act and the Emergency Family and Medical Leave Expansion Act are not subject to the employer’s share of Social Security taxes.

Treasury is given broad authority to issue guidance as necessary to carry out the purposes of the provisions including guidance:

• To prevent avoidance;
• To minimize compliance burdens;
• To waive penalties on employers for failure to deposit Social Security taxes in anticipation of allowance of the credit; and
• To recapture the benefit of the credits where the amount of the credit is subsequently adjusted. 

The tax credits become effective no later than 15 days after the bill is enacted and expire on December 31, 2020.

[1] 29 U.S.C. 2617(a).

[2] A family member is broadly defined as parent, spouse, minor son/daughter, grandchildren, grandparents, and sons/daughters or next of kin who are pregnant, senior citizens, or have access or functional needs. Section 110(a)(2)(F).

[3] "Public health emergency" is "an emergency with respect to coronavirus declared by a Federal, State, or local authority." Section 110(a)(2)(B).

[4] The definitions, which contain the 500 person limit, cover both the regular section of the bill and the multiemployer section.

[5] Family member is defined to include parents, spouses, siblings, next of kin, child, grandparent, or grandchild. Section 5110(6).

[6] Child is defined broadly to include a biological, adopted, or foster child, stepchild, child of a domestic partner, legal ward, or child of a person standing in loco parentis. Section 5110(1). No age is specified so the child could include a majority age child living in a group home or other facility or a college age child sent home because the university is closed. There appears to be no requirement that the child cannot reasonably care for themselves.

[7] There is a very complicated formula for calculating the amounts due part time employees whose workweek varies from week to week. 

[8] There does not seem to be a date by which the employer must pay the sick leave. It appears, but it is by no means clear, that an employer would have to pay the sick leave on the same basis that it would have paid wages: weekly, semi-monthly, or monthly. The bill is silent on this point, and since the FLSA does not require the payment of sick leave, it is not necessarily authoritative.

[9] The "no carryover" provision shows impressive optimism that the coronavirus will be gone by January 1, 2021.  On the other hand, the bill does not sunset until one year after enactment.

[10] That result is surprising, especially for a small employer who already provides sick pay. Query why the bill's requirement is not reduced by any paid sick leave that the employer already provides.

[11] See sections 16 and 17 of the FLSA, 29 U.S.C. §§ 216 and 217.

[12] There are separate provisions that require similar coverage for Medicare and Medicaid covered individuals.

[13] Specifically, the Bill refers to part A of title XXVII of the Public Health Service Act, part 7 of the Employee Retirement Income Security Act of 1974, and subchapter B of chapter 100 of the Internal Revenue Code of 1986, as applicable. 

[14] Code section 3111(a).

[15] See section 7005(a).