COVID-19 and the "essential business" designation: Practical guidance for businesses that fall in the gray area between "essential" and "non-essential"

In connection with issuing stay-at-home orders or other directives restricting the continued operation of certain businesses and activities due to the coronavirus disease 2019 (COVID-19) pandemic, a growing number of state and local governments have followed the President’s Coronavirus Guidelines for America and guidance issued by the Department of Homeland Security’s Cybersecurity and Infrastructure Security Agency (“CISA Guidance”) that identify 16 industry sectors considered “essential critical workforce infrastructure” and declaring the personnel that work in those industry sectors have a special responsibility to maintain their normal work schedules.

Although instructive, CISA Guidance is not legally binding on states and is meant only to provide general guidance to state and local authorities who are ultimately tasked with implementing and executing an adequate response within their respective jurisdictions. As a result, businesses are left to parse through and digest the numerous sources of information and the ever-changing legal framework surrounding the state and federal response to the COVID-19 pandemic in determining whether they qualify as an “essential business” or provider of “essential services” or “essential products” such that they may continue operations.

For businesses attempting to understand and comply with these guidelines, this alert sets out certain frequently asked questions as well as various practical guidance for consideration.

1.  Do I need to obtain preapproval or get formally classified as a “essential business” by the federal government or a federal agency?

Currently, no. The federal government has not established a formal designation process that would preempt any state or local processes.  As a result, a number of individual states have adopted their own procedures that allow businesses to request classification as an “essential business” by the state.  Failure to comply with these state directives could result in enforcement actions, penalties, or even jail time in some jurisdictions.

2.  If my business does not meet my state’s definition of an “essential business,” is there a formal process for classifying my business so that it can become designated as “essential”?

It depends on the nature of your business and your state’s directives.  As of the issuance of this alert, most states have identified certain businesses as “essential” or “critical” that may continue operating during the COVID-19 pandemic response.  For such businesses, preapproval to continue operating from the state is not required.  However, for those businesses that do not fall within the express definition of an “essential business,” certain state and local jurisdictions have implemented processes to request designation as “essential” or “critical.”

Further complicating the analysis of whether a business is deemed “essential” are businesses that provide both essential and non-essential products and services (for example, big box retail stores that sell food and cleaning products deemed “essential” in addition to other non-essential items such as toys, holiday items and household décor). Some businesses have been allowed to continue selling non-essential products whereas certain hobby stores and other boutique retail stores have been directed to suspend operations; states and localities are then left to sort out which businesses stay open and which must close. The slippery slope becomes more complex in determining whether a business may continue operating as the analysis moves beyond the core “essential businesses” to the downstream suppliers of those essential businesses that may be crucial to supporting the continued operation of an “essential business”; and then to the suppliers to those suppliers, which also must continue operating.

We have provided a summary of these processes below for becoming designated as an essential business, but please note that this is not a comprehensive list and these processes are constantly being modified.

New York

• On March 20, 2020, Governor Andrew Cuomo signed the Policies Assure Uniform Safety for Everyone (PAUSE) Executive Order which details a 10-point policy and directs all non-essential businesses statewide to close in-office personnel functions.
• New York businesses may voluntarily request designation as “essential” by completing an online application form which is available here.
• The New York State Department of Economic Development (d/b/a Empire State Development Corporation) reviews and grants requests submitted by businesses seeking essential business designation.
• A business seeking designation as essential must apply for each location individually.Further, for businesses or entities that provide both essential and non-essential services, New York has directed that only those business operations necessary to support essential services, supplies, or support are exempt from the in-person restrictions.
• Importantly, as part of the request process, a business must certify that it has reviewed the guidance issued by the Empire State Development Corporation and determined that it is not an essential business or function. A business must also certify that it is in the best interests of the state for its work force to continue at full capacity in order to properly respond to the COVID-19 pandemic.
• Further, businesses ordered to close on March 15, 2020 under restrictions on gatherings of 50 or more participants, such as bars, restaurants, movie theatres, and sporting events, must remain closed and are not eligible for designation as an essential business.

Massachusetts

• On March 23, 2020, Massachusetts issued an Emergency Order requiring all businesses and organizations that do not provide COVID-19 “essential” services to close their physical workplaces and facilities to workers, customers, and the public as of March 24, 2020 until April 7, 2020.
• Massachusetts businesses may voluntarily request designation as “essential” by completing an online application form which is available here.
• The website emphasizes that requests should only be made if a business is NOT covered by the Order and related guidance.
• The Massachusetts form requires businesses to fill out the name of their service, to designate a contact person and their information, to provide the address of their service location and the number of employees at that location, classify the industry of service, and describe the service provided and the reasons for seeking designation as essential. An authorized applicant must verify under penalty and perjury that the information provided is true and accurate. Questions regarding the application process can be directed to covid19.biz@mass.gov.

Maine

• By Executive Order dated March 24, 2020, Maine explicitly incorporated CISA Guidance with respect to categories of essential businesses and operations, and specified additional essential services and sectors.
• Maine businesses that do not fall within the categories outlined in Governor Janet Mills’ Executive Order can submit an online application form here.
• The instructions on the form clarify that requests to be designated an essential function should only be made by businesses that are NOT covered by the guidance.
• As with other states providing a designation application, Maine asks businesses to provide certain information, including the number of employees, industry designation, name of service, description of the service and reasons for seeking designation as essential, contact person, and address of the service location.

Wisconsin

• On March 24, 2020, Wisconsin Governor Tony Evers issued the “Safer at Home Order” which requires the closure of all non-essential Wisconsin businesses and mirrors other state efforts around the country.
• The state provides that businesses in exceptional circumstances who perform essential functions that are not included in the pre-approved categories may request and obtain approval of designation as an essential business by submitting an online application form to the Wisconsin Economic Development Corporation, available here.

North Carolina

• On March 27, 2020, North Carolina Governor Roy Cooper issued Executive Order 121.
• Businesses that are not listed as essential can submit a request to be included as essential by directing a request to the North Carolina Department of Revenue (NCDOR), available here. As stated on NCDOR’s website, a business may continue to operate until it has received a decision on its request.
• Businesses may also submit a request by email at Essential.Exemption@ncdor.gov if they are unable to use the web form, but in so doing, must include in the email a contact person’s name, email address, and phone number, the website of the business, a description of the business, justification of why the business should be designated as essential, the address of the business, sales and use tax registration number (if applicable), the legal name of the business, and doing business as (if applicable).

Oklahoma

• On March 24, 2020, Oklahoma Governor Kevin Stitt issued Executive Order 2020-07 which requires all non-essential businesses located in a county experiencing community spread of COVID-19 to close as of March 25, 2020 at 11:59pm.
• A business that is not already classified as essential may request that their “industry be considered for classification as essential” through the state website, available here. The applicant is instructed to select whether they are requesting “clarification on the status of [their] industry” or “consideration of [their] industry to be classified as essential.” The applicant must also provide their company name, type of business, contact information, and may choose whether to provide a brief message in support of their application.

Kansas

• On March 28, 2020, Kansas Governor Laura Kelly issued Executive Order No. 20-15 establishing the Kansas Essential Function Framework (KEFF) for COVID-19 response efforts.
• No prior approval is required for individuals or entities to perform essential functions that are specifically listed in the KEFF. Individuals or entities who are uncertain whether they perform functions exempted from the prohibitions of this order may fill out the online request form, which can be accessed here.

Minnesota

• On March 25, 2020, Minnesota Governor Tim Walz issued Emergency Executive Order 20-20 directing Minnesotans to stay at home.
• A business, or an individual worker, seeking clarification as to whether a worker fits within one of the critical sector categories in the guidance and resources provided by the Minnesota Department of Employment and Economic Development, available here, may submit a Request Clarification of Critical Sector Worker Categories Under Executive Order 20-20, which can be accessed here.

New Hampshire

• On March 26, 2020, New Hampshire passed Emergency Order #17 which follows CISA guidance in determining what is considered an essential business with some expansions in energy, manufacturing, and human services sectors.
• The Emergency Order allows additional businesses to be added to the list with the approval of the Commissioner of Business and Economic Affairs and the Governor. Requests to be designated as essential are to be directed to essential@nheconomy.com and must include basic contact information and a brief justification as to why they should qualify as essential.

New Jersey

• On March 21, 2020, New Jersey Governor Phil Murphy required the closure of the brick-and-mortar premises of all non-essential businesses under Executive Order 107.
• As explained in the state’s FAQ Guidance, New Jersey businesses that consider their operations to be unique and should be included as “essential” may submit their requests to the State Director of Emergency Management, who is the Superintendent of State Police. The Director has the discretion to make additions, amendments, clarifications, exceptions, and exclusions to the list.There is no online application process.

Washington, DC

• On March 24, 2020, Mayor Muriel Bowser ordered the closure of non-essential businesses under Order 2020-053.
• The Order provides that businesses or nonprofits who are not listed as essential may submit a waiver request through the District of Columbia Homeland Security and Emergency Management Agency, which may be granted by the mayor.There is no online application process.

  Arizona

• On March 30, 2020, Arizona Governor Doug Ducey ordered non-essential business closures under Executive Order 2020-12. The Governor opted to issue its own guidance on essential businesses, rather than adopt the CISA Guidance.
• The Order allows the governor, at his discretion and in conjunction with the Director of Health Services or the Division of Emergency Management, to add to the list of essential services or operations. A list of businesses considered essential is maintained on the Governor’s website and can be found HERE.

3.  If my state does not have an essential business designation process, and I choose to self-designate my business as “essential,” what are the potential consequences if it is later deemed a “non-essential” business?

This depends on the jurisdiction.  Failure to comply with the applicable state directives could potentially result in forced business closures, enforcement actions, penalties, or even jail time.  With respect to the enforcement spectrum, state regimes tend to vary widely, with some states explicitly setting forth in their executive orders that violations may be punishable by fines, penalties, or jail time (e.g., New York, California, New Jersey, and Oregon), whereas other states merely authorize certain state agencies to take enforcement action (e.g., Connecticut and Louisiana), and some states are completely silent as to enforcement action.

4.  What is some practical guidance to consider for mitigating the risk of enforcement action?

Although the regulatory landscape in light of COVID-19 presents novel challenges, there are a few key steps that businesses that are either uncertain as to whether they qualify as “essential” or that qualify as non-essential but desire a change in designation should consider evaluating as they navigate conducting operations in states or localities with shelter-in-place orders.

• Businesses are encouraged to internally define their business operations and why they consider themselves essential, and to consider CISA Guidance as part of such internal process, as well as applicable state and local orders.
• A business operating in a state or locality with a shelter-in-place order is encouraged to explore whether the State has a voluntary process for requesting designation as an essential business, and if appropriate, whether to take steps to comply with such state and/or local procedures.
• Businesses are urged to document the rationale and processes undertaken to comply with federal, state, and local regulations and guidance, in order to demonstrate the reasonableness and defensibility of the businesses’ position regarding its essential operations, in case of an inquiry down the road by regulators or other interested parties.
• Consider whether to prepare documentation in advance (i.e., “Allow to Pass” or similar authorization letters) that employees can keep on their person in the event of questions from regulators or local authorities who are enforcing curfews and other state or local stay at home directives. Among other things, these letters may identify the applicable orders and directives, the critical infrastructure sector that the business is intended to serve, and briefly state the rationale for the exemption (e.g., provider of essential products or services to another essential business).

If you have any questions regarding these new requirements and their implications, please contact your DLA Piper relationship attorney.

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This information does not, and is not intended to, constitute legal advice.All information, content, and materials are for general informational purposes only.No reader should act, or refrain from acting, with respect to any particular legal matter on the basis of this information without first seeking legal advice from counsel in the relevant jurisdiction.