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COVID-19 Mandatory Business Closures: Is Your Business Essential?

March 23, 2020
Business Law Advisory

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As the COVID-19 crisis continues, states, including Michigan, and counties across the United States are entering mandatory shutdown orders for all non-essential businesses. These measures are being taken to slow the spread of the virus, yet they produce adverse effects related to commercial activity that must be carefully considered. Specifically, as a result of these restrictions, companies are scrambling to answer the question of whether or not their business is deemed an essential business, which is therefore permitted to continue its essential operations during mandated shutdowns.

Importantly, this question needs to be answered on a state-by-state (or in some cases county-by-county) basis. The U.S. Department of Homeland Security (DHS) has issued Guidance on the Essential Critical Infrastructure Workforce; however, such guidance is non-binding and advisory in nature. Nonetheless, many state governments have used this guidance in determining the parameters of their own restrictions. Under the DHS guidance, the following industry sectors have been listed as critical infrastructure (i.e., essential under many state orders):

  • Health Care/Public Health
  • Law Enforcement, Public Safety, First Responders
  • Food and Agriculture
  • Energy
  • Water and Wastewater
  • Transportation and Logistics
  • Public Works
  • Communications and Information Technology
  • Community-Based Government Operations and Essential Functions
  • Critical Manufacturing
  • Hazardous Materials
  • Financial Services
  • Chemical
  • Defense Industrial Base

To date, Michigan and 11 other states have implemented restrictions on commercial activity through mandatory shutdowns: California, Connecticut, Illinois, Louisiana, Massachusetts, New Jersey, New York, Nevada, Pennsylvania, Ohio and Delaware. To the extent a business either resides in or has operations in these states, it is critical to analyze the applicable state orders to confirm whether your particular business is deemed essential and thus can remain open.

In Michigan, the stay at home order was announced by Governor Whitmer on the morning of March 23, 2020. The Michigan order goes into effect at 12:01 AM on March 24, 2020 and will continue in effect until at least April 13, 2020. The order specifies that no business may “conduct operations that require workers to leave their homes or places of residence” in Michigan unless those workers are (a) necessary to sustain or protect life (which include the critical infrastructure workers identified by the DHS guidance), or (b) necessary to conduct minimum basic operations. The latter category includes workers “whose in-person presence is strictly necessary” to allow the business to maintain inventory or equipment, ensure security, process payroll and employee benefits or similar workers needed to “facilitate the ability of other workers to work remotely.”

In addition, the Michigan order allows suppliers, distributors and service providers of a critical infrastructure business to also continue operations, to the extent necessary to support the primary business, provided that the primary business expressly designates those business partners as a business whose continued operation is necessary to support its work. In turn, once those business partners are expressly designated, they can similarly extend that designation to their own suppliers, distributors and service providers to the extent necessary. In other words, the entire supply chain and service provider network of a critical infrastructure business could be permitted to continue in-person operations, at least to the extent necessary to support or facilitate that business. 

It is important to understand that where a business provides both essential and non-essential goods and services, only those operations necessary to support the essential goods or services are exempt from the mandated shutdowns. Put differently, simply because a portion of one’s business is deemed to be essential is not a free pass to continue operations as usual.

If you have questions about whether your business is essential for purposes of these orders, Varnum stands ready to assist. Please feel free to contact us with any questions or concerns.

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