Challenges Raised by “Essential Business” Designation

Last updated March 25, 2020

Across the country, states are beginning to require all non-essential businesses to close in an effort to curb the continued spread of COVID-19 (coronavirus). As more states issue such orders, many businesses are left wondering whether they are allowed to keep their doors open.

Essential Business Defined

There is no universal definition of what constitutes an essential business; state and local authorities have discretion to define what they consider to be essential businesses. To aid cities and states in making such a determination, the Cybersecurity & Infrastructure Security Agency under the Department of Homeland Security issued a recommend list of essential critical infrastructure workers as guidance. The list includes suggested essential sectors such as:

  • Healthcare/ Public Health
  • Law Enforcement, Public Safety and First Responders
  • Food and Agriculture
  • Energy (including electricity industry, petroleum workers, and natural gas and propane workers)
  • Public Workers (e.g. plumbers, electricians, maintenance of public works facilities such as bridges and dams)
  • Communication and Information Technology
  • Critical Manufacturing (e.g. manufacturing medical materials)
  • Hazardous Materials
  • Financial Services

Companies should refer to the relevant state or city’s defined list to determine if they are an essential business.

It is important for companies to establish whether they are essential or not. Nonessential businesses that remain open in violation of an order may face legal consequences. Some cities and states have begun to issue warnings, suspensions or citations to non-essential businesses that remain open in violation of an order. Las Vegas recently issued an ordinance allowing the city’s police department to conduct compliance checks of non-essential businesses that remain open in violation of the Nevada Governor’s emergency directive closing all non-essential businesses.

Potential Issues

For many businesses scrambling to react to these orders, the “essential business” designation raises more questions than answers. Businesses that, while not essential themselves, nonetheless provide necessary equipment or other support to essential businesses are left wondering how to proceed. States such as New York have provided a process by which businesses may request a designation of essential in order to account for these businesses.

Additionally, nonessential businesses that cannot continue to operate with employees working from home have received little to no guidance on what support, if any, they will get as a result of being forced to shut down. These businesses face questions on how they will be able to pay their employees or pay rent. While some municipalities have issued moratoriums on evictions and foreclosures, many tenants are at the mercy of their landlord reducing or delaying rent payments. However, property owners themselves also face questions about how they will make mortgage payments if their tenants cannot afford rent in light of these ordered closures.

Coronavirus Stimulus Bill

On March 25, the U.S. Congress agreed to a $2 trillion dollar stimulus package to provide support to struggling individuals and businesses affected by COVID-19.  This package includes nearly $1 trillion dollars in loans for small businesses and distressed companies.  This stimulus package will provide much needed support for struggling companies affected by COVID-19 and especially for non-essential businesses forced to shut down.  CSG will continue to monitor the details of this package as more information is released and provide updates.

If you have any questions about the essential business designation or about loans for small businesses and distressed companies, please reach out to your CSG attorney.

For additional information pertaining to the coronavirus outbreak, please visit CSG’s COVID-19 Resource Center.

This publication contains general information on recent legal developments and is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. Attorney Advertising. Prior results do not guarantee a similar outcome.

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