A new landmark Supreme Court decision involving Facebook’s practice of sending unsolicited text message security notifications to cell phone numbers affiliated with potentially compromised accounts provides much-needed clarity on whether the act of sending unwanted telemarketing calls and text messages violates federal anti-robocall law under the Telephone Consumer Protection Act of 1991 (“TCPA”)
The last decade has experienced a surge in lawsuits under the Telephone Consumer Protection Act of 1991, (“TCPA”), which is codified in 47 U.S.C. § 227. The TCPA is a federal law that restricts the business practice of making and sending unsolicited telemarketing calls and marketing text messages. The TCPA prohibits the use of an “automatic telephone dialing system” (“ATDS”) to make or send telemarketing/advertising calls or text messages, without a consumer’s prior, express written consent. As defined in the TCPA, an ATDS is any equipment that has the capacity (1) “to store or produce telephone numbers to be called, using a random or sequential number generator” and (2) “to dial such numbers.” A random or sequential number generator has been generally thought to be something that chooses numbers randomly, and then dials the numbers sequentially at random without any human intervention. Stated alternatively, equipment does not constitute an ATDS if it is not capable of originating a call or sending a text without a person actively and affirmatively manually dialing each call or text. As discussed below, there has been uncertainty even over the definition of an ATDS. According to some courts, an ATDS must have the present capacity to autodial and must store or dial numbers using a random or sequential number generator; while other courts broadly interpret the meaning of an ATDS to include equipment that has the future capacity to dial numbers based on a random or sequential number generator.
Despite the foregoing definition, the determination of what is an ATDS has caused much more ambiguity than clarity, resulting in a barrage of inconsistent and irreconcilable federal court decisions throughout the country. For example, as a common fact pattern alleged in TCPA lawsuits occurs where a consumer visits a website, adds a product to the “online shopping cart”, and provides a cell phone number (among other contact information) to complete the purchase transaction online, without having actually “opted-in” or otherwise expressly agreeing to receive further text marketing messages. As part of a marketing campaign, the business then later sends promotional or marketing text messages to the consumer and other numerous similarly situated consumers based upon the information supplied by the consumer (e.g., geographical region, preferences, etc.). The outcome of such cases most commonly hinge on whether (1) the consumer provided prior, express written consent to receive the text messages, and (2) whether an ATDS was used to send the text message (e.g., whether the equipment stored or produced numbers through the use of a random or sequential number generator). Any text message that was sent using an ATDS without the consumer’s prior, express written consent constitutes a violation of the TCPA, and would subject the defendant to statutory damages of at least $500 per each unauthorized text message (as well as the potential for treble damages for willful violations).
Within the context of this general fact pattern, TCPA liability would ultimately depend on whether the federal court adopts a broad or narrow interpretation of what is an ATDS. Under a narrow interpretation, adopted by the Third, Seventh, and Eleventh Circuits, no liability would attach because the equipment would not qualify as an ATDS since the text messages were not stored or produced using a random or sequential number generator; rather, the text messages were sent to a list of targeted, individualized numbers. In contrast, under a broad interpretation, adopted by the Second, Sixth, and Ninth Circuits — even though the equipment in question did not utilize a random or sequential number generator to store or produce the text messages — the equipment used to send the text messages would qualify as an ATDS because it has the future capacity to store or produce random or sequentially-generated numbers (even if the capacity was contingent upon the installation of hardware or software in the future) and because it can dial a stored number automatically.
Fortunately, the Supreme Court brought clarity to this issue in its April 1, 2021 decision in the case of Facebook Inc. v. Duguid et al., No. 19-511 (U.S. April 1, 2021). There, Noah Duguid (“Duguid”) received a series of text messages from Facebook that alerted him of an attempt by someone to login to what Facebook believed was his Facebook account from an unknown device/browser, notwithstanding that Duguid neither had a Facebook account nor provided Facebook with his telephone number. Facebook’s notification system did not store or produce numbers using a random or sequential number generator. Rather, Facebook sent the targeted, individualized text messages to Duguid because his number was linked to a potentially compromised account. Nonetheless, Duguid advanced a broad definition of what an ATDS is and contended that Facebook’s notification system constituted an ATDS because it had the future, abstract capacity to generate random or sequential phone numbers (even though his telephone number was not stored or produced by way of a random or sequential number generator). In a well-reasoned opinion that focused on the TCPA’s plain language and legislative intent, the Supreme Court ruled in favor of Facebook. As the Supreme Court held, making calls, or sending text messages to telephone numbers without the use of a random or sequential number generator does not trigger liability under the TCPA. Rather, to qualify as an ATDS, the call or text message at issue must have been sent using a random or sequential number generator.
The impact of this decision cannot be overstated. It will, for example, (1) likely result in the dismissal of many pending TCPA lawsuits, (2) limit the opportunity for plaintiffs to forum-shop by filing a TCPA lawsuit in jurisdictions with a broad interpretation of the TCPA, and (3) provide businesses with clarity to ensure compliance with the TCPA and allow them to better determine whether they are in fact utilizing an ATDS in violation of the TCPA.
While the decision is a victory for Facebook, it will also favor consumers — on the heels of the decision, businesses will be able to alert users/consumers/customers of potentially unauthorized or fraudulent account activity, without fear of TCPA liability. Businesses should also be relieved to know that they can send advertising text messages and make advertising calls, as long as the telephone numbers are not stored or produced through the use of a random or sequential number generator. However, even after this ruling, there is still some uncertainty regarding what it means to be an ATDS — for example, as raised in a footnote in the decision , “an autodialer might use a random number generator to determine the order in which to pick phone numbers from a preproduced list. It would then store those numbers to be dialed at a later time.” What happens in that situation? Perhaps that will be the subject of a future Supreme Court decision. Until then, it is reassuring that we are at least one step closer to clarity of what it means to be an ATDS.
About Jeffrey Gersh
Jeffrey Gersh is a Partner of the Firm in the Business Litigation Practice. Before joining Stubbs Alderton & Markiles, LLP, Jeffrey was Managing Partner of The Gersh Law Firm for over 10 years and a partner for 25 years with a prominent litigation law firm. Jeffrey has been named a Thomson Reuters “Super Lawyer” for more than 9 years by his peers; an honor only achieved by less than 2.5% of attorneys in California.
Jeffrey successfully litigates, arbitrates, or mediates for both plaintiffs and defendants complex business and commercial matters, whether for individuals, public or private corporations, partnerships, limited liability companies and/or its members, shareholders and partners. Jeffrey Gersh successfully handles disputes regarding contract matters, trade secrets, intellectual property (trademarks, copyrights and trade dress) negligence and fraud, employment, real estate, license agreements, the apparel and garment industry, and general business matters.
About Neil Elan
Neil Elan is an Associate in the Business Litigation Practice group. Neil Elan’s civil litigation practice focuses on all areas of business and commercial litigation, with a particular emphasis on business dissolution, buy-sell agreements, prosecution and defense of breach of contract and promissory note actions, business torts, unfair business practices, fraud, and Anti-SLAPP. In his civil litigation practice, Neil represents real estate developers, limited liability companies, closely-held corporations, financial institutions, entertainment producers, commercial landlords and business owners.
For more information about our Business Litigation Practice contact Jeffrey Gersh at
Updated as of July 22, 2020.
On April 14, 2020 the Los Angeles County Board of Supervisors (“Board”) amended its March 19, 2020 order that implemented an eviction moratorium with respect to both residential and commercial tenants and provided that if a tenant was unable to pay their rent current they could defer rental payments that were due during the period March 4, 2020 through May 31, 2020 for months. On May 12, 2020, the Board issued an order that, among other things, extended the moratorium period through June 30, 2020.
After previously extending the order through July 31, 2020, on July 21, 2020, the Board has once again extended the order through September 30, 2020. Additional extensions will continue to be reviewed and approved on a month-by-month basis by the Board going forward.
Coming on the heels of the Board’s prior extension on June 23, 2020, both the Board and the Los Angeles City Council approved a combined $133 million in federal CARES Act money to be spent on rental assistance to tenants during the COVID-19 crisis. The City’s program allocates $103 million (and up to $2,000 per household) to residential tenants who earn below 80% of the area’s median income. However, over 100,000 applicants signed up the day that the enrollment period opened on July 13, 2020, forcing the City to randomly select 50,000 families that will receive subsidies. The County’s program extends $30 million to residential tenants hit hard by COVID-19, but the program is not expected to launch until mid-August, 2020. The County’s program will exclude any units located within the City and will require applicants’ landlords approval. We will continue to monitor these relief programs and provide updates accordingly.
The Board’s April 14 amendment expanded coverage of the March 19 order to all cities in Los Angeles County that have not enacted their own eviction moratorium/rent deferment order and mobile home parks who rent space to mobile homeowners, in addition to the unincorporated areas of Los Angeles County that the March 19 order initially covered. Thus, cities within Los Angeles County who have enacted their own order, like the City of Los Angeles, do not fall under the Los Angeles County order.
The May 12 amendment, effective June 1, excludes commercial tenants that are multi-national, publicly traded or have more than 100 employees. Further, commercial tenants with between 10 and 100 employees will only have 6 months following the end of the moratorium period to repay any deferred rental payments, while residential tenants and commercial tenants with 9 or fewer employees will still have 12 months.
Los Angeles County’s order requires defaulting tenants to demonstrate an inability to pay rent and/or related charges due to “financial impacts” related to COVID-19 in order to not be evicted for nonpayment of rent. However, the May 12 amendments provide that both commercial tenants with 9 or fewer employees and residential tenants may “self-certify” their inability to pay as a result of “financial impacts,” and requires landlords to accept such self-certification. For these qualifying tenants, a self-certification notice issued by the County can be used to comply with this requirement and notify landlords.
For the commercial tenants covered by the County’s order but that do not qualify for self-certification, additional guidance was issued on June 3, 2020 regarding the type of documentation such tenants will be expected to provide to adequately demonstrate their inability to pay rent as a result of financial impacts due to COVID-19. This documentation includes: bank statements before and after the COVID-19 pandemic, gross sales receipts before and after the COVID-19 pandemic, evidence of increased expenses before and after the COVID-19 pandemic, and applicable federal, state, and local health officer orders which demonstrate restrictions on business activity applicable to the tenant. These are only guidelines as to what should be provided, and it will ultimately be up to a court to determine if adequate information was provided to demonstrate an inability to pay rent. Further, the fact that a business is “essential” under a federal, state, or local public health order or continues to operate during the moratorium period shall not, in and of itself, prevent a commercial tenant from establishing a financial impact related to COVID-19. Regardless of whether this demonstration must be made or if self-certification applies, both residential and commercial tenants must still provide notice to their landlords of their inability to pay within 7 days of the due date.
“Financial impacts” include “substantial loss of household income due to business closure, loss of compensable hours of work or wages, layoffs, or extraordinary out-of-pocket medical expenses” that are “related to COVID-19” (i.e. if it is a result of any of the following: (1) a suspected or confirmed case of COVID-19, or caring for a household or family member who has a suspected or confirmed case of COVID-19; (2) layoff, loss of hours, or other income reduction resulting from business closure or other economic or employer impacts of COVID-19; (3) compliance with a recommendation from the County’s Health Officer to stay home, self-quarantine, or avoid congregating with others during the state of emergency; (4) extraordinary out-of-pocket medical expenses related to diagnosis and testing for and/or treatment of COVID-19; or (5) child care needs arising from school closures related to COVID-19). Los Angeles County’s order as amended also prohibits both residential and commercial evictions based on the presence of unauthorized occupants, pets, or nuisance necessitated by or related to COVID-19.
It is worth reiterating that if a city within Los Angeles County has enacted its own order, then that order would apply over Los Angeles County’s. It is thus crucial for landlords and tenants alike to familiarize themselves with any local city order applicable to their location, as the vast majority of cities both inside and outside of Los Angeles County, as well as other counties themselves, do not allow for similar “self-certification,” and instead require a defaulting tenant to “demonstrate” or “show” an inability to pay rent due to COVID-19. When such demonstration or showing is required, tenants should be prepared to provide some form of supporting documentation, along the lines of the type of documentation set forth above. Certainly, if the landlord insists on documentation of inability to pay rent, it would behoove both landlords and tenants to discuss the type of supporting documentation to be provided.
In sum, municipal eviction moratorium/rent deferment orders may differ from Los Angeles County’s order by: (a) excluding commercial tenants, or certain commercial tenants, from protection; (b) providing alternative timeframes for notifying landlords of an inability to pay or for making deferred rent payments once the applicable order or the COVID-19 emergency period expires; and (c) requiring a demonstration or showing of an inability to pay because of COVID-19.
For instance, while the City of Los Angeles’ eviction moratorium/rent deferment order (currently effective through June 30) also limits the type of commercial tenants that are protected and, like the County order, does not allow landlords to apply late fees or interest to properly deferred rental payments, it: (a) does not extend protections to commercial tenants that are publicly traded companies, transnational companies, or companies with over 500 employees; (b) only grants defaulting commercial tenants a 3 month time period after the emergency period to make up deferred payments (defaulting residential tenants have a 12 month time period); and (c) does not explicitly require defaulting tenants to “show” an inability to pay rent for reasons related to COVID-19; however, while residential tenants may use a simple notice form to landlords that suggests they may self-certify their inability to pay, whether and to what degree commercial tenants will need to substantiate an inability to pay because of COVID-19 under this order remains unclear.
In light of the foregoing, all landlords and tenants should immediately:
Stubbs Alderton & Markiles, LLP is pleased to announce that eight lawyers have been named to the 2020 Southern California Super Lawyers. Super Lawyers is a rating service of outstanding lawyers from more than 70 practice areas who have attained a high-degree of peer recognition and professional achievement. The patented selection process includes independent research, peer nominations and peer evaluations.
Super Lawyers Magazine features the list and profiles of selected attorneys and is distributed to attorneys in the state or region and the ABA-accredited law school libraries. Super Lawyers is also published as a special section in leading city and regional magazines across the country. Lawyers are selected to a Super Lawyers list in all 50 states and Washington, D.C.
Stubbs Alderton & Markiles, LLP would like to congratulate the following attorneys named to the 2020 Super Lawyers list –
Greg Akselrud is a founder and Partner of the firm and a member of the firm’s executive committee. He Chairs the firm’s Internet, Digital Media and Entertainment Practice group. Greg advises clients across a wide range of industries, including companies in the entertainment, digital media, Internet, technology, software, mobile, venture capital and consumer electronics industries.
Scott Alderton is a founding partner of the Firm, Managing Partner, and a member of the Firm’s Executive Committee. Scott is co-chair of the Firm’s Venture Capital and Emerging Growth Practice Group and chair’s the Firm’s Interactive Entertainment and Video Games Group. Scott advises both public and private clients across a number of industries, including technology, manufacturing and distribution of goods in commerce, finance, the Internet, interactive video games, and new media industries.
Heather A. Antoine is a Partner and Chair of the Firm’s Trademark & Brand Protection practice and Co-Chair of the Privacy & Data Security practice group. Heather’s practice focuses on protecting a company’s intellectual property; a fundamental feature of every business. Heather’s practice includes trademark clearance and selection, domestic and foreign trademark prosecution, enforcement, proceedings before the Trademark Trial and Appeal Board (TTAB), licensing, trade secret protection, copyright, rights of publicity, domain names disputes, and general client counseling.
Kevin D. DeBré is the chair of the Firm’s Intellectual Property & Technology Transactions Practice Group. Kevin advises entrepreneurs and companies that use intellectual property to build their businesses. Kevin has particular expertise in structuring and negotiating technology commercialization and patent licenses, strategic alliances, research and development collaborations, trademark licensing and brand merchandising agreements and manufacturing, distribution and marketing arrangements. He also counsels clients on compliance with data security and privacy laws and regulations.
Jeffrey Gersh is a Partner of the Firm in the Business Litigation Practice. He has litigated, arbitrated, or mediated complex business and commercial matters, for both plaintiffs and defendants, whether individuals, public or private corporations, partnerships, limited liability companies and/or its members, shareholders and partners, involving various types of disputes, including contract matters, trade secrets, intellectual property (trademarks, copyrights and trade dress) negligence and fraud, employment, real estate, license agreements, the apparel and garment industry, and general business matters.
Crystal Jonelis is Senior Counsel in the Firm’s Business Litigation Practice. Crystal is well-versed in all aspects of business and commercial litigation, having overseen numerous cases from inception to winning verdicts (and even the subsequent winning appeals). However, her primary focus is in the area of entertainment and media litigation, with particular emphasis in the anti-SLAPP arena.
Daniel Rozansky is a Partner of the Firm in the Business Litigation Practice. Dan concentrates his practice on entertainment, privacy, First Amendment and complex business and real estate disputes. Dan’s areas of focus are entertainment finance, anti-SLAPP motions, unfair competition, trade secrets, intellectual property, surreptitious tape recording, reality television, profit participation, rights of privacy and publicity, real estate, partnership disputes and First Amendment issues. He represents clients both at the trial and appellate levels in state and federal court on a wide array of issues.
Michael Sherman is an accomplished trial lawyer in high-stakes, “bet-the-company” litigation, and has represented both large and early-stage companies as well as entrepreneurs in all facets of business and complex commercial litigation. He has evenly split his litigation practice on both the plaintiff and defense side of cases, has first-chaired numerous trials in complex matters in industries as varied as energy, securities, healthcare, environmental, consumer products, technology, project development/finance, advertising, real estate and apparel, and is highly skilled in class actions and unfair competition law.
The official Super Lawyers 2020 publication can be read in its entirety here.
For more information about Stubbs Alderton & Markiles, contact Heidi Hubbeling at or (310) 746-9803.
This article was originally published on June 4, 2020 and was most recently updated on June 17, 2020.
On June 5, 2020, President Trump signed the Paycheck Protection Program Flexibility Act (the “Act”) into effect, giving more time and flexibility to employers who receive or have received forgivable loans under the Small Business Administration’s (“SBA”) Paycheck Protection Program (“PPP”). On June 11, 12, and 17, 2020, the Department of Treasury , in consultation with the SBA, issued interim rules providing further guidance on how the changes from the Act will be implemented. Also on June 17, 2020, the SBA posted a revised, borrower-friendly PPP loan forgiveness application implementing the Act, as well as a simplified forgiveness application that applies to certain borrowers.
The revised PPP loan forgiveness application and related instructions implement the Act’s changes to the PPP, discussed in more detail below. Additionally, a newly introduced and simplified or “EZ” loan forgiveness application applies to borrowers that:
The EZ application requires fewer calculations and less documentation for eligible borrowers. Instructions to the new EZ application form provide additional details on its use, which define key terms, walk borrowers through the forgiveness calculations, outline eligible and non-eligible costs, and list documents that must be submitted, and retained but not submitted, in connection with the application.
Both the revised loan forgiveness application and the new EZ application give borrowers the option of using the original 8-week covered period for calculating forgiveness (if their loan was made before June 5, 2020) or a 24-week covered period.
The Act extends the period that eligible applicants may receive and spend PPP loans. The CARES Act initially defined this period as February 15, 2020 to June 30, 2020. Under the Act, PPP loans will now remain available and may be used on specified categories of borrowers’ expenses through at least December 31, 2020. (For a detailed discussion on the permitted uses of PPP loans, see our prior post.)
Perhaps more importantly, the Act also extends the time PPP recipients have to spend their funds and still be entitled to receive loan forgiveness from eight weeks after disbursement, to the earlier of 24 weeks or December 31, 2020. This change shall be effective as if included in the CARES Act, which means that it is retroactive to March 27, 2020. However, borrowers that have received their loans prior to the Act’s enactment may still elect to use their funds over the original 8-week period and the related obligation to maintain payroll levels only through June 30, 2020. Borrowers using this new loan forgiveness covered period will be obligated to maintain payroll levels for an extra 16 weeks.
Relatedly, the Act creates a new forgiveness exemption based on employee availability during the period from February 15, 2020 through December 31, 2020. Under this provision, loan forgiveness will be determined without regard to a proportional reduction in the number of full-time equivalent employees if a borrower documents in good faith both the inability to rehire individuals who were employees on February 15, 2020 and the inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020. This exemption also extends to borrowers whom in good faith are able to document the inability to return to the same level of business activity at which the borrower operated on or before February 15, 2020, due to compliance with regulatory standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID-19 and promulgated between March 1, 2020 and December 31, 2020 (the Act specifically identifies guidance issued by Department of Health and Human Services, the Centers for Disease Control and Prevention, and the Occupational Safety and Health Administration).
Another significant provision from the Act lowers the portion of PPP funds borrowers must spend on payroll costs to qualify for full loan forgiveness from 75% to 60%. This means that 40% of the loan may now be spent on covered non-payroll costs (i.e., rent, mortgage interest and utilities), as opposed to the prior 25% requirement.
Given the way the Act is drafted, if a borrower did not spend 60% of funds on payroll costs during the applicable covered period (even if this amount was 59.9%) it was unclear if said borrower would be eligible for any loan forgiveness. However, the June 11 interim rule clarifies that a borrower’s failure to meet this new limit will result in a proportional reduction to forgiveness amounts, rather than serve as a threshold to receive any forgiveness.
For borrowers that apply for forgiveness within 10 months of the last day of the loan forgiveness covered period, the Act replaces the 6-month loan payment deferral period with the date on which the amount of forgiveness determined is remitted to the lender. For borrowers that fail to apply for forgiveness within 10 months of the last day of the loan forgiveness period, such recipients shall begin making payments of principal, interest, and fees at that time. Like the extension of the covered period for forgiveness purposes, this change shall also be effective as if included in the CARES Act and thus retroactive to March 27, 2020.
Further, the Act also creates a new five-year minimum maturity date (measured from the date the borrower applies for loan forgiveness) that is applicable only to PPP loans made on or after June 5, 2020 (i.e. post-enactment). For loans made before June 5, 2020, the maturity date is two years; however, the Act allows lenders and pre-enactment borrowers to mutually agree on modifying the maturity terms to conform with this change.
Lastly, the Act now permits borrowers whose loans were forgiven in whole or in part to delay the payment of employer payroll taxes until December 31, 2021 (with respect to up to 50% of the amounts due) and December 31, 2022 (with respect to the remaining amounts due up to 50%). Borrowers who received forgiveness were previously prohibited from taking advantage of this benefit.
We will continue to closely monitor developments regarding these matters. You can view prior alerts and additional guidance regarding COVID-19-related matters at our resource center.
For more information on these matters, please contact our COVID-19 Task Force at or one of our attorneys at SA&M.
(Updated as of May 20, 2020)
On May 8, 2020, California’s stay-at-home order was modified to reflect the state’s entering Stage 2 of its COVID-19 pandemic response, where businesses in the retail, manufacturing, and logistics industries can reopen, subject to certain restrictions (e.g., delivery and curbside pickup only). Earlier this week, Governor Gavin Newsom also hinted that entering Stage 3 “may not even be a month away.” Below are some questions and answers for issues that may arise as businesses reopen.
In California, workers’ compensation benefits are the exclusive remedy for injuries that a worker sustains from a condition of their employment. Some states’ workers’ compensation statutes exclude coverage for “non-occupational diseases” or “ordinary diseases of life,” such as a cold or flu, which may arguably encompass COVID-19. However, California’s Labor & Workforce Development Agency (“LWDA”) has clarified that workers are eligible for workers’ compensation benefits for injuries resulting from COVID-19.
However, generally speaking it is the worker’s burden to show that they were exposed to and contracted COVID-19 during their regular course of work. This showing will ultimately depend on the unique circumstances of each claim, including, for example, whether there were any known cases of COVID-19 infections at their workplace, whether the premises were contaminated with the virus, and whether the employer implemented safety and social distancing provisions.
On May 6, 2020, Governor Newsom changed the forgoing general presumption and issued an executive order that creates a rebuttable presumption for a period of 60 days (May 6 - July 5) that may entitle workers who work outside their homes to workers’ compensation benefits if they contract the coronavirus. The California State Insurance Fund (“State fund”) currently estimates that the added benefits from the Governor’s recent executive order will require approximately $115 million in funds.
Under the recent executive order, it will be presumed that the worker contracted COVID-19 during their regular course of work if (1) the employee tested positive with COVID-19 within 14 days after working at their place of employment; (2) the last day must have been on or after March 19, 2020; (3) the worker’s place of employment is not their home; and (4) the worker’s diagnosis of COVID-19 must be by a licensed physician and the diagnosis must be confirmed with further testing within 30 days of the diagnosis.
It will be up to the employer to establish that the worker did not contract COVID-19 at work by producing evidence that the injured worker did not satisfy one of the above four criteria or that the injured worker contracted the virus by another cause. The employer must produce such evidence within 30 days of the filing of the claim by the worker. After 30 days, an employer can produce evidence to rebut the presumption with evidence discovered after the 30-day period.
Overcoming the presumption will likely be difficult given the many variables in tracing how and where a worker has been exposed to the virus and obtaining evidence to disprove the worker’s claim. Further, employers and insurers will likely challenge the executive order due to the difficulty of proving that the employee contracted the coronavirus elsewhere. How is the employer supposed to establish this? Can the employer demand to know everyone the employee came into contact with outside of work and if those people were contagious? Can the employer go even further and inquire where the employee has been? And on and on down the line In short, there are a myriad of open issues and no guidance as of yet.
In California, workers compensation and unemployment compensation are typically only available to employees. However, workers who believe they were misclassified under recently enacted AB-5, and applicable case law, may be eligible for both of these benefits. To learn more about misclassification under AB-5, check out “The Evolution of the California Independent Contractor.”
Additionally, independent contractors who have voluntarily contributed to unemployment insurance Elective Coverage and made the required contributions or had a past employer contribute to the unemployment insurance fund on their behalf in the past 18 months, may also qualify for unemployment compensation. Further, the Pandemic Unemployment Assistance (“PUA”) program of the CARES Act gives states the unprecedented option of extending unemployment compensation to independent contractors and other workers who are ordinarily ineligible. On April 28, 2020, California’s Employment Development Department (“EDD”) followed suit and expanded the availability of unemployment compensation via the federal PUA program to business owners, self-employed individuals, independent contractors, and gig economy workers.
Workers who opt not to return to their positions when their employers reopen amid the COVID-19 pandemic will likely not remain eligible for unemployment compensation. Generally, individuals receiving regular unemployment compensation must act upon any referral to, and accept any offer of, suitable employment. A request that a furloughed employee return to his or her job very likely constitutes an offer of suitable employment.
Specifically, the U.S. Department of Labor outlines the conditions an individual has to meet to refuse to return to work in order to remain eligible for PUA, as provided by the CARES Act. The list includes (i) a COVID-19 diagnosis, restrictions due to childcare availability, (ii) caring for an ill family member, or (iii) health “complications that render the individual objectively unable to perform his or her essential job functions, with or without a reasonable accommodation” as a result of having recovered from COVID-19. However, voluntarily deciding to not return to work out of a general concern about exposure to COVID-19 is likely tantamount to the employee having quit and will likely eliminate PUA eligibility.
The EDD similarly requires applicants to be “able, available, and actively seeking work” to collect unemployment benefits. Accordingly, a worker’s decision to not return to work out of general health concerns related to COVID-19 would likely not satisfy this requirement. If, however, a worker declines to return given their underlying health conditions and thus an increased chance of significant illness if exposed to COVID-19, then the worker may be entitled to maintain unemployment compensation subject to the EDD’s discretion.
What if an employer offers a temporarily furloughed employee who is receiving unemployment compensation an otherwise similar role that provides, for example, hourly wages instead of the employee’s previous salaried compensation? Will this be considered “suitable work,” and would the adjusted compensation create “good cause” to refuse this position”? More generally, if the employer changes the terms of the employment – at what point does it constitute good cause to voluntarily quit and be eligible for unemployment compensation?
Whether an employee has good cause to not return to work or quit and be eligible for unemployment compensation is determined on a case-by-case basis and the burden of proving eligibility is on the claimant. The EDD provides the following framework in determining whether good cause exists for the claimant to have voluntarily quit and remain eligible for unemployment compensation:
“Once the claimant's reasons for leaving are determined, the interviewer must apply a three-part test to determine the presence of ‘good cause’: (1) Is the reason for leaving ‘real, substantial, and compelling’? (2) Would that reason cause a ‘reasonable person,’ genuinely desirous of working, to leave work under the same circumstances? (3) Did the claimant fail to attempt to preserve the employment relationship, thereby negating any ‘good cause’ he/she might have had in leaving?... ‘Compelling,’ in this sense merely means that the claimant's reasons for quitting exerted so much pressure that it would have been unreasonable to expect him or her to remain with the employment. The ‘pressures’ exerted upon the claimant may be physical (as with health), moral, legal, domestic, economic, etc.”
A relatively insignificant reduction in salary due to a worker’s being reassigned to a different hourly role has been found to not constitute good cause to terminate voluntarily. In one case, for example, a California court found that a reduction in the employee's wages by roughly 7% did not, by itself, constitute good cause for voluntarily leaving employment. However, the California Supreme Court has held that a 25% wage cut constituted a “substantial reduction in earnings” and that reduction was regarded as good cause for leaving employment.
Also uncertain is what happens in the situation where a salaried employee is offered an hourly position with no guarantee of actual work. This would likely serve to support a claimant’s argument that good cause exists to reject the offer of employment and remain eligible for unemployment compensation. Moreover, in some situations, an employee may be deemed to be partially unemployed and thereby entitled to partial unemployment compensation. Thus, hourly employees with reduced workloads may still receive partial unemployment compensation to supplement lost hours. Each of these situations must be evaluated on a case by case basis.
If a worker believes their employer has not adequately addressed COVID-19-related concerns, other limited remedies are available. Per California’s Department of Industrial Relations, employees deemed non-essential who believe they were terminated or otherwise retaliated against for refusing to go to work while the stay-at-home order is in effect may file a retaliation claim with the Labor Commissioner’s Office. Similarly, essential workers who feel their employer has not taken steps to ensure a safe work environment may also file a claim with the Labor Commissioner. These claims can lead to damages and penalties against the employer if it is found to have treated an employee adversely or fired an employee for refusing to work in (or complaining of) an unsafe work situation.
Under the federal Occupational Safety and Health Act, enforced through the Occupation Safety and Health Administration (“OSHA”), employees can refuse to work if they reasonably believe they are in imminent danger, which means they must have a reasonable belief that there is a threat of death or serious physical harm likely to occur immediately or within a short period. In the context of COVID-19, this will likely require a specific fear of infection that is based on fact—not just a generalized fear of contracting COVID-19 infection in the workplace, and that the employer cannot address the employee’s specific fear in a manner designed to ensure a safe working environment.
California’s counterpart to OSHA(“Cal/OSHA”), requires every employer to develop and implement a written safety and health program tailored to the specific workplace. Among other things, recent Cal/OSHA guidance mandates that all California employers must determine if COVID-19 infection is a hazard in their workplace, and if it is, implement prevention measures and training. Workers can file confidential complaints with OSHA or Cal/OSHA if they believe their employer is non-compliant, which could lead to on-site investigations, various civil penalties, and/or special orders requiring employers make changes to their workplace.
U.S. Senate Majority Leader Mitch McConnell has stated that any additional federal aid bill for state and local governments should make the money contingent on states providing liability protection to businesses and hospitals providing services amid the COVID-19 pandemic. Indeed, on May 12, Senator McConnell stated that he is overseeing the drafting of legislation that would “create a legal safe harbor for businesses, nonprofits, governments and workers and schools who are following public health guidelines to the best of their ability.” However, he was clear that the bill would not provide absolute immunity, and that “there will be accountability for actual gross negligence and intentional misconduct.”
The U.S. Chamber of Commerce has also made several suggestions on this topic, including safe harbors from: privacy laws for employers who inquire about health status, age and disability bias laws if companies follow guidelines regarding at-risk employees, and simple negligence claims for COVID-19 exposure if businesses follow government health guidance. Manufacturers have also suggested (i) raising the legal standard for plaintiffs’ claims that a business failed to protect them from COVID-19, (ii) giving additional protections to businesses making new products to address the COVID-19 crisis, and (iii) shielding businesses from privacy suits if they reveal a worker’s COVID-19 diagnosis for safety reasons. Currently, the extent to which any liability protections will be extended remains unclear.
Businesses must consider the extent and manner in which they will reopen. As best practice, and in compliance with Cal/OSHA requirements, businesses should establish safety protocols, update employee and company handbooks to reflect the safety protocols (and provide handbooks to workers), and enforce compliance with the protocols. The State Fund has established the Essential Business Support Fund and the Returning California to Work COVID-19 Safety Protocol Fund, both of which provide $50 million in grants on a first-come, first-serve basis. State Fund policyholders operating an essential business can apply for a grant to help with safety-related expenses, including reimbursement for costs for goggles, masks, gloves, cleaning supplies and services, and worksite modifications. Each grant can total up to the lesser of $10,000 or twice the amount of the businesses’ premium. The State Fund will make applications for the Returning California to Work COVID-19 Safety Protocol Fund available after statewide stay-at-home restrictions are lifted.
Businesses can also turn to the California Department of Public Health (“CDPH”) for guidance on how to reopen their businesses and provide a safe working environment for their workers. While business can use effective alternative or innovative methods to provide a safe work environment, such as implementing guidance from the Centers for Disease Control and Prevention, the CDPH guidelines are helpful as they are industry specific and cover employee training, cleaning and disinfecting protocols, physical distancing guidelines, and a big-picture plan for creating and implementing the safety protocols.
Important and recommended practices include establishing policies and practices for maintaining a healthy work environment and social distancing. Employers can maintain a healthy work environment by, for example, providing and mandating use of personal protective equipment, such as masks and gloves, regularly sanitizing high-frequency touched surfaces, providing napkins and hand sanitizers to employees, limiting access to common areas such as break rooms and kitchens, increasing ventilation and outdoor air circulation, and requiring employees to report travel outside the state.
Social distancing means avoiding large gatherings and maintaining 6 feet distance from others when possible. Social distancing protocols can include providing flexible worksites (e.g., telework) and work hours (e.g., staggered shifts), increasing physical space among employees and between employees and customers at the worksite, implementing flexible meeting and travel options (e.g., postpone non-essential meetings or events, use video conferencing, etc.), and providing alternative delivery methods, including curbside pick-up for products and utilizing phone, video, or web for services.
We will continue to closely monitor developments regarding these matters. You can view prior alerts and additional guidance regarding COVID-19-related matters at our resource center.
For more information on these matters, please contact our COVID-19 Task Force at or one of our attorneys at SA&M.
Authors:
Jeffrey Gersh
Karine Akopchikyan
Garett Hill
Force Majeure provisions in an agreement may excuse performance by one or both parties to a contract as a result of events that can neither be anticipated nor controlled. These provisions range from simple and boilerplate to extraordinarily detailed. But you may also be excused from performance of a contract if performance of the agreement impossible or impracticable.
In the case of the outbreak of the current coronavirus (“COVID-19 Pandemic”), there are several terms or phrases to look for in an agreement, including a Force Majeure provision, when considering whether an event may provide a party with the ability to be excused from performance. However, you must also review the entirety of the applicable agreement to determine if there is any specific exclusion or exception to certain events that do not constitute a Force Majeure or otherwise justify non-performance.
California Courts’ Interpretation of Force Majeure Provisions
Foreseeability Standard For “Open-Ended”- Catch-All” Provisions
Reasonable Control Requirement
Interpretation of Force Majeure Provisions in Other States
Force Majeure and the COVID-19 Pandemic
Impossibility or Impracticability of Performance
Authors: Jeffrey Gersh
Celina Kirchner
Crystal Jonelis
Karine Akopchikyan
If you have questions regarding Force Majeure, please contact our COVID-19 Task Force – .
Stubbs Alderton & Markiles' attorneys were featured this week in Law360 for their article entitled "The Fight For Clarity On Calif. Worker Classification Law". The featured article can be viewed on their website.
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Since taking effect on Jan. 1, A.B. 5 has received its share of criticism and legal challenges. While the law may be well-intentioned, opponents claim it goes too far and restricts workers’ abilities to earn a living.
Steep penalties can result from noncompliance. As a result, many businesses are frustrated by the lack of guidance on how to appropriately conform to A.B. 5, especially considering the high number of exemptions and the potential for more to come.
Even for exempted professions, like freelance writers and photographers and fine artists, certain requirements must be met for said exemptions to apply. Rather than risking penalization for failing to properly conform or increasing their own costs to convert workers to employees, some businesses have opted to outsource work out of state.
These sentiments, among others, have necessitated a growing number of challenges to A.B. 5 in both California state and federal courts and the state’s Legislature. In light of these challenges, discussed in more detail below, California appears to be headed toward a series of much-needed judicial interpretations and legislative wrangling whereby the precise parameters of A.B. 5 will hopefully be clarified.
Generally, these challenges appear to signal a gradual erosion of the text of A.B. 5 as passed (i.e., more exemptions) and clear(er) guidance on how courts will interpret workers’ or public enforcement claims.
Specifically, a few of the currently unanswerable questions that will hopefully become clearer through 2020 include, but are in no way limited to:
• For purposes of qualifying under the professional services exemption, what does it mean to be "customarily engaged in the same type of work … with another hiring entity"?
• Relatedly, what exactly qualifies as a "fine artist" or "graphic design" worker?
• To apply under the business-to-business exemption, how must the hiring business demonstrate that the contracting business is free from its "control and direction"?
• Relatedly, will that phrase be interpreted the same as when applied to the referral agency exemption?
Below are brief summaries of a few of the most significant pending lawsuits challenging A.B. 5 enforcement.
Olson v. California
Two independent workers who used the Postmates and Uber applications to earn a living have filed suit in the U.S. District Court for the Central District of California claiming that A.B. 5 violates the California and U.S. Constitutions.[1] Postmates Inc. and Uber Technologies Inc. joined in the action as well.
They argue that there is no rational basis for determining the numerous professions that the bill exempts from applying the strict ABC test established by the California Supreme Court's 2018 decision in Dynamex Operations West Inc. v. Superior Court of Los Angeles County, thereby violating the equal protection clauses of the California and U.S. Constitutions. On Feb. 10, the court denied the plaintiff s’ request to halt A.B. 5’s enforcement, citing the state’s need to police misclassification as outweighing any harm to the companies and allowing the case to proceed to a determination on the merits.
California Trucking Association v. Becerra
The California Trucking Association has challenged A.B. 5 on preemption grounds in another lawsuit filed in the U.S. District Court for the Southern District of California, asserting it is inconsistent with the Federal Aviation Administration Authorization Act.[2] The suit gained steam on Jan. 16, when the court extended a previously granted temporary injunction that bars enforcement of the law on the trucking industry.
Separately, in an identical case brought by the California Trucking Association in Los Angeles Superior Court, the court there held that A.B. 5 is indeed preempted by the FAAAA on Jan. 8.[3]
American Society of Journalists and Authors Inc. v. Becerra
Freelance journalists have also challenged A.B. 5 in the U.S. District Court the Central District of California, arguing that their exemption, which allows for no more than 35 submissions per year in order to remain governed by the more flexible Borello test, violates the First Amendment.[4] In that case, the court denied injunctive relief in early January.
Proposed Legislation
While these litigation proceedings, and many others, are still working their way through the courts, California legislators have wasted no time introducing bills to upend the effects of A.B. 5. The following proposed bills, if passed, would take effect Jan. 1, 2021:
• S.B. 868 seeks to eliminate the 35-submission cap for freelance journalists and photographers, allowing all in the profession to remain independent contractors pursuant to satisfying the far less stringent Borello test regardless of how many pieces of content a freelance journalist submits to a given employer within a year.
• S.B. 867 seeks to make permanent the temporary exemption that A.B. 5 extends to newspaper distributors and carriers, which currently lasts until Jan. 1, 2021.
• S.B. 875 seeks to exempt interpreters, translators and court reporters, allowing them to remain independent contractors pursuant to passing the Borello test.
• S.B. 881 seeks to exempt persons providing services as a musician and music industry professionals, except where a collective bargaining agreement applies, also allowing them to remain independent contractors pursuant to passing the Borello test.
• A.B. 1925 would exempt small businesses, defined as independently owned and operated businesses with fewer than 100 employees and average gross receipts of $15 million or less over the previous three years, pursuant to their satisfying Borello.
• A.B. 1928 would overturn A.B. 5 in its entirety. Unlike the bills discussed above, A.B. 1928 would take immediate effect upon its passage. Specifically, A.B. 1928 seeks to reinstate Borello as the generally applicable standard for separating employees from independent contractors. However, A.B. 1928 would not nullify the Dynamex decision wherein the California Supreme Court held that the ABC test applies to claims brought under California wage order laws.
Lastly, Uber Technologies, Lyf t Inc. and DoorDash Inc. are the primary funders behind the Protect App-Based Drivers & Services Act, an initiative currently gathering signatures in order to make its way onto the November 2020 California ballot. If successful, this act would classify app-based ride-share and delivery drivers as independent contractors for all purposes, subject to meeting certain flexibility-based requirements, in exchange for minimum wage, health care, anti-discrimination, and insurance-based protections.
For now, companies should consider at least the following to ensure compliance with this new framework:
1. A.B. 5 and the ABC test presume that anyone performing a service is an employee; therefore, it is imperative to evaluate how workers are classified. Misclassification can be costly. Unless there is a recognized exemption, independent contractor status is very difficult.
2. If you are concerned that someone has been misclassified, determine what action needs to be taken to avoid being penalized. This can include reclassifying an independent contractor as an employee and providing, among other things, compensation for missed meal breaks, overtime pay, and any tax obligations or contributions to unemployment insurance.
3. The Dynamex decision could be given retroactive effect by the California Supreme Court this year, which would result in the ABC test’s application to wage order law claims going back four years. Even if Dynamex is not determined to be retroactive, the ABC test would still apply to these claims going back to the date of the Dynamex decision in April 2018. The impact that this retroactivity decision will have on A.B. 5 enforcement, which explicitly states it is not retroactive aside from applying for exemptions, remains unclear. Accordingly, classification practices over the previous four years should be evaluated to determine potential liability.
4. Review your situation if you currently or historically have classified, someone, as an independent contractor and paid them accordingly.[5]
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Jeffrey F. Gersh is a Partner of the firm. Before joining Stubbs Alderton & Markiles, LLP, Jeffrey was Managing Partner of the Gersh Law firm, Inc. for over 10 years and a partner for 25 years with a major national litigation law firm. Jeffrey has been named a Thomson Reuters “Super Lawyer” for more than 7 years by his peers; an honor only achieved by less than 2.5% of attorneys in California.
Jeffrey successfully litigates, arbitrates, or mediates for both plaintiffs and defendants complex business and commercial matters, whether for individuals, public or private corporations, partnerships, limited liability companies and/or its members, shareholders and partners. Jeffrey successfully handles disputes regarding contract matters, trade secrets, intellectual property (trademarks, copyrights and trade dress) negligence and fraud, employment, real estate, license agreements, the apparel and garment industry, and general business matters.
Jeffrey approaches his litigation practice from a business perspective, rather than purely transactional. In addition to representing his clients in litigation and dispute resolution matters, Jeffrey handles many of their various transactional matters relating to general business, trademarks, trade dress, copyrights and other intellectual property matters, trade secret matters, and employment matters to name a few.
Jeffrey has been directly involved in litigation and business matters for clients not only in California, but also in New York, Nevada, Texas, Arizona, London, Australia, and Estonia and other places. He litigates cases from inception through trial and in some cases appeal, directly responsible for all aspects of the prosecution, defense, and resolution of his client’s complicated and sophisticated matters in both state and federal courts. As a result of his commitment to his client’s needs, he has enjoyed long-standing client relationships.
Garett Hill is an Associate of the Firm. His practice focuses on all stages of business litigation.
Prior to joining the firm, Garett was a certified law clerk with the Re-Entry Clinic at Loyola Law School where he successfully represented Los Angeles residents seeking to expunge or seal their prior convictions or trying to obtain or restore a license that had been negatively impacted by prior convictions. Garett completed the Corporate Law Concentration at Loyola Law School where he excelled learning within the various substantive areas of business law. Additionally, Garett worked as a legal intern in-house at AECOM, where he primarily focused on corporate governance and construction law matters. He also worked as a law clerk at Girardi & Keese where he gained invaluable exposure to high-volume litigation.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
[1] Olson v. California, 2:19-CV10956 (C.D. Cal., filed December 30, 2019).
[2] California Trucking Association v. Becerra, 3:18-CV02458 (S.D. Cal., filed Oct. 25, 2018).
[3] The People of the State of California v. Cal Cartage Transp. Express, Cal. Super. Ct. No. BC689320, order 1/8/20.
[4] American Society of Journalists and Authors, Inc. v. Becerra, 2:19-CV10645 (C.D. Cal., filed December 17, 2019).
[5] This article is not intended to be a complete recitation of the law regarding the Dynamex decision or the impacts of A.B. 5. Each business has its own unique issues and circumstances that need to be separately evaluated by an attorney
The Obama Administration and the Department of Labor (DOL) enacted the “Overtime Final Rule” regulation 6 months ago, which was supposed to be effective as of December 1, 2016. However, in the recently consolidated pending cases Nevada v. U.S. Department of Labor and Plano Chamber of Commerce v. Perez, on November 22, 2016, the United States District Court, Eastern District of Texas enjoined enforcement of the Final Rule. The Court upheld the challenges against the Final Rule based on arguments in support of the 10th Amendment – limiting the power of the federal government over the states. It appears the DOL’s regulation will note be enforced as of December 1, however the ultimate outcome and the timing as to whether the Final Rule will be enforced is unknown. The uncertainty has several employers scrambling for immediate answers and for good reason.
By the Final Rule, 4.2 million workers nationwide currently not eligible for overtime pay will automatically qualify as “non-exempt” employees entitled to overtime pay. If effective, California employers will be required to align their policies with the Final Rule. This includes approximately 400,000 employees in California.
What Happens.
Previously, California employees who worked at a managerial or other executive level and were paid a base annual salary higher than $23,660 were exempt from overtime. The Final Rule establishes a bright-line divide between exempt and non-exempt employees by placing all employees making less than $47,476 annually or $913 per week into the non-exempt category – which means they are entitled to overtime. This is over a 200% jump from the standard salary set in 2004. Literally, any employee making under $22.85 per hour would be entitled to overtime regardless of his or her position.
Essentially, the Final Rule forces employers to either increase the gross salaries of all exempt employees making less than the new threshold, or in the alternative to ensure all employees under the threshold are paid overtime. However, it gets trickier. In California, if an employee works 9 hours in one day and 7 the next day, that employee is still likely entitled to an hour of overtime even if the work week balances at 40 hours – this depends on the “regularly scheduled” work week, and whether it is a 3 or 4 day work week rather than a 5 day work week.
What To Expect.
Employers were given a chance to change their overtime policies well in advance of the effective date of this new regulation. As the grace period ended, the District Court prolonged it – but for how long? As of today, employees who were not properly compensated would have had the right to sue for failure to pay overtime. Certainly, several attorneys are already searching for employers not currently in compliance with the Final Rule. If the regulation remains in effect, employers should be prepared to face widespread litigation – potentially class actions depending on the size of your company or quasi-class actions, such as Private Attorney General Act of 2004 (PAGA) complaints regardless of the company’s size. Employers not already adjusted for the upcoming overtime policy should monitor the recent developments knowing a potential tidal wave of lawsuits may come.
What To Do.
Employers used the “exempt” classification as an excuse to work its employees late-nights and on weekends, without keeping track of their hours. That luxury no longer exists. If an employee makes less than the threshold, an employer needs to have records to challenge an employee’s potential overtime claim. Employers should immediately implement a system to monitor the hours each employee works, whether it be enacting a policy prohibiting employees from working more than 8 hours in a day and 40 hours in a week, or requiring timesheets or clocking in-and-out.
Don’t subject your company to attorneys’ fees, statutory penalties, possible class actions and not to mention your own litigation costs. It’s simply not worth it. Keep track of your employees’ hours, and if your pay period begins before December 1, 2016, pro-rate the increase in salary or make sure you pay overtime.
Also, the recently enacted Labor Code Section 558.1 holds individuals liable for a company’s failure to pay overtime. These individuals include managing agents, owners, directors or officers. For more information on Section 558.1, stand-by for further analysis from Jeffrey F. Gersh.
Now What.
The far-reaching implications of the recent November 22, 2016 ruling by the District Court raises many concerns that cannot yet be answered, such as: If the rule is enforced, will it be retroactive as of December 1st? or, How are employers and employees affected if this ruling is appealed? or, What do employers do who have already promised overtime pay or an increase in salaries to its employees? or, Should I start paying overtime, to play it safe?
For help on complying with the Final Rule and following the developments of District Court’s decision, Jeffrey F. Gersh () at (818) 444-4500. Please note that nothing herein constitutes legal advice.