Allyn & Fortuna LLP
Contributed by Megan Muoio, July 30, 2020
The Supreme Court’s October 2019 term came to an end on July 9, 2020. During this momentous term, the Court seated hotly contested Associate Justice Brett Kavanaugh, Chief Justice John Roberts oversaw the impeachment trial of President Donald J. Trump, and the Court issued decisions in many consequential cases. The July 9th decision day was the latest ending of a Supreme Court term since 1988. The Supreme Court issued opinions in three closely watched cases which were argued virtually in May 2020 due to the COVID-19 pandemic.
Trump v. Vance involved Trump’s challenge to a subpoena duces tecum issued by Manhattan District Attorney Cyrus Vance seeking Trump’s financial records. The United States District Court for the Southern District and the Second Circuit Court of Appeals both rejected the President’s request to block the subpoena. On appeal to the Supreme Court, Trump argued that a sitting President is categorically immune to a criminal grand jury subpoena or, alternatively, that a higher standard should apply in his circumstance. By a majority of 7-2, the Supreme Court disagreed. The majority opinion, written by Chief Justice John Roberts, rejected Trump’s argument that the President is too busy to respond to state criminal subpoenas. The majority also did not credit Trump’s argument that permitting the enforcement of the subpoena by Vance would subject the Office of the President to harassment from district attorneys around the country. The Court sent the matter back to the District Court, where Trump will be able to raise challenges to the breadth and scope of the subpoena. On July 17, 2020, Vance successfully petitioned the Supreme Court for its order to go into effect immediately so that the subpoena could be resolved quickly. Although the matter may be resolved prior to the 2020 Presidential election, it is unlikely that any documents produced will be made public before November.
In a second case involving the President, the Court issued another 7-2 opinion in Trump v. Mazars, which involved subpoenas issued by committees in the U.S. House of Representatives on Trump’s personal accountant. The Mazars case came to the Supreme Court on appeal from the U.S. Court of Appeals for the District of Columbia and was consolidated with another Congressional subpoena case on appeal from the Second Circuit, Trump v. Deutsche Bank. Chief Justice John Roberts again wrote for the majority, holding that a sitting President is not entitled to a higher standard of review when his personal records are sought by Congressional subpoena, as Trump had argued. Instead, the Court held that the review of a Congressional subpoena should include “a careful analysis that takes adequate account of the separation of powers principles at stake, including both the significant legislative interests of Congress and the ‘unique position’ of the President.” In performing this analysis, the reviewing court should consider whether the information could be sought elsewhere, whether the subpoena is as limited in scope as possible, whether Congress can demonstrate that the subpoena advances a legitimate legislative purpose, and what burden the subpoena places on the Office of the President. The Court then sent the matter back to the lower courts for consideration of those factors, which is unlikely to be completed before the Presidential election in November.
And finally, in McGirt v. Oklahoma, the Court held that a large portion of northeastern Oklahoma remains a reservation for the Muscogee (Creek) Nation, thereby depriving the State of Oklahoma of jurisdiction over crimes committed there by Native Americans. James McGirt, a member of the Seminole Nation of Oklahoma, was tried and convicted in Oklahoma State Court for sexual offenses committed on the reservation. McGirt appealed his conviction, arguing that the federal government had not disestablished the reservation and, therefore, Oklahoma did not have jurisdiction over his crimes. The majority opinion, penned by Associate Justice Neil Gorsuch and joined by the four liberal Justices, rejected the State of Oklahoma’s arguments that the reservation was disestablished by a variety of non-specific federal laws or Oklahoma’s practice of allotment. The Court also rejected Oklahoma’s argument that the history and demographics of Oklahoma demonstrated the disestablishment of the reservation, deeming that argument “substituting stories for statutes” and preferencing the “rule of the strong” over the rule of law. Instead, the Court held that only Congress holds the power to disestablish a Native American reservation and that “[b]ecause Congress has not said otherwise, we hold the government to its word.” Finally, the Court rejected Oklahoma’s claim that such a decision would destabilize the criminal justice system in Oklahoma and subject Oklahoma to numerous appeals on behalf of Native American defendants tried in state court for crimes committed on tribal lands.
The Court will be recessed until the first Monday in October for the start of the October 2020 term. At that time, they will hear arguments in a number of highly-anticipated cases, including: continued challenges to the Affordable Care Act; a First Amendment challenge to the City of Philadelphia’s requirement that foster care agencies not discriminate on the basis of sexual orientation; and a criminal case seeking to further refine what a “seizure” is for purposes of the Fourth Amendment’s prohibition against unreasonable searches and seizures.
Contributed by Megan Muoio, July 14, 2020
On July, 8, 2020, the Supreme Court of the United States handed down a 7-2 decision in Little Sisters of the Poor v. Pennsylvania, a case involving whether private employers with religious or moral objections could be required to provide birth control coverage under the Affordable Care Act (ACA). This case was consolidated with Trump v. Pennsylvania because they both addressed the same issue.
Enacted by Congress in 2010, the ACA required that health plans provide coverage for “additional preventive care and screenings” for women and authorized the Health Resources and Services Administration (HRSA), a division of the Department of Health and Human Services, to issue guidelines to implement that provision. The resulting guidelines required employers to provide FDA-approved birth control at no cost to women covered by their plan. In 2013, the HRSA promulgated subsequent guidelines that exempted houses of worship and provided an opt-out process for religious nonprofits. (Thereafter, in 2014, the Court applied the Religious Freedom Restoration Act (RFRA) to invalidate the birth control mandate as applied to a corporation owned by a religious family in Hobby Lobby v. Burwell.)
In 2017, the Trump administration expanded the ACA’s exemption from the birth control mandate to include private employers with religious or moral objections. In response, the Commonwealth of Pennsylvania asked the United States District Court for the Eastern District of Pennsylvania to block the implementation of the exemption nationwide based on the provisions of the ACA and the Administrative Procedure Act (APA). They were granted a temporary injunction, which was upheld by the Third Circuit Court of Appeals.
The Supreme Court reversed the Third Circuit in a 7-2 decision authored by Associate Justice Clarence Thomas. The majority held first that, in granting HHS the authority to promulgate rules to provide coverage for “additional preventive care and screenings,” the ACA gave HRSA broad discretion, including the discretion to create exemptions. Justice Thomas noted that, had Congress wished to specifically provide for birth control coverage, it could have done so. Because the ACA gave the HRSA authority to permit exemptions to the birth control mandate, the majority declined to address whether the RFRA required such an exemption. The majority also held that the agency complied with the APA in promulgating the exception.
In a number of concurring opinions, the Justices demonstrated their ideological divide. The concurring opinion filed by Associate Justices Samuel Alito and Neil Gorsuch agreed with the conclusion of the majority but would have held that the RFRA also required the exemption from the birth control mandate. In contrast, the concurring opinion filed by Associate Justices Elena Kagan and Stephen Breyer in which they agreed with the majority based the language of the ACA but reasoned that, on remand to the District Court, it was likely that the exemption would be found to be arbitrary and capricious in violation of the APA.
In another decision handed down the same day, Our Lady of Guadalupe School v. Morrissey-Berru, a 7-2 majority of the Court held that lay teachers who provide religious instruction as part of their “core function” at Catholic elementary schools are barred from suing their employers for employment discrimination. The majority decision was written by Associate Justice Samuel Alito.
The case involves the “ministerial exception,” a doctrine which grew out of the right of religious institutions to select clerical leaders without government interference. In 2012, the Supreme Court in Hosanna-Tabor Lutheran Church and School v. EEOC held that a Lutheran church and school could not be sued by an employee who was a minister and engaged in religious instruction in the course of her employment.
In Morrisey-Berru, the Court took up the issue of two lay teachers who engaged in both secular and religious instruction. The first plaintiff was a teacher who sued her Catholic elementary school employer for terminating her on the basis of age. The second plaintiff, also a Catholic elementary school teacher, sued her employer because she alleged that she was terminated because she had breast cancer. Both cases were thrown out at the federal district court level due to the application of the ministerial exception and appealed to the Ninth Circuit Court of Appeals, and then to the Supreme Court.
In the majority opinion, Justice Alito rejected a rigid test for whether the teachers were ministerial employees. He reasoned that, although the teachers were not designated as ministers and had less religious training than teachers in previous cases, their core function was teaching religion. Associate Justices Clarence Thomas and Neil Gorsuch filed a concurring opinion, agreeing with the conclusion on the basis that the Court should defer to any ministerial label placed on an employee by a religious organization. The dissenting justices, Associate Justices Ruth Bader Ginsburg and Sonya Sotomayor, disagreed with the conclusion on the basis that the teachers were primarily secular teachers, lacked religious training, and “were not even required to be Catholic,” therefore did not fall under the ministerial exception.
Contributed by Megan Muoio, June 23, 2020
On Monday, June 15, 2020, the Supreme Court of the United States, in a 6-3 decision, handed down one of the most significant employment discrimination cases in recent history, holding that Title VII of the Civil Rights Act of 1964, which prohibits discrimination in employment on the basis of sex extends Title VII protection to gay and transgender employees. The decision was made in the case Bostock v. Clayton County, Georgia, an appeal from a decision of the U.S. Court of Appeals for the Eleventh Circuit.
Gerald Bostock was a child-welfare-services coordinator for Clayton County, Georgia who had been terminated for conduct “unbecoming” of a county employee after he began participating in a gay recreational softball league. The Eleventh Circuit found that Title VII did not bar Bostock’s termination because of his sexual orientation. On appeal to the Supreme Court, Bostock was consolidated with two other Title VII cases – Altitude Express, Inc. et al. v. Zarda et. al. on appeal from the U.S. Court of Appeals for the Second Circuit, and R.G. & G.R. Harris Funeral Homes Inc. v. Equal Opportunity Employment Commission et al. on appeal from the U.S. Court of Appeals for the Sixth Circuit. In Zarda, the Second Circuit found that Altitude Express, a skydiving company, had violated Title VII when it had terminated employee Donald Zarda after he mentioned to a client that he was gay. In Harris, the Sixth Circuit permitted the EEOC to proceed with a Title VII claim by Aimee Stephens, a trans woman, who had been terminated by her employer on the basis of her gender identity.
In the majority opinion, Justice Neil Gorsuch wrote that Title VII’s prohibition against discrimination “on the basis of sex” necessarily precluded discrimination against gay and transgender individuals. In each of the cases before the Court, the employee was terminated “for traits or actions it would not have questioned in members of a different sex.” Stated another way, Justice Gorsuch reasoned that if an employer terminates a male employee because he is attracted to men but would not have terminated a female employee who was attracted to men, the employer has made a determination on the basis of the male employee’s sex in violation of Title VII.
Justice Gorsuch, along with the five Justices who concurred with the majority opinion, disregarded employers’ arguments that the legislative intent of Congress in passing Title VII was not to address discrimination against the LGBTQ community. Because the plain language of Title VII was unambiguous, there was no need to address the historical basis for the enactment of Title VII or dissect its legislative history. He concluded that, despite the fact that few people in 1964 may have expected Title VII to apply to discrimination on the basis of sexual orientation or gender identity, “we should not dare to admit that it follows ineluctably from the statutory text.”
Finally, Justice Gorsuch dismissed the concerns raised by the dissenting Justices of the Supreme Court – Justice Samuel Alito, Justice Clarence Thomas, and Justice Brett Kavanaugh – that the Court’s ruling would open a pandora’s box of related employment issues, such as work dress codes or employee bathrooms, and implicate similar provisions in other federal statutes, because those issues were not before the Court. He likewise disregarded arguments about employers’ contentions that the ruling would infringe on the free exercise of their religious beliefs, pointing out that none of the employers in the three cases before the Court raised claims based on U.S. Constitution’s First Amendment free exercise of religion clause or Religious Freedom Restoration Act. The Court’s unwillingness to engage on these issues sets up future clashes before the Court, as it will inevitably address religious employers’ claims in future cases.
For employers in New York, who are currently barred from making employment decisions based on employees’ sexual orientation or gender identity due to the New York Human Rights Law, the application of Title VII to LGBTQ employees will not require a change in any employment policies. However, for those employers in the 22 states that did not provide full employment protection to LGBTQ employees, they will be required to immediately revise their employment practices to comply with the Supreme Court’s ruling.
Also last week at the Supreme Court, President Donald Trump’s attempt to end the Deferred Action for Childhood Arrivals (DACA) program was thwarted in Department of Homeland Security v. Regents of the University of California. In a 5-4 decision written by Chief Justice John Roberts, the Court held that the Department of Homeland Security failed to comply with the Administrative Procedure Act when it attempted to end the DACA program in 2017. The federal government will have another opportunity to end the program, although it is unlikely that any such action will be successfully carried about before the election in November.
In the conclusion of a busy week at the Court, the Justices declined to grant petitions for certiorari in two hot-button areas. First, the Court declined to take up any of the three cases involving police officer’s qualified immunity against civil suits. In light of the ongoing protests related to the killing of George Floyd, those interested in limiting police officer immunity were hopeful that the Court would reexamine its precedent in Pearson v. Callaghan. However, the Court, hesitant to wade into any ongoing controversy, denied all three petitions.Second, the Court declined to take up any of the ten petitions involving the Second Amendment right to bear arms. Each of the petitions involved state law that limited gun rights and, in light of the denials, each law will remain on the books.
Contributed by Paula Lopez, June 10, 2020
On June 5, 2020, the Paycheck Protection Program Flexibility Act of 2020 (“Flexibity Act”) went into effect. It amends the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act by modifying and clarifying several provisions of the Paycheck Protection Program (“PPP”) and Small Business Association (“SBA”) rules regarding its implementation. The PPP was passed to assist small businesses during the coronavirus pandemic by providing businesses with less than 500 employees loans from the SBA, which would be eligible for loan forgiveness if certain requirements were met as discussed in a prior posting dated April 3, 2020. The new law amends certain key provisions of the PPP and provides additional safe harbors to borrowers seeking loan forgiveness. Below is a summary of the key changes:
(1) Extends the PPP loan maturity term for the portion of the loan that is not forgiven. Under the PPP, the loan maturity term was set at two years. The Flexibility Act extends the term to a minimum of five years, maximum of ten years, from the date on which the borrower applies for forgiveness. The extended maturity period applies only to new loans made on or after June 5, 2020. However, it does leave open the possibility for lenders and borrowers to agree to modify the maturity terms of loans made before June 5, 2020.
(2) Extends the covered period for determining the amount of the loan eligible for forgiveness. Under the PPP a borrower must spend its loan proceeds within an eight-week covered period immediately following the disbursement of the loan or June 30, 2020, whichever is earlier. The Flexibility Act extends the period to 24 weeks or until Dec. 31, 2020, whichever is earlier. The extension in the covered period applies to all loans. However, borrowers on loans made before June 5, 2020 can elect to apply an eight-week covered period.
(3) Reduces the amount of the loan proceeds that must be used for payroll costs in order to qualify for loan forgiveness. Under the PPP at least 75% of the loan proceeds had to be used for payroll costs in order to be eligible for loan forgiveness. The PPP also expressly allowed for partial loan forgiveness if a borrower did not meet the 75% threshold. The Flexibility Act lowers the threshold to 60%, providing a borrower greater flexibility to use the loan proceeds for non-payroll costs and still be eligible for loan forgiveness. While the Flexibility Act does not expressly provide for partial loan forgiveness where less than 60% of the proceeds are spent on payroll costs during the covered period, a joint statement issued by the SBA Administrator and Treasury Secretary on June 8, 2020 confirmed that borrowers will be eligible for partial loan forgiveness subject to 60% of the proceeds being spent on payroll costs.
(4) Extends the safe harbor period for addressing reductions in full time employees (“FTE”) or salary/wage levels and adds a new safe harbor for reductions in FTEs that cannot be restored. In order to qualify for loan forgiveness under the PPP, borrowers were required to maintain the average full-time equivalent employees as they had prior to the pandemic and pay employees at least 75 percent of the salary or wages they received in the last fiscal quarter before applying for a PPP loan. The PPP included a safe harbor for borrowers who had a reduction in FTE and salary/wage levels between February 15th and April 26th if the levels were restored by June 30, 2020. The Flexibility Act extends the safe harbor period for restoring average FTEs and salaries/wages to Dec. 31, 2020. The Flexibility Act also includes a new safe harbor from reductions in the amount of the loan to be forgiven based on a reduction in FTEs where (a) the borrower is unable to return to the same level of operations it had prior to February 15th due to compliance with requirements or guidance issued by the Secretary of Health and Human Services, the CDC, or OSHA between March 1, 2020 and December 31, 2020 related to worker or customer safety requirements related to COVID–19; or (b) the borrower is unable to rehire the same individuals who were employed on February 15th and unable to hire similarly qualified individuals for unfilled positions by December 31, 2020. In order to qualify for the safe harbor, the borrower must document its good faith efforts to rehire FTEs and to restore business operations to pre-February 15th levels and provide documentation as part of the loan forgiveness application.
(5) Extends the payment deferral period for payments of principal, interest and fees for the portion of the loan not forgiven. The PPP permitted deferrals for no more than one year and the SBA’s guidance limited the deferral period to six months. The Flexibility Act extends the deferral period for new and existing loans to the date SBA determines the amount to be forgiven and remits payment to the lender. The Flexibility Act includes a new provision that requires a borrower who does not apply for loan forgiveness within 10 months after the end of the covered period to begin repayment of the loan at the end of the 10-month period.
(6) Removes the restriction under the PPP prohibiting any payroll tax payment deferrals on loans forgiven. The PPP prohibited borrowers whose PPP loan was forgiven from deferring payroll tax payments. However, the Flexibility Act allows all borrowers to delay payment of eligible payroll taxes to the extent permitted under the CARES Act.
It is expected that the SBA will issue guidance to assist in implementation of the new provisions. As shown above, the new amendments make key changes to the PPP designed to further assist businesses in surviving the economic challenges imposed by the pandemic.
Nicholas Fortuna, April 3, 2020
Congressed enacted the Coronavirus Aid, Relief, and Economic Security Act (“Act”) that was signed into law on March 27, a historic $2 trillion stimulus package as the American public and the US economy fight the devastating spread of Covid-19.
The far-reaching legislation stands as the largest emergency aid package in US history. It represents a massive financial injection into a struggling economy with provisions aimed at helping American workers, small businesses and industries grappling with the economic disruption.
Congress authorized up to $348 billion in forgivable loans to small businesses to pay their employees during the COVID-19 crisis. The purpose of the Act is to help small businesses keep workers employed during the economic downturn caused by the Coronavirus pandemic. Importantly, these loans may be forgiven if borrowers maintain their payrolls during the crisis or restore their payrolls afterward.
To be forgiven, the loan proceeds must be used to cover payroll costs, mortgage interest, rent, and utility costs over the eight-week period after the loan is made. And, employee and compensation levels maintained after the receipt of the funds from the loan. The amount forgiven will be reduced if the business decreases the number of full-time employees; decrease salaries and wages by more than 25% for any employee that made less than $100,000 annualized in 2019. Whatever is not forgiven must be paid back within two years at an annualized interest rate of 0.50%. Payments will be deferred for the first six months, but interest will accrue over that period.
There are other restrictions that apply. The maximum amount that may be borrowed is two months of the business’s average monthly payroll from the previous year plus an additional 25% of that amount. The amount is subject to a $10 million cap. In calculating the monthly payroll, individual employees are capped at $100,000 annual pay.
Applicants must also certify the following:
- Current economic uncertainty makes the loan necessary to support ongoing operations;
- The funds will be used to retain workers and maintain payroll or make mortgage, lease, and utility payments;
- No other loan was received or will be received under the program;
- Will provide to the lender documentation that verifies the number of full-time equivalent employees on payroll, the dollar amounts of payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities for the eight weeks after receiving the loan;
- Loan forgiveness will be provided for the sum of documented payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities. Due to likely high subscription, it is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs;
- All the information provided in the application and supporting documents and forms are true and accurate. Knowingly making a false statement to get a loan under the program is punishable by law;
- Acknowledge that the lender will calculate the eligible loan amount using the tax documents submitted. Affirm the tax documents are identical to those submitted to the IRS. And, the lender may share the tax information with the SBA.
Applications for the loan may be made at any existing approved SBA lender, federally insured depository institution, federally insured credit union, and Farm Credit System institution. Any business, including nonprofits with 500 or fewer employees may apply. While the loans will benefit many eligible businesses, it is important for businesses to assess the operating restrictions imposed by the Government as a result of receiving such loans.