Client Alert: Update on Recent Legal Development in wake of Ongoing COVID-19 Crisis

April 21, 2020

In this update:

  1. U.S. Federal Reserve Announces Lending Program to Provide Financing to Small and Mid-Sized Businesses
  2. Does the coronavirus trump your contractual obligations? What counts as a force majeure event?
  3. Emergency Paid Sick Leave and Emergency Family Medical Leave: What is the difference and what is the process?

U.S. Federal Reserve Announces Lending Program to Provide Financing to Small and Mid-Sized Businesses

With liquidity an ongoing concern for businesses of all sizes reeling from the effects of the COVID-19 pandemic, on April 9, 2020, the Federal Reserve announced the details of two new Main Street Lending programs – the Main Street New Loan Facility and the Main Street Expanded Loan Facility – intended to assist small and mid-sized businesses.

Using funds appropriated to it under the Coronavirus Aid, Relief and Economic Security (“CARES”) Act, the U.S. Treasury Department will make a $75 billion equity investment in a special purpose vehicle (“SPV”) for the Main Street Lending Program.  This equity investment will provide up to $600 billion in new financing to small and medium-sized businesses.

The Main Street New Loan Facility will provide new loan facilities to eligible borrowers and the Main Street Expanded Loan Program will provide eligible borrowers and lenders with loan facilities in place prior to April 8, 2020 with financing to upsize existing loan facilities by adding a tranche of term loan debt.

I. Program Details

  • The Main Street Lending Program is limited to small and mid-sized U.S. businesses – those with under 10,000 employees or with annual revenues of less than $2.5 billion – in need of financing due to “exigent circumstances”.
  • Businesses may only participate in one of the Main Street facilities: A business that receives a new loan through the Main Street New Loan Facility may not also receive an expanded loan under the Main Street Expanded Loan Program, and vice versa.
  • A business that has taken advantage of the SBA’s Paycheck Protection Loan Program is not prohibited from participating in the Main Street Lending Program.
  • Borrowers must make “reasonable efforts” to maintain their payroll and retain their employees during the term of the loan; however, unlike the SBA Paycheck Protection Program, the Main Street Loan Program does not set specific employment levels the borrower must maintain.

II. Loan Terms

New loans and expanded loans under the Main Street Lending Program are subject to the following terms:

  • Loan Fees:  A borrower will pay an origination or upsizing fee – depending upon the program – of 100 basis points.  For new loans through the Main Street New Loan Facility the fee is based on the principal amount of the loan.  For expanded loans through the Main Street Expanded Loan Program, the fee is based on the principal amount of the upsized tranche of the loan.
  • Maturity: All loans have a 4-year maturity.
  • Deferral: Amortization of principal and interest is deferred for one year.
  • Interest Rate: Adjustable rate of the SOFR plus 250-400 basis points. The SOFR is currently 0.01%.
  • Loan Size:  The minimum size of these loans is $1 million. The maximum loan size varies based on facility, the business’s outstanding and undrawn debt, and the business’s EBITDA.
    • Maximum for New Loans:  The lesser of (i) $25 million or (ii) an amount that, when added to the borrower’s existing outstanding and committed but undrawn debt, does not exceed four (4) times the borrower’s 2019 EBITDA.
    • Maximum for Expanded Loans:  The lesser of (i) $150 million, (ii) 30% of the borrower’s existing outstanding and committed but undrawn bank debt, or (iii) an amount that, when added to the borrower’s existing outstanding and committed but undrawn debt, does not exceed six (6) times the borrower’s 2019 EBITDA.

III. Restrictions

As a prerequisite to receiving a new loan or expanded loan under the Main Street Lending Program, the borrower must attest that it will follow certain compensation, stock repurchase and capital distribution restrictions. These conditions, summarized below, apply through the duration of the loan and for twelve (12) months after the date on which the loan is no longer outstanding.

  • Borrowers must not repurchase an equity security of the borrower or the borrower’s parent company that is listed on a national securities exchange, except to the extent required under a contractual obligation that is in effect as of March 27, 2020.
  • Borrowers must not pay dividends or make other capital distributions with respect to the borrower’s common stock.
  • Borrowers must comply with certain compensation restrictions:
    • No officer or employee of the borrower whose total compensation exceeded $425,000 in calendar year 2019 may (i) receive total compensation during any 12 consecutive months, exceeding his or her total compensation in 2019, (ii) or severance pay or other benefits upon termination of employment that exceeds twice the maximum total compensation received in 2019.
    • No officer or employee whose total compensation exceeded $3 million in calendar year 2019 may receive total compensation, during any 12 consecutive months, in excess of the sum of (i) $3 million and (ii) 50% of the total compensation received by that employee in calendar year 2019, in excess of $3 million.
  • Borrowers must refrain from repaying other debt of equal or lower priority, with the exception of mandatory principal payments, unless the borrower has first repaid the Main Street loan in full.
  • Borrowers must not seek to cancel or reduce any outstanding lines of credit with the lender making the Main Street loan or any other lender.

Does the coronavirus trump your contractual obligations? What counts as a force majeure event?

As the COVID-19 crisis continues to unfold, a common question facing businesses of all sizes is: “what happens if we can’t fulfill our contractual duties because of the pandemic?” The answer likely is not simple. There are several issues, arising both in contractual contexts and under the common law, to consider when a person or business cannot hold up their end of a contract due to reasons beyond their control.

In this update:

I. What are courts saying and doing?

II. Does coronavirus trigger a force majeure defense?

III. Are there other available defenses where performance is impossible or impracticable?


I. What are courts saying and doing?

At this time, it does not appear that any courts have directly analyzed these issues in the specific context of COVID-19. Although courts throughout the country are issuing decisions related to COVID-19 every day, these decisions thus far have primarily concerned court administration, requests for release of nonviolent prisoners from custody, and scheduling matters.

It is possible that some courts will be asked to hear and decide disputes related to contract performance on an emergent basis in the very near term. However, it is more likely that judicial resolution of these disputes will come months, if not years, in the future. (As an illustration of the potential timeframe: on March 13th, a federal court in Maryland issued a decision concerning this type of issue that arose during Hurricane Harvey in August 2017.)

II. Does coronavirus trigger a force majeure defense?

If you are unable to fulfill your contractual obligations due to difficulties caused by the COVID-19 crisis, the first task is to assess whether a “force majeure” defense is available under the applicable contract.

A force majeure clause is “[a] provision commonly found in contracts that frees both parties from obligation if an extraordinary event prevents one or both parties from performing.” Generally, the events that trigger such a provision must be unforeseeable, unavoidable, and beyond the control of the parties. Common examples include natural disasters, war, or “acts of God.”

In both New Jersey and New York, force majeure provisions are construed narrowly according to the specific language in the contract. This means that courts will not go out of their way to declare that a party is excused from their obligations unless it appears very clear that this is exactly what the parties agreed to. Every contract and every clause is at least a little unique, and the specific words used (or not used) in the document are critical.

This issue is, by its nature, very fact-specific. Here are the key questions to consider in order to determine whether there might be a force majeure defense to excuse you from your contractual obligations where the COVID-19 crisis makes compliance impossible.

1. Does your contract have a force majeure provision? The first step, of course, is to review the specific terms of your contract. The defense is only available if the contract has an explicit force majeure provision (such provisions are often — but not necessarily — expressly titled “force majeure,” but they may also be titled something like “failure to perform”). If not, performance may still be excused under an alternative theory such as those discussed in Section III.

But even if your contract does have a force majeure provision, that is just the beginning of the analysis. Provisions – and the extent of the protection they offer – will differ widely from one contract to another.

2. Does the provision expressly list “pandemic,” “epidemic,” “contagion,” public health emergency” or the like as a covered event? As noted above, the viability and strength of a force majeure defense depends upon the specific phrasing of the provision. This is because contracts generally list several categories of events that will excuse a failure to perform – a party raising a force majeure defense must fit the reason for their failure to perform squarely into one of the categories listed in the contract.

Though rare, some contracts include “pandemic,” “epidemic,” “contagion,” “infectious disease,” or “public health emergency” in the list of triggering events. Contract language like this will provide the strongest force majeure arguments in the COVID-19 context. But even if the provision lacks this type of specific language, there may still be an argument to be made.

3. Does the provision include “acts of God” or “government action”? In the absence of a specific reference to “pandemic” or the like,  some of the more common force majeure categories may provide protection. For example, provisions commonly refer to “natural disasters” or “acts of God.” A party may argue that a COVID-19 is a naturally occurring phenomenon and accordingly fits within those categories. Alternatively, provisions also sometimes refer to “government action” or events for which a state of emergency has been declared. If the reason that a party cannot perform its contractual obligations is that performance has been prohibited by government actions such as “stay-at-home” orders or mandatory non-essential business closures, then this type of language may provide a defense.

4. Does it include a “catch-all” event? Last, even if the force majeure provision at issue includes none of the language addressed above, a party might still base an argument upon a “catch-all” category. Some contracts include language along the lines of “or any other unforeseeable event beyond the control of the parties” as the final category of triggering events. This “catch-all” language can serve as a last-resort basis for a force majeure argument.

In the absence of court guidance, and because each contract is different, it is difficult to predict how successful these arguments would be in the event that a contract dispute turns into a lawsuit. It may seem clear to a lay person that the COVID-19 crisis is an act of God or a natural disaster, but there are several caveats. For example, as specific “pandemic” or “public health crisis” language becomes more standard in contracts, courts may be more inclined to treat such issues as distinct from natural disasters and more traditional “acts of God” such as hurricanes or earthquakes. Alternatively, following outbreaks or SARS, MERS, and H1N1 in recent years, courts may decide that a pandemic such as COVID-19 is not unforeseeable and that the absence of a specific reference to pandemic suggests that the parties considered but deliberately omitted it.

The only safe bet is that courts will take long, considered looks at force majeure arguments and will not excuse nonperformance lightly. This uncertainty may start to clear up in the future as courts begin to hear lawsuits based on the disputes that are playing out today. Until then, however, the prospect of being excused from performance at trial can be quite uncertain without favorable contract language; cooperative business solutions may prove more expedient than litigation.

III. Are there other available defenses where performance is impossible or impracticable?

If a force majeure argument is not viable (or not successful), there are several other common law doctrines that may provide relief even in the absence of contractual protection. A party that finds itself unable to perform its contractual obligations may seek relief under the doctrines of impossibility, impracticability, or frustration of purpose.

The doctrines of impossibility and impracticability are closely related. As the New Jersey Appellate Division has explained, “[a] successful defense of impossibility (or impracticability) … excuses a party from having to perform its contract obligations, where performance has become literally impossible, or at least inordinately more difficult, because of the occurrence of a supervening event that was not within the original contemplation of the contracting parties.” Generally, these doctrines will only apply where performance is “objectively impossible” – meaning that the required performance cannot be done, not just that the party in question is unable to perform. In New York, the doctrines are more strictly applied and are generally “limited to the destruction of the means of performance by an act of God, [force majeure], or by law.” Critically, the fact that performance has merely been made more expensive (even if prohibitively so) will generally not be sufficient.

“By comparison, under the related doctrine of frustration of purpose, the obligor’s performance can still be carried out, but the supervening event fundamentally has changed the nature of the parties’ overall bargain.” This doctrine applies when an unforeseen event makes performance worthless, defeating the fundamental purpose of the contract. As a New York appellate court has explained, “the frustrated purpose must be so completely the basis of the contract that, as both parties understood, without it, the transaction would have made little sense.” Well known examples include a company excused from its obligation to pay for leased neon signage after local regulation prohibited neon signs, a highway construction company excused from its obligation to purchase concrete medians after government plans were changed to eliminate the medians, and parties excused from having to pay for rooms leased for the purpose of watching a parade on the street below after the parade was postponed.

In the COVID-19 context, impossibility/impracticability or frustration of purpose excuses may be triggered where events have been canceled, supply chains have been disrupted, or certain businesses prohibited either as a direct result of public health issues or indirectly via governmental action or order.

Emergency Paid Sick Leave and Emergency Family Medical Leave: What is the difference and what is the process?

If you think you only need to monitor department of labor websites for guidance on the Emergency Paid Sick Leave Act (EPSLA) and Emergency Family Medical Leave Expansion Act (EMFMLA) under the Families First Coronavirus Response Act (FFCRA), think again. The Internal Revenue Service (IRS) has issued critical guidance to employers which (a) limits the number of eligible employees and (b) outlines the documentation employers must have in order to receive tax credits for providing employees emergency paid sick leave (EPSL) and emergency family medical leave (EFML).

The FFCRA provides businesses tax credits to cover certain costs associated with providing employees with EPSL and EFML for reasons related to COVID-19, from April 1, 2020 through December 31, 2020. Employers covered by the FFCRA include certain public employers and private employers with fewer than 500 employees. Small businesses with fewer than 50 employees may qualify for exemption from the requirement to provide leave due to school closings or childcare unavailability if the leave requirements would impact the viability of the business moving forward. Certain types of business and employees are excluded from the FFCRA.

If your employee has taken EPSL because they are unable to work or telework because they: (1) are subject to a Federal, State, or local quarantine or isolation order related to COVID-19; (2) have been advised by a health care provider to self-quarantine due to COVID-19 concerns; or (3) are experiencing symptoms of COVID-19 and are seeking a medical diagnosis, then they are entitled to either: (a) their regular rate of pay, (b) the federal minimum wage, or (c) the applicable State or local minimum wage, whichever is greater. However, this compensation is capped at $511 per day, or $5,220 over the 2 weeks of EPSL coverage.

If your employee has taken EPSL (1) to care for an individual who is subject to a Federal, State, or local quarantine or isolation order related to COVID-19 or an individual that has been instructed by a health care provider to self-quarantine due to COVID-19 concerns; (2) to care for their child whose school or place of care is closed, or child care provider is unavailable due to COVID-19; or (3) because they are experiencing any other substantially-similar condition that may be specified by the Secretary of Health and Human Services; then the employee is entitled to compensation of 2/3 of either: (a) their regular rate of pay, (b) the federal minimum wage, or (c) the applicable State or local minimum wage, whichever is greater. However, this compensation is capped at $200 per day, or $2,000 over the entire 2 weeks of EPSL coverage.

Under current USDOL guidelines, employers are not required to provide eligible employees more than 80 hours for full-time employees, or for part-time employees, the number of hours equal to the average number of hours that the employee works over a typical two-week period) of EPSL for any combination of qualifying reason. Meaning, if an employee uses their 80 hours of EPSL because they are sick, then their spouse or child becomes ill, they are not entitled to additional EPSL. However, if your business provided an employee paid sick leave for reason that would qualify under the FFRCA prior due to COVID-19 prior to April 1, 2020, then you are still obligated to provide EPSL for qualifying circumstances arising between April 1, 2020 and December 31, 2020.

Currently, the Family Medical Leave Act (FMLA) covers employees that have worked for at least 12 months; have at least 1,250 hours of service over the previous 12 months; and work at a location where at least 50 employees are employed by the employer within 75 miles. However, employees are eligible to take EFML if they have been employed by a FFCRA covered business for 30 calendar days. This includes employees who were laid off or otherwise terminated on or after March 1, 2020, had worked for the employer for at least 30 of the prior 60 calendar days, and were subsequently rehired or otherwise reemployed by the same employer. CARES Act section 3605 (amending FMLA section 110(a)(1)(A)). FMLA covers employees that are incapacitated by a serious health condition, which may include complications, or who are caring for covered family members who are incapacitated by a serious medical condition. An employee who is seeking leave for the purpose of avoiding exposure to the flu would not be protected under FMLA. However, the Equal Employment Opportunity Commission (EEOC) has opined that for Americans with Disabilities Act (ADA)-covered employers, telework may be a reasonable accommodation for employees who have specific medical conditions or disabilities that put him/her at an increased risk of influenza complications. ADA-covered employers may not inquire whether an employee has a medical condition which makes them more vulnerable, and to the degree an employee voluntarily discloses a medical condition, such disclosures must remain confidential. Further, the EEOC has cautioned against employers assuming all disabilities increase the risk of influenzas complications.

An eligible employee may only receive EFML to care for a child whose school or place of care is closed, or childcare provider is unavailable due to COVID-19 related reasons. Eligible employees of FFCRA-covered businesses are entitled to 12 weeks of EFML, consisting of the first 2 weeks being unpaid and the remaining 10 weeks being paid.

If your employee is taking EFML, they may take EPSL for the first two weeks of that leave period, or they can substitute any accrued vacation leave, personal leave, or medical or sick leave they have pursuant to company policy. Further, an employer may require an eligible employee to use EFML concurrently with any leave offered under the employer’s policies that would be available for the employee to take care of his/her child, such as vacation, personal leave or paid time off. For the following ten weeks, the employee would be paid for an amount no less than 2/3 of their regular rate of pay for the hours they would be normally scheduled to work. If the employee opts to take EPSL during the first two weeks of unpaid EFML, they will not receive more than $200 per day or $12,000 for the twelve weeks that include both EPSL and EFML when they have taken leave to care for a child whose school or place of care is closed, or child care provider is unavailable, due to COVID-19 related reasons. If the employee takes employer-provided accrued leave during those first two weeks, they are entitled to the full amount for such accrued leave, even if that is greater than $200 per day.

If an employee usually works from home or employer directs or allows an employee to telework, then the employer and employee may agree that the employee may take EPSL or EFML for any qualifying reason and in any agreed increment of time, but only when the employee is unavailable to telework because of a COVID-19 related reason. Fed. Reg. section 826.50.

Important to note is that the FFRCA does not provide coverage to employees that fall within the definition of an “emergency responder.” An emergency responder is anyone necessary for the provision of transport, care, healthcare, comfort and nutrition of such patients, or others needed for the response to COVID-19, including but not limited to:

  • military or national guard,
  • law enforcement officers,
  • correctional institution personnel,
  • firefighters,
  • emergency medical services personnel,
  • physicians, nurses,
  • public health personnel,
  • emergency medical technicians,
  • paramedics,
  • emergency management personnel,
  • 911 operators,
  • child welfare workers and service providers,
  • public works personnel, and
  • persons with skills or training in operating specialized equipment or other skills needed to provide aid in a declared emergency

Additionally, if you are a business that employs persons identified in the above non-exhaustive list, then employees whose work is necessary to maintain the operation of the facility are also excluded from EPSL and EFMLA. Further, the USDOL has stated that excluded employees include any individual whom the highest official of a State or territory, including the District of Columbia, determines is an emergency responder necessary for that State’s or territory’s or the District of Columbia’s response to COVID-19.

An employee seeking to use EPSL or EFML must make a written request and provide the employer documentation containing: (1) the employee’s name; (2) date(s) for which leave is requested; (3) qualifying reason for the leave; and (4) a statement that the employee is unable to work, including by means of telework, for such reason. If the employee’s leave request is based on a quarantine order or self-quarantine advice, the statement must include: (a) the name of the governmental entity so ordering or the name of the health care professional advising self-quarantine; and (b) if the person subject to quarantine is not the employee, that person’s name and relationship to the employee. If the leave request is based on childcare concerns, then the statement must include: (a) the name and age of the child(ren) to be cared for; (b) the name of the school that has closed or place of care that is unavailable; and (c) a representation that no other person will be providing care for the child(ren) during the period for which the employee is receiving leave.

Additionally, the IRS has made clear that it intends to further limit who is eligible for EPSL and EFMLA. In the IRS’ recently released Frequently Asked Questions it requires that if the employee’s child(ren) is older than 14, then the employee must set forth the special circumstances, during daylight hours, which necessitate the employee provide care. As is clear from the IRS’ list of mandated documentation, the employee alone must be providing care to the child, meaning if both parents/guardians or another individual is present to care for the child(ren), then EPSL and EFML would be unavailable.

In order for employers to receive tax credits for an employee’s EPSL or EFML, the employer must create and maintain documentation which includes the following information:

  • How the employer determined the amount of qualified sick and family leave wages paid to eligible employees, including records of work, telework, and qualified sick and family leave;
  • How the employer determined the amount of qualified health plan expenses that the employer allocated to wages;
  • Copies of any completed Forms 720, Advance of Employer Credits Due to COVID-19, that the employer submitted to the IRS; and
  • Copies of the completed Forms 941, Employer’s Quarterly Federal Tax Return, that the employer submitted to the IRS (or, for employers that use third party payers to meet their employment tax obligations, records of information provide to the third party payer regarding the employer’s entitlement to the credit claimed on Form 941).

Employers are required the maintain the forgoing information for at least 4 years after the date the tax becomes due or is paid, whichever comes later.

If your business needs guidance on the Emergency Paid Sick Leave Act, the Emergency Family Medical Leave Expansion Act, and/or the application of state and local laws, our experienced attorneys are here to guide you through the process.

As with any comprehensive legislation, there are various exceptions to the rule. This article is meant to provide businesses with a broad overview of the difference between emergency paid sick leave and emergency family medical leave and the documentation every business needs to have. Each employee’s application for leave should be considered on a case by case basis. We encourage employers to consult experienced counsel. 

If you need assistance or have questions during this evolving situation contact Anselmi & Carvelli, LLP today. Our attorneys are prepared to assist you.

In light of governmental mandates, Anselmi & Carvelli, LLP offices have transitioned to full remote operations. Our attorneys are still available 24-7 through email, phone, and videoconferencing to address any of your legal needs—that is our promise to you as we navigate this global health crisis. In the meantime, here are some reminders of best practices to ensure continued seamless delivery of legal services to you and your organization:

  • Use email and direct phone numbers available on our website to connect with our attorneys. Calls to the office will be transferred directly to attorney cell phones. Voicemails left at direct numbers are delivered to our attorneys in real-time.
  • Our attorneys will accommodate all meeting requests using phone and video conferencing. Our attorneys will adapt to any client-preferred conferencing technology.

Thank you for your continued trust and confidence in Anselmi & Carvelli, LLP. In return, we will be right by your side helping you and your organization to get through this challenging time.



  1. We are aware of at least one court that has received an application to relax a settlement agreement in light of payment difficulties caused by COVID-19. However, the court did not address the legal doctrines or offer any analysis in its short decision denying the requested relief.  Aguilar v. NYC Sable Inc., No. 19-CV-07135, 2020 U.S. Dist. LEXIS 54085 (S.D.N.Y. Mar. 24, 2020).
  2. Bayou Place Ltd. P’ship v. Alleppo’s Grill, Inc., No. 18-2855, 2020 U.S. Dist. LEXIS 43960 (D. Md. Mar. 13, 2020).
  3. See
  4. See, e.g., Hess Corp. v. ENI Petroleum US, LLC, 435 N.J. Super. 39, 47 (App. Div. 2014); Constellation Energy Servs. of N.Y., Inc. v. New Water St. Corp., 46 N.Y.S.3d 25, 27 (1st Dep’t 2017).
  5. For example, the fact that current NBA players’ collective bargaining agreement specified pandemic as an event allowing team owners to withhold player salaries has attracted some media attention.
  6. JB Pool Mgmt., LLC v. Four Seasons at Smithville Homeowners Ass’n, Inc., 431 N.J. Super. 233, 246 (App. Div. 2013).
  7. Kolodin v. Valenti, 979 N.Y.S.2d 587, 589 (1st Dep’t 2014).
  8. JB Pool Mgmt., 431 N.J. Super. at 246-47.
  9. PPF Safeguard, LLC v. BCR Safeguard Holding, LLC, 924 N.Y.S.2d 391, 394 (1st Dep’t 2011).
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