CARES Act Section 3610 – Part 2: A Rock and A Hard Place

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In this second part of our blog series on the CARES Act Section 3610 (visit this link for Part 1), we move on to the conflicting information out there, and the basis of one of the most frequently asked questions we receive: What is the potential conflict between state shelter-in-place orders and federal contract performance requirements? State shelter-in-place orders come with various enforcement mechanisms, some of which include large fines and even imprisonment. This is true in, for example, California, used here to demonstrate the application of a relatively strict shelter-in-place order. However, even the more restrictive states like California make a few exceptions to the shelter-in-place orders, most notably in the area of “critical industries.” In general, each employee’s specific job duties control whether an employee is in a critical industry, and thus is exempt from California’s Shelter In Place Order. However, that order has a convenient loophole linking it to the federal interpretation of “critical infrastructure sectors.” Specifically, it points to the CISA website, which states that there are 16 critical industries. These industries are:

  1. Chemical Sector
  2. Commercial Facilities Sector
  3. Communications Sector
  4. Critical Manufacturing Sector
  5. Dams Sector
  6. Defense Industrial Base Sector
  7. Emergency Services Sector
  8. Energy Sector
 
  1. Financial Services Sector
  2. Food and Agriculture Sector
  3. Government Facilities Sector
  4. Healthcare and Public Health Sector
  5. Information Technology Sector
  6. Nuclear Reactors, Materials, and Waste Sector
  7. Transportation Systems Sector
  8. Water and Wastewater Systems Sector

So, if you have employees in California, and their work falls tidily into one of the above sectors, they will be able to continue working more or less as usual (while practicing social distancing, as required in the order). However, if it does not fall into one of these sectors, then you and your employees may have to choose between violating state law and defaulting on a federal contract.

Regarding California law, according to Cal. Gov. Code § 8665, anyone who “violates any of the provisions of this chapter or who refuses or willfully neglects to obey any lawful order or regulation promulgated or issued as provided in this chapter, shall be guilty of a misdemeanor and, upon conviction thereof, shall be punishable by a fine of not to exceed one thousand dollars ($1,000) or by imprisonment for not to exceed six months or by both such fine and imprisonment.” There is a single case that cites to this penalty provision; in that case, the individual in question was notified of an order, and then was warned of noncompliance with the order.[1] Following the warning, the state demanded the individual comply, and then arrested him and charged him with a misdemeanor when he did not. The point of the case was to determine if this individual could still be charged with noncompliance with the order following expiration of that order. The individual was convicted because while the order expired, the statute authorizing the misdemeanor charge did not.

Accordingly, employees who violate the order could potentially be charged with a misdemeanor for any violation. It is unclear from this solitary case whether the employer would be vicariously liable. (The other statutory authority the order cites (Cal. Gov. Code §§ 8567 and 8627) similarly has no clarification regarding individual versus corporate liability, and neither does the case law that cites thereto.)

Regarding breach of a federal contract, the usual termination for default provisions would apply, unless there is some other provision in an individual contract. TEVET would be in default of its contracts if it failed to perform, per the default clauses in FAR 52.249-xx (or FAR 52.212-4(g), if the contract is for commercial items). However, the termination guidance in FAR Part 49 indicates that the government should take into account “applicable laws and regulations,” which arguably include state law.[2] Further, the Office of Management and Budget (OMB) previously issued a memo stating that the government should work with contractors to implement telework policies and other applicable procedures.

Thus, while your contracts absolutely could be terminated for default if you choose to comply with state law instead of the terms of your contracts, the OMB guidance seems to be pushing the government away from such terminations, and you would have a good argument for conversion to a termination for convenience. Of course, we would rather avoid termination at all, but there are options if the worst does happen.

So while many stay-at-home orders wane, it is certainly possible a second, even more serious, phase of the pandemic occurs this fall and, as such, contractors should be aware of these conflicts in case things tighten up again in the future.


[1] See Martin v. Municipal Court, 196 Cal. Rptr. 218, 219 (Cal. Ct. App. 1983). The order in question was an order to harvest unripe fruit in an attempt to stave off a fruit fly plague.

[2] See, e.g., FAR 49.402-3(f)(1).

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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