Federal Gov't Memos Can't Override State COVID-19 Closures

Law360 (March 23, 2020, 7:15 PM EDT) --
Jeffrey Bialos
Jeffrey Bialos
Erin Park
Erin Park
The U.S. Department of Homeland Security and the U.S. Department of Defense each issued memoranda late last week that provide guidance on what constitutes a critical infrastructure industry.

This federal list of covered industries has implications for a broad range of U.S. businesses across the economy facing shutdown orders and other protective measures announced by numerous states and localities. The guidance applies to firms in medical and health care, telecommunications, information technology systems, defense and aerospace, food and agriculture, and transportation and logistics industries, among other areas.

While the federal memoranda are advisory only and do not have the force and effect of law, they do provide a basis for states and localities to craft exemptions for such critical infrastructure industries and for firms to use to seek exemptions from existing orders to keep their security-related operations open.

Businesses should ultimately be aware, however, that this federal guidance does not overrule state and local directives that require their businesses to close. Some businesses with federal contracts that support national security requirements (including in the defense industrial base) thus may face difficult choices between federal guidance and contractual obligations in the near term.

The Challenge: Balancing Mitigation With the Need for Continuity of Essential Businesses

As the U.S. response to the coronavirus crisis has escalated in order to mitigate the spread of the disease, states and localities have issued orders that vary in scope, and have different definitions of essential businesses that are exempt from the close down requirements.

States and localities have recognized the need to balance mitigation efforts against the maintenance of critical sectors that affect people’s lives as well as their security. While some states and localities explicitly exempt firms in the defense industrial base (see, e.g., the California order),[1] others are less clear.

Thus, companies in critical industries, such as defense, have been struggling with how to deal with these orders in light of their obligations under federal government contracts, including the fact that many such contracts are rated and afforded priority over commercial contracts pursuant to the Defense Priorities and Allocation System, or DPAS, regulations issued by the U.S. Department of Commerce under the Defense Production Act.

Indeed, a number of industry groups whose members participate in federal contracts in support of public health, emergency, defense and other national security requirements have been asking the federal government to issue consistent guidance on these issues.

Their overtures may have, in part, prompted these memoranda. Federal officials have been meeting with a number of these groups to consider the impact of the coronavirus crisis on defense, emergency and other critical programs.

Presidential Guidance

In this context, the federal government has now provided some advisory guidance that can inform the judgments of state and local governments as well as businesses. Specifically, on March 16, President Donald Trump issued updated coronavirus guidance, which states:

If you work in a critical infrastructure industry, as defined by the Department of Homeland Security, such as [health care] services and pharmaceutical and food supply, you have a special responsibility to maintain your normal work schedule.[2]

Department of Homeland Security Memorandum

To implement this broad guidance, on March 19, the U.S. Cybersecurity and Infrastructure Security Agency, or CISA, of the Department of Homeland Security issued a memorandum that identifies a list of essential critical infrastructure workers to help state and local authorities as they work to protect their communities while ensuring continuity of functions critical to the public health and safety, as well as economic and national security.

What Sectors are Covered

The detailed, seven-page CISA list covers broad swaths of the economy, including firms in broad aspects of medical and health care, telecommunications, information technology systems, defense, food and agriculture, transportation and logistics, energy, water and wastewater, law enforcement, and public works.

It also includes more select functions in financial services (e.g., workers needed to maintain processing of financial transactions), chemicals, and hazardous materials (e.g., workers at nuclear facilities).

In issuing this guidance, however, CISA makes it clear that its list is “advisory in nature. It is not, nor should it be considered to be, a federal directive or standard in and of itself.”

Thus, the memorandum is not based on federal legislation that empowers the federal government to adopt nationwide rules that, under the supremacy clause of the Constitution, would override inconsistent state requirements.

Indeed, the CISA memo explicitly recognizes that the critical list could change as the crisis evolves and that the list is intended as guidance for state and local officials and the private sector to consider. Significantly, it makes it clear that “[s]tate and local officials should use their own judgment in using their authorities and issuing implementation directives and guidance.”

Department of Defense Memorandum

Similarly, on March 20, the U.S. Department of Defense, through the undersecretary of defense for acquisition and sustainment, issued a memorandum addressed to the so-called defense industrial base, which in turn defines what defense industrial sectors are covered as critical infrastructure.

Fundamentally, the memorandum makes it clear that firms that provide design, development, production, maintenance, logistics and related services to support federal contracts to meet national security requirements are covered.

Specifically, the memorandum makes it clear that the essential critical infrastructure workforce for the defense industrial base includes “workers who support the essential product and services required to meet national security commitments to the [f]ederal [g]overnment and the U.S. [m]ilitary.”

The list of workers who support such federal commitments is long, and

include[s], but [is] not limited to, aerospace; mechanical and software engineers; manufacturing/production workers; IT support; security staff; security personnel; intelligence support, aircraft and weapons systems mechanics and maintainers; suppliers of medical supplies and pharmaceuticals; and critical transportation.

Moreover, because defense programs, by definition, typically involve prime contractors and multiple layers of subcontractors, it is clear that the various different participants in the defense supply chain that support the DOD would be covered as well.

The memorandum also notes that included are “personnel working for companies and their contractors, who perform under contract to the Department of Defense providing materials and services to the Department of Defense and government-owned/contractor-operated and government-owned/government-operated facilities.”

To be sure, the DOD memorandum, like the CISA memorandum, is advisory only — and states that “[e]veryone should follow guidance from the Centers for Disease Control and Prevention as well as [s]tate and local government officials regarding strategies to limit disease spread” — which, by implication, includes state and local shutdown orders.

An Expectation to Continue Normal Work Schedules

Nevertheless, in a statement that sounds somewhat more than advisory (i.e., more directive in nature), the DOD memorandum makes it clear that “[c]ompanies aligned with the critical infrastructure workforce definition are expected to maintain their normal work schedules.”

While unstated, the apparent purpose of this somewhat directive guidance is to strongly encourage state and local governments to exempt defense industrial base participants from its scope.

Implications for Industry

In sum, U.S. businesses potentially within the scope of critical industries identified in these memoranda should recognize that the federal guidance is not a legal directive, does not have the force and effect of law and, therefore, does not override state or local shutdown orders.

What the memoranda do offer, however, is guidance that industries can use in discussing the scope of shutdown orders with state and local governments, and seeking to convince them to offer exemptions to firms considered critical under the federal guidance.

Accordingly, companies need to take this federal guidance into account when deciding how to deal with state and local close down directives — including especially those that conflict with their obligations under federal contracts to meet national security needs.

In making judgments on how to proceed in these challenging situations on a case-by-case basis, companies also need to evaluate a range of other considerations:

  • Only a segment of a business is critical: Consider how to handle situations where only some segment of a business’s operations (perhaps a facility, or part of a facility) are critical under federal guidance and state or local directives.

  • Force majeure provisions: Consider the potential invocation of commercial force majeure clauses and similar government contract clauses on excusable delays in addressing these challenging situations.

  • DPAS rules: Consider how to address the requirements inherent in rated orders under DPAS rules, including whether to provide notice of the inability to perform or to instead seek to rely on a DPAS provision that immunizes from penalties or fines actions or inactions undertaken in accordance with the DPAS rules (e.g., such as compliance with rated orders).

Jeffrey P. Bialos is a partner at Eversheds Sutherland and former deputy undersecretary of defense.

Erin D. Park is an associate at Eversheds Sutherland.

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] https://www.gov.ca.gov/wp-content/uploads/2020/03/3.19.20-attested-EO-N-33-20-COVID-19-HEALTH-ORDER.pdf.

[2] https://www.whitehouse.gov/briefings-statements/coronavirus-guidelines-america/.

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