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“Essential Business” Analysis as to Construction

Mar 24, 2020

On March 20, 2020, the NY Governor’s Office issued Executive Order 202.8, which, among other things, mandates that all “non-essential business” implement a 100% reduction of their in-person workforce for the period from March 22, 2020, at 8 p.m. through April 19, 2020, barring any changes. Consequently, employers may only operate their “non-essential” business lines in New York State using out-of-state employees or in-state employees working from home. Pursuant to Executive Order 202.8, failure to comply with the in-person reduction constitutes a violation of Section 12 of the NY Public Health Law, subjecting non-compliant employers to penalties of up to $2,000 per violation (up to $5,000 for repeat offenders, and with the potential for even greater penalties) and injunctive relief (including business closure).

Essential businesses, as the term is defined by prior Executive Order No. 202.6, are exempt from the in-person workforce reduction, but only to the extent that the business actually supplies essential services and functions, and they are further expected to reduce their in-office staff to work from home to the maximum extent possible. Accordingly, it is important for businesses wishing to continue their onsite operations within New York State to determine which of their lines of business, if any, qualify as “essential” under the executive order.

As required by Executive Order 202.6, on March 19, 2020, the Empire State Development Corp. (“ESD”) issued further guidance, clarifying those functions for which an entity may be considered an “Essential Business.”   In response to a plethora of questions as to the limitations of the designation, ESD has since clarified – informally at least – that the construction exemption broadly applies to “all construction.” Consistently, numerous state agencies have been clear as to the application to those contractors, as well as their subcontractors and suppliers, providing services pursuant to their respective capital plans.

While ESD’s informal clarification helps to further clarify its initial guidance, some confusion remains regarding the scope of the Essential Business construction exemption, particularly with respect to its application to private work downstream subcontractors, material suppliers and professionals. Further clarification is expected from ESD this week, and all issues surrounding the exemptions remains highly fluid and unstable, as the State continues to manage the ever-evolving COVID-19 coronavirus crisis.

Please check back for updates on this rapidly developing situation.