News Type: Blogs

In the aftermath of World War II, governments around the world signed onto the United Nations Charter, which codified the major principles of international relations: maintaining international peace and security, protecting human rights, delivering humanitarian aid, and supporting sustainable development.

These bedrock principles were originally stated in 1945. Seventy-eight years later, leaders from around the globe and their top diplomats have gathered in New York once again for the annual meeting of the UN General Assembly. Given the state of our world, there were continued calls for reform in the UN organization at the meetings, particularly with regard to the UN Security Council, which is dominated by five nations-China, France, Russia, the United Kingdom and the United States- all with veto powers.

No doubt about it, the cries for a reform of the Security Council have become much louder of late, especially in the wake of Russia’s invasion of Ukraine. Invasion aside, this is not a new debate for the international community.

The world has changed significantly since 1945. Back then, the global population was around 2.3 billion and there were only 51 founding members of the UN. Today, our planet is home to nearly 8 billion people and the UN has over 190 member states. Beyond those numbers, there has been a major shift in the economic centers of gravity across the globe-so much so that it is no longer possible to maintain worldwide peace and prosperity under Security Council as currently configured.

The U.S. has been seeking an increase in the permanent and non-permanent members of the Security Council for some time. Brazil, Germany, India and Japan, known as the G4 governments, are also advocating for equal permanent memberships, and another group-dubbed Uniting for Consensus and including Argentina, Canada, Colombia, Costa Rica, Italy, Malta, Mexico, Pakistan, Republic of Korea, San Marino, Spain and Türkiye-are calling for an increase to the number of elected members of the Security Council as well. So too is the African Union, which wants additional permanent and elected seats on the Security Council for the African nations.

Of note, Security Council reform has been on the table ever since 1992, when a working group was put in place to review reform methods. Three decades later, the needle has yet to move, which is reflective of the size of the challenge.

Truth be told, the glaring lack of action in terms of reform is not surprising. The interests of many sovereigns are far from aligned. And even for those nations that are united in their call for change, a consensus as to methods of reform is hard to come by. Conflict regarding the addition of more permanent and elected seats, issues around dilution, whether to preserve or eliminate certain veto powers, and the criteria for new membership (economics, population, military might) remain.

By virtue of the current impasse, world leaders must seize upon a more practical solution to the problems associated with Security Council reform. As otherwise stated, a healthy international legal order is needed to ensure a peaceful global order.

The fastest path to reform could be forged by establishing a secretariat for the G-20 and involving its members in the issues before the Security Council. Indeed, this approach could gradually evolve into the delegation of duties from the Security Council to the G-20, which would make for a more fair and secure platform to achieve the goals of the UN Charter given the representation of the world populations and economies on the G-20.

In the wake of the annual meeting of the UN General Assembly, the time is now to harness the G-20 as a practical tool to achieve the UN Charters stated objectives, above all else, peace and security.

This blog post is not offered, and should not be relied on, as legal advice. You should consult an attorney for advice in specific situations.

The recent recommendation by the U.S. Department of Health and Human Services to reclassify marijuana as a Schedule III controlled substance has sent ripples across multiple sectors, the real estate space included. The prospect of marijuana’s reclassification from its current Schedule I status could dramatically alter the legal landscape in which real estate professionals and investors operate. Here, the potential implications of this proposed change are addressed.

Zoning and Land Use Regulations

Presently, the Schedule I status of marijuana imposes strict limitations on where dispensaries, cultivation centers, and manufacturing facilities can be located. These federal restrictions often dovetail with state and local zoning rules, creating a highly complex matrix of laws that operators must navigate. Reclassification to Schedule III could potentially simplify zoning regulations, allowing investors greater flexibility when selecting locations for cannabis-related businesses.

Real Estate Financing

Currently, securing financial backing for a cannabis-related real estate deal can be an arduous process. Most major financial institutions are reluctant to engage in transactions involving Schedule I substances due to the inherent legal risks. However, moving marijuana to Schedule III could make banks and institutional investors more amenable to offering financing for cannabis-related real estate transactions. This would likely spur a wave of new developments and transactions in the sector.

Lease Agreements and Contract Law

Landlords and tenants in the cannabis industry often face unique challenges in contractual relationships due to the current federal classification of marijuana. Lease agreements often incorporate specific clauses that address the legal uncertainties surrounding cannabis-related businesses. Reclassification could result in a normalization of these relationships, allowing for more standard lease agreements and thereby reducing legal costs and complexities for both parties.

Federal Asset Forfeiture Risks

Under existing laws, properties involved in the production, storage, or sale of Schedule I substances are subject to federal asset forfeiture. This creates a significant risk for property owners and investors. A downgrade in marijuana’s classification would likely reduce these risks, making real estate investment in the sector a more secure proposition.

Public Sentiment and Market Demand

The reclassification of marijuana would send a strong signal to the market that the federal government recognizes the substance’s medical potential and lower abuse risk. This could further destigmatize marijuana use and increase market demand, driving up property values in zones earmarked for cannabis-related activities.

Lingering Challenges

While reclassification of marijuana from Schedule I to Schedule III would address several existing obstacles, it would not eliminate them entirely. For instance, the conflict between federal and state laws would still exist. For their part, real estate stakeholders would still need to be vigilant about local ordinances that may place restrictions on cannabis-related businesses.

Without question, reclassification of marijuana would constitute a watershed moment in both the cannabis and real estate industries. Nonetheless, while it would resolve certain existing challenges, reclassification would not completely alleviate the legal complexities inherent when these two sectors intersect. Therefore, it is essential for real estate professionals to remain well-informed and consult legal expertise to navigate the evolving landscape successfully.

This blog post is not offered, and should not be relied on, as legal advice. You should consult an attorney for advice in specific situations.

The Implications of Marijuana’s Potential Reclassification for the Healthcare

As word spreads about the U.S. Department of Health and Human Services’ recent recommendation to reclassify marijuana from a Schedule I to a Schedule III controlled substance, healthcare providers, insurers, and pharmaceutical companies are justifiably keen to understand the full scope of this proposed change. This article provides an overview of just how reclassification would reverberate throughout the healthcare industry.

Expanded Research Capabilities

Currently, marijuana’s Schedule I status severely curtails medical research by imposing rigorous regulatory hurdles, including stringent DEA approval requirements and a limited supply of research-grade cannabis. A reclassification to Schedule III would relax these constraints, permitting an acceleration in clinical trials and research. This could yield new cannabis-based medical treatments and significantly expand our understanding of marijuana’s therapeutic effects. Moreover, partnerships between academic research institutions and the private sector could flourish, advancing more rapid and diverse studies.

Prescribing Regulations

Moving marijuana to Schedule III would affect prescribing practices. Unlike Schedule I substances, Schedule III drugs can be prescribed by a healthcare provider, but with certain restrictions. Providers would need to familiarize themselves with these new rules and possibly undergo specific training to prescribe cannabis-based products legally, even opening up new specialized health insurance products.

Insurance Coverage

The Schedule I status of marijuana has long been a sticking point in the insurance industry, making it virtually impossible for patients to get coverage for medical cannabis treatments. A change in federal classification would likely lead to a re-evaluation of insurance policies concerning marijuana. While immediate universal coverage is improbable, incremental changes could result in more comprehensive insurance options for patients seeking cannabis-based therapies.

Drug Scheduling and Pharmacy Distribution

Currently, marijuana products are generally distributed through specialized dispensaries. A shift to Schedule III would open the possibility for mainstream pharmacies to dispense cannabis-based medications, under strict regulations. Pharmacies and healthcare facilities would need to adhere to new guidelines for the storage, prescription, and sale of these products, a change that would require legal oversight and compliance procedures. Furthermore, pharmaceutical companies may compete for patents and FDA approval of specific cannabis-based drugs, changing the competitive landscape.

Risk Management and Liability

Healthcare providers prescribing or administering cannabis-based treatments would find themselves navigating a new landscape of potential risks and liabilities. Medical malpractice insurance policies may need to be updated to include cannabis-related treatments, and informed consent procedures would need to be revised to incorporate the specific risks and benefits associated with such therapies.

Regulatory Compliance

Should the proposed reclassification materialize, healthcare institutions would need to update their compliance programs to incorporate new federal and state regulations concerning the use and prescription of cannabis-based products. Failure to adhere to these evolving guidelines could result in legal penalties, including fines and potential revocation of medical licenses. Telemedicine protocols for prescribing cannabis could also come into play, requiring an update to existing telehealth regulations.

Ethical Considerations

Beyond the legal implications, healthcare providers would face ethical questions, particularly regarding the prescription of cannabis for certain patient demographics like minors or pregnant women. This would necessitate revising ethical guidelines and potentially require consultations with ethics committees to navigate complex scenarios. The potential for increased recreational use also raises public health concerns, especially among adolescents.

The possible reclassification of marijuana could serve as a transformative catalyst in the healthcare sector, presenting new opportunities, challenges, and legal complexities. Given the seismic shifts that would result should cannabis be classified as a Schedule III substance, which could happen as early as 2024, it is imperative for stakeholders in the healthcare industry to seek informed legal counsel to prepare for the challenges and opportunities that lie ahead and navigate the intricacies of this evolving landscape effectively.

This blog post is not offered, and should not be relied on, as legal advice. You should consult an attorney for advice in specific situations. 

The U.S. Department of Health and Human Services’ recent call to the Drug Enforcement Agency for the reclassification of marijuana to a Schedule III substance under the Controlled Substances Act has roused considerable attention across industries. For those in the burgeoning cannabis space, it represents a potential paradigm shift, though the potential move is not without its drawbacks. This analysis aims to dissect the prospective changes that reclassification could engender for marijuana-related businesses.

Corporate Governance and Compliance

The reclassification of marijuana to a Schedule III drug would necessitate an extensive review of existing compliance protocols for cannabis-related businesses. Regulatory frameworks would be expected to evolve, affecting licensing, distribution, and marketing strategies. Companies would be well-advised to anticipate such changes and adapt their compliance mechanisms accordingly. Moreover, the acknowledgment of marijuana’s medicinal benefits could open up avenues for more FDA-approved medical applications and pharmaceutical collaborations.

The Stock Market and Investment

Investors have already reacted positively to the news of the possible reclassification of marijuana, as evidenced by a spike in cannabis-related stocks. Reclassification could also pave the way for these cannabis companies to be listed on major stock exchanges, providing an infusion of investment capital that could catalyze further growth. Additionally, reclassification could open up the U.S. market for foreign cannabis companies, leading to a more globalized marketplace.

Taxation Ramifications

Currently, marijuana is classified as a Schedule I substance, rendering it subject to severe federal restrictions and penalties. Critically for corporate interests, Section 280E of the Internal Revenue Code prohibits businesses dealing with Schedule I substances from claiming standard tax deductions or credits. As a result, cannabis enterprises have been shouldering taxes on their total revenue without the ability to offset taxable income through standard business deductions. A transition to Schedule III would not only relieve this tax burden but also enable interstate commerce, adding a new dimension of business expansion opportunities.

Remaining Challenges and Criticisms

It is crucial to note, however, that mere reclassification of marijuana to a Schedule III substance would fall short of resolving some broader legal challenges, most notably the conflicts between state and federal law. While a Schedule III status would signify federal acquiescence to some extent, it would not end the disconnect between federal illegality and state legalization efforts. Nor would it necessarily mitigate ongoing social justice issues related to marijuana criminalization.

The prospective reclassification currently under the microscope is undoubtedly a watershed moment in federal drug policy and offers several benefits for marijuana-related enterprises. That being said, it is not an end-all solution and cannabis-related companies should remain agile, attentive to forthcoming regulatory changes, and prepared to navigate a landscape that remains fraught with legal intricacies and social implications. With the possibility of reclassification as early as 2024, ahead of the Presidential elections, companies should be prepared for rapid policy shifts and should adjust their corporate strategies accordingly.

No doubt about it, as we move closer to a potential reclassification, perhaps as early as 2024, proactive legal strategy will be paramount for corporate success in this complex and evolving sector.

This blog post is not offered, and should not be relied on, as legal advice. You should consult an attorney for advice in specific situations.

Effective April 1, 2023, the City of Los Angeles will impose a so-called “Mansion Tax” upon commercial and residential property sales exceeding $5 million (certain housing, non-profit, and public entities will be exempt).

The new tax rate of 4% will apply to qualifying properties sold for more than $5 million but less than $10 million. Commercial and residential real estate traded for $10 million or more will be subject to a 5.5% tax rate. The Mansion Tax will not replace or modify existing documentary transfer taxes in L.A. Instead, it is to be an additional documentary transfer tax calculated based on the gross sale amount of property-existing debt will not reduce the tax basis.

By way of example, after April 1, the seller of a $10 million multi-family property in L.A. will be hit with a Mansion Tax bill of $550,000 (5.5% of the sale price)-this in addition to ordinary city and county transfer taxes that can total ~$56,000. Proceeds generated by the Mansion Tax-estimated to be between approximately $600 million and $1.1 billion annually-are intended to address the city’s homeless problem by funding affordable housing and tenant assistance programs.

As the April 1 effective date fast approaches, those thinking about selling real property in L.A. may want to act now to avoid the imposition of the Mansion Tax. That being said, the real estate professionals at Michelman & Robinson, LLP stand ready to provide any counsel you may need.

This blog post is not offered, and should not be relied on, as legal advice. You should consult an attorney for advice in specific situations.

It looks as though retail businesses employing 300 or more workers globally will soon be subject to a new set of requirements related to their employees within the City of Los Angeles.

Last week (on November 29), the L.A. City Council passed the Fair Work Week Ordinance, intended to “promote the health, safety, and welfare of retail workers in the City by providing them with a more predictable work schedule that ensures stability for themselves and their families and the opportunity to work more hours.” The Ordinance now goes to Mayor Eric Garcetti for his signature and if signed into law, as expected, qualifying retailers in L.A. will be faced with even more burdens around employee scheduling and pay. In anticipation of this apparent inevitability, Michelman & Robinson, LLP provides this overview of the new law.

Affected Employers

As referenced, the Ordinance applies to retail businesses or establishments that employ 300 or more employees worldwide. This includes, but is not limited to, motor vehicle and parts dealers, building material and garden equipment dealers, food and beverage retailers, grocery retailers, and electronics and appliance retailers. For purposes of this alert, all references to employer(s) are intended to be limited to qualifying dealers and retailers.

Affected Employees

The Ordinance applies to any individual employed by an employer. To the extent an employer contends that the Ordinance does not apply in any given circumstance, it has the burden of showing that a worker is not an employee under the law.

Requirements Under the Ordinance

Good Faith Estimate: Before hiring, employers must provide a good faith estimate of their would-be employees’ work schedules. Employers that deviate too far from this estimate in actual scheduling will need to provide a legitimate business reason to explain the deviation.

Right to Request Change: Employees have the right to request preferences for work hours and location. Employers may accept or deny these requests but must provide a reason for any denials in writing.

Work Schedule: Employers must provide employees with written notice of their work schedules at least 14 days in advance. Further, employers must provide written notice of any change that occurs after the two-week notice requirement. Employees have the right to decline any schedule changes. If an employee accepts a proposed change, the acceptance must be in writing.

Predictable Pay: If an employee agrees to a schedule change that does not result in loss of time or results in 15 or more minutes of additional work, the employer shall give an extra hour of pay at the employee’s regular rate. For example, if an employee is scheduled to work four hours on a Monday and agrees instead to work four hours on the following Tuesday, the employee will be eligible to be paid for an extra hour. Further, if the employee’s hours are reduced 15 or more minutes from what was indicated on a schedule, the employee shall receive half time for any time not worked. These pay requirements will not apply in certain circumstances including, but not limited to, (1) where an employee requests a change or (2) extra hours require overtime pay.

Additional Work Offerings: Before hiring new employees or using outside workers, employers must first offer existing work to current employees if one or more is qualified to do the job and the additional work would not result in overtime pay. Employers must make this offer of employment 72 hours before hiring someone new and must give current employees at least 48 hours to accept in writing.

Coverage:Employers cannot require employees to find coverage if they miss a shift for a reason covered by law.

Rest Between Shifts:Employers cannot schedule any employee for two consecutive shifts with less than 10 hours of rest in between them without written consent of the employee. If the employee does consent, he/she/they will be paid time and a half for the second shift.

Retention of Records: Employers must retain records for at least three years demonstrating compliance with the Ordinance as it pertains to current and past employees. Upon request, the Designated Administrative Agency (DAA)- in this case, the Office of Wage Standards (OWS) of the Bureau of Contract Administration-must be given access to these records, which include work schedules, copies of written offers to employees for additional work, and other correspondence with employees regarding scheduling.

Posting Notice: Employers must post notices about the Ordinance to be provided by the DAA in English, Spanish, Chinese (Cantonese and Mandarin), Hindi, Vietnamese, Tagalog, Korean, Japanese, Thai, Armenian, Russian and Farsi, and any other language spoken by at least five percent of employees at any given workplace.

Retaliation Prohibited: Employers may not retaliate against employees for exercising their rights under the Ordinance.

If approved, the Ordinance will take effect in April 2023. Assuming it becomes law, the Ordinance will not be subject to waiver and violations will result in civil penalties up to $500 per infraction. Not only that, employees will also have a private right of action in the event of an alleged infraction. Of course, we will continue to monitor the progression of the Ordinance and report back if and when the Mayor signs it into law. In the meantime (and given the potential for legal exposure), it is essential that employers prepare for the enactment of the Ordinance as soon as is practicable.

This blog post is not offered, and should not be relied on, as legal advice. You should consult an attorney for advice in specific situations.

There is groundbreaking news to report in the fast-food industry, at least in California. This month, Governor Gavin Newsom signed into law a bill (AB 257, the Fast-Food Accountability and Standards (FAST) Recovery Act) that puts the power to set minimum wages and working conditions for fast-food workers into the hands of a new council of employees, employers and union activists.

Formerly the domain of state and federal lawmakers, governance of the fast-food employment landscape will now be tasked to a 10-member government-appointed council that will operate within the California Department of Industrial Relations. This group will set minimum standards on wages, maximum allowable hours of work, working conditions, and training for fast-food restaurant employees.

The new law is a big win for unions. Pursuant to the terms of the bill, the council can authorize an increase of the minimum wage earned by fast-food employees up to $22 an hour in 2023. For 2024, the council can raise the hourly minimum wage by another 3.5% or a figure pegged to the U.S. consumer price index. In addition, the law now provides employees with another direct pathway to sue employers. Specifically, it authorizes fast-food restaurant workers to bring causes of action for discharge, discrimination, or retaliation for exercising rights under the FAST Recovery Act.

While a boon for more than 550,000 fast-food workers operating in approximately 30,000 locations throughout the Golden State, franchise owners may be hit hard by the law giving workers a seat at the table in terms of compensation and workplace health and safety. Importantly, the bill’s requirements only apply to fast-food establishments consisting of 100 or more locations nationally-those that (1) share a common brand or are characterized by standardized options for decor, marketing, packaging, products, and services; and (2) provide food or beverage for immediate consumption on or off premises to customers who order and pay for food before eating, with items prepared in advance or with items prepared or heated quickly, and with limited or no table service.

Going forward, fast-food operators outside California may want to pay close attention to this development, as the law may well serve as a model in other jurisdictions throughout the country. Of course, if you have any questions about AB 257 or any other employment-related inquiries, the employment specialists at Michelman & Robinson, LLP are here with answers.

This blog post is not offered, and should not be relied on, as legal advice. You should consult an attorney for advice in specific situations.

Scan the headlines on any given day and you’re likely to come across stories about NIL rights and NFTs, both oftentimes selling for jaw-dropping amounts of money (at least before the cratering cryptocurrency market took a bite out of NFT valuations). Until recently, however, these two acronyms-which’ve become part of our daily vernacular-have rarely been uttered in the same breath. That’s no longer the case.

New laws creating previously unheard-of opportunities for student-athletes to sell the rights to their names, images and likenesses rights and cash in on their notoriety have proliferated in lockstep with companies looking to leverage non-fungible tokens as a marketing tool. The result: a slew of NFT deals between brands-which still see NFTs as promising for customer engagement despite the crypto downturn-and collegiate (and even high school) stars flexing their NIL muscles.

The University of Iowa’s Luka Garza and Gonzaga’s Jalen Suggs were pioneers when they minted NFTs just after finishing their final seasons in the NCAA back in March 2021. Since then, many student-athletes have taken their lead, including Ga’Quincy “Kool-Aid” McKinstry of the University of Alabama, who just about a year ago came to terms on a signing day NFT with Kraft Foods, Inc., makers of the Kool-Aid drink.

By some accounts, corporations have earmarked more cash toward NFTs than any other segment of the NIL market. But given the tenuous crypto landscape and relative nascency of NFT-based NIL deals, the burning question is whether brands will stay the course. All indications suggest the answer to be yes, in which case there are a variety of legal considerations for these companies to take into account.

The same is true for athletes and athletic departments given that NFTs are also a vehicle by which students can monetize their personal brands-even, in some cases, without the need for negotiating sponsorship deals. Toward that end, several major basketball programs-the University of Kansas and University of Kentucky, among them-have announced NFT deals; dozens of top collegians have signed with The Player’s Lounge, an NFT-backed community for college fans; and former NFL star Tim Tebow launched a company focused on creating NFTs through a partnership with the INFLCR+ Local Exchange.

Consequently, all participants in the NIL/NFT game would be wise to keep all of the following top of mind.

SEC Also Stands for Security and Exchange Commission

For many, NFTs are speculative assets, purchased as investments assuming their values will increase over time, in which case they can be sold at a profit. As such, despite their digital

characteristics, NFTs run the risk of being considered “securities” for purposes of their treatment under the law. Enter the SEC-no, not the Southeastern Conference.

Under the Securities Act of 1933, a security is essentially any type of negotiable instrument that represents some type of financial value. Some that immediately come to mind include fungible investments like stocks and bonds. But the definition of securities as set forth by the U.S. Supreme Court also includes “investment contracts,” meaning an “investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others.” This so-called Howey Test means that release of an NFT could implicate federal securities law.

For instance, should an NFT be purchased with the intent of licensing the underlying asset, or reselling copies for profit, then securities laws could potentially come into play. And if characterized as a security after satisfying the Howey analysis, any given NIL-related NFT would be subject to heavy duty scrutiny and regulation by the SEC, particularly when it comes time to sell the token. In that instance, the sale would require registration with the SEC, unless an exemption under federal securities law applied, and the NFT would fall under state “blue sky” laws. There is more. Platforms facilitating any NFT transaction-including the likes of the aforementioned universities and Player’s Lounge-might have to register as a securities exchange, alternative trading system, and/or as a broker-dealer.

Copyrights Matter

Intellectual property interests, namely copyrights, should always be a topic flashing brightly on the radar screens of anyone dabbling in the NFT marketplace. Indeed, parties to an NFT transaction must understand the importance of obtaining appropriate IP rights prior to consummating an exchange.

To be clear, NFT creators have to tread lightly when leveraging the work of others. More specifically, permission must be obtained from the owner of a copyright before a third-party creation is incorporated into an NFT, especially one positioned for sale. The failure to do so could subject the originator of an NFT-be it a brand, university or student-athlete-to legal action and financial exposure in the form of copyright infringement litigation. By way of example, this could happen where an NFT incorporates the logo or other IP of a school or athletic conference.

The IRS

Student-athletes and their advisors must remember that tax implications follow most every transaction, and that includes the exchange of NFTs. When selling these digital tokens, tax laws apply and need to be followed to avoid any discrepancies with the IRS.

NFT deals are typically considered to be barter transactions for tax purposes, as tokens are generally characterized as property, as opposed to currency, by the Internal Revenue Service.

This means that the fair market value of these assets must be reported on tax returns as income, and sales are to be set forth as capital gains.

For creators, tax repercussions may be ongoing. Another extraordinary aspect of NFTs is a feature that allows digital artists and other originators to be paid a percentage whenever the tokens they created are resold. Thus, NFTs can function as an annuity for their creators, who may participate in financial gains over time, thus triggering the potential of future taxation.

NIL Compliance +

With the advent of NIL laws have come compliance obligations and other miscellaneous concerns to be contemplated by those ready to ink an NFT deal.

Agreements between NFT creators, student-athletes, brands and/or exchanges must comply with all applicable state laws, not to mention SEC regulations and Federal Trade Commission (FTC) rules governing the advertising of products and services. Likewise, NFT transactions should not conflict with university contracts, policies or procedures, including any restrictions related to the use of a school’s IP.

Given the growing popularity, intricacies and nuances of NFTs, university compliance departments would be wise to train their employees on the ins and outs of these digital assets, the federal and state laws that apply to them, athletic conference rules and regulations, and the value and place of NFTs within a student-athlete’s portfolio of NIL activity.

To be sure, the market for NIL rights and NFTs is still in its infancy and it remains to be seen the extent to which the two together will be leveraged by brands, athletes, colleges and universities and related NFT platforms. That being said, no matter how these relatively new marketing vehicles continue to evolve, the legal obligations they trigger should never be ignored.

This blog post is not offered, and should not be relied on, as legal advice. You should consult an attorney for advice in specific situations.

Last night (June 30), with the deadline to apply for a loan pursuant to the Paycheck Protection Program set to expire-and with that nearly $130B in allocated funds being left untapped and on the table-the U.S. Senate passed an extension of the program to August 8. Whether the extension passes in the U.S. House of Representatives and is then signed into law is likely but remains to be seen; a House vote is pending as of this writing. In the meantime, attention continues to turn to the loan forgiveness process.

Toward that end, Michelman and Robinson reported on the streamlined loan forgiveness applications recently released by the Small Business Administration. Since then, the SBA in association with the U.S. Department of Treasury posted new Interim Final Rules (IFRs), including one relating to loan forgiveness and loan review procedures, and another concerning additional eligibility revisions. By way of this alert, M&R takes a look at the important provisions found in these IFRs which, unlike certain guidance and FAQs issued by the SBA in consultation with Treasury, have the force of law and must be followed unless and until they are overturned, struck down, or rescinded.

Q. What changes do the latest IFRs make with respect to loan forgiveness and loan review procedures?

A. The IFR found at 85 F.R. 38304 contemplates the changes made to the CARES Act and the PPP by the Paycheck Protection Program Flexibility Act (explained here), as well as the EZ and updated long-form loan forgiveness applications. Among various other things, the IFR clarifies that:

  • A borrower may submit a loan forgiveness application any time on or before the maturity date of the loan-including before the end of the covered period-once the borrower has used up all of its loan proceeds
  • If a borrower does not apply for loan forgiveness within 10 months after the last day of the covered period, or if the SBA determines that the loan is not eligible for forgiveness (in whole or in part), PPP loan payments will no longer be deferred and the borrower must begin paying principal and interest
  • In general, payroll costs paid or incurred during the covered period are eligible for forgiveness. A borrower can elect one of two available covered periods-either 24-weeks from the date the lender disbursed the PPP loan, or 8-weeks for PPP loans received before June 5, 2020
  • There are caps on the amount of loan forgiveness for payroll costs associated with compensation paid to business owners and self-employed individuals
  • Non-payroll costs are eligible for forgiveness if they were (1) paid during the covered period, or (2) incurred during the covered period and paid on or before the next regular billing date, even if the billing date is after the covered period
  • The PPP Flexibility Act specifically requires certain reductions in a borrower’s loan forgiveness amount based on cuts made to the workforce (read: full-time equivalent employees) or employee salary and wages; however, this is subject to an important statutory exemption for borrowers that have eliminated these reductions on or before December 31, 2020

Q. What changes do the recent IFRs make concerning PPP eligibility?

A. Whether or not the window to procure PPP loans is extended, changes regarding eligibility remain relevant, particularly to borrowers that have already received loan proceeds. As such, the IFR found at Docket No. SBA-2020-0039 is of interest. It echoes the following eligibility revisions made to the CARES Act and the PPP by the PPP Flexibility Act and other amendments:

  • To the extent an applicant is ineligible for a PPP loan if that would-be borrower owns 20% or more of the equity of the applicant and is presently subject to an indictment, arraignment, or formal criminal charge in any jurisdiction, that restriction is limited to pending felony offenses only
  • To the extent an applicant is ineligible for a PPP loan if that would-be borrower owns 20% or more of the equity of the applicant and is on probation or parole, that restriction is limited to individuals whose probation or parole commenced within the last five years for any felony involving fraud, bribery, embezzlement, or a false statement in a loan application or an application for federal financial assistance, and within the last one year for other felonies

For those interested, a list of IFRs, guidance, and FAQs related to the SBA’s PPP and Economic Injury Disaster Loans (EIDLs) can be found here. Of course, if you have any questions about the SBA’s updated IFRs, or would like to participate in M&R’s “PPP Loan Analysis Program,” do not hesitate to contact us at your convenience.

This blog post is not offered, and should not be relied on, as legal advice. You should consult an attorney for advice in specific situations.

On June 15, the U.S. Supreme Court issued its much-anticipated decision in Viking River Cruises Inc. v. Moriana. The high court ruled that representative actions brought pursuant to the California Private Attorneys General Act (PAGA) may be compelled to individual arbitration-a break from the position previously taken by the California Supreme Court in Iskanian v. CLS Transp. Los Angeles LLC that PAGA representative claims are not subject to arbitration agreements.

The ruling in Viking is a major development that impacts every California employer. Indeed, in the wake of the decision, employers in the Golden State may need to revise their employee arbitration provisions.

PAGA Claims

PAGA allows employees to file actions and pursue civil penalties on behalf of the state for violations of California’s Labor Code. California views PAGA as an important mechanism to ensure that labor laws are being followed and that employees are adequately protected.

For years and pursuant to Iskanian, an employee initiating a representative PAGA claim was permitted to seek redress in court, even in the event an arbitration agreement was signed. It was the finding of the California Supreme Court that a contract that waived an employee’s right to bring a PAGA action in court was invalid as a matter of public policy. As otherwise stated, the enforcement of wage-and-hour laws on behalf of the state by way of a PAGA action was not preempted by the Federal Arbitration Act (FAA)-this because such a case was not between two contracting private parties, but between the state and an employer. The bombshell opinion in Viking changes all that.

The Viking Decision

In Viking, a former sales representative named Angie Moriana initiated a PAGA action alleging wage-and-hour law violations against the river cruise company. Of note, Moriana’s employment contract with Viking contained a mandatory arbitration agreement.

In an 8-1 ruling, the U.S. Supreme Court decided that the FAA-which instructs courts to enforce arbitration agreements and preempts state rules that undermine them-serves to block the Iskanian rule, at least partially. The vast majority of justices found that Viking could push Moriana’s individual claims into arbitration pursuant to the FAA. And because of that, it was determined that California law would not permit her to continue in court with her “non-individual” claims (those brought on behalf of other workers).

According to Justice Samuel Alito, “PAGA provides no mechanism to enable a court to adjudicate non-individual PAGA claims once an individual claim has been committed to a separate proceeding.” He went on to state, “Moriana lacks statutory standing to continue to maintain her non-individual claims in court, and the correct course is to dismiss her remaining claims.

Justice Sonia Sotomayor concurred, reasoning that PAGA does not permit a plaintiff to proceed in court with non-individual claims if her individual claims are sent to arbitration, though she opined that California’s courts and legislature are the best authorities to address questions that may arise about a PAGA plaintiff’s standing to litigate “non-individual” claims. Nonetheless, and at least for the time being, the high court’s opinion is one worthy of celebration by California businesses.

The Takeaway for California Employers

The Viking opinion provides some long-awaited relief for California employers whose employees have executed arbitration agreements that waive the right to bring a representative PAGA action. These employers should now take the opportunity to confer with counsel and review their arbitration provisions to determine whether any revisions are necessary to ensure they receive the protections afforded by Viking. Toward that end, the employment attorneys at Michelman & Robinson, LLP stand ready to assist.

This blog post is not offered, and should not be relied on, as legal advice. You should consult an attorney for advice in specific situations.