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California Employers Likely Immune To Employee COVID-19 Lawsuits, But More Susceptible To COVID-19 Workers-Compensation Claims

Recent news reports, like this one from the Los Angeles Times, indicate that Congress is hotly debating a proposed law to immunize employers from lawsuits alleging that their workers contracted COVID-19 illness on the job.  While business owners in California may suffer headaches or congestion from other types of lawsuits related to COVID-19 in the workplace, exposure to employee lawsuits of this kind is probably not a feverish worry.

That is because, with very few exceptions, California employees who suffer a work-related injury or illness cannot sue their employer in civil court.  Instead, such employees must pursue relief through a workers-compensation claim.

Even though there probably won’t be a rash of employee lawsuits related to COVID-19, California employers should anticipate an increase in workers-compensation claims related to that coronavirus.  Such claims typically would assert that an employee was exposed to the contagion on the job and became ill, unable to work, and in need of medical attention and treatment.

Indeed, California Gov. Gavin Newsom this week mandated a presumption that an employee’s COVID-19-related illness is work-related under certain circumstances.  In Executive Order N-62-20, signed on May 6, 2020, Gov. Newsom directed that “[a]ny COVID-19-related illness of an employee shall be presumed to arise out of … the employment for purposes of awarding workers’ compensation benefits if [specified] requirements are satisfied.”

Under that executive order, the presumption only arises if the employee tested positive for, or was diagnosed by a qualified physician as having, COVID-19 within 14 days after performing work directed by the employer at the employee’s place of employment.  The presumption does not arise if the employee worked from home during that timeframe, or if he or she was otherwise not on the job on or after March 19, 2020.

Just because such a presumption arises, that does not mean the source of the employee’s infection is beyond dispute.  On the contrary the executive order confirms that the presumption “is disputable and may be controverted by other evidence.”  Moreover, if “an employee has paid sick leave benefits specifically available in response to COVID-19, those benefits [must] be used and exhausted before any [workers-compensation] temporary disability benefits … are due and payable.”

Of course, employees who file such claims may also allege that their illness was caused by the employer’s serious and willful misconduct.  If a worker were to succeed on such a claim, it could result in the “amount of compensation otherwise recoverable [being] increased [by] one-half” under section 4553 of the California Labor Code.

To prevail on such a claim, the infected employee would have to prove that the employer maliciously (not just negligently) engaged in such misconduct.  Simply opening up for business after the government said it was ok to do so, by itself, almost surely wouldn’t amount to serious and willful misconduct – but opening sooner than that might.  Employers also may face greater risk of liability under such a claim if they maliciously (not just carelessly) fail to provide necessary protective gear or enforce social-distancing or sanitary guidelines.

Therefore, absent some unanticipated development, any presumed action that Congress may take in passing a federal law to shield employers from such lawsuits probably won’t have much of an impact in the Golden State.  Still, employers here should be mindful of the new presumption that an employee’s COVID-19 infection may be an industrial illness covered by workers-compensation laws.  To inoculate against potential claims that a COVID-19 infection was caused by serious and willful misconduct, California employers should consult with competent legal counsel to prepare for reopening their business in the coming weeks and months.

SCOTUS Considers Whether Adding a Top-Level Domain Makes a Generic Term a Protectable Trademark

On Monday, May 4, 2020, the Supreme Court of the United States heard oral argument in United States Patent and Trademark Office v. Booking.com, B.V.  For the first time in the history of the Court, the argument was live streamed via multiple outlets, including CNN, enabling us trademark junkies to listen to the argument in real time. Although it was surely an unfamiliar circumstance for the Court and its litigants, the hearing was mostly without issue. Returning to the case at issue, in USPTO v. Booking.com, the Court addressed whether a business can create a registrable trademark by adding a generic top-level domain name like “.com” to an otherwise unprotectable generic term. Specifically, the Supreme Court addressed whether BOOKING.COM is entitled to trademark registration.

The dispute arose in 2012 when Booking.com sought to register BOOKING.COM as a service mark for its online reservation services. The USPTO’s examining attorney determined that “booking” is generic for hotel reservation services, relying upon dictionary definitions of “booking” and “.com” and the use of “booking” by various other third parties who offer similar services. The examining attorney ultimately refused registration arguing that combining a generic term like “booking” with “.com” simply communicates to consumers that the business offers its services online.

Booking.com sought review of the refusal in the U.S. District Court for the Eastern District of Virginia (“District Court”). The District Court agreed with the USPTO that “booking” is generic for the services provided, but unlike the USPTO, the District Court found that combining “booking” with “.com” results in a term that is descriptive, not generic. Because descriptive, unlike generic, marks are entitled to protection if the user can establish the existence of secondary meaning, the District Court considered evidence to determine if consumers recognize BOOKING.COM as a source of services rather than a type of services. After considering survey evidence and evidence of extensive advertising expenditures proffered by Booking.com, the District Court held that that BOOKING.COM is entitled to trademark protection. The decision was affirmed by the Fourth Circuit Court of Appeals. The USPTO petitioned and the Supreme Court granted certiorari.

In short, the USPTO has two arguments. First, it argues that the matter is controlled by Goodyear’s India Rubber Glove Mfg. Co. v. Goodyear Rubber Co., 128 U.S. 598, a pre-Lanham Act case from 1888. The USPTO argues that under Goodyear, Booking.com could not add a “corporate identifier” such as “Company” to a generic term to create a protectable trademark, and as such, it cannot simply add “.com” to a generic term to do so. According to the USPTO, the addition of “.com” to a generic term is nothing more than an identifier indicating that the company’s services are provided online. Second, the USPTO argues that the Fourth Circuit’s decision would permit businesses to monopolize language by registering generic terms as domain names, and then using those trademark rights to preclude competitors from referring to their products by the generic term.

On the other hand, Booking.com argues that Goodyear was superseded by the Lanham Act in 1946. Booking.com argues that, as amended in 1984, the Lanham Act requires courts and the USPTO to determine the primary significance of the mark to the relevant public when analyzing whether a trademark has become generic. Booking.com contends the same test should apply when analyzing whether a term is generic or descriptive, and that consumer surveys are the best way to assess primary significance. Accordingly, because Booking.com’s survey evidence indicates that the public recognizes BOOKING.COM as a trademark rather than a category of service, the mark should be deemed descriptive rather than generic. Therefore, Booking.com reasoned that, because Booking.com established secondary meaning in BOOKING.COM, the mark is entitled to registration, the Court should affirm the Fourth Circuit’s decision.

As usual, the Court had difficult questions for both sides during oral argument, with Justice Thomas even breaking his year-long silence to make inquiries to both parties. In my opinion, the Court had more difficult and troubling questions for the USPTO, but it would be inaccurate to say that the Court wasn’t concerned with the potential monopolistic advantages that could come with its affirmation of the Fourth Circuit’s decision. If I had to guess, I think the Court will affirm the decision, but I will write about the Court’s opinion when it is issued.

Finally – SBA Guidance on an Employer’s PPP Loan Forgiveness When Employees Refuse to Return to Work  

On May 3, 2020, the SBA updated its FAQs regarding the Paycheck Protection Program (“PPP”) under the CARES Act.  Among other things, the updated FAQs finally addressed this issue:  What happens to an employer’s ability to have its PPP loan forgiven if employees refuse to return from layoff and thus an employer cannot meet the required full-time employee ratio in connection with the required 75% expenditure of loan proceeds on “payroll costs” during the 8-week Coverage Period?

The SBA’s FAQ No. 40 provides expressly:

40. Question: Will a borrower’s PPP loan forgiveness amount (pursuant to section 1106 of the CARES Act and SBA’s implementing rules and guidance) be reduced if the borrower laid off an employee, offered to rehire the same employee, but the employee declined the offer?

Answer: No. As an exercise of the Administrator’s and the Secretary’s authority under Section 1106(d)(6) of the CARES Act to prescribe regulations granting de minimis exemptions from the Act’s limits on loan forgiveness, SBA and Treasury intend to issue an interim final rule excluding laid-off employees whom the borrower offered to rehire (for the same salary/wages and same number of hours) from the CARES Act’s loan forgiveness reduction calculation. The interim final rule will specify that, to qualify for this exception, the borrower must have made a good faith, written offer of rehire, and the employee’s rejection of that offer must be documented by the borrower. Employees and employers should be aware that employees who reject offers of re-employment may forfeit eligibility for continued unemployment compensation.

While the SBA has not yet finalized their rules, this is good news for those employers who were lucky enough to obtain their PPP loan during the first round of government funding but who have experienced a number of employees who refuse to return to work.  Employers in this situation are cautioned, however, to be sure that the written offer of rehire (or recall to a furloughed employee) is clearly documented, that they can prove the employee received the written offer, and that they have documentation of the employee’s decline of the offer.  This documentation will be needed when applying for loan forgiveness at a future date.

A full copy of the SBA’s May 3, 2020 version of its FAQs regarding the PPP can be obtained at:  https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Frequently-Asked-Questions.pdf

The Labor and Employment attorneys at Weintraub Tobin continue to wish you and yours good health during this very unsettling time.  If we can assist you in any of your employment law needs, feel free to reach out to one of us.

IRS Issues Clarification on Deductibility of Expenses Paid with Forgiven PPP Loans

The Paycheck Protection Program (“PPP”) was established by the recently enacted CARES Act. PPP allows approved lenders to make loans to small businesses operating the United States. The federal government guarantees the repayment of PPP loans while providing borrowers with favorable repayment terms. The loans may be forgiven if the proceeds are expended primarily on employee payroll costs and if certain other employment-related standards are satisfied (we will discuss these requirements in further detail in a future alert following receipt of additional guidance from the Treasury Department). A smaller portion of the loan proceeds may be used to pay interest on mortgage obligations, rent, utilities, and interest on certain other pre-existing debt obligations. Any loan amounts that are not forgiven can be repaid over two years plus one percent interest.

Income tax law normally requires borrowers to recognize income when they are relieved of an obligation to repay a loan. However, the terms of the CARES Act expressly provides that borrowers are not required to recognize income with respect to any PPP loans forgiven.

Unfortunately, the CARES Act was silent as to the deductibility of payments made with the loan proceeds. In Notice 2020-32, the Internal Revenue Service concluded that expenses paid with loan proceeds are not deductible to the extent the loan is forgiven. The IRS based this conclusion on section 265 of the Internal Revenue Code which provides that no deduction is allowable for any expense paid with tax-exempt income. Because the loan is tax-exempt, pursuant to section 265, the use of the funds does not produce a tax deduction.

Notice 2020-32 may not be the final word on this topic. Both Representative Richard Neal (the Democratic chairman of the House Ways and Means Committee) and Senator Chuck Grassley (the Republican chairman of the Senate Finance Committee) have indicated that they would like to pass additional legislation permitting tax deductions for these expenditures. We will update this alert if and when additional relevant legislation is enacted.

Guess What? The Laws HAVE Changed – Avoiding a Conduit Trust Catastrophe after the SECURE Act

Like most estate planners, we always remind clients that tax and estate planning laws are subject to change and frequently do. As busy practitioners, it is impossible for us to reach out to every client when a change might affect him or her, so we remind all clients to come back to see us if they have questions or are concerned about how recent developments affect their plans (and in any event, at least every three to five years).

Trademark Infringers Beware – Willfulness Not Required for Disgorgement

For some time there has been a split among the Federal circuits as to whether evidence of willfulness is required in order to award disgorgement of profits for trademark infringement under Section 1125(a) of the Lanham Act.  The split stems from how each Federal circuit interprets Section 1117(a) of the Lanham Act which was amended in 1999.  The section reads as follows:

When a violation of any right of the registrant of a mark registered in the Patent and Trademark Office, a violation under section 1125(a) or (d) of this title, or a willful violation under section 1125(c) of this title, shall have been established in any civil action arising under this chapter, the plaintiff shall be entitled . . . subject to the principles of equity, to recover (1) defendant’s profits . . .

A number of Federal Circuits, including the Second and the Ninth, have interpreted the above to require a showing of willfulness for disgorgement in Section 1125(a) cases.  Six Federal Circuits do not.  On April 23, 2020 the United States Supreme Court made clear where it stands.

SBA Guidance on Borrower Certification for PPP Loans (Updated)

If your business received a Paycheck Protection Program (PPP) loan, now may be a good time to look at the new guidance from the Small Business Administration (SBA) to see whether the business should consider returning the money if the business did not really “need” it.  If, after considering the guidance, the business determines it does indeed need the loan, the business should ensure it has documentation demonstrating such need.

Supreme Court Limits Appeals to Prevent More Bad Patents

A party accused of infringing a patent may challenge the validity of the patent in the federal court infringement litigation or in separate administrative proceedings in the Patent and Trademark Office’s Patent Trial and Appeal Board (PTAB). One of the methods available in the PTAB is an inter partes review (IPR), which was created by the America Invents Act.

In order to file a petition for IPR, the challenger must argue that some or all of the claims of the patent are invalid on certain grounds, including novelty and nonobviousness, and must show that there is a “reasonable likelihood” that they will prevail on at least one claim.  The statutes require that a petition for IPR be filed within one year of the challenger being served with a complaint for patent infringement.  35 USC section 315(b).   The PTAB reviews the petition and decides whether to institute IPR.  The decision whether to institute IPR is not appealable.  35 USC section 314(d). 

California Attorney General Clarifies Effective Date For Filing Adverse Action 805 Report By Health Care Peer Review Bodies

On April 20, 2020, the California Attorney General (“AG”) issued a published opinion clarifying that the “effective date” for purposes of filing a Business and Professions Code 805 report is the date on which a peer review body’s decision becomes final, following the conclusion of a licentiate’s appeal to the body of its proposed final action, and not the date of the peer review body’s final proposed decision. Section 805 requires a report to be filed with the relevant state healing arts licensing agency “within 15 days after the effective date” of certain actions taken by a peer review body against specified health care licentiates, including denial or rejection of a licentiate’s application for membership or staff privileges; termination or revocation of a licentiate’s membership, staff privileges, or employment; or imposition of restrictions (or voluntary acceptance of restrictions) on staff privileges, membership, or employment for a cumulative total of 30 days or more in a 12-month period. A peer review body consists of medical or professional staff of licensed health care facilities or professions that review the basic qualifications, staff privileges, employment, medical outcomes, or professional conduct of licentiates.

Postponing Elective Surgeries To Contain Covid-19 Spread And Conserve Resources Presents Challenges For Healthcare Providers

The World Health Organization (WHO) declared the COVID-19 pandemic on March 11, 2020.[1] As a result, there are more patients in need of immediate and attentive care, and many practices now have to consider how to continue providing necessary services while containing the spread of COVID-19 with balancing current and future needs for clinician services, medical supplies and access to personal protective equipment (PPE). In response to this, the Centers for Disease Control and Prevention have recommended the postponement of non-essential adult elective surgeries and medical and surgical procedures to conserve resources,[2] and the Centers for Medicare & Medicaid Services (CMS) and the American College of Surgeons (ACS) have provided guidelines for same.[3] Factors to be considered include patient risk factors, availability of beds, the number of staff and PPE, as well as urgency of the procedure.[4]