COVID-19 Coronavirus Executive Orders Restricting Business Activities – Implications for Asset Managers

This Dechert OnPoint summarizes Dechert’s analysis of the exceptions provided in executive orders in certain states that have restricted business activities in response to the COVID-19 coronavirus public health emergency. The OnPoint covers how the exceptions may affect the ability of asset managers and certain of their personnel to continue business activities in their offices in such states in advising registered funds, private funds or other accounts. In addition, the OnPoint discusses labor and employment law considerations related to the continued use of office space during the emergency, which could cause asset managers to seek to limit reliance on the exceptions.

The Federal Government has recognized asset management as a critical component of the country’s infrastructure through the Cybersecurity and Infrastructure Security Agency (CISA) list of critical infrastructure sectors (CISA list).¹ The CISA list includes the financial services sector,² and the description of that sector refers in broad terms to investment products and their service providers. Some of the orders discussed below specifically reference CISA while others do not. Even where an order does not specifically reference the CISA list, the recognition on the CISA list may be relevant in interpreting an order.

• California: The California order³ requires all individuals living in the state “to stay home or at their place of residence except as needed to maintain continuity of operations of the federal critical infrastructure sectors” as set forth in the CISA list. Accordingly, personnel needed to maintain continuity of operations of asset managers should be permitted to be in their California offices under the California order. The California order took effect on March 18, 2020.
• Connecticut: The Connecticut order⁴ requires all businesses and not-for-profit entities in the state to “employ, to the maximum extent possible, any telecommuting or work from home procedures that they can safely employ.” In addition, “non-essential businesses or not-for profit entities shall reduce their in-person workforces at any workplace locations by 100% ...” Essential businesses will be defined under binding guidance issued by the Department of Economic and Community Development, and “shall include, but not be limited to, the 16 critical infrastructure sectors” set forth in the CISA list.⁵ Accordingly, asset managers should fall within the scope of businesses that are essential and should be able to allow certain personnel to be in their Connecticut offices. The Connecticut order takes effect on March 23, 2020.
• Delaware: The Delaware orders⁶ collectively require that all physical locations of non-essential businesses⁷ close through May 15, 2020, or until after “the public health threat of COVID-19 has been eliminated,” and that all individuals living within Delaware “shelter in place, at their home or place of residence,” with certain exceptions. Under the orders, essential businesses are defined as including businesses within the financial services industry, including those within the funds and investment advisory industry.⁸ Accordingly, asset managers should be able to allow certain personnel to be in their Delaware offices. The Delaware orders take effect on March 24, 2020.
• Illinois: The Illinois order⁹ requires all individuals living within Illinois “to stay at home or at their place of residence,” with certain exceptions. The order also requires that non-essential businesses and operations “cease all activities within the State except Minimum Basic Operations,” which includes “the minimum necessary activities to facilitate employees of the business being able to continue to work remotely from their residences.”¹⁰ Essential businesses and operations are “encouraged to remain open” but must comply with certain social distancing requirements “[t]o the greatest extent feasible.” Essential businesses are defined under the executive order as including financial institutions.¹¹ It may be reasonable to conclude that asset managers should fall within the scope of financial institutions deemed essential and should be able to allow certain personnel to be in their Illinois offices. Even if they are not, asset managers should be able to rely on the exception for maintaining Minimum Basic Operations. The Illinois order took effect on March 21, 2020.
• New Jersey: In relevant part, the New Jersey order¹² provides that “all businesses or non-profits in the State, whether closed or open to the public, must accommodate their workforce, wherever practicable, for telework or work-from-home arrangements.” A business with employees that cannot perform via telework or work-from-home arrangements should use its best efforts to reduce staff to the “minimum number necessary to ensure that essential operations can continue.” Non-limiting examples of those types of employees are set forth in the order, including information technology maintenance workers, janitorial and custodial staff, and certain administrative staff. The terms of the order provide some flexibility to asset managers to make determinations as to what staff fall within these functions and could permissibly continue to be in the office. The New Jersey order took effect on March 21, 2020.
• New York: The New York order¹³ provides that “all businesses and not-for-profit entities in the state shall utilize, to the maximum extent possible, any telecommuting or work from home procedures that they can safely utilize. Each employer shall reduce the in-person workforce at any work locations by 100% ...” However, “an entity providing essential services or functions shall not be subject to the in-person restrictions.” In addition, the New York order states that “an entity providing essential services or functions whether to an essential business or a non-essential business” is not subject to the in-person work restriction to the extent the entity operates “at the level necessary to provide such service or function.” Depending on the facts and circumstances, it may be reasonable to conclude that asset managers should fall within the scope of essential businesses under the New York order and related guidance under the category of “financial institutions – services related to financial markets” and be able to allow certain personnel to be in their New York offices. While there is no guidance on which entities fall within the scope of “services related to financial markets,” certain participants in the asset management industry serve a critical role in providing liquidity to financial markets and keeping financial markets functioning or may otherwise qualify under this category. We understand from discussions with trade associations that a number of asset managers have interpreted the exception to encompass their businesses. The relevant parts of the New York order took effect on March 22, 2020.
• Ohio: The Ohio order¹⁴ provides that “all businesses and operations in the State,” with certain exceptions, “are required to cease all activities within the State.” Essential businesses and operations, including financial and insurance institutions, are not covered by the Ohio order.¹⁵ Businesses other than essential businesses covered by the order can maintain minimum basic operations, which include the “minimum necessary activities to maintain the value of the business’s inventory, preserve the condition of the business’s physical plant and equipment, ensure security, process payroll and employee benefits, or for related functions” and the “minimum necessary activities to facilitate employees of the business being able to continue to work remotely from their residences.”¹⁶ Additionally, the Ohio order permits individuals to leave their homes to engage in work necessary to provide essential infrastructure, including “building management and maintenance;” “cybersecurity operations;” and “internet, video, and telecommunications systems (including the provision of essential global, national, and local infrastructure for computing services, business infrastructure, communications, and web-based services).” It may be reasonable to conclude that asset managers should fall within the scope of businesses that are essential and should be able to allow certain personnel to be in their Ohio offices. Even if they are not, asset managers should be able to rely on the exception for maintaining minimum basic operations. The Ohio order takes effect on March 23, 2020.
• Pennsylvania: Unless an asset manager manages insurance and employee benefit funds, it is not a life-sustaining business permitted to continue physical operations under the Pennsylvania order.¹⁷ There is a specific waiver process in Pennsylvania that an asset manager can use if it concludes it does not fall within the exception. However, a related FAQ¹⁸ issued by the Pennsylvania governor’s office makes clear that non-life-sustaining businesses can allow a limited number of employees onsite for security, to process essential functions, to maintain critical operations and to maintain compliance.¹⁹ Such employees must follow social distancing and mitigating guidance. As a result, employees necessary to critical functions of asset managers should be permitted to be in a Pennsylvania asset manager’s offices under this exception. The Pennsylvania order took effect on March 19, 2020, with enforcement initially scheduled to begin on March 21, 2020. However, it was announced on March 21, 2020 that enforcement would be delayed until March 23, 2020.
• Texas: The Texas order²⁰ does not mandate closure of offices; however, the order provides that: “for offices and workplaces that remain open, employees should practice good hygiene and, where feasible, work from home in order to achieve optimum isolation from COVID-19.” Accordingly, asset managers should be able to allow certain employees to work at their Texas office locations. The Texas order took effect on March 20, 2020.

In any case, asset managers should limit reliance on the exceptions that permit some or all employees to physically come to work. They should only allow personnel who are performing critical functions that cannot be done remotely (like resetting servers) to go into the office while the orders are in place. Any such personnel should be entering the offices on a voluntary basis and asset managers should be sensitive to personnel with pre-existing conditions or household members with such conditions. Security procedures should be implemented to ensure that no other personnel are allowed to go into the office. An employee (performing critical functions) who has been diagnosed with COVID-19 coronavirus or who is suspected to have COVID-19 coronavirus (e.g., by being under an order of health authority, doctor or hospital to self-isolate), should not be permitted to go on-site.

Further, a number of cities and counties in these states also have issued similar orders that any asset manager in the above jurisdictions may need to consider. Consideration must be given to whether or not the local action has been superseded by any state-level action. For example, the New Jersey order provides that “no municipality, county, or any agency or political subdivision of this State shall enact or enforce any order, rule, regulation, ordinance, or resolution which will or might in any way conflict with any of the provisions of [the New Jersey] Executive Orders, or which will in any way interfere with or impede their achievement.”

Asset managers should continue to monitor developments in the applicable jurisdictions as developments are occurring rapidly.