Governor Gavin Newsom Issues Stay-at-Home Order—Impact on Businesses in the Real Estate Industry

COVID-19 Update

Governor Gavin Newsom’s stay-at-home Executive Order N-33-20 adopted on March 19, 2020, imposed on all of California the greatest restrictions seen nationally to date to deal with the COVID-19 crisis. However, critical to the business community, the Order also purported to exempt broad swaths of the commercial sector based on federal guidance. Because the commercial exemptions seemed at odds with broad and rampant closures taking place throughout the state, supplemental guidance from the governor was provided on March 20, 2020, and has provided some clarity. Unfortunately, the new guidance now restricts the breadth of the commercial exemption, but it does provide a broad and clear exemption for construction activities, including homebuilding. Importantly, the one big catch is that any more-restrictive local enactments will control over the Order.

The confusion noted above initially arose because the Order imposed sweeping restrictions on individuals while simultaneously exempting “16 critical infrastructure sectors” identified in federal guidance by the Cybersecurity and Infrastructure Security Agency (CISA). This led to broad disagreement as to what constitutes exempt “Commercial Facilities,” one of the 16 critical infrastructure sectors. The definition of Commercial Facilities encompasses almost any place the public congregates for commerce and entertainment, specifically including “real estate,” “retail” and “sports leagues.” But even as the Order purported to exempt such commercial facilities from the restrictions, many such facilities had already been ordered closed throughout the state. The governor’s office was besieged with requests for immediate clarification, which occurred in less than a day.

The Order remains unaltered, but the follow-up guidance identifies categories of workers that are exempt from the Order’s restrictions in order to carry out the essential functions at the heart of the exempt 16 critical infrastructure sectors. (There is a link to the list of “Essential Critical Infrastructure Workers” from the governor below.) Significantly, the list is derivative of a similar CISA list but broadens the scope of exempt workers beyond those included in the federal guidance. Of particular note are construction workers:

Construction Workers who support the construction, operation, inspection, and maintenance of construction sites and construction projects (including housing construction). (California list of Essential Critical Infrastructure Workers, p. 11, link below.)

In contrast to this clear relief for construction workers and projects noted above, the categories of workers for the broad Commercial Facilities sector appear to severely limit the applicability of the exemption for commercial activities at large. Therefore, it is now critical that the applicability of the exemption relative to the nature of each proposed commercial activity be carefully evaluated with counsel to determine whether the relevant workers qualify under any of the “essential” classifications.

Perhaps most important of all is that local agencies may impose greater restrictions than under the Order, but they may not dilute the Order at the local level by allowing for less stringent standards. We are diligently tracking all local enactments in the state (a link is provided below).

Beyond the Order, we are encountering two additional areas of concern for the construction industry specifically. First, many cities and counties reportedly are considering shutting down essential services necessary for construction such as inspections, plan checks and permitting. We continue to monitor this dynamic on a statewide basis. Additionally, there is a good amount of noise indicating that even if a construction project is legally permitted to continue, general contractors may not allow site workers to report for work for fear of lawsuits should workers be infected, and site workers themselves may start to refuse to show up for work. As a practical matter, given the mandatory social distancing protocols even for exempt sectors and projects, actual construction may be significantly limited or not feasible.

Key takeaways:

  • The Order expressly exempts 16 critical infrastructure sectors, of which Commercial Facilities is one, in order to “maintain continuity of operations” of such critical sectors.
  • Additional guidance provides a list of essential critical infrastructure workers exempt from the Order in order to support the 16 critical infrastructure sectors.
    • Tip: Make sure to consult the state list of essential critical infrastructure workers, not just the federal CISA list.
    • The list of essential critical infrastructure workers appears to narrow significantly the categories of workers that would otherwise be included in the CISA Commercial Facilities sector.
    • Under the state list of essential critical infrastructure workers, construction project workers, including but not limited to homebuilding, are exempt from the Order.
  • Exempt sectors and workers must still adhere to all social distancing protocols (e.g., not more than ten people together, all at least six feet apart).
  • More stringent local provisions and restrictions trump the Order but may not undercut the protections under the Order.

Relevant links:

Manatt has a multidisciplinary team of attorneys and consultants closely monitoring this fluid situation, and we stand ready to assist as you evaluate the implications of this Order and the impacts of compliance. If we can be of any assistance as you navigate these issues, please reach out to Grace Winters or David Smith.

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