By Mark Carlson
Yesterday, the Governor of California issued Executive Order N-33-20. Most media outlets have reported generally as to what Order N-33-20 requires. However, for business owners, these general reports do not contain enough information to help guide them in determining what they can and cannot do in operating their business.
Simply stated, Order N-33-20 requires individuals to stay at home unless they work in one of sixteen industries that the Federal Government has identified as “critical infrastructure sectors.”
Firstly, Order N-33-20 can be found at
. The Order begins by citing to the various sections of the Health and Safety Code that allow the California Department of Public Health to take measures as are necessary to prevent the spread of disease including controlling persons through isolation or quarantine.
As stated above, the Order then states that all individuals living in California must stay home or their place of residence unless they work in one of the sixteen federally defined critical infrastructure sectors. Therefore, businesses operations within one of these sixteen sectors may continue as usual.
The federal critical infrastructure sectors are listed on the Federal Cybersecurity and Infrastructure Security Agency website.
. The sixteen sectors are Chemical, Communications, Dams, Emergency Services, Financial Services, Governmental Facilities, Information Technology, Transportation, Commercial Facilities, Critical Manufacturing, Defense Industrial Base, Energy, Food and Agriculture, Healthcare and Public Health, Nuclear and Water and Wastewater Systems.
Although not completely uniform, the description of each of these sectors includes not only businesses operating directly in the sectors but also businesses that support the functions of the sectors.
Many of our clients are real estate professionals. The Financial Services Sector is defined by CISA, among other things, to include providing credit products. In reviewing the 2015 Financial Services Specific Plan, it uses mortgages to purchase a home as an example of a credit and liability product.
As such, any business that operates as mortgage lender is clearly within the definition of the Financial Services Sector. However, mortgage brokers, escrow officers, appraisers, real estate brokers and agents and title insurance companies must necessarily fall within the definition as they support the functions of the Financial Services Sector. Without those businesses, no mortgages could be arranged for funding.
The argument could also be made under a broad interpretation of the definition must used so as to include pest control operators, home inspectors and similar inspection-oriented business that evaluate homes to be sold. We know from market practices that few buyers will seek a mortgage without such inspections and many lenders will not fund a mortgage without proof of certain inspections. Therefore, the inspectors that buyers and sellers typically retain also support the Financial Services Sector and would be exempt.
As the Financial Services Sector is exempted to allow consumers to obtain advice, then consumers must also be exempted while in the course of receiving such advice or service. Buyers and sellers necessarily must be able to meet with escrow officers, mortgage brokers, real estate agents, etc. in order to close the transaction in which the mortgage to purchase the home will be funded.
In support of the argument that a broad definition must be used so as to include all business that support one of the sixteen sectors, an example can be taken from the California Coronavirus Response website.
On that website, laundromats/laundry services are included as essential services. There is no specific mention of those businesses in the Order and they do not seem to fit in any of the sixteen Sectors. However, laundromats and laundry services could promote public health which is one of the Sectors. Therefore, a broad definition is being used so that clean clothes can be considered supporting public health.
Business owners need to evaluate the sixteen Sectors to determine if their business falls directly into one of those Sectors or supports one of them. As examples: A contractor on a road project is probably exempt: A janitorial business at a hospital or commercial building is probably exempt; and a manufacturing business providing products to a business within one of the sixteen Sectors is probably exempt. On the other hand, completing an elective remodel at a single family home is likely not exempt.
Being exempt from the Order does not equal being exempt from common sense. Safe practices must also be considered. Methods of doing business without contacting other people should be considered and employed where possible.
Health and Safety Code Section 120295 provides that any person who violates an order from the Department is guilty of a misdemeanor punishable by a fine of not less than $50 nor more than $1,000 or by imprisonment for a term of not more than 90 days. A good faith belief that a business was exempted under one of the sixteen Sectors would make prosecution under Section 120295 very difficult. Further, the CISA states in its specific plans for each sector that its guidelines are not binding but rather are illustrative. Because the Federal guidelines are not binding it would be difficult to establish that a business knew it was not operating within the definition of a Sector. Further, the Governor stated while announcing the Order that law enforcement agencies would not be used to enforce its provisions.
If you need tailored advice relevant to your particular business, contact Mark Carlson at 818-997-7800 or via email at