Is Your Business an “Essential Business”? Navigating California State and County COVID-19 Shelter-In-Place Orders

In light of the recent “Shelter-In-Place” orders issued by all nine Bay Area counties (Alameda, Contra Costa, Marin, San Francisco, San Mateo, Santa Clara, Sonoma, Solano, and Napa) and the subsequent “Stay-At-Home” order issued by California Governor Gavin Newsom, many businesses have been left wondering whether—and to what extent—they are permitted to continue operations. This alert provides guidance to help businesses navigate this new reality.

In general, local laws are “preempted” if they conflict directly with state law, either by requiring what the state law prohibits or prohibiting what the state law requires. Moreover, when a comprehensive scheme of state regulation exists on a particular subject matter, California courts often find that the state legislature indicated an intent to assert exclusive authority over that subject matter. See N. Cal. Psychiatric Soc’y v. City of Berkeley, 178 Cal. App. 3d 90, 100 (1986). Therefore, for purposes of compliance, the county orders are void to the extent they directly conflict with the state order or are inconsistent with the state’s intention of supplanting local regulation of this field altogether. Fisher v. City of Berkeley, 37 Cal. 3d 644, 707–08 (1984). But local ordinances that are more restrictive than (but not in conflict with) state laws have been found to be valid. See, e.g., Conejo Wellness Center, Inc. v. City of Agoura Hills, 214 Cal. App. 4th 1534, 1558 (2013).

Due to inconsistencies between the state and county orders, performing a preemption analysis is no simple task at this stage—creating confusion for businesses, workers, and attorneys alike. The Governor’s order requires residents to follow the recently issued state public health directives, which instruct Californians “to stay home or at their place of residence except as needed to maintain continuity of operations of the federal critical infrastructure sectors.” The order expressly incorporates and provides a link to the federal guidance for identifying critical infrastructure (found here).

That guidance identifies the following sixteen “Critical Infrastructure Sectors:”

• Chemical Sector
• Commercial Facilities Sector
• Communications Sector
• Critical Manufacturing Sector
• Dams Sector
• Defense Industrial Base Sector
• Emergency Services Sector
• Energy Sector
• Financial Services Sector
• Food and Agriculture Sector
• Government Facilities Sector
• Healthcare and Public Health Sector
• Information Technology Sector
• Nuclear Reactors, Materials, and Waste Sector
• Transportation Systems Sector
• Water and Wastewater Systems Sector

Although the breadth of these categories may leave many workers and businesses unsure as to their status under the state order, the state has issued a memorandum attempting to clarify the scope of these listed sectors. The “essential workforce” described in the state memorandum appears intended to align generally with the “Essential Businesses” identified in the county Shelter-In-Place orders, but businesses in certain industries may find themselves caught between a rock and a hard place due to conflict between the orders, as will be described further below.

The Essential Businesses identified in the county orders, which were permitted to continue operation, are as follows:

• Healthcare operations
• Essential infrastructure, which includes but is not limited to public works of construction, construction of housing (in particular affordable housing or housing for individuals experiencing homelessness), airport operations, water, sewer, gas, electrical, oil refining, roads and highways, public transportation, solid waste collection and removal, interne, and telecommunications systems
• Grocery stores, certified farmers’ markets, farm and produce stands, supermarkets, food banks, convenience stores, and other establishments engaged in the retail sale of groceries and other household consumer products
• Food cultivation, including farming, livestock, and fishing
• Businesses that provide food, shelter, and social services, and other necessities of life for economically disadvantaged or otherwise needy individuals
• Newspapers, television, radio, and other media services
• Gas stations and auto-supply, auto-repair, and related facilities
• Banks and related financial institutions
• Hardware stores
• Plumbers, electricians, exterminators, and other service providers who provide services that are necessary to maintaining safety, sanitation, and essential operations
• Businesses providing mailing and shipping services, including post office boxes
• Educational institutions
• Laundromats, drycleaners, and laundry service providers
• Restaurants and other facilities that prepare and serve food, but only for delivery or carry out
• Businesses that supply products needed for people to work from home;
• Businesses that supply other essential businesses with the support or supplies necessary to operate
• Businesses that ship or deliver groceries, food, goods or services directly to residences
• Airlines, taxis, and other private transportation providers providing transportation services necessary for essential activities and other authorized purposes
• Home-based care for seniors, adults, or children
• Residential facilities and shelters for seniors, adults, and children
• Professional services, such as legal or accounting services, when necessary to assist in compliance with legally mandated activities
• Childcare facilities, so long as they observe certain conditions

As explained in a related Farella Braun + Martel alert assessing wine operations under the Shelter-In-Place orders, the Sonoma and Napa County orders add to this list businesses involved in agriculture, food, and beverage cultivation and related activities. The Napa County order also includes in its list of Essential Businesses those that “manufacture and/or supply other Essential Businesses and/or Essential Infrastructure with the support or supplies necessary to operate” and other “[m]anufacturers, distributors, warehouse facilities, suppliers and servicers of medical devices, diagnostics, equipment and services, including all other activities, supplies and services required to maintain supply chain operations without disruption.”

Despite significant overlap, certain inconsistencies between the state and county orders have already come to light. For instance, among the Critical Infrastructure Sectors identified by the federal guidance are Commercial Facilities, which include outdoor events, retail, and sports leagues. While we can be reasonably confident the state did not intend to exempt these commercial activities from its Stay-At-Home order—in part because the state memorandum did not reference this category—a literal reading of the order leads to that conclusion. Adding to the confusion is the fact that the federal guidance identifies a much broader array of Critical Manufacturing operations than either the state memorandum or the county orders.

In addition, whereas the state order indicates that all types of construction are permitted to continue, the county orders only expressly allow construction of housing or public works. Similarly, while the state order identifies cannabis retail workers as part of the essential workforce, the county orders do not exempt cannabis operations, with the exception of San Francisco and Sonoma Counties. Likewise, the state guidance has an exemption directed at transportation manufacturing (which, arguably, would cover automobile manufacturing plants), while the county orders do not appear to have such an exemption. Although a traditional preemption analysis might conclude that these stricter county rules are compliant with the state order, the state’s goal of maintaining certain critical societal and economic functions during the shutdown leaves that conclusion in doubt.

Furthermore, the county orders (except for Solano county), unlike the state order, permit all businesses, including those not considered essential, to carry out “Minimum Basic Operations,” which are defined as follows:

• The minimum necessary activities to maintain the value of the business’s inventory, ensure security, process payroll and employee benefits, or for related functions.
• The minimum necessary activities to facilitate employees of the business being able to continue to work remotely from their residences.

Because the state order does not provide for a similar exemption for non-essential businesses, these provisions would conflict with the state’s order to the extent they authorize activities the state intended to prohibit.

Typically, given the preeminence of state law, businesses attempting to resolve any relevant conflict between the state and county orders would be more cautious to abide by the state order and any applicable county regulations stricter than those in effect at the state level. Here, however, it is unclear whether the state has deliberately preempted all local regulation of this area. While one of the state order’s goals is to “establish consistency across the state in order to ensure that we mitigate the impact of COVID-19,” the state initially indicated on its “Frequently asked questions” page that counties could enforce stricter rules—then subsequently removed that statement.

Fortunately, additional guidance will likely be forthcoming to provide more clarity,  given the Governor’s statement over the weekend that negotiations with local governments are underway to try to address what he described as “deeply complex” issues concerning the state order and the county orders. For businesses and workers caught in the middle, such guidance is desperately needed.