News and Insights
Visit regularly for up-to-date information on relevant news, firm announcements and additions to our AZ Health Law Blog.
Hot Topics in Risk Management | Considerations for Requiring
COVID-19 Vaccinations for Medical Practice Staff
As COVID-19 vaccines become more widely available, health care organizations, medical practices, and other employers may consider whether, and under what circumstances, they will require employees to be vaccinated. Employers who address this issue must balance the interests of patients and employees, who have a right to a safe office environment, with the interests of employees who have or claim to have legitimate objections to being vaccinated. Finding balance will raise legal, ethical, and policy issues.
As to the legal issues, the U.S. Equal Employment Opportunity Commission (EEOC) recently released guidance regarding the extent to which federal laws permit employers to require employees to be vaccinated. The general rule is pretty straightforward: subject to certain exceptions, employers may require employees to be vaccinated. As you might expect, the exceptions are less straightforward, relying on terminology that is susceptible to conflicting interpretations.
The Americans with Disabilities Act (ADA) permits employers to impose “a requirement that an individual shall not pose a direct threat to the health or safety of individuals in the workplace.” However, if requiring vaccinations “tends to screen out an individual with a disability,” the employer must show that (a) an unvaccinated employee would pose a “direct threat” due to a significant risk of substantial harm to the health and safety of the individual or others, and (b) the threat cannot be eliminated or reduced by a “reasonable accommodation” (which may include remote work or a temporary leave of absence).
Title VII of the Civil Rights Act of 1964 (Title VII) imposes a religious belief exception, which requires employers to provide “a reasonable accommodation” for an employee’s “sincerely held religious belief, practice or observance,” unless the accommodation would pose an “undue hardship.” For purposes of this religious belief exception, undue hardship is defined as “more than a de minimis cost or burden to the employer.”
If an employee cites a medical or religious basis for objecting to the vaccine, the employer must engage in a “flexible, interactive process” to determine whether it is possible to accommodate the employer’s and the employee’s interests. This will not be a simple or clear-cut exercise, given the vagaries of the words and phrases used in the ADA, Title VII, and the EEOC guidance, all of which call to mind Humpty Dumpty’s comments about what words mean.
Unfortunately, there is no easy way out for employers deciding on whether and how to require employees to get vaccinated. Employers who do not require vaccinations may face claims by patients and employees who contract, or are concerned about contracting, COVID-19; employers who require vaccinations may face claims by employees who object to that requirement. Imposing a vaccination requirement seems to be a relatively low-risk option. Significant difficulties will arise, however, if an employee claims a medical or religious exemption to the requirement. At that point, seek legal advice to divine the meaning and application of the terms used in the ADA and Title VII, e.g., is a particular accommodation “reasonable,” is a burden “de minimis,” etc.
This article is informational only and is not, nor should it be taken as, a substitute for, legal advice.
 Gostin, L., et al., Mandating COVID-19 Vaccines, JAMA. Published online Dec. 29, 2020. doi:10.1001/jama.2020.26553.
 The Importance of COVID-19 Vaccination for Healthcare Personnel, Centers for Disease Control and Prevention, December 28, 2020; https://www.cdc.gov/coronavirus/2019-ncov/vaccines/recommendations/hcp.html.
 What You Should Know About COVID-19 and the ADA, the Rehabilitation Act, and Other EEO Laws
Technical Assistance Questions and Answers, US Equal Employment Opportunity Commission; updated Dec. 16, 2020, https://www.eeoc.gov/wysk/what-you-should-know-about-covid-19-and-ada-rehabilitation-act-and-other-eeo-laws?utm_content=&utm_medium=email&utm_name=&utm_source=govdelivery&utm_term=.
 42 U.S.C. § 12113(b).
 42 U.S.C. § 12112(b)(6); 42 U.S.C. § 12113(a).
 42 U.S.C. § 12111(3).
 42 U.S.C. § 12111(9); 42 U.S.C. § 12113(a).
 42 U.S.C. § 2000e-2(a); 42 U.S.C. § 2000e(j); Commission Guidelines, 29 C.F.R. § 1605.2(c).
 Commission Guidelines, 29 C.F.R. § 1605.2(e)(1).
 29 C.F.R. § 1630.2(o)(3); see 29 C.F.R. pt. 1630 app. § 1630.9.
 “When I use a word,” Humpty Dumpty said, in rather a scornful tone, “it means just what I choose it to mean—neither more nor less.”
Just coming out of a lazy daze? Arizona voters recently puff-puff-passed Proposition 207, the “Smart and Safe Arizona Act,” legalizing the possession and recreational use of marijuana for users over age 21. Individuals are also permitted to grow no more than 6 marijuana plants in their residences, so long as the plants are contained in a lockable area and outside public view. Marijuana sales will now be taxed at 16% in addition to existing transaction privilege tax and use tax. Revenue from marijuana sales will be distributed to community college districts, municipal police departments, municipal fire departments, county sheriffs’ departments, the Arizona Highway User Revenue Fund, the Justice Reinvestment Fund, and the Attorney General.
The Arizona Department of Health Services is directed to adopt rules to regulate marijuana, including licensing of retail stores, cultivation facilities, and production facilities. Although existing nonprofit medical marijuana dispensaries might be first in line to hold for-profit marijuana licenses, Prop 107 established the Social Equity Ownership Program, which will issue licenses to entities whose owners are from communities that have been disproportionately impacted by previous marijuana laws. Jack pot!
In the interests of “efficient use of law enforcement resources, enhancing revenue for public purposes, and individual freedom,” Arizona is now one of 15 states that gives flower to the people. Talk about blazing a trail! But, don’t get lost in the weeds. You can still take a hit for selling, transferring, or providing marijuana to individuals under age 21. And, it’s still illegal to drive, fly, or boat while impaired.
Further, while the Arizona Medical Marijuana Act prohibits employers from discriminating against medical marijuana card holders, Prop 207 does not include the same protections for users of recreational marijuana: employers may still enjoy their rights to maintain drug-and-alcohol-free places of employment through workplace policies restricting the use of marijuana by current and prospective employees. Employers can require current and prospective employees to submit to drug tests based on written testing policies. And, employers may take adverse employment actions based on a positive drug test, including suspension, termination, or refusal to hire a prospective employee. Because marijuana is still a controlled substance under federal law, federal drug free workplace rules still apply to use of recreational marijuana.
Beginning July 12, 2021, an individual who was arrested for, charged with, or convicted for marijuana-related crimes can pipe up and petition the courts to expunge their record. And, Maricopa prosecutors plan to dismiss all pending and unfiled charges of possession of marijuana, and any associated paraphernalia charges.
Prop 207 will take effect on or before April 5, 2021.
For more information, contact Milligan Lawless at 602-792-3500.
 See A.R.S. §§ 23-492 et seq.
 See 21 U.S.C. § 812; https://www.samhsa.gov/workplace/legal/federal-laws/contractors-grantees.
The Best Lawyers in America© is the longest-running, peer-review publication in the legal profession. Every year, Best Lawyers conducts comprehensive surveys of tens of thousands of lawyers who confidentially evaluate their professional peers. Based on the results of these surveys, the publication designates the year’s leading lawyers in all 50 states and the District of Columbia.
The Milligan Lawless attorneys recognized in the 2021 edition are:
2021 Best Lawyers
- Bryan S. Bailey: Health Care Law
- John A. Conley: Administrative/Regulatory Law
- Robert J. Itri: Commercial Litigation; Copyright Law; Litigation – Intellectual Property; and Trademark Law
- Steven T. Lawrence: Corporate Law
- Thomas A. Maraz: Construction Law
- Robert J. Milligan: Health Care Law
- James R. Taylor: Health Care Law
2021 Best Lawyers: Ones To Watch
- Lauren A. Crawford: Commercial Litigation
- Kylie E. Mote: Health Care Law
- Miranda Preston: Health Care Law
Part 1 of this series explained the changed landscape of M&A due to the COVID-19 pandemic, and discussed five areas where the pandemic has affected the terms of M&A transactions. In this segment, we will discuss practical considerations for entities who are contemplating a sale, whether during or after the pandemic.
- Attend to the Details. The operations of many healthcare practices impacted by the pandemic have rightly turned to focus on the delivery services. But, now is the time to make sure that the details of business are in order. As compliance is frequently a starting place for buyers, sellers should thoroughly review the company’s compliance efforts and systems, and update such compliance programs as needed. Intellectual property is sometimes an afterthought, but the pandemic may present unique opportunities for the pursuit of intellectual property protection or the development of new intellectual property. This is also a good time to ensure that corporate formalities are observed and the company’s books and records are in order. Prospective sellers should examine their existing organization and operations and make adjustments as needed in an effort to be ready for sale. Prioritizing the details of the business in advance of a sale pays dividends during the due diligence process.
- Consider CARES Act Relief. From the outset of any potential transaction, sellers should consider the impact that the acquisition may have on any CARES Act relief the seller has received or is seeking. Buyers will be paying particular attention to these issues, and both parties should take care to structure any transaction in a way that does not inadvertently alter the seller’s eligibility status or violate any program requirements. There are a number of certifications borrowers must make during the application and forgiveness process, including certifications related to the use of funds, the borrower’s organizational structure, and the information provided to support the forgiveness application. Inaccurate certifications are subject to criminal and civil fraud claims. Sellers who have received PPP loans should consider how a potential transaction effects the Seller’s ability to participate in PPP loan forgiveness. Sellers should thoroughly review their loan documents for provisions related to changes of ownership or control, which provisions are usually broadly defined. Typically, the seller will need to obtain the consent of the lender before entering into any transaction that results in a change of control.
- Be Creative. Many businesses that have been successful in the pandemic have pivoted using existing products or service offerings in a new way. From an M&A perspective, those new lines of business may become spin-off candidates and the source of joint ventures in the future. Buyers will be looking for sellers that are creative and have sought new markets even in the face of the pandemic.
- Ready Your Team. The pandemic has unfortunately seen a massive loss of employment. While the rate of unemployment claims is slowing, there are still significant opportunities to bring on new talent to your organization to lead the way in the post-pandemic landscape. Sellers should retain knowledgeable consultants and advisors, such as legal counsel and accounts.
The COVID-19 pandemic has dramatically changed the M&A market. However, the pandemic also presents an opportunity for prospective sellers to improve their position for a future M&A sale. If you have any questions regarding any M&A issues, the business transactions team at Milligan Lawless is here to assist. Please contact Steve Lawrence at 602-792-3635 or email@example.com or Miranda Preston at 602-792-3511 or firstname.lastname@example.org.
 The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted on March 27, 2020 and created the Paycheck Protection Program (“PPP”), a forgivable small business loan program; and authorized additional funding for the Small Business Administration (SBA) Economic Injury Disaster Loan (EIDL) program, among other features.
 Additional information from Milligan Lawless on the CARES Act and PPP is available here: The CARES Act – Paycheck Protection Program Loan (Mar. 28, 2020); Paycheck Protection Program Loan Forgiveness (Mar. 29, 2020); Update on CARES Act: SBA Implements Interim Final Rule for Paycheck Protection Program Loans (Apr. 3, 2020); CARES Act Provider Relief Fund Distributions (Apr. 14, 2020); Update on CARES Act Provider Relief Fund General Distributions (Apr. 30, 2020); and Congress Passes Favorable Amendments to the Payroll Protection Program (Jun. 5, 2020).
The COVID-19 pandemic has impacted all aspects of business in the United States, M&A transactions in particular. The global IPO market ground to a halt in March of 2020, and corresponding developments in the M&A market were felt almost immediately. By the end of March 2020, M&A levels for the first quarter of 2020 had fallen by more than 50% compared to levels for the first quarter of 2019. Many companies and private equity buyers moved away from the deal market in an effort to preserve jobs, customers and resources. For example, Xerox ceased its $35 billion takeover bid for HP, SoftBank terminated a $3 billion tender offer for WeWork stock and Hexcel and Woodward ceased discussions on a $6.4 billion merger of equals.
Private company transactions were also impacted – a recent study of private company deals valued at less than $2 million found that 46% of deals were delayed and 11% were cancelled as a result of the pandemic. Some transactions involving the acquisition of physician practices that primarily perform elective procedures were delayed or cancelled altogether following the suspension of the performance of elective procedures. The pandemic caused the re-evaluation of the terms of M&A transactions. Transactions are still occurring, but in many cases the pandemic has caused the parties to agree to modified terms and conditions. This article highlights five areas where the pandemic has affected the terms of M&A transactions. The second part of this two-part series will discuss actions prospective sellers can take in the face of the pandemic to optimize their position as targets for acquisition.
- Purchase Price. One of the most noticeable effects of the pandemic has been the reassessment of target company valuations. M&A transactions in 2020 have seen a greater prevalence of contingent forms of consideration, such as earn-outs or increased percentages of escrowed purchase price. In the health care context, earn-outs and other post-closing adjustments can have regulatory implications. These contingencies add complexity to the transaction and increase the potential for disputes between the buyer and seller. Post-closing adjustments have a new level of importance as day-to-day uncertainties of operations have made the ability to anticipate performance more difficult.
- Due Diligence. While the diligence effort is always an important aspect of any transaction, the pandemic has caused a heightened emphasis on the buyer’s diligence of the seller. Buyers are now taking an even deeper dive into the pandemic’s impact on the target company’s sales, regulatory compliance, contract obligations, internal controls, among many other aspects. A significant portion of due diligence occurs electronically over remote technologies, but not everything can be done virtually (e.g. site visits, surveys). As in-person diligence remains limited, sellers should expect a longer and more rigorous due diligence process.
- Representations and Warranties. There has already been a shift in the negotiations of representations and warranties to address COVID-19. Some buyers are now requiring that sellers represent and warrant regarding: (1) the seller’s compliance with all local laws, rules and regulations regarding the pandemic, including any restrictions regarding the opening and closing of businesses; (2) the impact of the pandemic on the seller’s workforce and the ability of the seller to continue to operate in the face of “shut-down” orders; (3) whether the seller has obtained any CARES Act related relief, the seller’s eligibility for relief, and the seller’s compliance with CARES Act program requirements; and (4) the internal controls, policies and procedures of the seller regarding a safe workplace, including compliance with U.S. Centers for Disease Control guidance regarding re-opening. Given the depth of these new representations and warranties, representations and warranties insurance (“RWI”) has become a consideration for many sellers who would have not previously considered it, or who may have determined the cost of RWI premiums outweighed its benefits. This has led to new negotiations between sellers and insurers over the terms of such insurance and whether the policy contains COVID-19-related exclusions (which may result in coverage gaps during the pandemic).
- Operating Covenants. Buyers are demanding tighter controls on the target company between the signing of a purchase agreement and the closing of the transaction. This tighter control is typically evidenced by covenants that obligate the selling company to operate in a certain way or with certain limitations, typically based on the “ordinary course” of the business. Operating a business “in the ordinary course” may not be applicable (or as applicable) in a time of a worldwide pandemic. What is the “ordinary course” today? Does “ordinary course” mean pre-pandemic? Historically, these provisions have been somewhat loose and allowed the selling company a level of room to continue to operate the business as it had historically operated. However, in the pandemic era, buyers are demanding much greater controls and tighter restrictions on the selling company’s pre-closing operations.
- Material Adverse Effect. Material adverse change or Material Adverse Effect (“MAE”) clauses generally allow a buyer to walk away from the deal if the seller’s business and operations suffer a material adverse change between the signing of the purchase agreement the and closing of the transaction. For transactions that were entered into before the onset of the pandemic, or for those contracts of the selling company that are under review, a question may arise whether the pandemic constitutes a MAE. The party invoking a MAE faces a high standard in demonstrating that there has been an adverse change to the selling company’s business that qualifies as a MAE that would excuse the buyer’s performance. In evaluating whether there has been a MAE, the courts will likely consider: (1) the express language of the agreement; (2) whether a pandemic or epidemic is an anticipated (or reasonably anticipated) event; and (3) the depth of the impact on the business and length and scope of the downturn. Given the fact that the long-term effects of COVID-19 are still unknown, and the high standard for demonstrating a MAE, it will likely be difficult for buyers to successfully argue that the disruptions caused by the pandemic constitute a MAE.
The COVID-19 pandemic has wreaked havoc on the U.S. economy; the M&A market is not immune to the pandemic’s negative impact. That said, some M&A activity has continued unabated, though the terms of such deals and the associated risks look markedly different than they did pre-pandemic. For information about the steps that prospective sellers can take to better position themselves when the time comes for a sale, stay tuned for part two of this series. If you have any questions regarding any M&A issues, the business transactions team at Milligan Lawless is here to assist. Please contact Steve Lawrence at 602-792-3635 or email@example.com or Miranda Preston at 602-792-3511 or firstname.lastname@example.org.
 Jens Kengelbach, Jeff Gell, Georg Keienburg, Dominik Degen and Daniel Kim, COVID-19’s Impact on Global M&A, Boston Consulting Group, March 26, 2020.
 Richard Harroch, The Impact of the Coronavirus on Mergers and Acquisitions, Forbes, April 17, 2020.
 Cara Lombardo, Xerox Is Ending Hostile Takeover Bid for HP, The Wall Street Journal, April 1, 2020; Peter Eavis, SoftBank Won’t Buy $3 Billion in WeWork Stock, New York Times, April 1, 2020; Reuters, Aero Suppliers Hexcel and Woodward Scrap Deal as Coronavirus Pummels Industry, April 6, 2020.
 Market Pulse Report, Pepperdine Graziadio Business School, April 29, 2020.
 For example, in the context of the sale of a physician practice, where a portion of the purchase price is paid as an earn-out, if the owners of the seller will refer any patients to the buyer post-closing, the Stark Law and the Anti-Kickback Statute may be implicated.
 See Akorn, Inc. v. Fresenius Kabi AG, No. CV 2018-0300-JTL, 2018 WL 4719347, at *53 (Del. Ch. Oct. 1, 2018), aff’d, 198 A.3d 724 (Del. 2018) (citing Hexion Specialty Chemicals, Inc. v. Huntsman Corp., 965 A.2d 715 (Del. Ch. 2008) at 738 (stating “A buyer faces a heavy burden when it attempts to invoke a material adverse effect clause in order to avoid its obligation to close”).