How the Partial Federal Government Shutdown Is Impacting NY and NJ Businesses

What Does the Partial Federal Government Shutdown Mean for New York and New Jersey Businesses?

The partial federal government shutdown, which began on December 22, 2018, shows no signs of ending as members of Congress and President Donald Trump have failed to reach a budget agreement. Around the country, “closed” signs have been posted at national parks, and many federal agencies are working with skeleton crews.

But what does the shutdown mean for New York and New Jersey businesses?

Companies that rely on government contracts or conduct direct business with the federal government will certainly feel the impact. Businesses that provide engineering, logistics, support and technical services to federal agencies are already reporting that delayed contracts and payments will impact their bottom line. The severity of the hit depends on how long the shutdown continues. For now, many have delayed hiring new workers, shifted existing employees’ job assignments, and temporarily scaled back operations. Companies that filed with the SEC for initial public offerings of shares may be unable to raise needed funds until the shutdown ends and the SEC re-opens its review process, although some companies that were already substantially into the SEC review process are using a work-around to go public during the shutdown.  That work-around is discussed in the penultimate paragraph below.

Litigation in Federal Courts

On January 7, the Administrative Office of the U.S. Courts announced that it will try to maintain paid operations amid the partial government shutdown through January 18. “In an effort to achieve this goal, courts have been asked to delay or defer non-mission critical expenses, such as new hires, non-case related travel, and certain contracts. Judiciary employees are reporting to work and currently are in full-pay status,” the judiciary stated in an advisory.

The Administrative Office of the U.S. Courts further stated that it has “continued to operate by using court fee balances and other ‘no-year’ funds.” After January 18, only “essential work” will continue. “This mission critical work includes activities to support the exercise of the courts’ constitutional powers under Article III, specifically the resolution of cases and related services. Each court would determine the staff necessary to support its mission critical work,” the advisory said.

Small Business Funding

The Small Business Administration (SBA) has effectively closed its doors amid the government shutdown. According to the SBA’s website, disaster assistance is the only service that remains available. That means that small business loans will not be processed or approved. In addition, once the shutdown ends, the backlog will likely take some time to resolve. For entrepreneurs hoping to rely on SBA funds to start or grow a business, it may be worthwhile to explore alternative financing and investment opportunities to raise capital for your small business.

Employment Agencies

The Equal Employment Opportunity Commission (EEOC) is also shuttered, with only a limited number of EEOC services available. On its website, the agency encouraged aggrieved workers to continue pursuing their claims to avoid running afoul of the statute of limitations. “The time limits depend on where the employer is located or where the alleged discrimination took place,” the website said. “Generally, charges have to be filed within 300 days of the incident… These time limits may not be extended because of the shut-down.” The EEOC also advises that employers will not be able to obtain information about ongoing cases.

The E-Verify system is also offline. While E-Verify is unavailable, employers will not be able to access their E-Verify accounts to enroll in E-Verify; create an E-Verify case; view or take action on any case; add, delete or edit any user account; reset passwords; edit company information; terminate accounts; and run reports. The E-Verify website also advises that the lapse in government appropriations does not affect Form I-9, Employment Eligibility Verification requirements. Employers must still complete Form I-9 no later than the third business day after an employee starts work for pay, and comply with all other Form I-9 requirements.

USPTO Still Operational

The U.S. Patent and Trademark Office (USPTO) is one of several federal agencies that remains open for business as normal. As explained on the USPTO website, “this is possible because the agency has access to prior-year fee collections, which enables the USPTO to continue normal operations for a few weeks.” Should the USPTO exhaust these funds before a partial government shutdown comes to an end, the agency would have to shut down at that time, although a small staff would continue to work to receive new applications and any other examination, post-examination, post-issuance, and PTAB or TTAB filings; receive payments related to such filings; and maintain IT infrastructure, among other functions.

SEC Filing Requirements and How Some Companies Are Still Able To Have Their Offerings Declared Effective

The Securities and Exchange Commission (SEC) has announced that it has a very limited number of staff members available. According to an advisory posted on the SEC website,  staff is available to respond to emergency situations involving market integrity and investor protection, including law enforcement. The SEC’s contingency plan also calls for the continuing operation of certain Commission systems, including EDGAR.

The Division of Investment Management posted its own advisory, which stated that its staff will not be available to respond to any questions about pending matters. “During the shutdown, the Division will not be in a position to act upon any requests for acceleration of the effective date of a pending registration statement or qualification of a pending offering statement until the SEC receives appropriations to fund its operations,” the advisory said.

Notably, investment companies and companies that have already satisfied material SEC comments through its review process but whose offerings have not yet been declared effective by the SEC can and should continue to make filings on EDGAR during the shutdown. As highlighted by the Division, many of these filings, pursuant to rules promulgated under the 1933 Act (e.g., Rule 485 for open-end funds and Rule 473 for IPOs), become effective automatically either immediately upon filing or following the passage of a certain number of days.  As to investment companies, “These filings will become effective automatically after the entire time period set forth in the applicable rules until the SEC returns to open and operational status,” the advisory stated.  Similarly, companies that filed for initial public offerings of their securities through registration statements on Form S-1 will be seeking to take advantage of the benefits of Section 8(a) of the Securities Act which allows the registration statement to automatically go effective within 20 days from the last filing so long as complete and all exhibits are included.  Relying on Rule 473 of the Securities Act of 1933, some companies are now inserting the following language in their amended registration statement filings in place of the typical delaying amendment: This registration statement shall hereafter become effective in accordance with the provisions of section 8(a) of the Securities Act of 1933.  That can allow for the registration statement to automatically go into effect 20 days from the filing. If the SEC re-opens, the SEC may ask that the delaying amendment be returned into the filing, or the issuer may choose to refile with the delaying amendment back in – in both cases it would allow the SEC to declare the registration statement effective before the 20 day period, assuming the government re-opens soon.

If you have any questions, please contact us

Of course, this article covers just a few government agencies that have been impacted by the partial government shutdown.If you have any questions about how the federal government shutdown may affect your business, please contact me, Dan Brecher, or the Scarinci Hollenbeck attorney with whom you work, at 201-806-3364.