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Client Alert

Key Things Employers in China Should Know Regarding Reopening Amid COVID-19 (I)

March 6, 2020

by Ray Liu

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Due to the outbreak and rapid evolvement of the novel coronavirus (COVID-19), the central government and its local counterparts in China have taken a series of actions to contain the spread of the virus, including extending the Spring Festival Holiday, ordering enterprises to put off the schedule of business reopening and encouraging employees to work from home.  Now, with the growth of virus infection gradually slowing down, local governments in various locations (including Beijing, Shanghai and Guangdong) have allowed and even encouraged business entities to resume their operations.  At the time of this article, a large number of companies and factories have already reopened their businesses with more to follow in the coming weeks.

With massive employees swarming into offices and factories, employers in China now face significant challenges in preventing and controlling the spread of coronavirus at workplace.  Several workplace infection cases have been reported recently, under which employers had to suspend their business operations and invest additional funds and resources to cooperate with the disease prevention and control requests from the government.1  Dorsey and Whitney LLP will release a series of articles to help employers in China, including multinational organizations’ Chinese operations, navigate the complex policies and requirements regarding business reopening implemented by the government and provide a practical guide on how to effectively prevent and deal with workplace infections.

As the first episode of the series, this article focuses on the timing and filing requirements for business reopening, actions to be taken to prevent and control spread of virus at workplace, measures required to protect personal information collected during the virus fight, and steps to be taken in the event of suspected infections at workplace.

1. When could companies resume their operations in China?

It depends on the location and business nature of the company.  In Beijing, Shanghai and Guangdong, most types of business operators are now allowed to resume their operations.  However, in certain places hit hard by the epidemic, the local governments may have different timetables for business reopening.  For example, in Hubei province (where the first infection case in China was identified), after rounds of re-scheduling, the reopening date for most companies (except certain businesses crucial for disease control and people’s daily needs) is currently set on March 10, 2020, which might be further extended depending on the circumstances.2  Also, governments at various locations have released their own versions of negative list enumerating businesses with high infection risks that are not allowed to reopen.  Among others, movie theatres, Karaoke theatres, indoor training institutes, bars, Spa centers, museums and galleries are regarded by many local governments as high-risk businesses and therefore required to suspend their operations for an extended or indefinite period.4

2. Do companies need to make a filing with the government in order to reopen business?

In order to mitigate the risks of workplace virus transmission, many local governments require companies to make filings before or at the time of business reopening.  For example, in the Chaoyang District of Beijing where many multinational companies are located, the Office Building Epidemic Prevention and Control Working Group formed by the local government issued a notice according to which business entities within Chaoyang District should cooperate with the local authorities to provide necessary information via an official website (http://lyfy.bjchy.gov.cn) designated by the government.5  In Shanghai, companies in Jing’an District, one of the busiest central business districts in Shanghai, must complete an online filing when reopening their business.6  Other places such as Hangzhou, Chengdu, Suzhou Industrial Zone, Ningbo and Shenzhen also require companies to conduct reopening filing in their required methods and formats.7  Notably, to encourage companies to restart their operations or productions, governments in many places have cancelled the pre-approval requirement for reopening, which means that business operators can resume their operations first and proceed with the required filing upon or after reopening.8  Companies planning to resume their operations should carefully check if reopening filing is required at its location and complete any applicable filing procedures to ensure compliance.

3. What actions should an employer take to prevent and control virus spread at workplace?

Under the Employment Contract Law (“ECL”) and the Labor Law of the People’s Republic of China (“PRC”), an employer is obliged to provide a safe working environment to its employees.9  Under the Law of the PRC on Prevention and Control of Contagious Disease (“Contagious Disease Prevention Law”), an employer must timely report any confirmed or suspected infection of contagious disease to the medical institutions or disease prevention and control organizations (“DPC Organizations”) and cooperate with their requests in preventing and curbing the spread of the contagious disease.10  Based on these national laws, a number of local governments have released detailed guidelines regarding the precautions an employer should take to prevent and control workplace virus infection.  While the requirements in different places may vary and an employer usually only needs to comply with the rules at its own location, it is advisable for employers to take the following actions, which have been recommended or mandated by governments in various locations.

  • Obtain guidance from the local government regarding virus prevention and control in advance.  Many places have released systematic guidelines to business operators with requirements and tips for virus prevention and control at workplace.11  It is important for employers to carefully review such guidelines from the local government beforehand and ensure compliance with the requirements thereunder.  Where the local government has not published any systematic guidelines, the employer should consult with the local authorities and obtain certain basic information regarding business reopening and virus control (including what procedures need to be completed for reopening and which institution or department it should contact when there is an emergency) in advance.
  • Form an anti-virus working group (or at least designate several responsible persons).  Employers should form a working group or at least designate several responsible persons to handle relevant disease control and prevention matters.  It is advisable to include HR specialists and mid-level managers into the working group, because these staff usually have the most interactions with lower-level employees and may be the first person employees will reach out to where there is an emergency.
  • Formulate plans and policies for workplace disease prevention and control.  Detailed rules and regulations for disease prevention and control should be prepared in advance.  It is important for employees to comply with such policies because any virus infection resulting from non-compliance may cause unmeasurable losses to a company, and disciplinary rules should be included into these policies to provide basis for companies to take HR actions against an employee who violates relevant anti-virus policies. Given the urgency and importance of the anti-virus measures, employers may consider using simplified methods to satisfy the consultation and announcement requirements for policy-making under the ECL12, for example, by sending the policies (or their web links) to and seeking comments from employees via email or online working applications.
  • Collect travel information from employees and comply with the local requirements for medical observation.  In almost all large cities and industrial zones (including Beijing, Shanghai, Guangzhou, Hangzhou and Suzhou Industrial Zone), employers are required to collect travel information of their employees and arrange for those who return to work from other locations (especially places hit hard by COVID-19 such as Hubei Province or Wenzhou City in Zhejiang Province) to first accept medical observation for a designated period of time (typically 14 days).13  To ensure compliance, companies should identify the scope of employees for which medical observation is required under local rules and have them complete the medical observation before they may return to work.
  • Have necessary supplies for disease prevention and control in place.  While there is no law expressly requiring employers to provide face masks to every employee during the virus fight, an official from the National Development and Reform Commission stated during a media conference that enterprises must equip their employees with face masks and have sanitizers and electrical thermometers in place.14  Therefore, we recommend that employers procure sufficient face masks, sanitizers, thermometers and other supplies for disease prevention and control before resuming operations to avoid potential non-compliance risks.
  • Educate employees on the precautions to be taken.  Employers should ensure that their employees are aware of the requirements and recommended practices for virus prevention and control at workplace (such as wearing face masks and frequently washing their hands), which can be done through appropriate training and publicity.  Please note, however, to minimize the risks of workplace virus spread, companies should avoid in-person trainings involving large numbers of employees.  Instead, trainings may be conducted via pre-recorded videos, online courses or telephone conference.
  • Closely monitor health conditions of employees and visitors.  Companies should establish a temperature monitoring mechanism.  For example, employees should measure their body temperatures on a regular basis, and every visitor should be required to measure their temperature before they may be permitted to enter the working area.  Also, companies should require employees to immediately report any health issues to their anti-virus working group or the designated responsible persons.
  • Appropriately ventilate, clean and sanitize the working space and dormitories on a regular basis.  Companies should review and adjust their cleaning practices as necessary by following the advice from the local government and disease prevention professionals.  For example, knobs on doors and elevator buttons should be cleaned and sanitized on a regular basis.  Also, certain chemicals (such as ethanol) used for disinfection should be handled with care to minimize fire hazards.  The cleaners should be trained so that they can properly carry out the cleaning and sanitizing duties at this special moment.
  • Reduce employees’ in-person interaction with colleagues and business partners to the extent possible. At this special time, less in-person contact would mean less exposure to virus transmission.  Therefore, enterprises are encouraged to reduce employees’ in-person interaction with colleagues, vendors and customers to the extent possible.  For example, for those whose work can be performed at home, employers may consider implementing a work-from-home policy. Employees should be encouraged to have meetings and work-related discussions via telephones or working applications. Business travels should be avoided to the extent possible.  In certain places, companies with large crowds of employees are required to limit the staff number at workplace and ensure the working space per person is not smaller than the threshold designated by the government (for example, no less than 2.5 m² per person in office buildings in Beijing).15  Companies should take appropriate measures to comply with such requirements (if applicable), for example, by having employees come to office in shifts.
  • Immediately report any confirmed or suspected infection and provide other necessary information to medical institutions or DPC Organizations. This is an obligation expressly provided under the Contagious Disease Prevention Law and the failure of which may result in serious legal liabilities. Companies should make the reporting obligation and the legal consequences of non-compliance adequately clear to their employees, and ensure that such requirement is strictly followed.

The above-listed measures are not exhaustive and the requirements may vary from place to place.  Employers should carefully review the applicable local rules and comply with the requirements thereunder.  Also, employers are recommended to keep a close eye on the evolvement of the COVID-19 situation and adjust its practices based on any updated policies and orders from the government.

4. What measures should be taken by companies to protect personal information collected during the virus fight?

Although PRC law is silent on whether employers may collect personal information from their employees without prior consent for the purposes of disease prevention and control, a national standard on protection of personal information effective on May 1, 2018 regards the collection of personal information for the purposes of “public health” as an exception to the “prior consent” requirement16 and it is widely accepted among legal practitioners in China that employers may collect necessary personal information from employees without their prior consent to contain virus transmission. However, this does not mean employers may freely handle employees’ personal information amid the COVID-19 outbreak. Among others, employers should take the following steps to protect the privacy and safety of the personal data collected for the purposes of virus prevention and control to ensure compliance:

  • Employees should be informed about the scope and types of information to be collected, and the purposes for collecting and using such information.
  • Employers should limit the scope of information collected to the minimum extent necessary.  This means that companies should only collect the information necessary to respond to any reasonable requests from the local governments (such as employees’ travel history before returning to work, body temperature, residence and contact information, and information regarding whether they have any health issues and relevant symptoms, whether they had any contact with confirmed or suspected COVID-19 patients and whether they have completed the required medical observation).  Any collection of information beyond the necessary extent must be notified to and expressly consented by employees in advance.
  • Employers should take necessary measures to protect the security of the information collected, for example, to encrypt the documents containing personal data or have the documents (if in physical copies) locked in a safe storage compartment, to limit access to the personal data on a need-to-know basis, to have any e-data stored in a working system of a high security level.
  • Unless permitted by laws or regulations (e.g., where disclosure to government authorities or DPC Organizations are required), employers in China should not disclose or transfer any personal information collected during the virus fight to any third party without the employees’ express consent. For multinational organizations, unless there is a compelling reason for transferring employees’ personal data collected for anti-virus purposes overseas (e.g., where the infected employees might have carried the virus abroad), the headquarters may simply ask the China branch to provide general updates regarding the COVID-19 situation in China on a regular basis with limited or no personal information to keep apprised of any development in China while mitigating the compliance risks for cross-border data transfer.

5. What steps should be taken when suspected infections at workplace are reported?

Among others, the employer should take the following steps under such circumstances:

  • Direct the employee with suspected infection (the “Suspected Patient”) to accept medical advice and treatment from a professional medical institution;
  • Immediately report the situation to the local government authorities or relevant DPC Organization to seek their guidance regarding how to deal with this situation;
  • Cooperate with the local government authorities or the DPC Organization and take necessary measures to contain the spread of virus, for example, by:
    • identifying employees, vendors or customers who had close contact with the Suspected Patient;
    • cooperating with any quarantine or medical observations required by the local authorities;
    • sanitizing and disinfecting the working areas and staff dormitories (if any) based on the requests and instructions from the local authorities;
  • Consult with the local government authorities to determine whether the employer needs to suspend its operations;
  • Cooperate with any other requests from the local government authorities regarding disease prevention and control.

1 See http://finance.sina.com.cn/stock/relnews/cn/2020-02-19/doc-iimxxstf2789161.shtml; also see https://www.sohu.com/a/374806316_162522
2 See http://leaders.people.com.cn/n1/2020/0221/c58278-31597855.html
4 See 《广东省新冠肺炎防控指挥办疫情防控组关于印发广东省商业服务区复工复市新冠肺炎疫情防控工作指引（第二版）的通知》；杭州市《关于完善企业复工“负面清单”管理机制的通知》；山东省《关于统筹抓好服务业疫情防控和有序开业复工的指导意见》
5 See 《朝阳区商务楼宇新冠肺炎疫情防控工作告知书》
6 See http://www.jingan.gov.cn/xwzx/002020/20200213/b2897c7a-a94d-4167-bad8-46a2d5ae2083.html
7 See http://www.hangzhou.gov.cn/art/2020/2/10/art_812262_41896700.html; http://cdjx.chengdu.gov.cn/cdsjxw/c132949/2020-02/01/content_ac1742242ad741e2a45243249be60c7a.shtml; http://www.sispark.com.cn/sispark-news-8924.html; http://daily.cnnb.com.cn/nbwb/html/2020-02/18/content_1209562.htm?div=-1; http://sz.people.com.cn/n2/2020/0204/c202846-33761874.html
8 See https://baijiahao.baidu.com/s?id=1658921194249222427&wfr=spider&for=pc
9 See 《劳动合同法》第32条；《劳动法》第52、54条
10 See 《传染病防治法》第12、27、31条
11 See http://www.sispark.com.cn/sispark-news-8924.html; http://www.hangzhou.gov.cn/art/2020/2/7/art_1256296_41889631.html; http://www.sz.gov.cn/cn/xxgk/zfxxgj/tzgg/content/post_6725142.html
12 See 《劳动合同法》第4条
13 See http://www.bjft.gov.cn/zfxxgk/ftq11GG36/zxgk/2020-02/17/content_5833aa6610844aa486d7ca7d3d3c5d68.shtml ;  http://sh.sina.com.cn/news/m/2020-02-12/detail-iimxyqvz2137876.shtml; https://www.sohu.com/a/374113276_391251; https://baijiahao.baidu.com/s?id=1658067371924548770&wfr=spider&for=pc; http://www.sispark.com.cn/sispark-news-8924.html
14 See https://baijiahao.baidu.com/s?id=1658229105357505613&wfr=spider&for=pc
15 See 北京五政府部门联合发布的《关于进一步明确在商务楼宇内办公单位防疫要求的通告》
16 See 《个人信息安全规范 (GB/T 35273-2017)》第5.4条

 

Firm Highlights

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EPA Limits Title V Re-Litigation of NSR Permits

Overview On September 25, 2026, the U.S. Environmental Protection Agency (“EPA”) published a final rule that significantly limits the ability of third parties to use the Clean Air Act (“CAA”) Title V permitting process to revisit New Source Review (“NSR”) permitting decisions years after those decisions were made. The rule establishes that NSR permitting determinations generally must be challenged during the original permitting proceeding, thereby providing regulated sources with greater permitting certainty and finality for major capital projects. Published in the Federal Register titled Clarifying the Scope of “Applicable Requirements” Under State Operating Permit Programs and the Federal Operating Permit Program (Docket ID No. EPA-HQ-OAR-2023-0401), the rule amends 40 C.F.R. Parts 70 and 71 to codify EPA’s interpretation regarding when requirements established under other CAA programs may be reviewed, modified, or implemented through the Title V operating permit program. The rule becomes effective 30 days after publication. The rule addresses two principal issues: (1) the relationship between NSR preconstruction permitting and Title V operating permits, and (2) the treatment of the General Duty Clause under CAA section 112(r)(1). Most significantly, the rule provides greater certainty for sources navigating the NSR permitting process. EPA’s amendments are intended to ensure that NSR permitting decisions made through an approved public process are generally not revisited later through Title V permit proceedings. The rule responds to a circuit split between the U.S. Courts of Appeals for the Fifth and Tenth Circuits. In Environmental Integrity Project v. EPA, 969 F.3d 529 (5th Cir. 2020), the Fifth Circuit upheld EPA’s interpretation, concluding that it was consistent with the text, structure, and purpose of Title V. In contrast, the Tenth Circuit reached the opposite conclusion in Sierra Club v. EPA, 964 F.3d 882 (10th Cir. 2020), finding that the then-existing regulatory definition of “applicable requirement” did not support EPA’s position. By amending the regulatory language on which the Tenth Circuit relied and codifying the interpretation approved by the Fifth Circuit, EPA has established a nationwide framework governing the interaction between NSR and Title V. NSR and Title V: EPA Establishes a Uniform Nationwide Framework At the core of the rule is EPA’s effort to define the respective roles of NSR and Title V. The rule codifies the approach EPA has applied since 2017: once a source obtains an NSR permit under an EPA-approved permitting program, and that permit was issued following public notice with an opportunity for comment and judicial review, the permit establishes the NSR-related “applicable requirements” of the State Implementation Plan (“SIP”) or Federal Implementation Plan (“FIP”) for Title V purposes. Under this framework, Title V is not a vehicle for re-examining underlying NSR permitting decisions. EPA does not intend to use the Title V process to revisit applicability determinations, emissions calculations, control technology determinations, permit conditions, or other issues resolved through the NSR permitting process. This principle applies regardless of the stage of the Title V proceeding; whether the NSR permit was issued pursuant to a SIP or FIP; the type of NSR issue involved; or whether the NSR permit is incorporated into Title V sequentially or concurrently. Limited Exceptions EPA recognizes several circumstances in which NSR issues may still be reviewed through the Title V program: No NSR permit was issued at all; The permit was issued without public notice and an opportunity for comment and judicial review; or The issue involves substantive overlap between Title V and NSR requirements, such as the adequacy of monitoring provisions. As a result, the rule does not insulate unpermitted projects or foreclose review of matters that independently arise under Title V. Key Regulatory Amendments The rule revises the definition of “applicable requirement” in 40 C.F.R. §§ 70.2 and 71.2. Paragraph (1): Where an NSR permit is issued with public notice and an opportunity for comment and judicial review, the permit establishes and defines the applicable SIP or FIP requirements for Title V purposes. Paragraph (2): All NSR permit terms, including terms contained in minor NSR permits, constitute applicable requirements that must be incorporated into Title V permits. Paragraph (4): CAA section 112(r)(1) (the General Duty Clause) is expressly excluded from the definition of “applicable requirement,” while section 112(r)(7) Risk Management Program requirements remain included. EPA also amended 40 C.F.R. §§ 70.8 and 70.12 to clarify that alleged defects in requirements established outside the Title V process generally do not provide a basis for EPA objection to a Title V permit or for a Title V citizen petition. General Duty Clause Exclusion The rule also codifies EPA’s longstanding position that the General Duty Clause in CAA section 112(r)(1) is not an “applicable requirement” for Title V purposes. EPA points to several considerations supporting that conclusion, including the distinction between the General Duty Clause and Title V permit terms, the provision’s origins in the Occupational Safety and Health Act’s general duty clause, and the different enforcement structures applicable to the General Duty Clause and Title V permit requirements. Importantly, excluding section 112(r)(1) from the definition of “applicable requirement” does not eliminate EPA’s authority to enforce the General Duty Clause independently of the Title V program. The final rule instead clarifies that the General Duty Clause need not—and should not—be incorporated into Title V permits as an applicable requirement. Practical Implications for Regulated Sources Greater Finality for NSR Permits  For projects requiring PSD, nonattainment NSR, or minor NSR permits, the permitting process becomes the primary forum for resolving disputes regarding applicability determinations, emissions calculations, control technology requirements, offsets, and permit conditions. Once an NSR permit is issued through a qualifying public process, regulated sources should face substantially reduced risk that those same issues will be challenged years later through Title V permit proceedings. Reduced Risk of Collateral Permit Challenges Stakeholders have sometimes sought to use Title V permit issuance, renewal, revision, or citizen-petition proceedings to challenge underlying NSR determinations. The final rule makes clear that Title V is not the appropriate vehicle for challenging whether an applicable requirement was correctly established in the first instance. This should reduce the risk of permit delays and uncertainty associated with collateral challenges to previously issued NSR permits. The rule does not, however, eliminate all Title V challenges relating to an NSR permit. Challenges concerning the Title V permit itself—including whether it appropriately incorporates applicable requirements or contains adequate compliance provisions—remain possible. Increased Importance of the Initial NSR Proceeding Because Title V generally will not provide a second opportunity to challenge the substantive validity of an NSR determination, the administrative record developed during the NSR process becomes increasingly important. Permit applicants should ensure that applicability analyses, emissions calculations, control technology evaluations, modeling demonstrations, and supporting technical documentation are thoroughly developed during the original permitting proceeding. For significant projects, applicants may therefore have an additional incentive to identify and resolve potential permitting issues before the NSR permit is issued rather than assuming that unresolved issues can be addressed during a subsequent Title V proceeding. Potential Incentive for Broader Public Participation EPA also notes that permitting authorities may choose to provide public notice and an opportunity for comment for a broader range of NSR permits because permits issued through a qualifying public process receive the benefit of the finality framework established by the rule. Some permitting authorities may conclude that greater public participation at the NSR stage is preferable to uncertainty during subsequent Title V proceedings. Conclusion The final rule is principally a permitting-certainty measure. For sources that obtain NSR permits through a public process, EPA has substantially limited the ability of third parties to revisit underlying NSR determinations through the Title V program. As a result, regulated entities should benefit from greater finality regarding key permitting decisions, reduced risk of collateral permit challenges, and increased certainty when planning and implementing capital projects.

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Dorsey & Whitney LLP is pleased to announce its recognition in the inaugural edition of the Copyright 1000: The World’s Leading Copyright Professionals, published by IAM and World Trademark Review (WTR). Nine Dorsey attorneys were individually recognized, and the Firm’s Denver, Minneapolis, New York, Salt Lake City, and Seattle offices were recognized in the firm rankings. The following Dorsey attorneys were recognized in the inaugural guide: Lindsey Sadler Gregory Tamkin Charlene Krogh Evan Everist Jeffrey Cadwell Fara Sunderji Bruce Ewing Catherine Parrish Lake J. Michael Keyes The Copyright 1000 is the first dedicated ranking focused solely on the world’s leading copyright practitioners. The guide identifies leading copyright firms and practitioners across key jurisdictions worldwide. Dorsey’s intellectual property attorneys advise clients on a wide range of copyright matters, including protection, enforcement, licensing, litigation, transactions, and issues involving emerging technologies and digital content. The inaugural Copyright 1000 rankings are published by IAM and WTR.

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Insights

SEC Proposes Expansion of Investment Adviser Performance-Based Compensation Rule

On September 30, 2026, the Securities and Exchange Commission (the “SEC”) proposed amendments to Rule 205-3 under the Investment Advisers Act of 1940, as amended (the “Advisers Act”), which provides an exemption from the general prohibition under Section 205(a)(1) of the Advisers Act on registered investment advisers receiving performance-based compensation (the “Proposal”) so long as performance-based compensation is limited to “qualified clients”.1 Most notably for private fund sponsors, the Proposal would expand the definition of “qualified client” to include any investors that satisfy the “accredited investor” definition under Regulation D. The Proposal may also have implications for private fund managers that rely on exemptions from investment adviser registration under state law because certain state-level investment adviser registration exemptions incorporate or otherwise reference the federal qualified client definition. Expansion of the Qualified Client Definition Under the current Rule 205-3, an investor generally may qualify as a qualified client if, among other alternatives, the investor has at least $1.4 million under management with the adviser or has a net worth exceeding $2.7 million. These thresholds are higher than the financial thresholds applicable to many accredited investors under Regulation D. As a result, an investor may currently qualify as an accredited investor for purposes of investing in a private offering without qualifying as a qualified client for purposes of paying performance-based compensation. The Proposal would expand the qualified client definition to include any natural person or legal entity investor that satisfies the accredited investor definition under Regulation D. The Proposal would also remove the assets under management and net worth thresholds under the current Rule 205-3 qualified client test. For private funds relying on Section 3(c)(1) of the Investment Company Act of 1940, this change could reduce the need to apply a separate qualified client standard to investors that already qualify as accredited investors. Dorsey Observations and Next Steps If adopted as proposed, the expanded qualified client definition could be particularly significant for private fund managers. Most private fund offerings are already limited to accredited investors under Regulation D. However, the Proposal could expand the pool of prospective investors available to emerging private fund managers while reducing the regulatory burden associated with complying with Rule 205-3. The Proposal could also benefit advisers operating below the SEC registration threshold that rely on a state private fund adviser exemption. A number of states have adopted exemptions modeled on the North American Securities Administrators Association (“NASAA”) private fund adviser exemption, which may condition relief for advisers to certain funds relying on Section 3(c)(1) on each beneficial owner satisfying the federal qualified client definition. However, state requirements vary, and any effect of the Proposal would depend on the text of the applicable state exemption and how it incorporates Rule 205-3. Many emerging private fund managers may have a larger network of accredited investor relationships than qualified client relationships during the early stages of their investment advisory business. Currently, under Rule 205-3, private fund managers may receive performance-based compensation from investors who do not satisfy the qualified client definition if those investors were admitted to their private funds prior to registration with the SEC. Following registration with the SEC, however, managers may continue to permit investors that are not qualified clients to invest in future private funds but may not receive performance-based compensation from those investors with respect to such investments. In addition, because the net worth and assets under management thresholds for qualified client status are adjusted for inflation every five years, the pool of qualified client investors may diminish over time as previously eligible investors no longer satisfy the applicable thresholds. The Proposal could provide the dual benefit of greater flexibility for private fund managers to establish and maintain relationships with accredited investors as their businesses scale and they become registered with the SEC, and greater flexibility for certain accredited investors to participate in investment strategies that historically have been restricted to much larger institutional investors. Unless and until the Proposal is adopted, investment advisers should continue to comply with the existing qualified client requirements. If the Proposal is adopted, private fund sponsors should consider whether corresponding changes are appropriate for their subscription documents, investor questionnaires, and other offering materials. Advisers that are state-registered or rely on a state-level exemption should also consult the laws and regulations of each relevant jurisdiction before changing investor eligibility standards or performance-based compensation practices, because adoption of the federal amendments may not automatically modify state requirements. Comments on the Proposal will be due 60 days after publication in the Federal Register. 1 Investment Adviser Performance-Based Compensation Modernization, Investment Advisers Act Release No. IA-7022 (Sept. 30, 2026), available at https://www.sec.gov/rules-regulations/2026/09/s7-2026-28#33-11443proposed.

Insights

Energy Law: Month in Review - September 2026

Welcome to Dorsey’s Energy Law: Month in Review. We provide this update to our clients to identify significant developments in the previous month. Please reach out to any of the authors, listed above, to discuss these issues. Regulatory Developments Massachusetts Ratchets Up State and Local Regulation of AI Data Centers In early September, Governor Maura Healey of Massachusetts signed an executive order requiring that artificial intelligence data centers secure the approval of local communities as a precondition to proceeding with a given project. According to the terms of the order, data center developers will need to secure a “community benefits agreement” as a precondition to receiving permits from numerous state agencies, including the Department of Environmental Protection, the Energy Facilities Siting Board, and the Massachusetts Environmental Policy Act Office. Beyond requiring community benefits agreements, the order also mandates that developers mitigate utility costs to consumers, prohibits the use of nondisclosure agreements, and requires various state agencies to develop measures to limit data center impacts on the environment. North Carolina Regulators Decline Approval of Duke Energy Gas Turbine On September 18, 2026, North Carolina Utilities Commission (NCUC) denied Duke Energy’s application for a certificate of public convenience and necessity required to construct a gas-fueled combustion turbine at its Smith Energy Complex in North Carolina. The NCUC objected strongly to the $584 million price tag and noted that Duke appeared to be constructing the facility “based on anticipated data center customer additions.” The NCUC rejected that anticipated growth as “insufficiently reliable for the Commission to act at this point.” In rejecting Duke’s application, the NCUC also noted that Duke had signed the White House Ratepayer Protection Pledge, in which it represented that it would not shift data center costs to consumers. The NCUC observed that the record did not demonstrate how Duke “intends to adhere to its commitments under the Ratepayer Protection Pledge with regard to the Proposed Facility.” Notably, commission staff had actually supported the construction of the turbine, citing concerns about Duke’s reserve margins. The NCUC noted that it “understands the Public Staff’s expressed concerns,” but those concerns were outweighed by the NCUC’s reservations, including questions of demand. Department of Energy Approves Funds for Grid Improvement The U.S. Department of Energy (DOE) recently announced that it would fund 31 grid-improvement projects in 26 states. The funding initiative is part of the DOE’s “SPARK” initiative. The funding will include $1.9 billion in federal funding from DOE and $3.35 billion in recipient cost-sharing funding. The funds will go to projects designed to improve grid reliability and lower electricity costs. Recipients plan to reconductor over 1,500 miles of transmission lines and will deploy grid-enhancing technologies across approximately 21,000 miles. DOE stated that this initiative will make available over 23 additional gigawatts of electricity. Texas Moderates Rules Governing Data Center Interconnection The Texas Public Utility Commission adopted new regulations governing large-load interconnections. The rules impose a flat study fee of $100,000 for all proposed interconnections, which departs from the initial proposal to impose study fees using a tiered system based on project size. Additionally, the final rule eliminates the PUC’s previous proposal to impose a non-refundable interconnection fee of $50,000 per MW of contracted peak demand. The final rule also moderates the initially proposed regulations governing Electric Reliability Council of Texas (ERCOT) notifications for large-load customers’ non-utilized capacity. The proposed rules would have required notifying ERCOT within 30 days of missing a scheduled energization milestone by six months. The final rules, however, do not require informing ERCOT unless a scheduled energization milestone is missed by 24 months. FERC Denies TransAlta 202(c) Cost-Recovery Plan The Federal Energy Regulatory Commission (FERC) recently rejected TransAlta’s plan to recover $19.9 million in expenses stemming from a DOE order in which DOE prohibited TransAlta from retiring its coal-powered Centralia power plant. TransAlta had previously intended to retire the facility at the end of 2025. TransAlta’s cost recovery plan proposed spending an additional $23 million on repairs to continue operating the unit. FERC’s main objection had to do with geographic scope. TransAlta’s recovery plan called for recovering costs from California Independent System Operator (CAISO) and the Southwest Power Pool (SPP), but the DOE’s order requiring operation of the plant was designed to ensure reliability in the Northwest assessment area (Montana, Oregon, Washington, and parts of northern California and northern Idaho). Accordingly, FERC was unwilling to allow cost recovery from CAISO and SPP when the order that precipitated the additional costs only related to the Northwest assessment area. FERC informed TransAlta that it would only approve cost recovery from load-serving entities in the Northwest assessment area. FERC’s decision comes amid a rush of DOE emergency orders requiring the continued operation of coal-fired generating units. Litigation Appeals Court Upholds Washington Hydropower Plant With Caveats In a September 21, 2026, opinion, the Washington Court of Appeals largely upheld a Clean Water Act water quality certification by the Washington Department of Ecology for the Goldendale Energy Storage Project, a proposed pumped-water storage hydropower system adjacent to, but off-stream from, the Columbia River. A nonprofit (Columbia Riverkeeper) and the Confederated Tribes and Bands of the Yakama Nation appealed the certification, contending that it failed to impose necessary conditions and monitoring requirements to protect the water quality of the Columbia River. Most saliently, the plaintiffs argued that the project had the potential to leak 100 acre-feet of water per year into tributaries of the Columbia River. The Court of Appeals broadly rejected plaintiffs’ challenge to the state’s conclusion that “the project was designed not to leak.” That said, the Court of Appeals did reverse on one narrow issue. Specifically, the court determined that the state’s conclusion that “leakage from the project’s tunnels would be monitored and reported” was not supported by the evidence because the certification “does not explicitly require monitoring and reporting to determine whether there is any leakage.” Accordingly, the court remanded the matter to the state to impose monitoring and reporting requirements but otherwise affirmed the certification. Legislative Developments California Legislates Restrictions on Data Center Energy Use and Grid Costs On September 21, 2026, California Governor Gavin Newsom signed seven bills broadly regulating data centers in the state. SB 1168 directed the California Public Utilities Commission to assess the energy used by data centers. It also requires the PUC to pass costs of transmission and distribution upgrades and load increases on to data centers, rather than customers. SB 886 and SB 887 compel data centers to pay for infrastructure upgrade and generation costs, and wildfire mitigation costs, in addition to imposing environmental review. The statutes additionally increase local oversight of data centers. AB 1577 imposes a monthly reporting requirement that requires data centers to supply energy consumption and efficiency data to the California Energy Commission. AB 2383 contains incentives for data centers to use onsite clean energy generation. Finally, AB 2469 and AB 2619 require data center developments to assess water supply and develop a water scarcity plan. The statutes also mandate statewide water reporting as a precondition to obtaining and renewing business licenses.

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Insights

The Supreme Court Update - October 14, 2026

Insights

The Supreme Court Update - October 8, 2026

On September 29, 2026, the Supreme Court granted certiorari in one case: Department of Homeland Security v. D.V.D., No. 26-426: This case concerns the Trump Administration’s “third-country removal” procedures, where immigrants are deported to countries not listed in the removal orders. In granting certiorari, the Court granted the Government’s application to stay a lower court decision halting the practice, which will allow third-country removals to continue pending resolution of the case. The issues presented are: (1) Whether the district court had jurisdiction over respondents’ claims; (2) whether the district court had authority to enter class-wide declaratory relief and APA vacatur under 8 U.S.C. § 1252(f)(1); (3) whether the Government’s guidance on third-country removals is unlawful under 8 U.S.C. § 1231(b), the due process clause, or FARRA/CAT and its implementing regulations; and (4) such other questions that the Government determines are appropriate for the proper disposition of the case. On October 1, 2026, the Court granted certiorari in three additional cases: Rhoney v. Barbosa da Cunha, No. 26-104: Immigration officials detained Ricardo Aparecido Barbosa da Cunha—a Brazilian citizen who had lived in the United States for approximately twenty years after entering without inspection—and denied him a bond hearing under 8 U.S.C. § 1225(b)(2)(A). The Second Circuit held that his detention was instead governed by § 1226(a), which permits release on bond, because § 1225(b)(2)(A)’s mandatory-detention requirement applies only to noncitizens apprehended while entering the country or shortly thereafter. The question presented is: Whether 8 U.S.C. § 1225(b)(2)(A) mandates the detention pending removal proceedings of aliens who, like Barbosa da Cunha, are present in the United States without having been admitted. Missionaries of St. John the Baptist, Inc. v. Frederic, No. 25-113: A Catholic religious organization sought to build a shrine to the Virgin Mary on land the organization owned adjacent to its church in Park Hills, Kentucky. Local zoning restrictions prohibited the proposed construction. The question presented is: Whether a land-use regulation that prohibits a religious institution from building a religious structure on its own property constitutes a “substantial burden” on religious exercise under the Substantial Burden Provision of the Religious Land Use and Institutionalized Persons Act, 42 U.S.C. § 2000cc(a). Marschner v. Marschner, No. 25-1349: Under the Uniformed Services Former Spouses’ Protection Act (“USFSPA”), a veteran’s longevity-based retirement pay can be divided in a divorce, but retirement pay based on disability and retirement pay that was waived to receive disability pay are indivisible. The question presented is: Does the USFSPA require state courts to refuse enforcement of indemnification provisions in a divorce settlement agreement?