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Client Alert

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

March 9, 2020

by Ray Liu

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This article is a follow-up to the article published on March 6, 2020, which will shed light on the payroll standards during the anti-virus period, the special protections enjoyed by employees affected by the COVID-19 outbreak, issues around layoffs due to financial difficulties or restructuring, and the supportive measures implemented by the Chinese government to help companies withstand the epidemic.

6. What are the applicable payroll standards during the period when a company’s operation is affected by the COVID-19 outbreak?

Due to the rapid evolvement of the COVID-19 outbreak during the Chinese New Year, many companies’ business schedules have been disrupted. While certain healthcare and daily supplies providers operated day and night during the holiday, most other companies had to wait for an extended period of time until they might resume their operations. As a result, many employers are confused about the payroll standards applicable during the COVID-19 outbreak. The table below provided a brief summary regarding the complex rules for salary calculation in Shanghai, Beijing and Guangdong under different circumstances commencing from the first day of the Chinese New Year (i.e., January 24, 2020).

 Jan. 25 – Jan. 27 Jan. 24 & Jan. 27 – Feb. 2

Feb. 3 – Feb. 9

Feb. 10 – Reopening Date 
Shanghai 

Category: Public Holiday

  • Where no work was assigned to employees: regular salary should be paid
  • Where work was assigned to and performed by employees: OT Pay = 300% x hourly salary rate x hours performed

Category: Rest Days (including the extended holiday from Jan. 31 – Feb. 2)

  • Where no work was assigned to employees: regular salary should be paid
  • Where work was assigned to and performed by employees: either to provide compensatory time-off or OT Pay (200% x hourly salary rate x hours performed)

Category: Rest Days17

  • Where work was assigned to and performed by employees: either to provide compensatory time-off or OT Pay (200% x hourly salary rate x hours performed)

  • Where no work was assigned to employees: regular salary should be paid

Category: a special time period during which special payroll rules may apply

  • Where no work was assigned to employees:

Employers may arrange for employees to use their annual leave or other contractual leave benefits on workdays.

If employees cannot return to their regular work after exhausting their leave benefits, employers may consider suspending their business operations (“停工停产”) by following relevant requirements under applicable laws and regulations (the “Suspension Period”). 

During the first salary payment cycle (i.e. one month) in the Suspension Period: Employers will need to pay regular salary to employees as agreed in their employment contract.

During the second payment cycle in the Suspension Period: Employers may only provide a “life-supporting fee” to off-duty employees, which is usually the local minimum salary or a lower amount depending on the locations.  For employees who need to perform certain amount of work during the Suspension Period, employers may contract a new salary standard with them based on consultation, which shall not be lower than the local minimum salary.

  • Where work was assigned to and performed by employees:

Regular salary should be paid for work performed during regular working ours. If employees work extra hours on workdays, rest days or public holidays, the statutory rules for overtime benefits will apply.

Beijing and Guangdong  

Category: a special time period during which special payroll rules may apply

  • Where no work was assigned to employees:

Employers may arrange for employees to use their annual leave or other contractual leave benefits on workdays.

If employees cannot return to their regular work after exhausting their leave benefits, employers may consider suspending their business operations (“停工停产”) by following relevant requirements under applicable laws and regulations (the “Suspension Period”).

During the first salary payment cycle (i.e. one month) in the Suspension Period: Employers will need to pay regular salary to employees as agreed in their employment contract. (Even assuming an employer decided to suspend its operations, this seven-day period would fall within the first salary payment cycle, and therefore regular salary should be paid to employees for such period.)

  • Where work was assigned to and performed by employees:

Regular salary should be paid for work performed during regular working hours.18 If employees work extra hours on workdays or rest days, the statutory rules for overtime benefits will apply.

 

 

Notes:    
  • According to the opinions issued by the Ministry of Human Resources and Social Security (“MHRSS”), if a company encounters difficulties in its operations or productions due to the epidemic, based on consultation with the employees, it may adjust their salary, arrange for them to work in shifts or reduce their working hours.  Therefore, if a company is having operational difficulties as a result of the COVID-19 outbreak, it may lower employees’ salary based on mutual agreement.
  • According to the opinions issued by the MHRSS and its local counterparts, for (1) confirmed COVID-19 patients under medical treatment, (2) suspected COVID-19 patients under medical treatment or observation, (3) those having close contact with confirmed or suspected COVID-19 patients who are under medical observation, and (4) those who cannot return to work due to any quarantine or other emergency measures implemented by the government (collectively as the “Four Protected Groups”), where these people are under the medical treatment or restrictive measures stated above, it should be deemed that the affected individuals have performed work and employers must pay regular salary to them during such period.  Also employees under the Four Protected Groups are protected from termination based on certain reasons, which will be discussed in detail in Section 7.
  • The rules summarized in this table only apply to employees working under the standard working hour system.  For those working under the flexible or comprehensive working hour systems, different rules may apply.  The labor authorities in several places (including Beijing, Wuxi and Suzhou) have issued notices allowing companies affected by the COVID-19 situation to apply for the comprehensive working hour system, which could enable companies to implement more flexible working schedules among their employees.
  • A company should carefully check the local rules in the place where it is located to ensure compliance with any specific local requirements.


7. Who may enjoy special protections during the virus fight?

Individuals within the Four Protected Groups described under Section 6 are protected from terminations based on grounds enumerated by Article 40 and Article 41 of the ECL.19  Among others, these two articles allow employers to terminate an employee based on performance and health issues or material changes to the objective circumstances (such as company relocation, merge and acquisition, transfer of assets, etc.), or to conduct a mass layoff as a result of business restructuring or transformation.  However, these grounds for termination are not applicable to employees under the Four Protected Groups during the period of medical treatment, medical observation, quarantine or emergency measures taken by the government (the “Protective Period”).20  In addition, if the term of their employment contract expires during the Protective Period, such term shall be automatically extended until the end of the Protective Period.21

It should be noted that the scope of protected employees may be further expanded by local rules.  For example, the labor authorities in Beijing issued a notice on January 31, 2020 (“January 31 Notice”), under which one of the parents in each household may stay home to take care of a minor whose classes have been delayed due to government’s order.22  According to the January 31 Notice, a caregiving parent falls within the scope of the Four Protected Groups, and employers shall continue to pay regular salary to him/her and may not terminate his/her employment until the minor is permitted to go to school by the government. Although the labor authorities in Beijing issued another notice on February 12, 2020 (“February 12 Notice”) clarifying that employees must follow certain procedures for leave application in order to stay home and take care of their children, it is unclear under the February 12 Notice whether employers are required to provide such leave to employees and whether the caregiving parents may continue to enjoy the protection against termination.23  Based on the oral reply by the labor authorities in Beijing through its consultation hotline (+86 12333), the February 12 Notice only requires an employee to timely inform the employer about his/her needs to take care of his/her child at home, which needs (if true) must be satisfied and the employer must comply with the requirements under the January 31 Notice.  Employers should pay attention to and comply with the requirements of protections provided to employees under applicable local rules.

Despite the protections stated above, employers may still terminate an employee if, among others, he/she violates applicable laws and/or company policies regarding disease prevention or control (e.g., where the employee intentionally concealed information regarding his/her infection of COVID-19 or his/her contact with any COVID-19 patients).  However, before making a termination decision, employers should carefully evaluate the facts and supporting documents to reduce the legal risks of wrongful termination.

8. Whether employers may lay off employees due to financial difficulties or business restructuring?

Because of the strong impact of the COVID-19 outbreak, many companies in China might have lost business or otherwise suffered losses. Reducing costs via workforce restructuring is a commonly used method to help companies get through difficult times. Currently, there is no rule or policy issued by the government prohibiting employers from reducing their workforce, although the government encourages employers to avoid or reduce layoffs to the extent possible.  The following issues are noteworthy to employers planning to cut their headcounts.

a. Employers should assess the costs and benefits for keeping their employees before determining whether to implement a layoff plan.

Both the central government and its local counterparts in China released a number of policies to help enterprises overcome difficulties at this special time period and reduce unemployment rate.  These supporting policies will be discussed with more details in Section 9.  Please note that some of the benefits (such as the refund of unemployment insurance contributions) may only be available to employers who do not conduct mass layoffs. Therefore, employers should carefully examine and balance the costs and benefits of retaining employees based on the local policies when formulating a layoff plan.

b. Mutual separation should still be the first choice.

Although the COVID-19 outbreak is a very special situation that might constitute a “material change to the objective circumstances based on which the employment contract is concluded” stipulated under Article 40 (3) and Article 41 of the ECL, a unilateral termination or mass layoff pursuant to these articles might still involve significant uncertainties and challenges.

For example, in order to invoke Article 40 (3) of the ECL, in addition to the existence of the material change to the objective circumstances, an employer must also prove that such material change has made it impossible for the parties to perform the employment contract.  Moreover, the employer must consult with the employee to amend the employment contract and may only proceed with unilateral termination where no agreement can be reached with the employee.

Also, in order to proceed with the mass layoff under Article 41 of the ECL, employers must prove that at least one of the four enumerated circumstances (restructuring based on bankruptcy law; significant operational difficulties; production switch, technological innovation or business transformation; material changes to objective circumstances) exists.  In addition, the number of impacted employees must reach the statutory threshold (at least 20 persons or 10% of the company’s total workforce), and the employer has to go through certain procedures including explaining the layoff plan to the trade union or all employees 30 days in advance, considering comments from the trade union or employees and reporting the layoff plan to the local labor authorities.

In light of the foregoing, companies may still want to proceed with mutual separation first for layoffs amid the COVID-19 outbreak so that it may settle all claims employees may have in connection with their employment through a mutual separation and release agreement and minimize the legal risks.

c. When planning for the restructuring, special care should be given to those within the protected categories.

As noted above, in addition to the protected categories (including but not limited to those suffering work-related injury or occupational disease, during medical treatment or during pregnancy, confinement or nursing period) provided by Article 42 of the ECL, certain other employees described under Section 7 of this Article may also be protected from termination based on the grounds under Article 40 or 41 of the ECL or due to the expiration of the employment contract. When formulating a layoff plan during the COVID-19 outbreak, employers should carefully check if any employees fall under the protected categories (especially the Four Protected Groups) and map out separate strategies for protected employees.

9. What policies have been implemented by the Chinese government to support enterprises to get through this difficult time?

The government at both national and local levels in China have released a number of supportive policies aiming to help enterprises (whether domestic or foreign-invested) in China to withstand the epidemic and stabilize employment. The following paragraphs summarized certain key incentives provided by the government in employment-related or other aspects that business entities in China may enjoy during this special time period.

a. Employment-related Policies

i. Reduction and Exemption for Social Insurance Contributions

On February 20, 2020, the MHRSS, the Ministry of Finance (“MOF”) and the State Taxation Administration jointly issued a notice on reduction and exemption of social insurance contributions24, the benefits under which have been summarized in the table below.

Policy BenefitsEligible Entities Applicable Time Period 
Exemption of employer’s portion of contributions for Pension Fund, Unemployment Insurance and Work-related Injury Insurance (the “3 Types of Contributions”) Medium-size, small-size or micro-size entities (“MSM Entities”) in any province or municipality other than Hubei Province No more than 5 months starting from February 2020
Reduction of the employer’s portion of the 3 Types of Contributions by 50% Large-size entities (excluding government departments or public institutions (机关事业单位)) in any province or municipality other than Hubei Province No more than 3 months starting from February 2020
Exemption of the employer’s portion of the 3 Types of Contributions Any types of entities in Hubei Province (excluding government departments or public institutions (机关事业单位)) No more than 5 months starting from February 2020
A grace period during which enterprises may delay paying social insurance contributions without any late payment surcharges Enterprises encountering significant difficulties in their operation or production due to the impact of the epidemic at any location in China may apply for the grace period In principle, the grace period shall not exceed 6 months

Currently, the standards and requirements for social insurance contributions vary from place to place.  The employer’s portion of the 3 Types of Contributions usually amounts to 15% - 17% of each employee’s salary subject to local variances, and thus the exemption or reduction of which could help enterprises save considerable payroll costs.  Government authorities at the local level are responsible for implementing specific rules regarding social insurance exemption or reduction based on their own situations.  Therefore, enterprises are recommended to check the local rules regarding the applicable benefits as well as the conditions and procedures for same.

ii. Grace Period for Housing Fund Contribution

On February 21, 2020, the Ministry of Housing and Urban-Rural Development issued a notice together with the MOF and the People’s Bank of China regarding the temporary supportive policies in connection with housing fund contributions.25  According to this notice, enterprises impacted by the COVID-19 outbreak may also apply for a grace period to delay the housing fund contributions for employees until June 30, 2020.  Enterprises from locations hit hard by COVID-19 may even cease to make the housing fund contributions or apply lower payment standards until June 30, 2020, based on consultation with their employees. Similarly, detailed implementation rules are to be formulated by the local governments and employers should pay attention to the local policies in this regard.

iii. Incentives for Retaining Employees for MSM Entities

Local governments in various locations (including but not limited to Beijing, Shanghai, Guangdong, Jiangsu and Zhejiang) have rolled out incentive plans for MSM Entities committed to retaining employees during this special time period.26  In those places, MSM Entities whose layoff rate is lower than the threshold designated by the local government may receive a partial refund of the unemployment insurance contributions it made in the previous calendar year.27  Companies in certain areas may enjoy additional benefits for retaining employees.  For example, in Beijing, certain MSM Entities may receive a one-off subsidy equal to a certain proportion of the social insurance contributions it made in a 3-month period if the monthly average number of employees enrolled by such entity in the unemployment insurance plan as of April 2020 is no less than the monthly average number for same in 2019.28

b. Other Supportive Policies

In addition to the employment-related incentives, many local governments have also implemented various supportive measures in other respects to help enterprises through this difficult time, which usually involve tax reduction or exemption, extension of tax filing deadlines, assistance in procurement of disease prevention supplies, rent reduction for properties leased by government or state-owned enterprises, extension or interest reduction for bank loans, etc.29  Notably, the local government in Shandong province released a series of measures to facilitate business reopening by foreign-invested companies and to attract foreign investment on February 11, 2020, which measures have covered many of the supportive policies mentioned above and have been recommended and circulated on a national scale by the Ministry of Commerce.30

In a nutshell, a number of supportive measures in different respects have been implemented by the Chinese government at both national and local levels to provide a buffer to employers who suffered losses during the COVID-19 outbreak and help offset the adverse impacts caused to them by the epidemic.  As many of the above mentioned incentives offered by the government will only be made available to companies where applications are filed, business operators in China are recommended to carefully review the rules and requirements for applicable incentives and timely complete the steps required to enjoy the benefits under relevant supportive policies.

Although positive progress has been made in containing COVID-19 as of the date of this Article, it is still too early for companies and employees to let down their guard.  It is of great importance to take adequate precautions to prevent virus transmission among employees and make plans for potential virus infection at workplace.  Our team will closely monitor the evolvement of the COVID-19 situation and keep you posted on any important development with our recommendations.


17 IMPORTANT: A senior government official from the Human Resources and Social Security Bureau in Shanghai interpreted these seven days as rest days in a media conference dated January 28, 2020. (See https://m.hexun.com/events/2020-01-29/200118263.html).  However, many legal practitioners and scholars questioned such interpretation and urged the labor authorities in Shanghai to clarify this issue in writing.  We recommend that employers in Shanghai keep a close eye on this issue and reconfirm with the local labor authorities before processing the salary payments for these days.
18 Unlike Beijing, where businesses may resume their operations but are encouraged to have employees work from home from February 3 to February 7, in Guangdong Province, technically, most businesses are not allowed to resume their operations during this period.  However, the local labor authorities in Guangdong held the view that where employers had their employees work from home during their regular working hours on any of these days, employers only need to pay regular salary to such employees, which practice is consistent with the one in Beijing.
19 See 《人力资源社会保障部办公厅关于妥善处理新型冠状病毒感染的肺炎疫情防控期间劳动关系问题的通知》
20 Id.
21 Id.
22 See 《北京市人力资源和社会保障局、北京市教育委员会关于因防控疫情推迟开学企业职工看护未成年子女期间工资待遇问题的通知》
23 See 《北京市人力资源和社会保障局、北京市教育委员会关于对《关于因防控疫情推迟开学企业职工看护未成年子女期间工资待遇问题的通知》有关问题说明的通知》
24 See 《人力资源社会保障部、财政部、税务总局关于阶段性减免企业社会保险费的通知》
25 See 《关于妥善应对新冠肺炎疫情实施住房公积金阶段性支持政策的通知》
26 See 《北京市人力资源和社会保障局 北京市财政局关于应对疫情影响支持中小微企业稳定就业岗位有关问题的通知》;上海市《关于做好疫情防控期间本市稳就业工作有关事项的通知》;广东省人民政府关于印发《应对新型冠状病毒感染的肺炎疫情支持企业复工复产若干政策措施》的通知;《江苏省人民政府关于应对新型冠状病毒肺炎疫情影响推动经济循环畅通和稳定持续发展的若干政策措施》;《浙江省新型冠状病毒感染的肺炎疫情防控领导小组关于支持小微企业渡过难关的意见》
27 Id.
28 See 《北京市人力资源和社会保障局 北京市财政局关于应对疫情影响支持中小微企业稳定就业岗位有关问题的通知》
29 See 《北京市人民政府办公厅关于应对新型冠状病毒感染的肺炎疫情影响促进中小微企业持续健康发展的若干措施》;上海市《关于支持新型冠状病毒感染的肺炎疫情防控减轻企业负担若干政策的通知》;广东省人民政府关于印发《应对新型冠状病毒感染的肺炎疫情支持企业复工复产若干政策措施》的通知;《江苏省人民政府关于应对新型冠状病毒肺炎疫情影响推动经济循环畅通和稳定持续发展的若干政策措施》;《浙江省新型冠状病毒感染的肺炎疫情防控领导小组关于支持小微企业渡过难关的意见》
30 See 《商务部办公厅关于推广山东省加快外商投资企业复工复产推进外商投资若干措施的函》

 

Firm Highlights

Insights

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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. 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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). 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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.

Insights

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Insights

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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.

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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.