CEO Briefing: Vaccine Mandates

Executive Summary

October 18, 2021

The administration’s impending federal vaccine mandate is aimed to accomplish two goals: 1) preventing the spread of the coronavirus, and 2) encouraging physical return to workplaces. Since the start of the COVID-19 pandemic in the US, there have been roughly 45 million confirmed cases, and a devastating 720,246 Americans have perished due to the virus. The economy suffered a decline in GDP growth of 3.4 percent in 2020, and initially lost an estimated 14 million jobs. But over the course of 2021, the economy fully recovered to its prepandemic level of GDP and returned to expansionary mode with the help of widespread vaccinations.

Vaccinations are found to reduce the risk of infection fivefold and cut the risk of hospitalization and death tenfold. Potentially the US economy might grow as much as 5.7 percent in 2021, again aided by vaccinations. Still, the labor market revival is far from over, with over 5 million fewer Americans working now compared to before the pandemic. Meanwhile, labor shortages are acute. Indeed, more vaccinated workers and the potential reduction in the COVID-19 infection fear factor may help entice some Americans on the sidelines back into the US labor market. This would be constructive for the healing of the labor market and continued economic expansion.

However, the federal mandate is not without some negative repercussions for the labor market and the thousands of businesses that help drive economic activity. For select firms, the federal vaccine mandate might potentially slow hiring, exacerbate labor shortages, stoke wage inflation, and accelerate automation. Moreover, when it comes to messaging the new rule to employees, the impending regulation will have disparate distributional effects on workers depending upon characteristics such as industry, occupation, age, race, gender, full- or part-time status, marital or parental status, and region. All of these factors have the potential to complicate recruitment and retention of talent from an HR perspective and raise input costs from a financial lens. Importantly, firms may be faced with legal challenges from employee stakeholders who disagree with the mandate.

Hence, businesses must prepare to ready their boards, talent, and customers for this significant policy change.

The Situation in Brief

On September 9, 2021, the administration issued Executive Order 14042, directing that government contractors establish a mandatory vaccine requirement for all employees and independent contractors (including remote workers) providing services under many types of government contracts, with allowance for workers who request an accommodation for religious or medical-related reasons. There is no testing alternative under the executive order. This mandate is implemented by inclusion of new contract clauses into new government contracts or existing contracts upon renewal. The executive order is currently in effect, and federal agencies were encouraged, and given broad discretion, to request contract modifications from businesses on many varieties of contracts—including types and sizes of contracts beyond those specifically contemplated in the executive order. Employees and independent workers of covered contractors providing services under government contracts, as well as any other covered contractors sharing a location with those employees, must be fully vaccinated by December 8, 2021. In addition to employees and independent workers providing services to government contractors, the Administration ordered that federal government employees must be fully vaccinated by November 22, 2021, under Executive Order 14043, issued contemporaneously with Executive Order 14042.

Also on September 9, 2021, the administration directed the Occupational Safety and Health Administration (“OSHA”) to issue an Emergency Temporary Standard (“ETS”) requiring all employers with 100 or more employees to institute a vaccination and testing regime for employees as an emergency action to minimize COVID-19’s grave safety risk to employees and workplaces. The ETS is currently in final clearance at the Office of Information and Regulatory Affairs (“OIRA”), which has accepted limited input from interested stakeholders from Thursday, October 14 through Tuesday, October 19, prior to authorizing OSHA to issue the ETS. The substance of the ETS has not been made public, and its requirements are not yet accessible. We note that in June 2021, OSHA issued a limited ETS covering health care workplaces that is in effect today (having never been successfully challenged). ETSs are effective for six months after their issuance, unless supplemented by a formal standard issued by OSHA (with a formal notice and comment period). The upcoming ETS will be automatically effective when published in the Federal Register, likely later this week, in 29 states and the District of Columbia.^[1] In the remaining 21 states, ^[2] each state agency must either implement the ETS as written, or implement its own standard that is at least as effective as the ETS, within the next few weeks. There have been conflicting signals from OSHA and the White House as to whether 100 percent remote employees will be covered by the ETS, which we anticipate will be directly addressed in the ETS.

As noted, OSHA’s ETS will be automatically adopted in 29 states. In these states, the ETS should provide more guidance on what obligations employers will have with respect to numerous aspects of the vaccine mandate including facilitation and payment of costs incurred by employees in complying with either the vaccination or testing obligations in the ETS (i.e., who pays for the vaccination and test; will employers be obligated to compensate employees for costs and time spent testing or related to vaccination) as well as record keeping and other employment-related considerations (including whether fully remote workers will be covered).

The remaining 21 states must either formally adopt the ETS when it is issued or adopt a different ETS standard that may be stricter than OSHA’s ETS so long as it is at least as effective as the OSHA ETS. California, Washington, Oregon, and Minnesota are among these 21 states that may adopt a stricter standard and have a tendency to do so. Other states in this group, such as South Carolina, Wyoming, Alaska, or Kentucky, may try to deviate from the ETS altogether and apply a different standard, which could be subject to challenge. It remains to be seen what additional measures, if any, will apply to businesses in these states.

Recently, certain states have taken various actions relating to vaccine mandates that have sometimes been described in confusing and contradictory ways. Other than an early law passed in Montana that is being challenged in court, no other governor, state legislature, or court of law has prohibited a private business from requiring vaccination of employees, so long as legitimate exemption requests, such as those based upon medical concerns or religious beliefs, are considered and reasonably accommodated, as required by law.

More than 3,500 organizations—from health care systems, to educational institutions, to state and local governments, to private businesses—have already adopted vaccination requirements. These vaccination requirements have increased vaccination rates by 20-plus percentage points, with organizations routinely seeing their share of fully vaccinated workers rise above 90 percent.

What’s Likely to Happen: Legal Challenges

Legal challenges to overturn the executive orders applicable to federal workers and federal contractors are not expected to be successful. There is substantial legal precedent upholding the legal authority of the president to implement social policies through the federal procurement system via executive order. Executive orders generally have the force and effect of law, and therefore will have the effect of preempting any contrary or inconsistent state directives.

On the other hand, the Occupational Safety and Health Act establishes legal prerequisites that must be met before an ETS can be issued (29 USC 655(c)). An ETS must address a situation where employees face a “grave danger” from exposure to substances or agents determined to be toxic or physically harmful or from new hazards, and where such an emergency standard is necessary to protect employees from such danger. Under this high standard, objections raised to the promulgation of other ETSs have been successful in six of the last seven challenges. Twenty-four state attorneys general have publicly stated they will challenge the upcoming ETS. The ETS may also face challenges from private litigants. In view of the high statutory bar that OSHA must meet in promulgating an ETS, and current COVID-19 statistics, including vaccination rates, it is quite possible that the ETS will not withstand legal challenge. While these challenges are pending, the ETS is expected to remain in effect; that is, it will not be temporarily enjoined, and businesses will be required to comply with the ETS’s mandate.

Implications for Business

All covered government contractors must implement a vaccine mandate program for all employees working on federal contracts by December 8. Additionally, we believe that the OSHA ETS will mandate that all businesses that employ at least 100 employees immediately mandate vaccination, with a weekly testing alternative if permitted, shortly after the ETS is issued.

Part of the business response should include communications with employees on the following topics: the high transmissibility of COVID-19, its impact, that appropriate action must be taken to limit its transmissibility, that vaccines have been determined to be highly effective and safe against COVID-19’s most severe effects, and that the business is going to lower barriers to obtaining the vaccine for the benefit and safety of all employees. Explain the necessity of a safe and present workforce to maintain current business and grow the economy back. Any expected legal challenges to government action will not impede businesses’ ability to move forward with these preventative safety measures.

We recognize that certain medical conditions and religious and potentially other beliefs complicate these COVID-19 prevention actions, and businesses must incorporate accommodating measures to respond to these issues, consistent with applicable law, while still maintaining safe and compliant workplace practices.

What Are CEOs and Directors Saying?

A recent survey conducted by the Committee for Economic Development of The Conference Board (CED) gauged the reactions of more than 100 CEOs and board directors, all affected by the federal mandates of vaccines or weekly testing for companies with over 100 employees. Defeating the pandemic, protecting the health and well-being of the workforce, and reopening the economy safely and assuredly for the American public are goals the business community shares and supports. Nearly two-thirds of the surveyed business leaders support the administration’s decision to mandate vaccines or weekly testing.

Nevertheless, several concerns emerged:

• Almost a quarter of the business leaders strongly disagree with the mandates, which raises serious questions about whether OSHA—a small and overburdened agency—has the ability to enforce compliance. That includes the $14,000 financial penalties for companies not complying, which are an important part of its enforcement strategy.
• More than half of the business leaders believe actual implementation of the mandates will be difficult, with 56 percent saying either it will be difficult (40.5 percent) or very difficult (15.3 percent) to successfully implement the new testing or vaccine mandate within their company. Comparatively, roughly 20 percent feel it will be an easy lift, and 24 percent characterize it as “neutral.”
• Roughly 30 percent of respondents believe the announcement has negatively affected their employees and the overall company culture; 58 percent feel that it has not.

Key Business Perspectives

From an ESG perspective, many of the same principles apply now as before the new federal regulations. We recommend that companies:

• Revisit Overall Vaccination Compliance Policies. The prudent course of action from a fiduciary duty standpoint is to comply with the new federal regulations, but companies have found that having a vaccination regime that simply tracks the various federal, state, local, and international rules and guidance creates a patchwork of policies that is difficult to administer and explain. Accordingly, CEOs will want to be sure their management teams revisit their overall vaccination requirements to aim for clear and consistent internal policies.
• Exercise Business Judgment Using Stakeholder Decision-Making Model. When it comes to requiring vaccines, there is no single answer, and we are all still learning. To date, CEOs and their boards have benefited from using a stakeholder model in their decision-making, asking: “What advances the welfare of the company, its stakeholders, and society at large?” For companies that opted for broad-based vaccination requirements in the past few months, three considerations were paramount: being able to fulfill the company’s business mission; protecting the health and safety of employees; and advancing the public health and economic goals of defeating the COVID-19 virus.
• Lead on Board Engagement and Oversight. From the outset of the pandemic, CEOs have increased the level of engagement with their boards. As before, it’s critical for CEOs to ensure that their board understands the firm’s reasoning, concurs with the approach, but then delegates authority to management to adjust the policy in light of evolving circumstances with appropriate ongoing board oversight. CEOs should also ensure their boards are making informed decisions, drawing upon the body of information on the impact of corporate vaccination requirements, including the impact of vaccination rates on business operations; the reaction from employees, including employee departures and requests for accommodation; and litigation risks.
• Step Up Communication Efforts. CEOs should ensure that their management teams understand that vaccination rules are no substitute for education, incentives, and communication. Indeed, mandates may require more, not less, of all the above. Firms that have required vaccines have found that they still need to educate employees, customers, and business partners about their policies; they are continuing discussions with the vaccine hesitant, including enlisting trusted third parties; and they are effectively using financial and other incentives to encourage workers to provide proof of vaccination.

From a labor markets perspective, a federal vaccine mandate will have wide-ranging impacts.

• The vaccine requirements in the administration’s plan will apply to about 100 million Americans—two-thirds of all workers—but it is not known how many of those workers are already vaccinated. Among those covered by the mandates are an estimated 4 million federal employees and workers on government contracts; about 80 million private sector workers; and about 17 million health care workers—about half of whom are estimated to be vaccinated. According to the Centers for Disease Control and Prevention, to date, there are 66 million unvaccinated people, down from almost 100 million in July when the administration first announced vaccination requirements, decreasing the total by about one-third. The vaccination challenge is particularly among the younger groups; 77 percent of eligible Americans—those aged 12 and older—have gotten at least their first shot, and 57 percent of eligible Americans are fully vaccinated. Thus, 189 million Americans are fully vaccinated.
• A federal vaccine mandate has the potential to affect thousands of businesses and millions of US workers. Vaccine mandates for federal workers, federal contractors, and any establishment employing 100 or more workers potentially apply to upwards of 100 million people, or as much as 66 percent of the US workforce. Federal workers account for 3 million of roughly 148 million nonfarm workers. Private nonfarm businesses having more than 50 employees employ roughly 89 million people or 66 percent of the labor force, according to ADP, of which 13 million are in goods-producing industries and 76 million are in services sectors. Federal contractors, receiving roughly $555 billion from the federal government, by USAspending.gov estimates, including over 900 distinct businesses and universities that also subcontract with small firms, according to the SBA, employ thousands of Americans. Indeed, federal contractors may employ up to 4 to 5 million workers (Sources: The Hill, and Paul C. Light, The Government Industrial Complex: The True Size of the Federal Government, 1984-2018, New York, NY; Oxford University Press, 2019, chapter 4).
• Mandates may reduce the supply of labor for key in-person services and further complicate recruitment and hiring. While the federal vaccine mandate aims to accomplish two goals: 1) preventing the spread of the coronavirus, and 2) encouraging physical return to workplaces, there is the risk of exacerbating labor shortages in a number of sectors. The September jobs report revealed declines in the educational services industry and health care services, including hospitals and nursing facilities sectors. Potentially some of the weakness in hiring reflected the recent institution of vaccine mandates at the state and local levels across the country. Presently, labor shortages are already the most acute in the health care, education, and professional services sectors, as well as in manual labor services, including hotels and restaurants, retail trade, and transportation.
• Vaccine mandates may negatively affect retention of workers, slowing the US labor market recovery. It is possible that under certain circumstances, entirely remote workers will not be affected by the vaccine mandate. Still, millions of workers are operating in a hybrid setting, which will require a measure of on-location work. Meanwhile, the roughly 83 million workers in in-person services sectors, including hotels, restaurants, travel, health care, education, amusements, retail, and sporting, as well as those in goods-producing industries who cannot work from home, will have no choice but to be present. Workers who do not comply with the mandate or subject themselves to routine testing may be terminated or resign. Quits rates are already elevated in many manual services occupations, including manufacturing, health care, retail, and leisure and hospitality. Importantly, termination may add to the number of unemployed people and possibly reverse some of the gains in key labor market indicators, such as the unemployment and labor force participation rates.
• Vaccine mandates may stoke wage and consumer price inflation and accelerate automation. Possible exacerbation of existing labor shortages and fear of losing top talent may lead to higher wage and benefits costs for firms. Wages are already rising rapidly for many in-person services and in businesses that are producing goods that are in high demand. Moreover, the cost of compliance with mandates, including offering routine testing, segmenting workspaces to accommodate the unvaccinated, or making provisions for remote work (e.g., purchasing laptops for employees) might also raise the cost of doing business. Some firms may choose to pass these higher costs onto their customers, placing further upward pressure on consumer prices, which are already at the highest levels in a decade. Vaccine mandates may also accelerate automation of jobs for firms unwilling to absorb rising costs in profit margins or raise prices.
• The distributional effects of the vaccine mandates will be uneven depending upon the region where firms are located and by type of occupation. Vaccine adoption is the lowest, measured by the percentage of fully vaccinated people, in states primarily located in the middle and southern portions of the US and in Alaska. Hence, labor markets in these states are likely to be the most affected by a federal vaccine mandate. Businesses and occupations that are more amenable to work-from-home arrangements, including financial services, administration, and high-tech jobs, are less likely to be affected by the mandate, as fully remote workers may not have to comply with the impending rules—this presently remains unclear. Moreover, workers who have higher educations (e.g., 68 percent for bachelor’s degree and higher vs. 11 percent for less than a high school diploma, according the Bureau of Labor Statistics) are more likely to work in occupations that allow remote work, with the mandate potentially applying to more low-skilled and less-educated workers. Moreover, large cities with 2.5 million or more people, which tend to have more occupations amenable to remote work, according to the Bureau of Labor Statistics, and higher numbers of vaccinated people will likely be less affected compared to smaller cities and rural areas.
• The vaccine mandates may also have varying effects on Americans depending upon race, gender, marital status, parental status, age, and number of hours worked. If the mandate allows an exception for fully remote workers, then laborers who are less able to work from home will be the most affected. According to the Bureau of Labor Statistics, men (40 percent) are less likely to work in an occupation that allows remote work, compared to women (48 percent). Older workers (48 percent for workers 55 and older) are more likely to be in senior positions within an organization, especially management, that allow for remote work. Younger workers (24 percent for workers ages 15 to 24) are far less likely to be in occupations that accommodate remote work. Families with no children are slightly more likely to have adults who can work remotely (45 percent) compared to families with children (42 percent). Married people are more likely to have the option to work from home (50 percent) than unmarried people (34 percent). Non-Hispanic White people (49 percent) are more likely to be able to work from home compared to Black (40 percent) and Hispanic (29 percent) people. Moreover, people who work full time (47 percent) are more likely to have the option to work remotely than part-time workers (29 percent).

From a human capital perspective, this mandate will have sweeping implications for your workforce.

• While communicating your corporate mandate, couch your policy and your internal communications to workers to reflect corporate values. As you create (or refine) your vaccine policy, it will, of course, reflect the impending further clarity of the federal mandates and, perhaps, industry implications, but it should also be crafted in such a way as to reflect your company’s values (of safety, of fairness, etc.) and culture (of inclusiveness, of belonging, etc.). For example, aligning the decision to the corporate values was the decision made by the CEO of United Airlines, not to simply leverage the air cover of a federal mandate. Many workers, already vaccinated and not affected by this mandate, will watch to see how your organization compassionately (severance, ongoing support, etc.) addresses those are affected, and that could have repercussions on the corporate culture for years to come.
• Consider disparate impact. Determine if your policy is a complete and total mandate (everyone across all job categories must be vaccinated), a complete but partial mandate (individuals in certain job categories), or a conditional mandate (vaccination is a condition of in-person work), and then determine if you expect that the policy will have a disparate impact on any group of your employees, especially women, people with disabilities, older workers, or people of color. As we have seen from the earlier labor market discussion, a vaccine mandate is likely to reduce the number of women and people of color, particularly among leadership ranks, reversing gains made in recent years. Take care to articulate the thoughtful ways in which this policy implementation was crafted, and the accommodations, if available, that are offered. The Seyfarth Vaccine Playbook 2.0 provides commentary for a variety of scenarios.
• Ensure that your plan reflects any state-related variations. Determine what support or incentives you might offer employees to be tested and/or become vaccinated and the compensation, if any, associated with complying with your mandate (time off for getting vaccinated, paying for testing/test kits, etc.). Ensure that your CHRO and the team have clear processes in place for employees to follow in terms of seeking accommodations (and this should be centralized, not left up to local/regional managers, especially in light of state differences) as well as progressive discipline and/or termination for noncompliance.
• Review existing “work-from-anywhere” plans to help mitigate potential loss of talent. Depending upon the language and interpretation of the actual OSHA ETS, businesses may be able offer flexible work arrangements or alternative manufacturing facilities or spatial arrangements that will satisfy the letter of the law, while retaining critical workers.
• Prepare for a possible loss of talent. Consider the impact that a particular vaccine mandate might have on losing talent in an already tight labor market. Even before the vaccine mandate issue arose, employees began to demand flexibility in how and where they work, creating what some are calling “The Great Resignation” as they leave for more flexible company policies. The mandate policy you choose may serve alternatively to retain talent or accelerate the exodus and, if the latter, prepare to take action to ensure business continuity where the loss of critical employees could have an impact. Review succession plans and determine alternatives for those who may be affected by a vaccine mandate and may not return to the workplace.
• Prepare to support remaining workers and managers to address workload issues. Already a problem in many organizations, workload and blurred boundaries are the two largest factors affecting mental health. Given that remaining workers will need to shoulder the work of those who exit and labor market conditions are not in your favor, decide what business deliverables are critical and what can be delayed or shelved, shift from employees to contractors, and hire ahead of potential terminations. Your managers will need support/training in sending the right messages to workers and supporting them through this period.
• Plan to mitigate reputational risk, as you will need to source new talent. If you expect that a significant number of your employees will likely be terminated as a result of your vaccine mandate, prepare for the social media attention it is likely to generate and the brand implications that will have as you look to attract talent. Frame your policy and the resulting actions it requires in terms of your core values of caring for employee safety, belonging, customer service, etc., so that prospective talent continues to see you as an “employer of choice.”

Direct your communications officers and marketing leaders with these practical considerations.

• Use the systems of internal and external communication channels and strategy that you have deployed to manage expectations during the pandemic. All organizations have been on the front lines of two-way communications with their employees and other stakeholders over the last 18 months. Trust what you have learned and use what you have in place.
• Listen to your employees first. Craft your communications knowing what you have learned from employees, including employee sentiment about vaccines, return to the office, and work-from-anywhere issues over the last 12 months. That is an indicator of how this mandate might be received, but you must gauge the sentiment arising regarding the ETS mandate specifically and act accordingly. 
• Be clear and concise, and provide a resource for those who have questions and concerns. Those organizations that have done this in the past have prospered. Use the systems you have in place, but provide updated information on what this mandate means for your policies and your workers. 

Dedicate resources to monitoring the opinions and conversations that arise. This is critical. From the national media to the local, from the social media to the internal discussions, from the trusted information to the disinformation—be aware of it all. All of this will propagate and define the context in which your communications and actions will be received.

This CEO briefing was prepared by The Conference Board, Inc.: Lori Esposito Murray, PhD, President, Committee for Economic Development of The Conference Board; Dana M. Peterson, EVP & Chief Economist; Rebecca L. Ray, PhD, EVP, Human Capital; Ivan Pollard, Marketing & Communications Center Leader; Paul Washington, Executive Director, ESG Center; and Camille A. Olson, Partner, Seyfarth Shaw LLP and Trustee of The Conference Board. The authors gratefully acknowledge the invaluable assistance of the subject matter experts on their respective teams.