By Scott McElhaney & Sara Harris
On March 27, 2020, Congress passed and the President signed the “Coronavirus Aid, Relief, and Economic Security Act” — the “CARES Act.” The Act:
- provides various forgivable loans and other loan programs for small and mid-sized businesses, but attaches conditions designed to encourage businesses to retain employee or re-hire laid off employees;
- extends and increases benefit levels for unemployment insurance payments, and makes unemployment insurance payments available to sole proprietors, independent contractors and workers with limited employment histories; and
- makes certain clarifying changes to the Families First Coronavirus Response Act regarding the availability of paid sick leave for rehired employees.
Here are some of the highlights of the Act that affect labor and employment issues for businesses:
Forgivable Small Business Administration Loans to Businesses with Fewer Than 500 Employees
Title I of the CARES Act—The Keeping American Workers Paid And Employed Act—authorizes the Small Business Administration to make $350 billion in forgivable loans.
Eligible Entities – Generally, businesses and certain non-profits that have fewer than 500 employees are eligible for loans. There are affiliation rules through which nominally separate entities may be aggregated for purposes of the business size limitation. Certain food service and hospitality businesses are exempted from the affiliation rules.
Amount of Loans – Loans are generally available up to the lesser of 2.5x an entity’s average monthly payroll cost or $10 million. Interest will not exceed 4%.
Use Restictions – Loan proceeds may be used for payroll and other compensation costs, mortgage interest payments, rent or lease payments, utilities, and certain other specified items.
Deferment of Repayment – Complete payment deferment is available for between 6 and 12 months for borrowers who have been impacted by the COVID-19 pandemic.
Forgiveness of Repayment – Loans are eligible for forgiveness (and exclusion from gross income) for payments the recipient makes during the first 8 weeks of the loan for payroll costs, mortgage interest, rent, and utility payments.
However, the amount forgiven will be reduced (a) in proportion to the number of employees that a loan recipient lays off and (b) to the extent the recipient reduces the salary or wages of employees who earn under $100,000 by 25% or more.
To encourage employers to rehire employees who have already been laid off due to the COVID-19 crisis, workers who are re-hired will not be counted against the employer in the loan forgiveness reduction calculation.
The CARES Act also provides for other emergency disaster loans with separate criteria.
Treasury Department Loans to Businesses with Between 500 and 10,000 Employees
Title IV of the CARES Act—Economic Stabilization and Assistance to Severely Distressed Sectors of the United States Economy— provides the Treasury Department with $500 billion for loans, guarantees, and other investments to eligible businesses, states, and municipalities.
Eligible Entities – Generally, businesses and certain non-profits that have between 500 and 10,000 employees are eligible for relief.
Loan Terms – The loan will be subject to an interest rate no higher than 2% per annum. For the first 6 months, or for a longer period if so determined by the Treasury Secretary, no payment will be due. The Treasury Department will publish application procedures and minimum requirements within 10 days of the enactment of the CARES Act.
Certification Requirement – Loan recipients must make a good-faith certification that:
- the funds it receives will be used to retain at least 90 percent of the recipient’s workforce, at full compensation and benefits, until September 30, 2020;
- the recipient will restore at least 90% of the workforce it had as of February 1, 2020;
- the recipient will restore all compensation and benefits to the workers of the recipient no later than 4 months after the public health emergency declaration ends;
- the recipient will not outsource jobs for the term of the loan and 2 years after completing repayment;
- the recipient will not abrogate any collective bargaining agreement for the term of the loan or for an additional 2 years, and further remain neutral in any union organizing effort for the term of the loan
Other requirements, such as limitations on stock buybacks, may apply.
Expansion of Unemployment Compensation Payments
The CARES Act also expands unemployment compensation payments, providing an additional 13 weeks of benefits; a four-month, $600 enhancement of benefits; and an extension of benefits to self-employed individuals, independent contractors, and individuals with a limited work history.
Paid Leave for Rehired Employees
The Act also clarifies the Families First Coronavirus Response Act (FFCRA) to provide that employees who were laid off by an employer after March 1, 2020, and then re-hired, may have access to paid family and medical leave in certain instances.
For more information about the paid sick leave and emergency paid Family and Medical Leave Act leave enacted in the FFCRA, please see Jackson Walker’s prior client alert on that legislation.
Scott M. McElhaney aims to help clients cost-effectively resolve commercial disputes and employment law matters. Scott has over 25 years of experience in contract and commercial tort suits and trade secret and non-competition agreement cases. He regularly advises businesses on employment disputes and handles employment discrimination, ERISA and other labor claims. In addition to his practice, Scott is active in the Bar and legal community. He has served as President of the Dallas Bar Association, has served as Chair of the Board of Trustees of the Dallas Bar Foundation, has chaired the DBA’s Equal Access to Justice Campaign, and is a past Chair of the DBA’s Business Litigation Section and Judiciary Committee. Scott has been recognized among The Best Lawyers in America in the areas of Commercial Litigation (2009-2011) and Litigation – ERISA and Labor & Employment (2011-2020). In 2018, he was named a “Super Lawyer” by Thomson Reuters and a “Best Lawyer in Dallas” by D Magazine.
Sara K. Harris regularly defends employers in discrimination and wrongful termination lawsuits, government investigations, and wage and hour matters. Her areas of interest include executive and physician employment agreements, labor union disputes, internal investigations, and non-compete contracts. Sara also has experience in healthcare litigation and regulatory matters, including telemedicine and digital health, state and federal regulatory compliance, entity licensing, and insurance disputes.
- View additional insights and related insights on COVID-19 »
- COVID-19 & Your Business: Frequent Questions »
- e-Newsletter (March 26): COVID-19 Updates: Paid Leave Guidance for Employers, Texas Increases Healthcare Capacity, Work From Home Podcast »
- Webinar: “COVID-19 & Your Business: Families First Coronavirus Response Act” »
Please note: This article and any resources presented on the Jackson Walker Coronavirus microsite do not constitute legal or medical advice.