Law Bulletin | June 8, 2020

Paycheck Protection Program Flexibility Act

On June 5, 2020, the President signed into law the Paycheck Protection Program Flexibility Act of 2020 (Flexibility Act), which makes a number of changes to the Paycheck Protection Program (“PPP”) as follows:

Extended Deadline for Using Loan Proceeds for Forgiveness
The Flexibility Act extends the loan forgiveness period (the period during which the borrower can incur and pay costs that count toward forgiveness of loan principal) from 8 weeks to 24 weeks, although the covered period cannot extend beyond December 31, 2020.  Borrowers that already have a PPP loan may elect to use an 8 week period instead of the 24 week period if they prefer.

Decrease in Percentage of Loan Proceeds Used for Payroll
Borrowers are only required to use 60% of the loan proceeds for eligible payroll costs, as opposed to the previous requirement of 75%.  As currently drafted, the Flexibility Act provides that if the borrower does not meet the 60% threshold, the borrower would not be eligible for any forgiveness whatsoever.  This appears to be an error in drafting, and Senator Rubio and other lawmakers have indicated that corrections will be made (presumably, through further regulations) so the current “sliding scale,” whereby the nonpayroll portion of forgiveness amount is reduced if the payroll portion does not meet the required minimum percentage – will remain in effect.

Extended Loan Maturity Date
The term for a loan to repay any amount not forgiven has been extended from 2 years to 5 years.  It appears that this provision only applies to borrowers whose PPP loans are disbursed after the June 5, 2020 enactment of the Flexibility Act.  With respect to already existing PPP loans, the Flexibility Act allows lenders and borrowers to extend or otherwise modify the loan maturity date if they agree to do so.

Extended Deferral of Loan Payments
The Flexibility Act extends the deferral period for payments of principal, interest and fees (previously a minimum of 6 months, up to a maximum of 1 year) to the date on which the amount of loan forgiveness is remitted to the lender by the SBA.  Borrowers that do not apply for forgiveness have 10 months from the last day of their applicable covered period before principal, interest and fee payments commence.

Payroll Tax Deferral
The Flexibility Act removes the ban on borrowers whose loans were partially or completely forgiven from deferring payment of payroll taxes.  The payroll tax deferral is now open to all PPP borrowers.

Safe Harbor for Rehiring Workers
Loan forgiveness under the PPP remains subject to a reduction proportionate to any reduction in the borrowers full-time equivalent employee (“FTE”) level, as compared to the FTE level during a specified earlier reference period.  However, the Flexibility Act extends the existing safe harbor deadline to December 31, 2020; borrowers who furloughed or laid-off workers will not be subject to a loan forgiveness reduction due to a reduced FTE level if the borrower restores its FTE level by December 31, 2020.

New Exemptions From Loan Forgiveness Reduction Penalties
The forgiveness amount will not be reduced due to a reduced FTE count if the borrower, in good faith, can document that:

  1. The borrower attempted but was unable to rehire individuals who had been employees on February 15, 2020, and the borrower was unable to hire “similarly qualified employees” before December 31, 2020; or
  2. The borrower was unable to return to the “same level of business activity” as prior to February 15, 2020, due to sanitation, social distancing, and worker or customer safety requirements.

If you have questions about the Paycheck Protection Program or the Flexibility Act, contact our attorneys through our website at www.www.smlaw.com or call (707) 524-1900.  We are here to help.

Terry Sterling

Spaulding McCullough & Tansil LLP

Employment Law Bulletin | May 27, 2020

Sonoma County Employers Required to Use SoCo COVID-19 Check App Starting June 1, 2020

On May 22, 2020, the Sonoma County Public Health Officer issued Amendment No. 3 to its Public Health Order (the “Order) requiring all employees to perform a self-check for COVID-19 symptoms, including a temperature check, before reporting to a worksite or other assignment away from their residence.

In addition to preparing, posting and implementing a Social Distancing Protocol at all facilities operating in Sonoma County, starting June 1, 2020, all businesses operating in Sonoma County must also ensure that all employees use the free SoCo COVID Check Application (the “App”) to perform self-checks for COVID-19 symptoms before reporting to the worksite or other assignment away from their residence.  The App requires the employee to answer a series of questions about whether they are experiencing COVID-19 symptoms, including a temperature higher than 100.4, or have been in contact with anyone who has been diagnosed with COVID-19.

Employees must answer the questions and, if cleared, show the employer the final screen that indicates that the employee is cleared to work.  If the employee is not cleared, the App advises the employee to contact their primary care provider to discuss their symptoms and get clearance to work.  According to the May 22 Order, employees who are working from home do not have to perform the checks.  Further, employers are not required to take employee temperatures, but can elect to do so voluntarily provided employee privacy rights and medical information are adequately protected.

The Order allows businesses to use an alternative system to the App as long as it meets the same purpose of employee and employer assessments and allows the electronic reporting of equivalent data to be reported to the County without revealing personally identifiable information.  However, an employer who chooses to use an alternative system will need to take on the additional legal responsibilities associated with collecting and retaining employee medical information, as opposed to the App obtaining this information confidentially.  As with employer-implemented temperature taking, employers should be prepared to ensure the protection of employee privacy rights and be well-versed on the handling of employee medical information if using an alternative system.
It is unclear how compliance with the use of the App will be enforced by Sonoma County.  However, it is important to remember that compliance with local and state orders as well as CDC guidelines is a defensive best practice in the ugly event COVID-19 spreads at your business.

Social Distancing Protocol Template:  https://socoemergency.org/wp-content/uploads/2020/05/Appendix-A_05-01-2020extended.pdf

SoCo COVID-19 Check App:
Apple IOS version is on the Apple App store
https://apps.apple.com/us/app/soco-covid-19-check/id1511037042

Android version is on Google Play Store
https://play.google.com/store/apps/details?id=com.sococheck

If you need help implementing the SoCo COVID-19 Check App or evaluating an alternative system for use in your workplace, please reach out to an SMT employment law attorney.

Kari Brown

No Se Habla Español?

SMT’s employment attorneys can provide your company with employment policies, forms and employee disciplinary documentation in Spanish. Providing such important information to employees in the language they understand is critical to employee performance, providing a welcoming diverse work environment, and protecting your company against employment claims. Contact an SMT attorney today to get started.

Spaulding McCullough & Tansil LLP
Employment Law Group

Jan Gabrielson Tansil  | Lisa Ann Hilario | Kari Brown

Law Bulletin | May 26, 2020

PPP Loan Forgiveness – What Happens If My Employee Turns Down My Offer To Return To Active Employment?

Many employers who laid off employees due to loss of business caused by the COVID-19 pandemic have since received a Paycheck Protection Program (“PPP”) loan.  One of the very attractive elements of this loan program is the potential for forgiveness from repayment of some or all of the loan proceeds if the employer brings its workforce back to pre-COVID-19 levels and spends 75% of the proceeds on payroll during the eight week period following the loan origination.  The problem?  Some employees are refusing the offers of reemployment.

On May 22, 2020, the Small Business Administration (“SBA”) and the Treasury Department issued an Interim Final Rule addressing this issue.  The regulations provide that employees who refuse an employer’s offer of reemployment may be excluded from the loan forgiveness reduction calculation if certain requirements are met.

In calculating the loan forgiveness amount, a borrower may exclude any reduction in full- time equivalent employee headcount that is attributable to an individual employee if:

  • the borrower made a good faith, written offer to rehire such employee (or, if applicable, restore the reduced hours of such employee) during the covered period or the alternative payroll covered period;
  • the offer was for the same salary or wages and same number of hours as earned by such employee in the last pay period prior to the separation or reduction in hours;
  • the offer was rejected by such employee;
  • the borrower has maintained records documenting the offer and its rejection; and
  • the borrower informed the applicable state unemployment insurance office of such employee’s rejected offer of reemployment within 30 days of the employee’s rejection of the offer.*

*A footnote in the regulations states “Further information regarding how borrowers will report information concerning rejected rehire offers to state unemployment insurance offices will be provided on SBA’s website.”

To avoid any ambiguity in case the employee fails to respond to the rehire letter, we recommend that the written offer advise the employee of the last day to respond, and that failure to respond will be treated as a refusal to return to work.  The offer should also include a statement that the employer is required to report a refusal to return to work to the Employment Development Department which may result in the individual being ineligible for continued unemployment benefits.

If you need help rehiring your employees or additional information about PPP Loan Forgiveness, contact our attorneys through our website at www.www.smlaw.com or call (707) 524-1900.  We are here to help.

Lisa Ann Hilario
Terry Sterling

Spaulding McCullough & Tansil LLP

Law Bulletin | May 19, 2020

PPP Loan Forgiveness Application Issued

On May 15, 2020, the Small Business Administration and Treasury Department released the Loan Forgiveness Application (“Application”) borrowers must complete in order to have their Paycheck Protection Program (“PPP”) loans forgiven.  The Application includes information about the costs that are eligible for forgiveness and instructions for calculating those costs, using the following forms:

  • PPP Loan Forgiveness Calculation Form (“Calculation Form”) and instruction sheet;
  • PPP Schedule A (“Schedule A”) and instruction sheet;
  • PPP Schedule A Worksheet (“Worksheet”) and instruction sheet;
  • Documents Each Borrower Must Submit with its PPP Loan Forgiveness Application; and
  • Optional PPP Borrower Demographic Information Form.

The Worksheet is used to collect the information needed to perform the calculations in Schedule A, and the information on Schedule A is used to complete the Calculation Form.  Accordingly, setting aside the optional demographic information sheet, the Application is best prepared in reverse.

The Application includes a number of new features, and provides clarification of some PPP provisions.

New Features

Alternative Covered Period
The covered period dictates the time frame for expenses that qualify for forgiveness.  The CARES Act and related regulations provided only one covered period, that being the eight week period beginning on the date of the first loan disbursement (the “Covered Period”).  The Application gives borrowers with a weekly or biweekly payroll schedule the option to calculate eligible payroll costs using an alternate eight week period that begins on the first day of the borrower’s first pay period following loan disbursement (the “Alternative Covered Period”).  This option applies only to payroll costs; eligible nonpayroll costs must be paid or incurred during the Covered Period.

Non-Cash Compensation for Owners Excluded
Non-cash compensation included in the CARES Act’s definition of payroll costs includes payments for health insurance, retirement benefits and employer-paid state and local taxes assessed on employee compensation.  The Application makes a distinction between the treatment of non-cash compensation to employees that is paid for by an employer, and non-cash compensation for business owners who operate as S-Corporations, partnerships, or self-employed individuals.  Pursuant to Schedule A, such non-cash compensation for employees is included in the calculation of an employer’s payroll costs.  However, payroll costs for business owners consists only of the “total amount paid to owner-employees/self-employed individual/general partners.”

Limitation on Owner’s Compensation
The amount paid to owner-employees, self-employed individuals and general partners is capped at the lower of $15,385 (the eight week equivalent of $100,000 per year), or the eight week equivalent of their 2019 compensation.

Clarifications

Eligible Nonpayroll Expenses
The Application confirms that eligible payments for rent include business rent or lease payments for personal property, as well as real property.  The Application also provides more detail regarding eligible utility payments, which are identified as “business payments for a service for the distribution of electricity, gas, water, transportation, telephone, or internet access for which service began before February 15, 2020.”

Forgiveness of Expenses Paid or Incurred During the Covered Period
Since the inception of the PPP, it has been unclear if forgiveness is available only for payroll and eligible nonpayroll expenses that were paid by the borrower during the eight week forgiveness period, or if forgiveness is also available for costs that were incurred during the eight week period, but not paid during that time.  The Application allows borrowers to request forgiveness for both.  However, expenses that were incurred but not paid during the eight week period, will be forgiven only if those expenses are paid by the next regular payroll or billing date.

Forgiveness Reductions
The Application provides instructions for determining if the loan forgiveness amount will be reduced based on a reduction in the size of the borrower’s workforce as measured by the borrower’s “full-time equivalency” (“FTE”); if the borrower qualifies for the FTE Reduction Safe Harbor; and if the loan forgiveness amount will be reduced based on reductions in employees’ salaries or hourly wages.

Calculation of FTE
The Application clarifies that in calculating the borrower’s FTE, a “full time” employee is one who is paid for a 40 hour week.  The Application also explains that a borrower’s FTE is based on the FTEs of its individual employees, and an employee’s FTE is calculated by (1) determining the average number of hours paid per week to that employee; (2) dividing that number by 40; and then (3) rounding to the nearest tenth, with the maximum FTE capped at 1.0.  Borrowers may opt for a more simplified calculation under which all employees who are paid 40 hours or more per week have an FTE of 1.0, and employees who are paid less than 40 hours per week have an FTE of 0.5.  The method chosen must be used consistently throughout the application.

In a press release announcing the publication of the application, the SBA noted that it will soon issue regulations and additional guidance for borrowers on completing the forgiveness form, as well as guidance for lenders regarding their responsibilities with respect to forgiveness.

If you need additional information about PPP Loan Forgiveness, contact our attorneys through our website at www.www.smlaw.com or call (707) 524-1900.  We are here to help.

Terry Sterling

Spaulding McCullough & Tansil LLP

Law Bulletin | May 13, 2020

New Guidance for PPP Loan Holders Concerned About the Certification of Necessity

In our May 1, 2020 Bulletin, we reported on the Small Business Administration’s increased scrutiny of Paycheck Protection Program (“PPP”) borrowers’ certifications that their PPP loans were “necessary,” and Treasury Secretary Mnuchin’s announcement that the SBA will audit every loan over $2 million.  With this news, many businesses became concerned about their ability to demonstrate the necessity of their loans, and in turn, are considering whether they should keep the loans or return them pursuant to the safe harbor provision included in FAQ 31, which allows borrowers to return their loans by May 14 (an extension of the original May 7 deadline).

This morning, the SBA/Treasury issued updated Frequently Asked Questions for Lenders and Borrowers (“FAQs”), adding much needed guidance regarding the certification of loan necessity.  In a move that will greatly relieve the many PPP borrowers who have been trying to decide if they should return their loans before the May 14, 2020 deadline, FAQ 46 provides a new safe harbor for all loans with a principal amount of less than $2 million.  Pursuant to FAQ 46, borrowers with loans of less than $2 million will be deemed to have made the certification concerning the necessity of their loan request in good faith.  Accordingly, when they apply for forgiveness of their loans, borrowers with PPP loans of less than $2 million will not be required to explain or document their need for the loan.

FAQ 46 explains that the SBA determined that this safe harbor is appropriate because borrowers with loans of less than $2 million are less likely to have access to alternate, adequate sources of funds.  More tellingly, perhaps, FAQ 46 notes that given the large volume of PPP loans, this new safe harbor will allow the SBA “to conserve its finite audit resources and focus its reviews on larger loans, where the compliance effort may yield higher returns.”

FAQ 46 also has good news (albeit not quite as good) for borrowers with loans greater than $2 million, providing that although such loans will be subject to SBA review, borrowers may still have an adequate basis for making the required good-faith certification, regardless of the amount of the loan.  Also, if the SBA determines that a borrower lacked an adequate basis for the required certification, the SBA will seek repayment of the outstanding PPP loan balance and the loan will not be forgiven, but as long as the borrower repays the loan, the SBA will not seek civil penalties or pursue criminal charges against the borrower.

In sum, pursuant to FAQ 46: (1) borrowers with loans of less than $2 million will be deemed to have made the required certification regarding the necessity of the loan in good faith; and (2) borrowers with loans greater than $2 million will have their loans reviewed, but if the SBA concludes that such a borrower did not have a sufficient basis for making the certification of necessity, the SBA will not seek civil penalties or pursue criminal charges as long as the borrower repays the loan.

If you need additional information about the FAQs or help determining appropriate documentation to support your certification and respond to potential SBA requests for relevant information and documents, contact our attorneys through our website at www.www.smlaw.com or call (707) 524-1900.  We are here to help.

Terry Sterling

Spaulding McCullough & Tansil LLP

Law Bulletin | May 11, 2020

Has COVID-19 Made Your Contract Unenforceable?

Contracts and written agreements between people or entities are a common part of everyday life.  What happens when an unforeseeable event, commonly referred to as “force majeure” or “an act of God” occurs and makes it either difficult or impossible for you to do what you agreed to do?  Or, what do you do if the party you have a contract with comes to you asking to be relieved from their contractual obligations? This can play out in many different scenarios, including contracts involving goods in the supply chain, or leases where a tenant whose business has closed due to Shelter-in Place (“SIP”) orders has asked to be relieved of paying rent.

As we approach the eighth week since California first issued its SIP Order, we are seeing more and more cases where a party is arguing that COVID-19 and the related SIP order constitutes a “force majeure” event, which should relieve them from their contractual obligations.

Generally, courts have viewed triggering events that qualify as a force majeure event narrowly, and whether or not a force majeure defense will be successful typically boils down to the express language in the contract.  Some contracts include a force majeure clause, and others do not.  Even if a contract does include a force majeure clause, not all clauses are created equal and the vast majority fail to list a pandemic, like COVID-19, as a force majeure event.  The more specific the force majeure clause, the stronger the force majeure defense.  If the force majeure clause does not list a pandemic as a triggering event, it is unlikely that a court would find that COVID-19 relieves a party of their contractual obligations under a force majeure defense theory.

Even if the contract contains a force majeure clause that expressly lists a pandemic like COVID-10, as a triggering event, that party must still be able to show that COVID-19 has made their ability to perform their obligations under a contract truly impossible or impracticable.  It is not enough to argue that COVID-19 made it more difficult or costly to perform one’s contractual obligations.

Ultimately, whether a force majeure defense is viable depends on the express language of the contract, and whether COVID-19 has caused it to be impossible or impracticable for a party to perform their contractual obligations.  If you find yourself in a dispute regarding whether or not COVID-19 excuses performance under a contract, contact Pamela Stevens or another SMT attorney through our website at www.www.smlaw.com or at (707) 524-1900. We are here to help.

Pamela Stevens

Spaulding McCullough & Tansil LLP

Law Bulletin | May 1, 2020

New Guidance Issued:  Required Support for Borrower “Certifications of Necessity” for Paycheck Protection Program Loans

Applicants for Paycheck Protection Program (“PPP”) loans are required to make a good faith certification that “current economic uncertainty makes this loan necessary to support the ongoing operations of the Applicant.”  Following several high-profile media stories about how large publicly traded companies were able to obtain PPP loans, on April 23, the Small Business Administration (“SBA”) and the Treasury issued updated FAQs with additional guidance regarding this certification of necessity.

FAQ 31 states that borrowers must make the certification of necessity in good faith, “taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business.”  FAQ 31 also provides a limited “safe harbor” for borrowers who are uncertain about their ability to make or support a certification of necessity by providing that, “any borrower that applied for a PPP loan prior to the issuance of this guidance and repays the loan in full by May 7, 2020, will be deemed by the SBA to have made the required certification in good faith.”

On April 24, the Treasury issued new Interim Final Rules (“IFRs”) that formalized FAQ 31, including the safe harbor provision.  On April 28, 2020, Treasury Secretary Steven Mnuchin announced that the government will be performing a “full audit” of every loan over $2 million, prior to forgiveness.  As of April 16, 2020, there were at least 25,000 loans of that size.

Although FAQ 31 and the IFRs were apparently issued in response to negative publicity regarding PPP loans made to large public companies, FAQ 31, the IFRs and the audit plan announced by Secretary Mnuchin are not limited to large or publicly traded companies.  In light of the heightened scrutiny on borrowers’ certifications regarding the necessity of their loans, it is advisable for borrowers – especially those with loans in excess of $2 million that are subject to audit – to review their circumstances and assess whether loans are “necessary” under the guidelines provided by FAQ 31, or whether the borrower should consider returning the PPP proceeds before the expiration of the “safe harbor” period on May 7.

If a borrower decides to keep the loan proceeds, the borrower must be prepared to explain why current economic conditions make a PPP loan necessary to support the borrower’s ongoing operations, after taking into account the borrower’s current business activities and whether the borrower has access to other sources of liquidity that are both sufficient to support ongoing operations, and not significantly detrimental to the business.  The borrower should also be prepared to present documentation to support its explanation.  That documentation can be in the form of an internal memorandum, a report to its Board of Directors or an attachment to the application for forgiveness, but in each case, supporting records should be included.

If you need additional information about FAQ 31 or help determining appropriate documentation to support your certification and respond to potential SBA requests for relevant information and documents, contact our attorneys through our website at www.www.smlaw.com or call (707) 524-1900.  We are here to help.

Terry Sterling

Spaulding McCullough & Tansil LLP

Law Bulletin | April 30, 2020

Business Interruption Insurance – Does It Cover Losses Associated with COVID-19?

As California’s shelter-in-place order is likely to extend past May, many businesses are beginning to explore whether their insurance policies include “business income” or “business interruption” coverage.  Such coverage is a feature of commercial property insurance policies and is designed to protect against the loss of business income as the result of a “covered loss.”

Generally, for coverage to apply, a business must show a suspension of operations, as well as a direct physical loss of or damage to property which was caused by a “covered loss.”  We are seeing that insurance companies are initially attempting to deny coverage on the grounds that most businesses did not suffer physical loss or damage to their properties.  Instead, the business losses are tied to the State’s shelter-in-place orders.  Further, many basic policies do not identify viruses as a “covered loss” and may even specifically exclude coverage for viruses.  Despite these challenges, businesses across the country are already starting to push back against coverage denials and lawsuits have been filed in many jurisdictions.

Ultimately, whether coverage applies depends not only on the exact terms of the policy and individual circumstances, but how these issues will be interpreted by courts.  Due to the extensive losses incurred by so many business nationwide, this will be a closely watched, and likely heavily litigated, issue.

If you believe you may have business interruption coverage, it is important to act quickly.  If you need help or additional information regarding business interruption coverage relating to the COVID-19 pandemic, you may email us through our website at www.www.smlaw.com or contact us at (707) 524-1900.  We are here to help.

Stephanie Rothberg

Spaulding McCullough & Tansil LLP

Employment Law Bulletin | April 24, 2020

President Trump Signs New Act Authorizing Additional Funding for Paycheck Protection Program and Economic Injury Disaster Loans

Today President Trump signed the “Paycheck Protection Program and Health Care Enhancement Act” which is largely dedicated to replenishing funds for the Paycheck Protection Program (“PPP”) and the Economic Injury Disaster Loans (“EIDL”) program.

The new law adds $320 billion for the PPP, including $310 billion in new loan funds and approximately $10 billion for Small Business Administration administrative costs.  Of the $310 billion allocated to loans, $60 billion is earmarked for community-based lenders, credit unions and mid-sized banks.  This provision was included with the hope that smaller businesses and minority-owned firms, which are less likely to have an existing relationship with a larger bank and were more likely to get shut out in the first round of PPP loans, can be better served in the second round by smaller community lenders and banks.

The Act also adds $60 billion in new funding for the EIDL program.  Farms and other agricultural programs were excluded in the first round of EIDL funding, but the new law amends the definition of “eligible entities” so that agricultural enterprises can now obtain EIDL loans and grants.  Pursuant to an announcement made by the SBA in early April, grants under the EIDL program are subject to a cap of $1,000 per employee.

The new law includes $2.1 billion for increased SBA salaries and expenses.  It is hoped that these added funds will allow the SBA to retain sufficient staff and improve its systems so the chaos of round 1 can be avoided.

The Act does not address the loophole that allowed large companies to obtain hundreds of millions of dollars in PPP loans, while thousands of small businesses received no funding at all.  In response to a widespread negative reaction to news of those loans, the Treasury Department posted an updated FAQ on Thursday, April 23, 2020, regarding the requirement that PPP loan applicants must certify that: “Current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”  The FAQ states that in making this certification, borrowers must: “assess their economic need for a PPP loan under the standard established by the CARES Act and the PPP regulations at the time of the loan application,” and “make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business.”  As an example, the FAQ notes “it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith, and such a company should be prepared to demonstrate to the SBA, upon request, the basis for its certification.”

Although the FAQ was posted in response to outrage regarding PPP loans obtained by large restaurant and hotel chains, and the example provided relates to public companies, the FAQ puts all applicants on notice that at some point, most likely when a borrower requests forgiveness of a loan, the SBA could require that a borrower provide documentation showing how the coronavirus pandemic impacted the borrower’s business.

The Act does not make any changes to the specific terms of the PPP, and there continues to be a lack of clarity regarding the rules for loan forgiveness.  The additional guidelines on forgiveness that are mentioned in the regulations issued on April 2 have not yet materialized.

It is expected that the new PPP and EIDL funds will run out quickly, so businesses seeking support from either program should be prepared to act quickly.  Businesses that submitted an application for a PPP loan in round 1 and did not receive funding should contact their banks to find out whether their old applications will automatically be considered, or if they have to submit new applications.  Businesses that did not submit an application should complete the application form and collect the required records right away.

If you need help or additional information regarding the PPP, the EIDL program and other financial relief relating to the COVID-19 pandemic, contact SMT.  We are working remotely to help you navigate this crisis and to advise you about the emergency relief programs available to your business and your employees.  In addition, all SMT attorneys are available to assist you with your legal needs, whether or not they relate to COVID-19.  You may email any attorney through our website at www.www.smlaw.com or contact us at 707-524-1900.  We are here to help.

Terry Sterling

No Se Habla Español?

SMT’s employment attorneys can provide your company with employment policies, forms and employee disciplinary documentation in Spanish. Providing such important information to employees in the language they understand is critical to employee performance, providing a welcoming diverse work environment, and protecting your company against employment claims. Contact an SMT attorney today to get started.

Spaulding McCullough & Tansil LLP
Employment Law Group

Jan Gabrielson Tansil  | Lisa Ann Hilario | Kari Brown

Employment Law Bulletin | April 13, 2020

Small Employer Exemption Under the FFCRA: Does it apply to my business?

Although the Families First Coronavirus Response Act (FFCRA) contains an exemption for employers with fewer than 50 employees, employers should be aware that this exemption is 1) optional and 2) extremely limited.  Specifically, the FFCRA allows small employers to elect an exemption from its requirement to provide Emergency Paid Sick Leave (EPSL) and/or Emergency Family Medical Leave (EFML) benefits to eligible employees, but the exemption only applies if the following conditions are met:

  1. The employee’s leave is to care for the employee’s child whose school or place of care is closed (or child care provider is unavailable) due to COVID-19, AND
  2. Providing EPSL or EFML would jeopardize the viability of the business as a going concern.

In order to determine whether the second condition is met, an “authorized officer” of the business must determine that at least one of the following criteria apply:

  1. The leave would result in expenses and financial obligations exceeding available business revenues and cause the small business to cease operating at a minimal capacity; OR
  2. The employee or employee’s absence would entail a substantial risk to the financial health or operational capabilities of the business because of the employee’s specialized skills, knowledge of the business, or responsibilities; OR
  3. There would be insufficient employees able, willing, and qualified at the time and place needed to perform labor or services provided by the employee, and these labor or services are needed for the business to operate at a minimal capacity.

Once the applicable criteria have been identified, the employer must affirmatively elect the exemption by documenting which of the criteria was relied upon in making the determination for exemption eligibility.  The documentation should not be submitted to the Department of Labor or any other government agency, but instead retained in the employer’s records.  Other records related to time off requests for EPSL and EFML must be retained for four years, so we recommend the exemption documentation be retained for the same period of time.  Although the regulations do not specify that additional supporting documentation is required, employers should retain independent evidence that supports their finding that one or more of the exemption criteria apply.

A small business employer who determines that it can meet one or more of the above criteria is exempt from providing EPSL or EFML benefits for requests for time off related to a child’s school or childcare closure or unavailability.  While the exemption applies to all EFML benefits, an exempt employer must still provide EPSL for any other qualifying reason.  Exempt employers must also post the required FFCRA notice, which means being prepared for questions when and if the employer denies employee benefits as a result of electing the exemption. See our March 19 and March 25 Bulletins for more information on qualifying reasons for EPSL and required postings.

If you think the small business exemption applies to your business, we recommend that you evaluate your business under the above criteria and carefully document your determination as soon as possible so you are prepared to respond to employee requests for leave.

If you need help evaluating the small business exemption, have questions about documenting your decision, or if you believe the exemption applies to some, but not all of your employees, contact an SMT employment attorney. We are working remotely to help you navigate this crisis and to advise you about the emergency aid programs available to your business and your employees.  In addition, all SMT attorneys are available to assist you with your legal needs, whether or not they relate to COVID-19.  You may email any attorney through our website at www.www.smlaw.com or contact us at 707-524-1900.  We are here to help.

Kari J. Brown

No Se Habla Español?

SMT’s employment attorneys can provide your company with employment policies, forms and employee disciplinary documentation in Spanish. Providing such important information to employees in the language they understand is critical to employee performance, providing a welcoming diverse work environment, and protecting your company against employment claims. Contact an SMT attorney today to get started.

Spaulding McCullough & Tansil LLP
Employment Law Group

Jan Gabrielson Tansil  | Lisa Ann Hilario | Kari Brown