The Latest on the Federal COVID-19 Stimulus Package 2.0

On Sunday, December 27, 2020, President Trump signed the second-round of stimulus legislation that allocates $900 billion in economic relief to business and workers in the US. There are several provisions that are key to employers, including continuing the small business loan program, extending tax credits for continued paid sick leave, and offering a variety of other tax and benefit-related provisions. Fisher Phillips, our law firm partner, has provided a summary of the key provisions:

Continuation of the Paycheck Protection Program

The Stimulus 2.0 program makes many critical changes from the previous PPP, including lowering the employee threshold for businesses to 300 employees or fewer (down from 500), and the loan maximum to $2 million (down from $10 million).

Tax Deductibility of Expenses

The first PPP iteration provided that the forgiven amount was tax-free, but the Internal Revenue Service (IRS) ruled that the expenses paid with forgiven PPP loan proceeds were not deductible. Thus, before Stimulus 2.0, the amount of loan proceeds used to cover payroll, if forgiven, would not be deductible.  Stimulus 2.0 changes that, clarifying that gross income does not include any amount that would otherwise arise from the forgiveness of the PPP loan. The bill states:

“…no deduction shall be denied or reduced, no tax attribute shall be reduced, and no basis increase shall be denied, by reason of the exclusion from gross income provided by [the loan forgiveness provision that says forgiven PPP loans will not count as income.”

This means that deductions are allowed for deductible expenses paid with forgiven PPP loan proceeds. This provision is effective as of the date of enactment of the CARES Act and applies to second draw PPP loans.

New Allowable Expenses

Stimulus 2.0 expands qualifying expenses for new borrowers and those who have not yet applied for forgiveness, including the following;

• Payment for any software, cloud computing, and other human resources and accounting needs;
• Covered property damage costs, including costs for property damage due to public disturbances that occurred during 2020 that are not covered by insurance;
• Covered supplier costs for expenditures according to a contract, purchase order, or order for goods in effect before taking out the loan that are essential to the recipient’s operations when the expenditure was made (supplier costs of perishable goods can be made before or during the life of the loan); and
• Covered worker protection expenditures for personal protective equipment (PPE) and help for compliance with federal health and safety guidelines or any equivalent state and local guidance related to COVID-19 during the period between March 1, 2020, and the end of the national emergency declaration.

The bill also allows loans made under PPP before, on, or after enacting Stimulus 2.0 to be eligible to utilize the expanded forgivable expenses except for borrowers who have already received loan forgiveness.

Second Draw PPP Loans

Section 311 of Stimulus 2.0 provides for second draws of PPP loans for smaller businesses, capping the loan amount at $2 million. Under this section, eligible borrowers must (1) employ not more than 300 employees; (2) have used or will use the full amount of their first PPP; and (3) demonstrate at least a 25% reduction in gross receipts in the first, second, or third quarter of 2020 relative to the same 2019 quarter. Borrower applications submitted on or after January 1, 2021, are eligible to utilize the gross receipts from the fourth quarter of 2020. Eligible second draw borrowers also include non-profit organizations, housing co-operatives, veterans’ organizations, tribal businesses, self-employed individuals, sole proprietors, independent contractors, and small agricultural co-operatives.

Second draw loan terms are reduced and calculated up to 2.5X the average monthly payroll costs in the 12 months before the loan application or the calendar year (2019), with maximum loan amounts capped at $2 million. However, Stimulus 2.0 maximizes benefits for borrowers in the restaurant and hospitality industries by calculating loans up to 3.5X average monthly payroll costs. Additionally, the bill re-institutes the waiver of affiliation rules that applied during initial PPP loans for second loan borrowers with multiple locations employing not more than 300 employees per location.

Second draw loan recipients are eligible for loan forgiveness equal to the sum of their payroll costs and expanded allowable expenses, subject to the previous program’s 60%/40% allocation between payroll and non-payroll costs.

Streamlined Applications for Borrowers Under $150K

Stimulus 2.0 provides a streamlined process for loans under $150,000. In fact, such borrowers will not be subject to the required reductions in forgiveness amounts generally imposed by reductions in salaries or headcount by simply certifying that the borrower meets the revenue loss requirements described above on or before the date the entity submits the loan forgiveness application.

No Extension of FFCRA Paid Leave – But Tax Credit Period Extended Through March

The compromise agreement does not extend the paid sick leave and paid family and medical leave requirements of the Families First Coronavirus Response Act (FFCRA), which expires on December 31. Therefore, an employer’s obligation to provide paid leave under the FFCRA will cease at the end of the year.

However, the final legislationdoes extend the tax credit for both the Emergency Paid Sick Leave and the Emergency Family and Medical Leave under the FFCRA until March 31, 2021. This means that you are not required to provide paid leave under the FFCRA after December 31, 2020. If you choose to voluntarily do so (assuming theemployee still has eligible leave remaining), you will be able to obtain a tax credit for those payments until the end of March under the compromise agreement contained in Stimulus 2.0.

In addition, depending on the circumstances of an employee’s leave, it is possible that the employee could be entitled to normal unpaid leave under the FMLA even after the FFCRA expires, if they still have weeks available under the FMLA. You should work with counsel to determine whether any employees out on FFCRA leave may be entitled to regular FMLA unpaid leave after the end of the year.

We will continue to monitor COVID-19 related news and will provide further updates.

COVID-19 Lawsuits on the Rise

Nearly a year into the COVID-19 pandemic, employees continue to file COVID-19-related lawsuits against their employers. According to Jackson Lewis, an astonishing number of COVID-19-related employment complaints filed approaches 1,000. These complaints have to do with the following:

Alleged failure to provide a safe working environment;   

Discrimination;

Failure to accommodate leave laws or work from home requests;

·      Retaliation and whistleblower claims, usually attached to either a workplace safety or leave issue;

·      Wage and hour lawsuits arising out of the pandemics’ impact on business operations.

Claims relating to retaliation, discrimination and leave law conflicts dominate COVID-related litigation. Usually, these claims have emerged from the decisions employers have made on which employees were laid off, furloughed or have had their hours reduced. Specifically, claims from employees who are part of a protected class and were furloughed. Additionally, employees have filed claims alleging constructive discharge or retaliation due to an employer’s failure to implement safety measures, or as a result of complaining about inadequate safety measures.

Below or some recent examples of these claims:

• August 25, 2020 (Kofler v. Sayde Steeves Cleaning Service): A residential and commercial cleaner requested two weeks of unpaid leave under the FFCRA to care for her two children who had to stay home due to the pandemic. Her employer did not respond to that request, but afterward terminated her employment. She sued, alleging retaliation. The court held that the employee’s claim for retaliation brought could go forward. Although there is an exemption from provisions of the FFCRA for certain small employers (fewer than 50 employees), it is not a blanket exemption. Rather, an employer must document that it has determined that the requested leave would cause severe financial hardship on the business
• September 4, 2020 (Brooks v. Corecivic of Tennessee LLC): In a recent decision involving a constructive discharge allegation, a former employee of a correctional facility alleged that she had been compelled to resign from her position because of her employer’s failure to maintain a safe working environment. Her claims were brought under California law as wrongful constructive termination in violation of public policy, negligent supervision, and intentional infliction of emotional distress. The court allowed the claim to proceed and denied an early motion to dismiss because any determination as to the reasonableness of the correctional facility’s safety efforts would be fact-bound.
• November 2, 2020 (Gomes v. Steere House): In a recent decision involving an FMLA retaliation claim, a Licensed Practical Nurse, fell ill with COVID-19 and alleged that shortly after requesting leave under the Family and Medical Leave Act (FMLA), as set forth in the FFCRA, Steere House terminated her employment because she requested leave. Although Steere House argued the employee’s allegations, its motion to dismiss was denied by the court. The court held her allegations were adequate given:
  1. a.Gomes was adversely affected by Steere House’s decision to terminate her, and
  2. b.The timing between Gomes’ request for leave and the termination of her employment, were sufficient to show a connection between her request to seek leave (the protected activity) and the termination of her employment (the adverse employment action).

These cases are only a few examples of how COVID-19 cases are laying the foundation for prominent legal issues in 2021. However, there are lessons to be learned thus far. The key takeaways:

·      Ensure leave and anti-retaliation policies are firmly established and communicated to employees.

·   Follow OSHA and CDC guidelines and provide a safe work environment for employees. This includes supplying Personal Protective Equipment (PPE), regularly cleaning and disinfecting workplaces, and appropriately distancing employees to limit exposure. Make sure you are properly documenting and investigating your employee’s safety concerns.

·      Document, Document, Document. Timing and documentation are important, especially during the pandemic. When making personnel decisions, such as terminations, lay-off, or demotions, be sure that documentation exists leading up to and through the date the action is taken that demonstrates that the personnel action is unrelated to any protected activity.