As states around the country start to loosen restrictions on business activities, employers are ready to rehire laid-off or furloughed employees. But some employers who received a loan under the Paycheck Protection Program (“PPP”), which we’ve discussed at COVID-19 Update: Round 2 of the Paycheck Protection Program, IRS Clarifies Deductibility of Expenses Associated with PPP Loan, and Jim Kearney, Karen O’Connor and Kevin Pearson Featured on PDX Executive Podcast on CARES Act and Paycheck Protection Program, are concerned that some employees may refuse to return to work (whether because they are receiving more in unemployment benefits than their prior wages, or for some other reason) and are asking whether their PPP loan forgiveness amount (which is tied to payroll and headcount) will be reduced accordingly. Recent federal guidance suggests that answer is “No.”
The SBA’s Guidance
In its recently updated FAQs, the Small Business Administration (“SBA”), in consultation with the Treasury Department, states that an employer’s PPP loan forgiveness will not be reduced if an employee rejects a written, good-faith offer, including the same salary and hours, to return to work, and the employer documents that offer.
The full Q&A provides:
40. Question: Will a borrower’s PPP loan forgiveness amount (pursuant to section 1106 of the CARES Act and SBA’s implementing rules and guidance) be reduced if the borrower laid off an employee, offered to rehire the same employee, but the employee declined the offer?
Answer: No. As an exercise of the Administrator’s and the Secretary’s authority under Section 1106(d)(6) of the CARES Act to prescribe regulations granting de minimis exemptions from the Act’s limits on loan forgiveness, SBA and Treasury intend to issue an interim final rule excluding laid-off employees whom the borrower offered to rehire (for the same salary/wages and same number of hours) from the CARES Act’s loan forgiveness reduction calculation. The interim final rule will specify that, to qualify for this exception, the borrower must have made a good faith, written offer of rehire, and the employee’s rejection of that offer must be documented by the borrower. Employees and employers should be aware that employees who reject offers of re-employment may forfeit eligibility for continued unemployment compensation.
What to Do Now
Employers should prepare written job offers for employees they intend to rehire. With limited exceptions, the written offers should include essentially the same salary and hours as before the employee’s layoff or furlough. Document the delivery of that offer to the employee and, if applicable, the employee’s rejection or failure to respond. Keep those documents as part of your record to calculate and demonstrate your eligible PPP loan forgiveness.
Other Considerations
The SBA’s guidance also reminds employers that under many states’ law governing unemployment benefits, employees who refuse an offer to return to work may lose their unemployment benefits. Employers should consider notifying employees of that possibility while informing them that the state, not the employer, determines an employee’s eligibility.
Finally, though the SBA’s guidance does not address this, employers must also consider whether an employee’s absence is protected despite their refusal to return to work. For example, if an employee must stay home to care for a child whose school or daycare is closed, the employee’s absence may be protected by the Families First Coronavirus Response Act (with corresponding reinstatement rights). Regardless of the employee’s protected status, however, the employer should document a refusal to return to work for purposes of PPP loan forgiveness.
Federal regulations and guidance regarding the laws enacted due to COVID-19 change almost daily. Do not hesitate to reach out to your Stoel Rives attorney for the most up-to-date information. Please also visit our COVID-19 Resource Hub for a compilation of all of our COVID-19 related guidance.