by Sarah E. Stuart

As many businesses in Tennessee begin the process of reopening, the Tennessee Department of Labor and Workforce Development (“TDLWD”) has issued clarification on employees’ obligation to return to work if called back.  Subject to COVID-19 related qualifying exceptions, if an employer recalls its employee, the employee must return to work or else he or she will not qualify for unemployment benefits.  As employers experience pushback from employees that may be receiving increased unemployment benefits or are dealing with COVID-19 related concerns, it is important for employers and employees alike to understand the implication of a refusal to return to work, both with or without a qualifying COVID-19 related reason.

For an employee currently receiving unemployment benefits through TDLWD, when an employer notifies an employee of a recall or reopening, the employee must report the offer of work during their weekly certification to the TDLWD.  If the employee refuses to return and is not the subject of a qualifying exception, they will no longer qualify for unemployment benefits.  Any benefits received after the employee’s recall are considered an overpayment of benefits, which must be repaid.  If overpayments are deemed to be the result of fraud (i.e. intentionally not certifying a recall offer to the TDLWD), the employee could be subject to penalties and interest, including potential criminal prosecution for fraud in the most serious circumstances.

Should an employee refuse to return to work once recalled, the employer should first evaluate whether he or she is clearly subject to a qualifying exception.  If not, or if the employee’s eligibility for an exception is unclear or questionable, the employer should notify the TDLWD by submitting a “Refusal to Work ticket” on the TDLWD website.  The TDLWD will evaluate, based on employer and employee documentation, whether the employee is subject to a qualified exception such that they may remain eligible for benefits.  The TDLWD will also consider whether the employee was offered to return to the same position and rate of pay.

Generally speaking, an employee will not be required to return to work and will remain temporarily eligible for unemployment benefits through the federal CARES Act Pandemic Unemployment Assistance Program while:

  • They are diagnosed with COVID-19 or have COVID-19 symptoms and are seeking diagnosis;
  • A member of their household is diagnosed with COVID-19;
  • They are providing care for a family or household member diagnosed with COVID-19;
  • They are the primary caregiver for a child whose school or care facility closed due to COVID-19; or
  • They are subject to an imposed quarantine or were advised by a medical provider to self-quarantine, due to COVID-19

We anticipate that one of the challenges for employees in moving forward with return to work may be for those who are primary caregivers with a child whose school or care facility remains closed.  The TDLWD has indicated that an individual may be permitted to remain out of work for a limited time and collect benefits after recall if they are a primary caregiver without reliable childcare, but this exception will only apply until the date the school year was scheduled to end prior to the COVID-19 pandemic.  Further, if the employee has access to reliable childcare, this exception will not make the employee eligible for benefits should they refuse to return to work.  The TDLWD will analyze reliable childcare issues for a primary caregiver due to COVID-19 on a case-by-case basis.

Finally, to qualify for an exception based on a quarantine order, an employee must supply both their employer and TDLWD with documentation.  Because some of the qualified exceptions may require a case-by-case determination, please reach out to our firm to discuss how to handle questionable refusals to return.

Paycheck Protection Program Loans: A Roller Coaster Ride

by Lisa A. Krupicka

  • The Paycheck Protection Program (“PPP”) was established on March 27, 2020 as part of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act providing for forgivable loans to qualifying small businesses
  • Initial funding was $349 billion
  • PPP loans are to be administered by the Small Business Administration (“SBA”)
  • PPP loans were to be made through banks rather than directly through the SBA
  • In order to obtain a small business loan, SBA ordinarily requires that a borrower certify that it cannot obtain credit elsewhere; that requirement is waived but borrowers were required to certify in good faith that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”
  • Borrowers had to qualify as a small business, defined as having fewer than 500 employees
  • Exception to the 500 employee requirement was made for companies with North American Industry Classification System Code 72, which covers hotels, casinos, restaurants, caterers, and bars, among others
  • These businesses would qualify if they employed fewer than 500 employees at each of their physical locations
  • The program was open to applicants as of April 3, 2020
  • Many borrowers found the electronic portal established by lenders to be difficult to access because of electronic glitches and/or because of the sheer number of borrowers trying to apply at  once
  • National banks expressed reluctance to participate, citing potential liability and scale concerns
  • On April 9, 2020, the Federal Reserve announced it would support the PPP by creating the Paycheck Protection Program Liquidity Facility (“PPPLF”) to extend credit to eligible financial institutions that originate PPP loans, taking the loans as collateral at face value
  • Nevertheless, media reports showed that some lenders would loan only to current customers and favored larger borrowers over smaller ones
  • The initial funding for the PPP was exhausted on April 16, 2020
  • On April 27, 2020, Congress provided for an additional $311 billion for the PPP
  • National restaurant chains such as Ruth Chris and Shake Shack received loans under the Category 72 exception, but quickly returned the money after intense public outcry
  • Elite private schools like Sidwell Friends in Washington, D.C. (Obama daughters attended), the Brentwood School in Los Angeles (Treasury Secretary Mnuchin’s children attend),  and St. Andrew’s Episcopal School in Maryland (Barron Trump attends) also received PPP loans
  • The Los Angeles Lakers (valued at $3.7 billion) also received a PPP loan and returned it after negative media coverage
  • In addition, a number of publicly traded companies were approved for loans despite robust market capitalization:

  • On April 23, 2020, the SBA added Question and Answer 31 to its FAQs on the PPP, which advised borrowers to “review carefully the required certification that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”
  • Borrowers were also advised to take 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 SBA advised that it was “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”
  • Q&A 31 also created a safe harbor by which businesses that gave back their loans by May 7, 2020  would be presumed to have made a good faith certification
  • Q&A 37 was also added, which asked “Do businesses owned by private companies with adequate sources of liquidity to support the business’s ongoing operations qualify for a PPP loan?”  The answer was a cryptic and unhelpful “See response to FAQ #31.”
  • On May 1, 2020, Steve Mnuchin tweeted that “some private schools with significant endowments have taken PPP loans.  They should return them.”
  • As a result of Secretary Mnuchin’s tweet, some prominent private schools, including the Brentwood School, returned their PPP loans
  • Late on May 5, 2020 the SBA extended the safe harbor to May 14, 2020 and promised to provide additional guidance before then
  • On May 13, 2020, the SBA added FAQs 43-47 offering further guidance, stating in the answer to Question 46 that “[a]ny borrower that, together with its affiliates, received PPP loans with an original principal amount of less than $2 million will be deemed to have made the required certification concerning the necessity of the loan in good faith.”
  • The SBA made clear that loans of $2 million or above can still have an adequate basis to make the certification in good faith “based on their individual circumstances” and that even if the SBA determines that a certification was not made in good faith, it will not pursue enforcement action as long as the loan is repaid on demand from the SBA
  • The SBA also extended the safe harbor deadline to May 18, 2020
  • The most recent version of the FAQs published by the SBA can be found here.
  • PPP loans are in theory fully forgivable if at least 75% of the loan proceeds are spent on payroll costs within eight weeks of disbursement of loan
  • Forgiveness is tied to maintaining headcount and payroll
  • For some businesses that received PPP loans during the first round of funding, it was difficult to recall workers who stood to make more from unemployment than from working, and thus difficult to meet payroll-utilization requirements for full forgiveness
  • SBA, on May 15, 2020, released the application to be used by borrowers in connection with seeking loan forgiveness
  • The application does not alter the requirement that at least 75% of loan proceeds be used for payroll costs
  • The application, however, does contain certain concessions to borrowers
  • One  concession is that, for the purpose of calculating payroll costs, borrowers may choose between the eight-week period starting on the date of loan disbursement OR the eight-week period beginning on the first day of the first pay period following the disbursement date
  • Borrowers may also include expenses incurred OR paid during the eight-week period
  • According to the form’s instructions, forgiveness will not be reduced for those headcount reductions in which (1) the borrower made a written offer in good faith to the employee and the employee thereafter rejected the offer and refused to return to work; (2) the employee was “fired for cause”; (3) the employee voluntarily resigned; or (4) the employee voluntarily requested and received a reduction in his/her hours
  • Consistent with the SBA’s earlier guidance that loan amounts above $2 million will be audited, there is a box on the application that must be checked if the borrower (together with its affiliates, as defined under the applicable affiliation rules) received loan proceeds in excess of $2 million