Amidst COVID-19 Pandemic

With many states either already dropping their stay at home orders or scheduled to loosen restrictions soon, many businesses are eager to welcome customers back to their stores. Small businesses are especially anxious as they may literally be running out of funds soon once their Paycheck Protection Program funds are used. Companies however would be incorrect to believe that everything will return to business as usual. The reasons are twofold for small businesses needing to adapt during this time: first, bringing employees and customers back is a legal minefield that needs to be mitigated; second, customers may be hesitant to shop at businesses that have not adopted safety measures.

Legal Pitfalls for Companies Related to Coronavirus

Unsafe Work Conditions

The family of a deceased JBS SA meatpacking worker recently filed suit that alleged the unsafe conditions at a company plant resulted in him contracting a fatal case of COVID-19. The complaint brings claims of Negligence, Fraudulent Misrepresentation regarding the safety of working conditions at the plant, and Wrongful Death.

Companies should enact safety measure such as: mandating the use of masks; checking employees for a fever; and requiring social distancing of at least six feet when possible to mitigate the chances of being on the wrong side of a crippling Negligence suit. While legal scholars predict that there will a flood of litigation against businesses when reopening, they concede that only complaints alleging the heightened standard of Gross Negligence will have a chance of being successful. It will be difficult for a Plaintiff to show that the company was Grossly Negligent if a robust safety program is written down, made public, and actually followed.

Potential Bias in Rehiring

One strategy the talking heads have been promoting is to let younger individuals back first, as they are less likely to be affected by the virus. It may seem then that an employer would be prudent in first allowing younger workers back in a staged reopening, while allowing older or individuals with preexisting conditions back at a later stage once the COVID-19 spread slows. Not so fast. The employer would be opening itself to an Age Discrimination Claim.

Families First Coronavirus Response Act

The Families First Coronavirus Response Act (“FFCRA”) was passed in March 2020. It requires covered employers (those with fewer than 500 employees) to provide employees up to two weeks of paid sick leave for a number of reasons. Two weeks of paid sick leave at the employee’s regular rate of pay must be provided where the employee is unable to work due to being quarantined or themselves experiencing COVID-19 symptoms. Two weeks of paid sick leave at 2/3 the employee’s regular rate of pay must be provided when the employee is unable to work due to caring for an individual that is quarantined or caring for a child whose school or childcare is closed. If the employee has been employed for at least 30 days, an additional 10 weeks of paid family and medical leave must be provided at 2/3 the employee’s regular rate when caring for a child whose school or childcare provider is closed.

In an ideal world, employers would have plenty of funds to pay these types of benefits to employees. However, many small employers are barely able to keep the lights on may be forced to pay an employee for up to three months of not working. The employer would be eligible for a tax credit for these payments; however, this likely will not give many employers that are on the brink of defaulting on their loans much comfort. Employers must get appropriate need of the need for leave from employees in order to utilize tax credits.

An employer may find itself facing litigation if it chooses to terminate an employee requesting paid leave. A mother recently filed suit against Eastern Airlines LLC alleging that she was fired after making repeated inquiries and requests for paid family leave under the FFCRA.

One possible remedy for small businesses being unable to pay leave benefits is through a Department of Labor exemption. The Department of Labor has the authority to exempt small businesses from providing paid leave benefits under the FFCRA if it “would jeopardize the viability of the businesses as a going concern.” This exemption only applies for businesses with fewer than 50 employees. This exemption seems to apply only for employees seeking leave due to having to stay home to care for a child and not for employees quarantining themselves or experiencing symptoms. One of the following three conditions must then be met to claim the exemption: providing leave would result in the small business’ expenses and financial obligations exceeding available business revenues and cause the employer to cease operating at a minimal capacity; the absence of the employee requesting leave would entail a substantial risk to the financial health or operational capabilities of the employer because of their specialized skills, knowledge of the business or responsibilities; or there are not sufficient workers who are able, willing, and qualified, and who will be available at the time and place needed, to perform the labor or services provided by the employee requesting leave, and these labor or services are needed for the small business to operate at a minimal capacity.

An authorized officer of the business must document the determination that the criteria for the exemption are satisfied and retain such documentation for four years. The Department of Labor has instructed that no materials should be sent to them when seeking this exemption. Regulations are anticipated to be released in the future providing greater clarity on this exemption.

The Department of Labor has put out a helpful questions and answers document regarding other technical areas of the FFCRA such as calculating pay and number of employees.

Americans with Disabilities Act

The Americans with Disabilities Act (“ADA”) gives workers the right to request a reasonable accommodation which allows them to do their job. The ADA typically prohibits employers from taking employees’ temperatures as an unlawful medical examination. However, the Equal Employment Opportunity Commission has announced that employees can be tested as it is now job related and consistent with business necessity. What is not clear though is the question of what to do with workers with underlying conditions. Do they have to be segregated from the rest of the workforce? Can they demand to work from home while others are required to come into the office? These are the types of questions employers face as they reopen their businesses.

If the employee does not request a “reasonable accommodation,” the ADA does not mandate the employer to take action. If an accommodation is requested, the ADA regulations require an employer to consider whether there are reasonable accommodations which would eliminate or reduce the risk so it would be safe for the employee to return to the workplace. An employer may only bar an employee from the workplace if the facts support the conclusion that the employee poses a significant risk of substantial harm to him or herself that cannot be reduced or eliminated by reasonable accommodation. It may be best for employers to be more flexible during this unprecedented time and think about ways in which to reduce the risk and set up reasonable accommodations for those concerned about contracting the virus.

The ADA also mandates privacy of employee medical information. The CDC advises that if an employee is confirmed to have COVID-19, employers should inform fellow employees of their possible exposure to COVID-19 but maintain confidentiality as required by the ADA.

WARN Act

The previous sections have discussed the legal perils for businesses reopening. This Act focuses on what employers must do in the unfortunate event where they must lay off workers going forward.

The Workers Adjustment and Retraining Notification Act (“WARN Act”) typically applies to workers at companies with at least 100 employees who have worked at least 20 hours a week for more than 6 of the past 12 months. A covered employer must provide at least 60 days written notice prior to a plant closing or a mass layoff.

The 60-day notice is not required when a mass layoff is caused by unforeseeable business circumstances, natural disasters, and because of faltering companies. “As much notice as is practicable” must still be given. Although it is likely the case, it is unclear about whether COVID-19 will qualify as an exception to the 60-day notice. Two former Hooters workers recently filed a class action alleging the company violated the WARN Act. It is anticipated this case will fall within the unforeseen business circumstances exception, but employers should still be cognizant of the WARN Act notice requirements if layoffs are anticipated further down the road due to a slow recovery. Additionally, the WARN Act does not apply to temporary layoffs lasting less than six months. However, it will constitute a layoff where a WARN notice may be required if those furloughed employees are kept out of work for longer than six months.

Guidelines for Businesses Reopening

Most states, as well as the Occupational Health and Safety Administration (“OHSA”), have implemented guidance on reopening. The city of Cedar Rapids, Iowa has also created a business reopening guide. Employers have a general duty under OHSA to maintain safe workplaces. However, this guidance put forth by OHSA is not a standard or a regulation and creates no new legal obligations. It is unclear how state-imposed protocols will be enforced. What is clear is that businesses not following the protocols may face some negative attention. Most recently, there was a report that Mark Cuban hired “secret shoppers” to go to retail stores and restaurants throughout Dallas. It was discovered that 96% of the businesses were non-compliant of Texas’s minimum standard health protocols.

There are discussions that the next stimulus bill will contain some sort of liability shield for businesses reopening. However, businesses should not be waiting for Congress to be their saving grace on this matter. While employers would be wise to review all laws they need to follow and update best practices to mitigate their chances of being sued for Negligence, assuming a broad liability shield is not passed, businesses should not view this period as a time to do the least amount of compliance necessary. There are varying opinions on the severity of this novel virus, but those companies that are being proactive in opening, in a safe and responsible, way have been praised by leaders in the business community and are seeing a correspondingly positive jump in their stock prices. Small businesses should take notice of this reaction and do everything they can to create a safe environment for their employees and customers, as it is becoming evident, especially through this pandemic, that those companies which are willing to adapt to the times are those that will be successful in the long-term.

This material is not intended, nor should it be construed or relied upon, as legal advice. The opinions expressed are those of the individual authority, they may not reflect the opinions of the firm. Your use of Day Rettig Martin, P.C. postings does NOT create an attorney-client relationship between you and Day Rettig Martin, P.C. or any of its attorneys. If specific legal information is needed, please retain and consult with an attorney of your own selection.

The Senate passed H.R. 748, which is titled as the CARES Act, on March 26 by a vote of 96-0. At the time of writing this, it sounds as if the House of Representatives have passed it as well. There are many issues discussed in this stimulus bill, but the most prevalent topic for small businesses is found in Section 1102 of the bill. It is titled “Paycheck Protection Program.”

The number of Americans filing for unemployment benefits jumped to 3.3 million for the week ending March 21 according to the Department of Labor. To put this figure into perspective, the number of unemployment claims filed for the week ending March 7 was 211,000, which was near a half-century low. Section 1102 of the CARES Act is meant to provide financing to small employers that retain their workforce during this historic economic slowdown.

Eligibility

Initial eligibility depends on the size of the employer. The loans would be available under 7(a) of the Small Business Administration for businesses with less than 500 employees. Sole proprietors, independent contractors, and self-employed individuals are also eligible to receive these loans. In evaluating the eligibility of a borrower for a covered loan, a lender is to consider whether the borrower was in operation on February 15, 2020 and had employees for whom the borrower paid salaries and payroll taxes.

Loan Amount

The maximum loan amount is the lesser of a calculated amount and $10 million. The calculated amount results from the average monthly payroll costs for the 1-year period ending on the date the loan was made multiplied by 2.5. Payroll costs are defined under the bill as:

The sum of payments of any compensation with respect to employees that is a-
1. salary, wage, commission;
2. payment of cash tip;
3. payment for vacation, parental, family medical, or sick leave;
4. allowance for dismissal or separation;
5. payment required for the provisions of group health care benefits, including insurance premiums;
6. payments of any retirement benefit; or
7. payment of State or local tax assessed on the compensation of employees; and

Notable exclusions of payroll costs include compensation of an individual employee in excess of an annual salary of $100,000, taxes imposed or withheld under chapter 21, 22, or 24 of the Internal Revenue Code during the time period of February 15, 2020 through June 30, 2020, qualified sick leave wages for which a credit is allowed, and qualified family leave wages for which a credit is allowed. Tony Nitti, a senior contributor with Forbes, provides an example to better illustrate calculating loan amounts permitted under this bill.

Rob’s Car Wash applies for a paycheck protection loan on May 1, 2020. The business has $1.2 million in payroll costs for the period May 1, 2019 through May 1, 2020, for a monthly average of $100,000. Rob’s car Wash is entitled to a loan the lesser of:

-$250,000 ($100,000 in average payroll costs * 2.5), or

-$10 million.

Loan Uses

Allowable uses for loan proceeds during the covered period (February 15, 2020 – June 30, 2020) include payroll costs as defined above; costs related to continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums; employee compensation; and payment of interest on any mortgage obligation, rent, utilities, and interest on any other debt obligations that were incurred before the covered period.

Loan Forgiveness

Section 1106 of the bill describes the loan forgiveness provisions. An eligible recipient shall be eligible for forgiveness of indebtedness in an amount equal to the sum of the following costs incurred and payments made during the covered period:

Payroll costs.
Any payment of interest on any covered mortgage obligation.
Any payment on any covered rent obligation.
Any covered utility payment.

Mr. Nitti provides another example covering the forgiveness aspects of the bill.

In the first 8 weeks (covered period) after the business borrows the $250,000, the business pays $200,00 in payroll costs, mortgage interest, and utility payments. Rob’s Car Wash is eligible to have $200,000 of the $250,000 loan forgiven.

The bill also provides that any amount forgiven would be excluded from gross income for purposes of taxation. Assuming that the workers’ salaries aren’t materially cut, then the amount of forgiveness generally can be limited by dividing the number of employees employed during 2020’s covered period (February 15, 2020 – June 30, 2020) over the number of those employed during last year’s same time period. In other words, a greater amount of the loan will be forgiven if workers aren’t laid off. An exception exists if workers are rehired before June 30, 2020.

A recipient seeking loan forgiveness needs to submit to the lender:

Documentation verifying the number of full-time employees on payroll and pay rates, including-
1. Payroll tax filings reported to the IRS;
2. State income, payroll, and unemployment insurance filings;
3. Documentation regarding payments on a mortgage, lease, and for utilities; and
4. Any other documentation the lender deems necessary.

The bill requires lenders to make a decision no later than 60 days after receiving the application for loan forgiveness. Even if your business’ circumstances make it such that the amount of forgiveness will be slim to none, the interest rate for the loan can’t exceed 4% and payment is deferred for a period between 6 months to a year. Guidance and regulations will be issued within 30 days of enactment of the bill which will provide greater clarity on some provisions.

The government is forcing employers to shut their doors in order to combat the coronavirus. This decision hurts small businesses in a tremendous way as they don’t have the cash reserves nor the financing alternatives that larger companies enjoy. The historic spike in unemployment claims reflects this. The CARES Act gives a chance for small businesses to survive during this difficult period while providing loan forgiveness options for those able to keep their workforce employed.

Small businesses, including sole proprietors, independent contractors, and self-employed individuals, could consult their accountants and lenders about how the CARES Act may benefit them. Merle Haggard’s “If We Make It Through December” song is reminiscent of today’s state. The government may have just given the small businesses a chance to make it through the summer, in which case they will reemerge stronger than ever once the inevitable recovery occurs.

Small Businesses Take Note: Best Practices for Reopening