|Takeaways||– As of March 23, 2020, emergency financing options for small businesses run through the SBA|
– The Families First Act is designed to ensure necessary medical treatment and offer paid leave to employees who work for companies with fewer than 500 employees
– Tax credits are available to businesses to pay for additional paid leave and health plan costs
Now that Governor Wolf has ordered the shutdown of all non-life sustaining businesses, small and mid-sized businesses in Pennsylvania face not only a once-in-a-century public health crisis, but also business interruption not previously seen in peacetime. While this may feel like a scary time, it’s important to take stock of the support that has already been made available to small and medium sized businesses.
This legal update will discuss both certain funding options that are available to businesses with cash-flow issues resulting from loss of revenue flowing from the COVID-19 closures as well as provide a summary of the Families First Coronavirus Response Act (“Families First Act”), signed on March 19, which provides paid sick leave and public health emergency leave (under the aegis of FMLA).
The opportunities for businesses currently are limited, though Congress is presently working on a far larger aid bill designed to specifically help businesses. This Phase III bill will be designed more specifically to provide direct aid to businesses, whereas the Families First Act was enacted to provide immediate relief to employees and address pressing public health considerations.
Emergency Business Loans
For businesses looking beyond traditional lines of credit, the Small Business Administration offers low interest loans of up to $2 million under the Economic Injury Disaster Relief Loan program. This EIDL assistance provides loans with an interest rate no greater than 4% and loan terms no longer than 30 years.
Of note: businesses are eligible for EIDL loans only if the SBA determines that the business is “unable to obtain credit elsewhere.” This language sometimes scares off businesses with existing lines of credit, but the SBA has historically applied its own test for whether credit is available elsewhere and if the SBA is consistent with past decisions, many more businesses will be eligible for these loans than apparent on the face of the language.
The SBA has traditionally been more concerned with whether an applicant is likely to qualify for private funds under reasonable terms and conditions. Further, the SBA looks to whether the applicant has the wherewithal to recover from its economic injury in the absence of federal assistance. Given the time and the situation in which we find ourselves, it’s reasonable to expect the SBA to be fairly eager to provide these loans to businesses.
The Families First Act
Effective March 19, 2020, The Families First Coronavirus Response Act aims to mitigate the immediate economic damage done by COVID-19 on workers. To this end, the Families First Act extends paid sick leave to employees for two weeks (10 working days) and public health emergency job-protected leave for up to 12 weeks.
Emergency Paid Sick Leave. Under § 5102 of the Families First Act an employer “shall provide to each employee” paid sick time when the employee is “unable to work (or telework) […] because:
- The employee is subject to a Federal, State, or local quarantine or isolation order related to COVID-19.
- The employee is advised by a health care provider to self-quarantine due to concerns related to COVID-19.
- The employee is experiencing symptoms of COVID-19 and seeking a medical diagnosis.
- The employee is caring for an individual who is subject to an order as described in subparagraph (1) or has been advised as described in paragraph (2).
- The employee is caring for a son or daughter of such employee if the school or place of care of the son or daughter has been closed, or the child care provider […] is unavailable, due to COVID-19 precautions.
- The employee is experiencing any other substantially similar condition specified by the Secretary of Health and Human Services in consultation with the Secretary of the Treasury and the Secretary of Labor.”
Families First Act, § 5201(a).
To put it simply, an employer with between 50 and 500 employees must provide employees who are unable to work for one of the above itemized reasons with paid time off. Full time employees are entitled to 80 hours of paid sick time, whereas part-time employees are entitled to “a number of hours equal to the number of hours that such employee works, on average, over a 2-week period.” Id. at § 5201(b)(2). Note: this paid sick leave is provided statutorily and is separate and distinct from any paid sick leave afforded by an employer, and an employer “may not require an employee to use other paid leave provided by the employer to employee before the employee uses the paid sick time” provided through the Families First Act. Id. at § 5102(e)(2)(B).
Finally, the Act expressly forbids employers “to discharge, discipline, or in any other manner discriminate against any employee” who takes paid sick leave under the provisions of the Act or who files a complaint against an employer relative to the paid sick leave provisions of the Act. Id. at § 5104.
Employees who take paid sick leave are entitled to compensation at their normal pay rate, up to $511 per day, or $5,100 in aggregate.
Public Health Emergency Leave permits employees to take up to 12 weeks of job-protected leave if the employee is unable to work (or telework) because he or she must care for a minor child whose school or care provider is closed or unavailable due to a coronavirus emergency declared by local, state or Federal authorities. It’s important to note that any employee who works under a multiemployer bargaining agreement is eligible for emergency leave.
The first significant difference between this emergency leave and paid sick leave is that the first ten days of leave are unpaid and an employer may require the employee to substitute accrued paid vacation, personal, or sick leave for the ten days of unpaid leave. In other words, the first ten days of emergency leave should fall under the emergency paid sick leave provisions, accrued paid time off, or shall be unpaid. Once the initial ten days run, the employee shall be entitled to not less than 2/3 of an employee’s regular pay rate up to $200 per day and an aggregate of $10,000.
Employees who take emergency leave are entitled to job restoration when the leave runs, except in the following situations:
- The position no longer exists because of changes to the employer’s economic or operational situation that affect employment, and those changes were caused by the coronavirus emergency.
- The employer makes “reasonable efforts” to provide the employee an equivalent position.
- If no equivalent position is available, the employer makes a reasonable effort to contact the employee if such a position becomes available for one year following the conclusion of leave.
Id. at § 3102.
Congress is presently putting the finishing touches on the “Phase III” bill, which looks to be a $2 trillion relief package designed to more directly provide loans, grants, and support directly to businesses and individuals. Details on the bill are still fluid (it’s still being negotiated in the Senate and the House is currently recessed, so there’s a long way to go to enactment), but there are some loose details that have been hinted at.
- Roughly $350 billion set aside for small business loans
- $500 billion for loans to distressed companies
- $250 billion for direct payments to individuals and families
- $250 billion for extended unemployment insurance
- $130 billion set aside for hospitals
- $150 billion for state and local governments
Until we have the actual text of the bill, it is difficult to speculate as to what effect it will ultimately have for cash-strapped businesses shut down during the pandemic. As yet, we have no guidance as to how, specifically, the aid will be disbursed to businesses, but watch for further legal updates from McGrannLAW.
As always, we are here to help you through the complexities of the law, and especially in such a fraught, confusing moment. Please reach out if you have any questions, or schedule a video consultation if you are interested in looking deeper into your options.