President Trump signed the Coronavirus Aid, Relief and Economic Security Act into law on March 27, 2020. Among other things, this act offers loans to businesses affected by the coronavirus and expands unemployment insurance benefits available to workers.
Loans for Businesses
The CARES Act allocates millions of dollars for loans to businesses struggling due to the coronavirus. The bill provides about $500 billion in loans and other relief to large employers, and about $350 billion in loans for smaller employers. The loans include grants to specific industries including airlines and businesses critical to maintaining national security, funding for programs administered by the Federal Reserve, and funding for loans administered by the Small Business Administration. However, companies considering these grants and loans should read the small print before applying.
Loans to small businesses
Businesses with fewer than 500 employees may be eligible for economic injury disaster loans as well as loans under the newly authorized Paycheck Protection Program. Paycheck Protection loans can be taken up to an amount equal to 2.5 times a company’s average monthly payroll pre-coronavirus, subject to a $10 million cap. “Average monthly payroll” includes wages, salaries, and other similar compensation, as well as the costs of vacation and other paid time off, separation payments, group healthcare costs and premiums, retirement costs, and state and local taxes. Sole proprietors and independent contractors can participate in this program as well. Additionally, these loans are forgivable if certain conditions are met and the money is used to do things like maintain payroll and pay for rent and utilities.
The act appears to be designed to incentivize employers to retain as many employees as possible because the amount that the loan will be forgiven is reduced in proportion to the number of employees who have been laid off or whose hours have been cut. However, a company that has terminated employees may still be eligible to have the entire amount of the loan forgiven if the employees are rehired or restored by June 30, 2020. The Small Business Administration is expected to issue guidance and regulations related to this Act shortly.
Other business loans
Businesses with 500 to 10,000 employees can also apply for a loan, subject to certain conditions. To apply for a loan, the company must make a “good-faith certification” that the funds will be used to retain or restore 90 percent of a company’s pre-coronavirus workforce, and the company must be domiciled and maintain significant operations in the United States. Additionally, the company must promise not to “outsource or off-shore jobs” during the term of the loan and for two years after the loan is repaid. The company must also certify that it will not abrogate existing collective bargaining agreements and that it will “remain neutral in any union organizing effort for the term of the loan.”
The loan provisions of this act are complex and may be subject to challenges regarding enforceability, particularly regarding the provisions related to union activity. Companies should consult with counsel to determine whether and how to seek a loan.
Expansion of Unemployment Insurance Benefits
The CARES Act loosens the requirements for workers to receive unemployment insurance benefits while also adding $600 per week of federal benefits for four months in addition to any state unemployment insurance that a worker may receive. (The federal minimum wage is $7.25, thus $600 is more than double the amount that someone working 40 hours per week earning minimum wage would typically make.) Federal unemployment insurance benefits will be available through July 31, 2020.
The act also extends state unemployment insurance by 13 weeks for a total of 39 weeks through December 31, 2020. Workers who typically are not eligible for unemployment – independent contractors, self-employed people, gig workers, and employees who have not worked enough hours in the preceding quarters – are eligible for unemployment through the end of the year. Unemployment insurance is also available to employees who are furloughed or temporarily laid off due to COVID-19. The act also provides funding for state “short-time compensation” programs through December 31, 2020.