FAQs: The Coronavirus Aid, Relief and Economic Security (CARES) Act: What It Means for Employers

BakerHostetler

The Coronavirus Aid, Relief, and Economic Security (CARES) Act is a roughly $2 trillion bill intended to provide emergency assistance and healthcare response for individuals, families, and businesses affected by the COVID-19 pandemic. The Senate passed the CARES Act on March 25, 2020, and the House of Representatives passed and President Trump signed it on March 27, 2020. The CARES Act will supplement, and in some cases amend, the Families First Coronavirus Response Act that takes effect April 1, 2020.

The CARES Act includes significant measures for individuals, employers, and businesses to handle and overcome the COVID-19 pandemic. In addition to a multitude of tax benefits for businesses of all sizes, it includes various elements to help keep people healthy, supported, and engaged in the economy, such as direct cash for families, extra unemployment benefits, tax-free student loan repayment benefits, temporary student loan relief, insurance coverage for COVID-19 testing and treatment, emergency funds for small businesses, forgivable loans for small businesses, and public health funding. And, there are some pro-union mandates associated with some of the loans that could significantly limit an employer’s position in a union campaign and also limit employers, with existing union agreements, from taking certain actions. Borrower beware. The set of FAQs below is intended to answer in more detail some questions employers may have regarding the CARES Act. These FAQs and this page will be continuously updated as necessary.

Q: Who is considered a “full-time employee” under the CARES Act?

A: An employee who works, on average, at least 30 hours per week. See CARES Act § 2301(c)(3)(A)(i); 26 U.S.C. §§ 4980H(c)(4).

Q: Who is considered an “eligible employer” under the CARES Act?

A: An employer carrying on a trade or business in 2020 and with respect to any quarter of 2020, either (a) the operation of the trade or business was fully or partially suspended due to orders from a governmental authority limiting commerce, travel, or group meetings due to COVID-19, or (b) the quarter is within a period during which the trade or business suffered a significant decline in gross receipts. The period during which a trade or business suffers a “significant decline in gross receipts” begins with the first quarter in 2020 for which gross receipts are less than 50% of gross receipts from the same quarter in 2019, and ends with the quarter for which gross receipts are greater than 80% of gross receipts from the same quarter in 2019. See CARES Act § 2301(c)(2)(A)–(B).

Q: What constitutes a “business with 500 or fewer employees” for a covered loan under the CARES Act?

A: Corporations, partnerships, sole proprietorships, independent contractors, certain non-profit organizations, veteran’s organizations, and Tribal businesses are all included in this definition. Divisions within a corporation likely do not count as businesses separate from the corporation. In determining the number of employees that are employed by the business, individuals employed on a full-time, part-time, or other basis are all included. There are special rules, however, for businesses in the accommodation and food services industry (i.e., those assigned to the accommodation and food services sector (72) of the North American Classification System). Businesses in the accommodation and food services industry that have more than one physical location and 500 or fewer employees per physical location will be eligible for a covered loan. Notably, the general Small Business Association rules regarding affiliations under 13 C.F.R. § 121.103 are waived with respect to eligibility for a covered loan for (a) businesses assigned to the accommodation and food services sector that employ not more than 500 employees, (b) businesses operating as a franchise with a franchise identifier code, and (c) businesses that receive financial assistance from a company licensed under 15 U.S.C. § 681 (section 301 of the Small Business Investment Act of 1958). See CARES Act § 1102(a)(2).

Q: Are there any restrictions on uses of the covered loan under the CARES Act?

A: Yes. Businesses may use a CARES Act loan for any use already allowed under the Small Business Administration’s Business Loan Program. Businesses may also use the loan for paying group health care benefits during periods of paid sick, medical, or family leave; insurance premiums; interest on mortgage obligations; rent or lease payments; utility payments; interest payments on any other debt obligations incurred before the covered period; and payroll costs. Payroll costs include salaries, wages, commission, or similar compensation; payment of cash tips; payment for vacation, parental, family, medical, or sick leave; allowance for dismissal or separation; payment required for the provision of group health care benefits, including insurance premiums; payment of retirement benefits; payment of State or local tax assessed on the compensation of employees; and payments of compensation or income of a sole proprietor or independent contractor in an amount that is not more than $100,000 per year. The loan may not be used, however, to pay individual employee compensation above $100,000 per year (prorated for the covered period); certain federal taxes (those imposed or withheld under chapters 21, 22, or 24 of the Internal Revenue Code); compensation for employees whose principal residence is outside the United States, or sick and family leave wages for which credit is allowed under the Families First Act. See CARES Act § 1102(a)(2).

Q: Does the CARES Act change the amount of paid sick leave provided under the Families First Coronavirus Response Act?

A: Yes and no. The CARES Act does not change the duration of paid sick leave provided under the Families First Coronavirus Response Act, but it does add maximum dollar amounts that an employer will be required to pay employees for paid sick leave. Specifically, when the employee is taking leave because the employee is subject to a Federal, State, or local quarantine or isolation order related to COVID-19, the employee has been advised by a healthcare provider to self-quarantine due to concerns related to COVID-19, or the employee is experiencing symptoms of COVID-19 and seeking a medical diagnosis, employers are not required to (but may) pay more than $511 per day and $5,110 in the aggregate. Alternatively, when the employee is taking leave because the employee is caring for someone subject to a Federal, State, or local quarantine or isolation order related to COVID-19, the employee is caring for someone who has been advised by a healthcare provider to self-quarantine due to concerns related to COVID-19, the employee is caring for his/her child if the child’s school or place of care has been closed or the child’s care provider is unavailable due to COVID-19 precautions, or the employee is experiencing any other substantially similar condition specified by the Secretary of Health and Human Services, employers are not required to (but may) pay more than $200 per day and $2,000 in the aggregate. See CARES Act § 3602; Families First Coronavirus Response Act § 5102.

Q: From a labor relations perspective, what do employers need to be careful of in seeking relief under the CARES Act?

A: While the CARES Act provides economic stimulus and payroll tax relief to employers, the Act presents concerns for companies that seek to remain union-free. Indeed, loans under this discretionary program would have stringent restrictions affecting labor relations. Notably, Section 4003 of the Act provides that in order for businesses with between 500 and 10,000 employees to take a loan under the program, they will need to “remain neutral in any union organizing effort for the term of the loan.” While the language is unclear on exactly what “remain neutral” means, some common and problematic provisions of neutrality agreements are “gag” rules prohibiting businesses from making any statements to employees about the risks associated with collective bargaining. This means that employees will only hear one side of the unionization debate: the union’s. This, in turn, will limit workers’ ability to make informed decisions about who should represent them in the workplace and make it more likely that they will favor union representation.

Another common, pro-union aspect of neutrality agreements is card check provisions that tilt the election process very much in the union’s favor. Current law provides for a formal secret ballot election, supervised by the National Labor Relations Board (NLRB), even if a majority of workers have signed union authorization cards. The “remain neutral” provision of the CARES Act would likely take away an employee’s right to a secret ballot unionization election and allow unions to organize via a petition process where if a majority of employees sign cards, the union is automatically recognized and represents the employees.

In light of the pro-union provisions of the CARES Act, businesses should evaluate the relative costs and benefits of receiving assistance before entering into mid-sized business loans under the program. They also might consider, if a loan is necessary, making it for a short term, or providing in the loan document that the term can be shortened by prepayment.

Q: Does the CARES Act impact any existing union agreements or create any restrictions for employers?

A: A mid-sized business seeking assistance under the CARES Act must certify that it will not abrogate existing collective bargaining agreements with unions or “outsource or offshore jobs” during the length of the loan and two years after the loan is repaid. These restrictions would affect a business’s ability to subcontract work and would limit rights that are currently available to other companies with organized workplaces. They also could interfere with employees’ ability to decertify a union as their representative.

In addition, mid-sized business must certify that funds from the loan will be used to retain at least 90% of its workforce at full compensation until September 30, 2020. Eligible businesses must also restore its workforce to not less than 90% of the workforce that existed on February 1, 2020, and restore all compensation and benefits to the workers no later than four months after the Secretary of Health and Human Services terminates the ongoing public health emergency.

Q: What type of unemployment insurance benefits does the Act provide to employees of private employers who are furloughed or terminated?

A: The Act provides supplemental unemployment insurance benefits of $600 a week to each recipient of state unemployment insurance or Pandemic Unemployment Assistance through July 31, 2020 (which is about four months). “Pandemic Unemployment Assistance” is a new benefit provided to certain individuals who are not traditionally eligible for unemployment benefits under state law. The $600 in weekly federal benefits is referred to as ‘‘Federal Pandemic Unemployment Compensation.’’ The $600 is in addition to what the recipient receives from their state unemployment insurance program or the Pandemic Unemployment Assistance program.

Section 2107 of the CARES Act (referred to as “Pandemic Emergency Unemployment Compensation”) also provides an additional 13 weeks of unemployment benefits through December 31, 2020, to help those who remain unemployed after weeks of state unemployment benefits are no longer available and all state benefits have been exhausted. The weekly benefit under the Pandemic Emergency Unemployment Compensation covers the normal amounts the employee would receive through state law plus the $600 a week from the Act. An individual seeking the Section 2107 benefits would still be required to meet the typical qualifications for benefits, but states will have flexibility to adjust these requirements given the circumstances of the individual’s current situation. The federal government would fully fund these benefits.

Q: Will the unemployment insurance provisions of the Act cover 100% of employee wages?

A: Not for all employees, but it will for most employees. The two unemployment insurance sums combined (the normal one from the state and the $600 from the Act) will not necessarily cover 100% of all recipients’ wages, but when considering what the average recipient’s normal wages are, the two sums together will usually cover 100% of wages for the average employee (in other words, employees who are paid above average will not have 100% of their wages covered). This is why politicians are touting this new law as covering 100% of employee wages—but that assertion is not technically accurate.

Q: Will employees who are on 50% furlough still have access to unemployment insurance benefits under the Act?

A: Generally, yes. The Act states that if employees are eligible for unemployment insurance benefits under state law, they will be entitled to supplemental unemployment insurance benefits (the extra $600 a week) under the Act. Many states provide unemployment benefits when employees are reduced to part time instead of being let go completely. It is not entirely clear from the provisions of the Bill what will happen to employees in states that do not provide for unemployment insurance benefits to employees who are reduced to part-time work, but the Bill also provides funding for states to enact short-term compensation programs, which provide pro-rated benefits for employees whose hours have been reduced in lieu of a layoff.

Further, the 13 weeks of additional unemployment benefits (the “Pandemic Emergency Unemployment Compensation”) seem to be limited to only employees who are “totally unemployed,” although that is also not entirely clear from the plain terms of the Bill.

Importantly, it seems that states have to “opt in” to participate in the federal Stimulus unemployment insurance programs.

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