Effective May 28, 2020 the Small Business Administration and the U.S. Treasury Department --the government agencies overseeing the Paycheck Protection Program (PPP) -- enacted an interim-rule adding new requirements for businesses receiving PPP funds who anticipate seeking forgiveness. In the interim-rule, the agencies seek to clarify several outstanding questions business owners have raised as areas throughout the country begin to return to the workplace. In doing so, however, the agencies have raised new questions, left some glaring ones unanswered, and altered the Treasury Department’s previous guidance that businesses have been relying on.

The Question and Backdrop

The question that the government agencies sought to answer was: Will a borrower’s loan forgiveness amount be reduced if the borrower laid-off or reduced the hours of an employee, then offered to rehire the same employee for the same salary and same number of hours, or restore the reduction in hours, but the employee declined the offer?

The agencies’ short answer is: No – with conditions.

The question above is commonplace for employers who are asking employees to return to work. Employers are eager to get people back into the workplace and resume business operations. Meanwhile many employees have continuing concerns about exposure to COVID-19 in the workplace (or on mass transit), and depending on their financial circumstances may have less incentive to take this risk while they are eligible for (or are receiving) unemployment benefits. However, a condition for individuals to remain eligible for benefits is demonstrating that they are ready, willing and able to accept work.

To make matters more complicated it is important to also remember that unemployment laws, processes and benefit conditions are determined on the state level, meanwhile the PPP program is a federal program.

It is against this backdrop that employers receiving PPP funds need to figure out what to do when they attempt to recall an employee off of furloughed status, but the employee declines the offer. As part of their application for PPP employers intended that this person would be paid and built it into their requested loan amount, and of course expected that this amount would be forgiven. In an FAQ published by Treasury on April 29, 2020 (link above) the government responded that employers receiving PPP funds who make a bona fide offer to an employee to return to work will not have their loan forgiveness amount reduced, so long as the employer communicated the offer in writing and the employee’s rejection was documented by the employer.

The (New) Answer

Now, however, the agencies’ most recent interim-rule clarified and placed additional burdens on employers.

The new interim-rule states that PPP forgiveness will not be reduced if the employer makes a good faith offer to return the employee to the workplace, and the offer is declined, so long as the following conditions are met:

• The good faith offer to rehire (or restore hours) is communicated in writing during the covered period or the alternative payroll covered period;
• The offer was for the same salary or wages, and the same number of hours, as the employee earned in the pay period prior to the separation;
• The offer was rejected by the employee;
• The borrower/employer documents the offer and the rejection; and
• The borrower/employer informs the applicable state unemployment insurance office of such employee’s rejected offer within 30 days of the rejection.

The last condition is entirely new, and raises questions about how employers should inform the applicable unemployment insurance office, and what an employer should do if their employee rejected their offer of rehiring more than 30 days ago. These questions, unfortunately, are left unanswered by the interim-rule.

So, What Should Employers Do?

If an employer is receiving PPP funds, has made an offer for reinstatement, and that offer has been rejected, the new interim-rule clearly states that in addition to documenting the rejection, there is now an obligation to inform the state unemployment office within 30 days in order for those funds to be later forgiven. For employers whose offer to rehire was rejected more than 30 days ago, the notice should be sent as soon as possible.

The next question is how the appropriate state unemployment office should be informed of the employee declining the offer to rehire. In this regard, every state is different. For example, Pennsylvania has created a form that should be filled out and returned to the unemployment office, and Ohio had originally published an online portal, but has taken it down while it is revising “pending policy references.” Some states have no reporting mechanism at all.

The SBA’s interim-rule, footnote 4, states that additional information telling employers how to report information to applicable unemployment offices will be published on the SBA website. However, there is no indication where this information will be posted, and as of this writing, we are unable to find any such guidance.

For employers looking for clarity amid all of the ongoing questions in the marketplace right now, this lack of guidance is unfortunate. Whatever method employers use to inform the unemployment agency, it should, at a minimum, be in writing and well documented. Regardless of the initial method of informing the office, if the unemployment commission requires periodic verifications from employers, the employee’s decision to decline an employment offer should be referenced, as well as the initial date that the unemployment office was informed.

In addition to directly affecting PPP forgiveness, the new requirement raises possible retaliation and discrimination issues for individuals who object to returning to the workplace based upon an underlying medical condition or their employers’ failure to follow applicable government orders. We will highlight some of those issues in a separate blog.