Question

How will employment decisions affect my company’s PPP loan cancellation?

Reply

As employers across the country prepare to gradually put their employees back to work, those who have taken out PPP loans under the CARES Act also face an eight-week deadline to use the full amount of the PPP proceeds to obtain the complete cancellation of the loan. At the intersection of the two questions are employers’ concerns about how employment decisions will affect the cancellation of the company’s P3 loans. Here are four of the most frequently asked questions by employers:

Question: If an employee is made redundant, offered a rehire and refuses the rehire offer, does this affect the delivery of my PPP loan?

Reply: No.

On May 3, 2020, the US Treasury Department updated its PPP Loan FAQs to answer this question. The guide discusses the ability of the Secretary of the Treasury to grant de minimis exemptions from the CARES Act limits on loan forgiveness. In addition, “the SBA and the Treasury intend to issue an interim final rule excluding terminated employees from the calculation of the CARES Act loan forgiveness reduction” who meet the following criteria:

• the borrower offered to rehire the employee to same salary / salary and same number of hours;
• the borrower must have done in good faith, written offer rehiring; and
• rejection by the employee of this offer must be documented by the borrower.

For more information on PPP loan cancellation, see the Fredrikson & Byron article “PPP loan remission: what borrowers and lenders need to know. “

Question: If an employee resigns, does this count on the cancellation of the PPP loan?

Reply: No guidance on this issue has been issued. We know that the number of full-time equivalent (FTE) employees affects the cancellation of PPP loans. In the current state of the CARES law, resignation of ETP employees Is affect the cancellation of PPP loans. We hope that a resignation will be considered on similar or equal terms as a refusal to accept rehiring, discussed above. Hopefully this issue will be addressed by the SBA and Treasury Interim Rule. In the meantime, employers should carefully document the circumstances of any employee’s resignation, in anticipation of further advice on a possible exception or clarification.

Question: If I have to fire an employee for just cause, does that count against the cancellation of the PPP loan?

Reply: No guidance on this issue has been issued. We know that the number of FTE employees affects the cancellation of PPP loans. In the current state of the wording of the CARES law, the dismissal of ETP employees Is affect the cancellation of PPP loans. Hopefully this issue will be addressed by the SBA and Treasury Interim Rule. In the meantime, employers should carefully document the circumstances of any employee’s termination, in anticipation of further advice on a possible exception or clarification.

Question: If an employee goes on unpaid leave – at the employee’s request – does this count towards the cancellation of the PPP loan?

Reply: No guidance on this issue has been issued. We know that the number of FTE employees affects the cancellation of PPP loans. This leave, when taken by full-time employees, may affect the cancellation of PPP loans because the employee’s salary will essentially be reduced by 100 percent. Hopefully this issue will be addressed by the SBA and Treasury Interim Rule. In the meantime, employers should carefully document the circumstances of any employee’s leave in anticipation of further advice on a possible exception or clarification.

To take away

While many important issues have yet to be addressed by the SBA and the Treasury, there are steps employers can take. now put themselves in the best position to maximize the cancellation of PPP loans.

As with most employment problems, the key is good documentation. Employers should carefully document every leave or leave without pay and every termination of employment, especially when the leave or termination is initiated by the employee. Employers should ask employees to confirm in writing a request for time off, resignation or refusal to return to work when an offer has been made. If an employee does not cooperate in providing this written confirmation, the employer must nevertheless document their conversations with the employee.

Finally, employers should be careful to weigh other business and employment considerations with the cancellation of PPP loans. While optimizing PPP loan cancellation is naturally an important goal for businesses, employers should not lose sight of the unintended consequences of certain employment decisions.

For example, voluntarily paying an employee all of their salary for employee-initiated leave (which should not be paid by law) can maximize the PPP loan forgiveness, but can also set a precedent for paying employees for employee-initiated time off. . Choosing to pay employees for some leave, but denying paid leave to others, can lead to claims of discrimination and retaliation. In addition, choosing not to fire (or delay firing) an employee who is underperforming or who has been at fault in order to maximize PPP forgiveness can come back to haunt the employer in the context of an ongoing litigation. course.