Congress Passes the PPP Flexibility Act of 2020

June 4, 2020 by Lincoln Derr

Congress is Down with PPP

If you’re an employer still trying to stay afloat amidst the Coronavirus restrictions, Congress has just passed you a lifeline. Last week the House voted 417-1 and just last night, the Senate unanimously passed the Paycheck Protection Program Flexibility Act of 2020. The bill is a presidential signature away from becoming the latest in Coronavirus-related legislation.

What Does It Do?

The PPP Flexibility Act will give small businesses more flexibility in using their PPP loans. The new legislation:

Extends the forgiveness period to 24 weeks (up from 8 weeks);
Replaces the 75/25 rule with a 60/40 rule;
All new PPP loans will receive a 5-yr maturity (existing loans will remain at a 2-year maturity);
Allows businesses that receive forgiveness to also receive payroll tax deferment;
Ensures small businesses won’t be penalized by high unemployment benefits; and
Creates a safe harbor for businesses that are required to open at only 50% capacity.

The PPP Flexibility Act also extends the application deadline to December 31, 2020.

These measures (except for the loan maturity extension) apply to both existing and any future PPP loans. The one twist for employers with existing loans – they won’t receive any additional PPP funds. Employers who have already begun using funds under the original 8-week covered period will have to choose between maintaining payroll and employee counts for an additional 16 weeks or jeopardizing the amount of forgiveness for which they might be eligible.

The good news is that is looks like pre-PPP Flexibility Act borrowers can opt out of this extension and keep the original 8-week covered period. Expect more on this if the bill is signed into law.

Loan Forgiveness

The PPP Flexibility Act, if signed by the president, will modify some of the particulars of the Paycheck Protection Program (“PPP”). You may remember, the PPP is part of the larger Coronavirus Aid, Relief, and Economic Security Act or CARES Act. Administered through the Small Business Administration (“SBA”) and the Department of Treasury, the PPP is a financial aid program designed to help small businesses with fewer than 500 employees by providing loans.

The loans help cover payroll costs including benefits and some overhead. You can find the program’s particulars on the SBA’s website or the Treasury Department’s website.

If businesses keep employees on payroll for the 8-weeks (or 24 weeks under the PPPFA) following receipt of the loan and use the funds during that 8-week (or 24-week) period for payroll, rent, utilities, or mortgage interest, the loan will be forgiven.

Big Questions

SBA and Treasury have been providing regular updates to the FAQ page. That’s good news for employers as they’ve now answered the biggest questions to date:

Can you fire an employee for non-COVID reasons while you have a PPP loan?

The PPP Loan Forgiveness Application and the Interim Final Rule now clarify that full-time employee reductions caused by terminating employees for cause do not reduce the borrower’s loan forgiveness. One caveat – because there’s always a caveat – neither the SBA nor Treasury have issued guidance on the definition of “for cause”. And of course, there’s no universally accepted definition of “cause” in employment law. So, the question remains, will a reasonableness standard be applied in those types of situations. Be sure to call your attorney before walking down that path.

If an employee rejects an offer of rehire, resigns, or takes an unpaid leave, does that count against PPP loan forgiveness?

No, no, and most likely no. The first two are easy:

If an employer offers (in writing) to rehire an employee for the same salary or wages and the same number of hours, the employee’s rejection of that offer will not affect loan forgiveness. Employers in this situation must document the employee’s rejection and notify the Division of Employment Security within 30 days of the employee’s job offer rejection.
Voluntary employee resignations do not reduce loan forgiveness.

The last one is a bit more tricky. Neither the loan forgiveness application nor the Interim Final Rule specifically address unpaid leave. However, both explain that “borrowers should not be penalized for changes in employee headcount that are the result of employee actions and requests.”

Any dispute arising because of these issues is likely to rely heavily on contemporaneous documentation. As always, document your confirmation of employee leaves of absence and resignations, and all actions taken before terminations.

Stay tuned.

Still have questions about the legal implications your business is facing? Please send us an email or give us a call. Lincoln Derr can help guide you through this unprecedented time.

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