Employees who refuse to return to work will not reduce the remission of PPP loans | Stoel Rives srl
Like states across the country start easing restrictions on business activities, employers are prepared to rehire workers who have been made redundant or put on leave. But some employers who have received a Paycheck Protection Program (“P3”) loan, which we have discussed here, here, and here, worry that some employees will refuse to return to work (whether because they are on more unemployment benefits than their previous salary, or for some other reason) and ask if the amount of their PPP loan forgiveness (which is related to payroll and workforce) will be reduced accordingly. Recent federal guidelines suggest the answer is “No”.
The orientations of the SBA
In its recent update Faq, the Small Business Administration (“SBA”), in consultation with the Treasury Department, states that the cancellation of an employer’s PPP loan will not be reduced if an employee rejects a written and good faith offer, including the same salary and hours, to return to work, and the employer’s documents that offer.
The complete questions and answers provide:
40. Question: Will the amount of a borrower’s PPP loan cancellation (in accordance with Section 1106 of the CARES Act and SBA Implementation Rules and Guidelines) be reduced if the borrower terminates an employee , offers to rehire the same employee, but the employee declines the offer?
Reply: No. In exercising the powers of the Administrator and Secretary under Section 1106 (d) (6) of the CARES Act to prescribe regulations granting de minimis exemptions from the limits of the Cancellation Act loans, the SBA and the Treasury intend to issue an interim final rule excluding laid-off employees that the borrower has offered to rehire (for the same salary / wages and the same number of hours) from the calculation the CARES Act loan forgiveness reduction. The provisional final rule will specify that, in order to benefit from this exception, the borrower must have made a written offer to rehire in good faith, and the rejection of this offer by the employee must be documented by the borrower. Employees and employers should be aware that employees who reject re-employment offers may lose their eligibility for continued unemployment compensation.
What to do now
Employers should prepare written job offers for employees they intend to rehire. With a few exceptions, written offers should essentially include the same pay and hours as before the employee was laid off or on leave. Document the delivery of this offer to the employee and, if applicable, the employee’s rejection or lack of response. Keep these documents on file to calculate and demonstrate your qualifying PPP loan forgiveness.
The SBA guidelines also remind employers that under many state unemployment benefit law, employees who decline an offer to return to work may lose their unemployment benefits. Employers should consider informing employees of this possibility while also informing them that the state, not the employer, determines an employee’s eligibility.
Finally, while the SBA guidelines do not address this, employers must also consider whether an employee’s absence is protected despite their refusal to return to work. For example, if an employee must stay home to care for a child whose school or daycare is closed, the employee’s absence can be protected by the Families First Coronavirus Response Act (with corresponding reinstatement rights). Regardless of the employee’s protected status, however, the employer must document a refusal to return to work for the purposes of PPP loan cancellation.