By Joseph S. Brown, Esq.
As we noted in last week’s newsletter, if your company or organization managed to obtain a Paycheck Protection Program (PPP) loan during the first round of PPP funding, your focus has likely shifted to utilizing the loan proceeds to best position yourself for loan forgiveness. Borrowers have eight weeks from receipt of PPP funding to spend 75% of that amount on payroll on employees. To have the loan forgiven, some businesses need to get their staff off unemployment and back on the payroll. But what if a laid off employee rejects an offer to rehire?
Over the weekend, the Small Business Administration and U.S. Department of Treasury updated their FAQs (see question #40 available here) to address this very question. This alert summarizes the recent SBA guidance and offers practical advice to address the dilemma posed by employees refusing to return to work because they are collecting more in unemployment benefits.
Updated SBA Guidance
By way of background, it has been widely reported that certain employees believe they are better off collecting unemployment than returning to a job that pays close to minimum wage. The CARES Act includes a $600-a-week bonus until July 31 for those registered as unemployed. The maximum unemployment benefit in NY is $504, so certain individuals may be receiving up to $1,104 per week in benefits—which would amount to $27.60 per hour. As a result, some laid off employees are rejecting offers of re-hire and businesses are concerned about how this trend will impact their ability to comply with PPP loan forgiveness requirements.
The SBA weighed in on this development and stated that it will issue “an interim final rule excluding laid-off employees whom the borrower offered to rehire (for the same salary/wages and same number of hours) from the CARES Act’s loan forgiveness reduction calculation.”
To qualify for this exclusion, a business must do the following:
(1) make a good faith written offer to rehire the employee for the same pay and the same hours that the employee received before the layoff; and
(2) document the employee’s rejection of that offer.
The guidance also reminds employees and employers that “employees who reject offers of re-employment may forfeit eligibility for continued unemployment compensation.”
While the SBA has not yet finalized their rules and many questions remain unanswered, this is good news for those employers who were lucky enough to obtain their PPP loan, but who have had laid off or furloughed employees refuse to return to work.
Practical Advice on Getting Employees Back to Work
The SBA’s guidance reinforces the importance of properly documenting instances where an employee rejects an offer to rehire—a critical best practice that a business should adopt regardless of whether they are seeking PPP loan forgiveness. Moreover, the SBA guidance hints at the bigger challenge of providing laid off or furloughed employees with a financial incentive to return to work. There are two basic approaches that an employer can take to get their employees back to work.
One approach is to caution the individual that employees who reject offers of re-employment may forfeit eligibility for continued unemployment compensation—a point emphasized in the SBA guidance. You can explain that refusing to return to work without a legitimate justification will likely cause the employee to become ineligible for continued unemployment benefits, and that you will need to report this refusal to the state department of labor. You can also inform the individual that with unemployment at record-high numbers, there are plenty of people waiting to fill their jobs, and there is no guarantee a job will be waiting for them when the CARES Act’s $600 expires at the end of July.
A second approach—depending on your finances and business needs—is to offer a financial incentive for employees to return to work such has temporary hazard pay, a return-to-work incentive bonus, or an attendance/long-term retention bonus. There are a multitude of ways to provide your employees with an incentive to return to work.
Finally, communication is the key. An employer should find out why an employee may be reluctant to return to work and try to address that concern. Does the employee need a financial incentive? Is the employee concerned about safety? Is the employee reluctant to return to the workplace due to particular vulnerabilities or an underlying medical condition? Each of those questions raises different legal issues where a business may need to seek further guidance from an employment lawyer.
Hurwitz & Fine continues to monitor and analyze these updates and advise employers on matters related to the coronavirus outbreak. Please contact any member of the firm’s Labor & Employment team for guidance on these evolving issues at 716-849-8900, by e-mail, or visiting our website at www.hurwitzfine.com