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Archive for the ‘Employment Law Blog (US)’ Category

SBA Updates PPP Forgiveness Guidance: The Good News and The Bad News

Posted on: May 27th, 2020

By: Justin Boron

If you borrowed less than $2 million for all of your businesses under the Paycheck Protection Program, you can feel re-assured that you won’t be questioned by the government on whether you really needed the money.

The Small Business Administration made clear that those circumstances amount to a good-faith certification of need under the PPP’s requirements. 

That doesn’t mean that you are home free.  There are still important limits to how you spend the money so that when you apply for forgiveness, you can in good-faith certify that your business used the money to retain employees, make interest payments on a covered mortgage obligation, make payments on a covered rent obligation, or make covered utility payments, according to the guidelines.

Fortunately, the SBA recently published a model forgiveness application that instructs borrowers on important issues related to how they can spend their PPP money to maximize forgiveness.

Probably No Bonuses for Owner-Employees, Self-Employed, and General Partners

The PPP’s most recent guidance on forgiveness caps compensation for “owner-employees,” self-employed individuals, and general partners to “the eight-week equivalent of their applicable compensation in 2019.”

If you fit one of those categories and you made more than $100,000 last year, that means your forgivable compensation over the eight-week forgiveness period cannot exceed $15,385. 

If you fit one of those categories and paid yourself less than $100,000 last year, that means your forgivable compensation over the eight-week forgiveness period cannot exceed the eight-week equivalent of your compensation in 2019.

Without saying it expressly, the SBA’s guidance tells business owners that they may not increase their compensation or pay themselves bonuses using PPP funds for which they seek forgiveness. However, there is still an open question about whether the SBA will forgive compensation in the form of bonuses for non-owner employees.

Timing of Forgiveness Period

To obtain full forgiveness of the loan, the PPP requires the borrower to spend all of the loan proceeds—and at least 75 percent on payroll costs—in the eight weeks from when the loan is disbursed.  That requirement has proved daunting to some employers, particularly seasonal ones or those whose employees refuse to return to work.

There was hope that before it adjourned Thursday, the Senate would pass a House-approved bill that extended this period.  But that did not happen.  As a result, the eight-week period remains in place.  But the most recent SBA guidance does provide some limited flexibility.

First, it allows employers to line up the eight-week forgiveness period with their payroll using the Alternative Payroll Covered Period.  Second, it makes clear that forgivable expenses must be either paid or incurred during the eight-week forgiveness period.  Additionally, costs incurred during the eight-week period but paid outside of it must be paid during the next regular payroll or billing date.

Full-Time Equivalent Employees

The PPP requires a reduction in the forgiveness amount of a loan if an employer fails to maintain certain headcount levels of employment.  The PPP measures this head account according to Full-Time Equivalent (FTE) employees.  But the PPP didn’t define FTE.

Although the SBA and the Internal Revenue Code had defined this term in other contexts like the Affordable Care Act, the SBA chose a different definition than used in those contexts.  For purposes of the PPP, an FTE is a person that averages at least 40 hours per week during the relevant period or the combination of multiple employees whose part-time hours add up to 40 hours per week.

Here’s how you calculate your FTE level according to the SBA guidance:

For each employee, enter the average number of hours paid per week, divide by 40, and round the total to the nearest tenth. The maximum for each employee is capped at 1.0. A simplified method that assigns a 1.0 for employees who work 40 hours or more per week and 0.5 for employees who work fewer hours may be used at the election of the Borrower.

Salary-Reductions

The PPP also requires a reduction in the forgiveness amount of a loan based on an employee pay reductions.  Frankly, the statute that Congress passed didn’t make sense and would have inevitably resulted in a reduction in forgiveness if the language was applied literally as it read.  Fortunately, the SBA’s guidance fixed what was likely a drafting error: as long as an employer maintains 75 percent of its salary or wage levels when compared to the first quarter of this year, it can avoid reductions in forgiveness.

If you don’t do that, it gets complicated.  On page 7 of its forgiveness application, the SBA has supplied the formulas to use in its model forgiveness application.  You should work closely with a legal or accounting professional in assessing the reduction in forgiveness based on compensation reductions.

If you have questions or would like more information, please contact Justin Boron at [email protected].

Massachusetts Joins Jurisdictions Prohibiting Class-Wide Arbitration of Wage Claims Absent Agreement Expressly Permitting Class Actions

Posted on: May 18th, 2020

By: Kevin Kenneally, Janet Barringer and William Gildea

In a further blow to class action claimants and lawyers, a Massachusetts Superior Court Judge recently ruled a car salesman could not arbitrate Wage Act claims on behalf of coworkers absent an express provision in the employment agreement permitting such a class action.   In Grieco Enterprises, Inc. v. McNamara, the employer sought a declaratory judgment ruling that an employee could not arbitrate wage claims on behalf of a putative class of employees even if his employment contract was silent on the issue and did not expressly prohibit or allow for such a class action. This favorable outcome for employers and insurers follows a similar 2019 ruling by the Supreme Court of the United States holding an ambiguous employment agreement cannot be the basis to compel class-wide arbitration.

In the Massachusetts state court arbitration matter, the employee claimed his employer failed to pay him—and others—required overtime and Sunday-hours premium in violation of state wage laws.  He demanded arbitration on behalf of himself and other similarly-situated commission-only salespeople.  In response, the employer filed the declaratory judgment action in Massachusetts state court seeking determination whether a class action in this instance is permissible.  The Massachusetts Superior Court held class action arbitration is not permissible because the parties’ employment agreement did not expressly permit employees to arbitrate class actions.  The Court held the employee may proceed to arbitration solely on an individual basis. 

The decision in McNamara is garnering attention due to the state’s decision last year concerning commission-based salespeople, Sullivan v. Sleepy’s LLC.  In Sleepy’s, the Massachusetts Supreme Judicial Court held commission-paid retail salespeople are entitled to “time-and-a-half” overtime compensation based on the statutory minimum wage — even when their commissions always met or exceeded the state minimum.  Sleepy’s specifically held the overtime and Sunday premium wage statutes applied to commission-paid sales staff.  The McNamara claimant sought to apply this ruling to an entire class of workers rather than having each worker bring an individual claim.  The employment agreement at issue contained a general statement in the agreement it was “in conformity with” Massachusetts Rules of Civil Procedure—which claimant contended includes procedural rules for class actions, thus tacitly subjecting the employer to class arbitration.  The Superior Court rejected the argument and held the parties to the contract did not expressly agree to engage in class action arbitration.  The judge in McNamara held that if she were to permit the application of an unclear provision to authorize class actions, “unrepresented employees could be bound by an arbitration that he or she did not individually consent to participate in.  Such a result is contrary to the legal underpinnings for arbitration, specifically that it is a consensual contractual matter.”

In 2019, the U.S. Supreme Court decided Lamps Plus, Inc. v. Varela, 139 S. Ct. 1407, 587 US __, 203 L. Ed. 2d 636  (2019), which was seen as a setback to workers’ ability to join or aggregate the individual claims of other workers who had agreed in their employment contracts to an arbitration forum.  Lamps Plus held in claims subject to the Federal Arbitration Act (“FAA”) an ambiguous agreement cannot be the necessary contractually-agreed basis to force an employer to submit to class-wide arbitration.  The high court agreed with the employer there simply was no foundational agreement to arbitrate the class action and the lower court acted contrary to the primary purpose of the FAA.  Lamps Plus held a lower court may not compel arbitration on a class-wide basis when an agreement is “silent” on the availability of such arbitration and “that private agreements to arbitrate are enforced according to their terms.”  

Employers who incorporate arbitration provisions in their employment agreements for individual basis only will benefit by the uniform application of law in both state and federal courts.  Employers in Massachusetts have certainty absent a specific provision – or even in the face of a vague arbitration provision – class-wide arbitration will not be available to employees whether the claims are based on federal or state law.

If you have questions or would like more information, please contact Kevin Kenneally at [email protected], Janet Barringer at [email protected] or William Gildea at [email protected].

Can I Take Your Order Please? OSHA Releases COVID-19 Guidance for Restaurants Offering Takeout or Curbside Pickup

Posted on: May 8th, 2020

By: Travis Cashbaugh

The COVID-19 pandemic has impacted all industries across the country, perhaps none greater than the restaurant, food and beverage industry. Faced with widespread closures, many retailers in the food and beverage industry modified their business models for the new post-crisis world to include in-store takeout and curbside pickup. Each method of delivery offers convenient, quality, fresh products for the consumer. More importantly, both offer minimal-touch pick-up options consistent with the “socially-distanced” goals of COVID-19 prevention for all involved—customers and employees.

To maintain the safety of such services on both customers and employees in the restaurant, food and beverage industries, the Occupational Safety and Health Administration (OSHA) has issued guidance for restaurants and beverage vendors offering takeout or curbside pickup. Through its May 1, 2020 safety alert publication, OSHA identified the following tips to help reduce the risk of exposure to the coronavirus:

  • Encourage workers to stay home if they are sick.
  • Avoid direct hand-off, when possible.
  • Display a door or sidewalk sign with the services available (e.g., take-out, curbside), instructions for pickup, and hours of operation.
  • Reserve parking spaces near the front door for curbside pickup only.
  • Train workers in proper hygiene practices and the use of workplace controls.
  • Allow workers to wear masks over their nose and mouth to prevent spread of the virus.
  • Provide a place to wash hands and alcohol-based hand rubs containing at least 60% alcohol.
  • Routinely clean and disinfect surfaces and equipment with Environmental Protection Agency approved cleaning chemicals or that have label claims against the coronavirus.
  • Practice sensible social distancing by maintaining six feet between co-workers and customers. Mark six-foot distances with floor tape in pickup lines, encourage customers to pay ahead of time by phone or online, temporarily move workstations to create more distance, and install plexiglass partitions, if feasible.
  • Encourage workers to report any safety and health concerns.

In addition to remaining alert for further guidance from OSHA, employers in the restaurant, food, and beverage industries should be aware of specific guidance from state and local governments, as states across the county begin preparations to reopen. In Georgia for example, Governor Brian Kemp recently issued an Executive Order that provides new and extensive guidance for businesses across Georgia, including restaurants. FMG provided a detailed overview of that Executive Order and its impact on businesses, here.

With new habits and behaviors forming, those in the food and beverage industry that fail to pivot will likely find themselves struggling to compete. Employers that are planning on reopening—or continuing to operate, perhaps modifying their business model to include takeout or curbside pickup—should immediately begin assessing the health and safety protocols they have in place now and what additional steps they need to take consistent with OSHA’s guidance and state and local requirements.  Further, we recommend that employers consult with their counsel to evaluate any industry or location-specific measures that should be taken to reduce any concerns by customers or employees of contracting COVID-19 when on the employer’s establishment. 

Additional Information:

The FMG Coronavirus Task Team will be conducting a series of webinars on Coronavirus issues on a regular basis. Topics include real estate issues, business interruption losses, and more. Click here to view upcoming webinars.

FMG has formed a Coronavirus Task Force to provide up-to-the-minute information, strategic advice, and practical solutions for our clients.  Our group is an interdisciplinary team of attorneys who can address the multitude of legal issues arising out of the coronavirus pandemic, including issues related to Healthcare, Product Liability, Tort Liability, Data Privacy, and Cyber and Local Governments.  For more information about the Task Force, click here.

You can also contact your FMG relationship partner or email the team with any questions at [email protected].

**DISCLAIMER:  The attorneys at Freeman Mathis & Gary, LLP (“FMG”) have been working hard to produce educational content to address issues arising from the concern over COVID-19.  The webinars and our written material have produced many questions. Some we have been able to answer, but many we cannot without a specific legal engagement.  We can only give legal advice to clients.  Please be aware that your attendance at one of our webinars or receipt of our written material does not establish an attorney-client relationship between you and FMG.  An attorney-client relationship will not exist unless and until an FMG partner expressly and explicitly states IN WRITING that FMG will undertake an attorney-client relationship with you, after ascertaining that the firm does not have any legal conflicts of interest.  As a result, you should not transmit any personal or confidential information to FMG unless we have entered into a formal written agreement with you.  We will continue to produce education content for the public, but we must point out that none of our webinars, articles, blog posts, or other similar material constitutes legal advice, does not create an attorney client relationship and you cannot rely on it as such.  We hope you will continue to take advantage of the conferences and materials that may pertain to your work or interests.**

CARES in California: New Unemployment Benefits Available Under Federal Law

Posted on: May 8th, 2020

By: Anastasia Osbrink

With over 3.5 million unemployment claims in California since mid-March, the state is facing an historic level of payments that need to be made. In fact, the state has paid out approximately $4.5 billion, which is entirely unprecedented. Every state will be stretched thin, but at least for four months, unemployed Californians will see a significant increase in their unemployment payments thanks to the new federal Coronavirus Aid, Relief, and Economic Security Act, or the “CARES” Act. Section 2104 of the CARES Act provides that those who qualify for unemployment benefits in participating states, which now includes California, will receive their normal weekly benefit amount, plus an additional $600 per week. This additional $600 is a federal supplement, known as Pandemic Emergency Unemployment Compensation (“PEUC”). In California, the average weekly unemployment benefit is $340. As a result of the PEUC, the average unemployment benefit check in California will increase to $940. The maximum benefit in California of $450 per week will also increase to $1050. These payments will be made through the Employment Development Department’s (“EDD”) debit cards as usual.

These benefits are not retroactive, and in California, they began on Sunday, April 12, 2020. The usual one-week waiting period for benefits is eliminated under section 2105 of the CARES Act. The additional $600 is only available while the individual would normally be eligible for benefits in that state. In California, this means benefits are available for 26 weeks. However, the additional $600 will cease on July 31, 2020 pursuant to the CARES Act and after that, the employee will receive their normal unemployment payment for the remainder of the 26-week period. Once the 26-week period is over, individuals will receive their normal benefit amount (though not the additional $600 after July 31, 2020) for a 13-week period pursuant to section 2107 of the CARES Act. That benefit and the waiver of the one-week waiting period will expire on December 31, 2020.

These benefits are obviously welcome aid for unemployed Californians. However, there are many issues the State continues to face. First, the CARES Act provides benefits for the first time to contract and furloughed workers and those in the gig economy. This means a whole new category of claims to process. That, coupled with business closures and layoffs, has resulted in a huge increase in claims. The extent of delays for individuals seeking benefits remains to be seen. Many applicants are unable to reach the EDD by phone because the EDD’s phone lines are open just four hours per day. Now that millions are trying to access the EDD, many are calling on the State to expand those hours. However, those administrative costs are paid for by employers through a federal tax, and federal funding was significantly reduced over the past several years due to the boom economy. As a result, EDD staffing was cut in half in California. Thus, half the amount of EDD staff is now struggling to process millions of claims. Federal law requires 90% of claims to be processed within 21 days. California came close to that in February and has appeared to largely keep up with it in March and April thanks to a more streamlined temporary process that has been implemented. This includes waiving some verification requirements until after payments are issued, no longer requiring claimants to recertify their claims every two weeks, and processing more claims through an automated system. However, significant delays have been reported for employees who were misclassified as independent contractors by employers and did not have their wages reported to the EDD, which is doing a wage audit. Many of these claimants have reported waiting six weeks or more before receiving benefits.

Additionally, it appears likely that it will be a long time before life returns to normal (though it will certainly be a new “normal” and not the normal we used to know), and the economy will take even longer to recover. This means months, and likely years of high unemployment in the State. How that unemployment will be paid for in the long run will be a significant challenge. In an effort to address this challenge, California became the first state in the country to take out a federal loan. As of April 30th, California has borrowed $348 million from the federal government and has been approved to borrow up to $10 billion. This is not the first time the state has taken out such a loan. California borrowed $10.7 billion from the federal government during the Great Recession that it just finished paying back in 2018, including hundreds of millions of dollars in interest. As of now, this appears to be California’s best option to stay afloat during what has become the highest period of unemployment since the Great Depression. Regardless, we can appreciate the reprieve and aid offered by the CARES Act.

Additional Information:

The FMG Coronavirus Task Team will be conducting a series of webinars on Coronavirus issues on a regular basis. Topics include real estate issues, business interruption losses, and more. Click here to view upcoming webinars.

FMG has formed a Coronavirus Task Force to provide up-to-the-minute information, strategic advice, and practical solutions for our clients.  Our group is an interdisciplinary team of attorneys who can address the multitude of legal issues arising out of the coronavirus pandemic, including issues related to Healthcare, Product Liability, Tort Liability, Data Privacy, and Cyber and Local Governments.  For more information about the Task Force, click here.

You can also contact your FMG relationship partner or email the team with any questions at [email protected].

**DISCLAIMER:  The attorneys at Freeman Mathis & Gary, LLP (“FMG”) have been working hard to produce educational content to address issues arising from the concern over COVID-19.  The webinars and our written material have produced many questions. Some we have been able to answer, but many we cannot without a specific legal engagement.  We can only give legal advice to clients.  Please be aware that your attendance at one of our webinars or receipt of our written material does not establish an attorney-client relationship between you and FMG.  An attorney-client relationship will not exist unless and until an FMG partner expressly and explicitly states IN WRITING that FMG will undertake an attorney-client relationship with you, after ascertaining that the firm does not have any legal conflicts of interest.  As a result, you should not transmit any personal or confidential information to FMG unless we have entered into a formal written agreement with you.  We will continue to produce education content for the public, but we must point out that none of our webinars, articles, blog posts, or other similar material constitutes legal advice, does not create an attorney client relationship and you cannot rely on it as such.  We hope you will continue to take advantage of the conferences and materials that may pertain to your work or interests.**

Under Attack Again: California Attorney General Announces Misclassification Lawsuit Against Uber and Lyft

Posted on: May 7th, 2020

By: Ryan Greenspan

On May 5, 2020, California Attorney General Xavier Becerra announced that the State of California will be suing Uber and Lyft for misclassifying their drivers as independent contractors.  The precise details of the suit are not presently known, but it is being reported that Uber and Lyft are being accused of violating Assembly Bill 5, went into effect on January 1, 2020 and dramatically changed the legal requirements in California to qualify as an independent contractor.

In Dynamex Operations West, Inc. v. Superior Court, the California Supreme Court established a 3-factor test employers must satisfy to prove that a worker is properly classified as an independent contractor.  Employers must prove the following:

1) that the worker has freedom from control over how to perform the services they provide;

2) that the services provided are outside the business’s normal variety; and

3) that the worker is engaged in an independently established role. 

Assembly Bill 5 codified the Dynamex decision while carving out limited exceptions.  Assembly Bill 5 was expected to significantly impact several of the app-based companies based in California, particularly those commonly known as being part of the “gig economy.”  Companies such as Uber and Lyft have always classified their drivers as independent contractors, which afforded workers the opportunity to set their own hours and work for multiple companies, but also meant those workers did not receive various benefits afforded to employees, such as healthcare, workers’ compensation, expense reimbursements, and a guarantee that they would be paid at least the minimum wage. 

Enforcement litigation does not come as a surprise.  Shortly after Assembly Bill 5 went into effect, Uber and Lyft announced that they would refuse to reclassify their drivers as employees.  In February 2020, a federal judge denied a request from Uber and food delivery company Postmates for a preliminary injunction that would have exempted them from the new law.

Prior to Assembly Bill 5 going into effect, Uber and Lyft assisted in the funding of a statewide ballot measure known as the Protect App-Based Drivers & Services Act.  The Act is expected to be voted upon in the November 2020 election.  If passed, companies such as Uber and Lyft would continue to be permitted to classify their drivers as independent contractors while providing several benefits to their workers, such as a guarantee of at least 120% of the minimum wage, 30 cents per mile for expenses, and a healthcare stipend. 

Uber and Lyft have largely been able to defend or settle a series of class action lawsuits over the issue of worker classification.  However, an enforcement lawsuit from the state presents a unique challenge to the app-based companies because there is less opportunity to reach a settlement than there is with a private plaintiffs’ attorney.

While this case is in its infancy, the outcome will have a tremendous impact on the approximately 500,000 drivers working for Uber and Lyft in California, as well as thousands more who work for companies such as Doordash. If you have any questions or would like more information on this lawsuit or Assembly Bill 5, please contact Ryan Greenspan at [email protected].