Co-Editors, Scott A. Witty, firstname.lastname@example.org and Richard R. Burns, email@example.com, or 218.722.4766. Please feel free to forward this e-mail or share it with others. If there are other topics of interest to you or any other suggestions concerning this newsletter, please let us know.
SPECIAL EDITION Topics:
- Families First Coronavirus Response Act – Paid Leave Requirements
- COVID-19 Information For Employers
Families First Coronavirus Response Act – Paid Leave Requirements
On March 19, 2020, Present Trump signed into law the “Families First Coronavirus Response Act” (“FFCRA”) (H.R. 6201). Under this new law, two new types of paid leave are created: (1) Emergency Paid Sick Leave (“EPSL”), which provides up to two weeks of full or partial paid leave for eligible employees and (2) Emergency Expansion of the Family Medical Leave Expansion Act (“EFMLA”), which provides up to an additional 10 weeks of partially paid leave for qualifying employees. This new law takes effect on April 1, 2020 and will remain effective until December 31, 2020. The new paid leaves are not retroactive.
The new law applies only to private sector employers, and certain public sector employers, with “fewer than 500 employees.” An employer has fewer than 500 employees if, at the time its employee’s leave is to be taken, it employs fewer than 500 full- and part-time employees within the United States.
If an employer has fewer than 50 employees and providing the paid leave would jeopardize the viability of its business, an employer can apply for the small business exception. Employers should document in its application/request to the Department of Labor why its business meets the requisite criteria. Additional information regarding the small business exception will be provided by the Department of Labor in forthcoming legislation.
I. Emergency Paid Sick Leave (“EPSL”)
All employees are eligible for EPSL. Employees may use EPSL beginning on April 1, 2020. EPSL is in addition to any paid sick leave or PTO currently provided by employers. Employees may use EPSL if they are unable to work (including telework) because:
- The employee is subject to a federal, state, or local quarantine or isolation due to COVID-19 (Shelter in Place and other workplace closure orders do not satisfy this reason);
- A health care provider advised the employee to self-quarantine due to concerns related to COVID-19 (self-imposed quarantine without medical advice does not qualify);
- The employee is experiencing symptoms of COVID-19 and seeking a medical diagnosis;
- The employee is caring for an individual (not limited to family members) who is either subject to a federal, state, or local quarantine or isolation due to COVID-19 or has been advised to self-quarantine due to concerns related to COVID-19;
- The employee is caring for the employee’s child whose school has been closed or place of care is unavailable due to COVID-19 precautions; or
- The employee is experiencing any other substantially similar condition specified by the Secretary of Health and Human Services in consultation with the Secretaries of Treasury and Labor. (The precise meaning of this reason will be clarified by the Secretary of Health and Human Services.)
Full-time employees receive 80 hours of paid sick leave. Part-time employeesreceive the equivalent number of hours they would work, on average, during a two-week period.
- For reasons 1, 2, and 3 (above) eligible employees will receive EPSL at their regular rate or the applicable minimum wage, whichever is higher, up to $511 per day and $5,110 in total (over a two-week period).
- For reasons 4 and 6 (above), eligible employees will receive EPSL at two-thirds of their regular rate or two-thirds of the applicable minimum wage, whichever is higher, up to $200 per day and $2,000 in total (over a two-week period).
- For reason 5 (above), eligible employees will receive EPSL at two-thirds their regular rate or two-thirds the applicable minimum wage, whichever is higher, up to $200 per day and $12,000 in total (over a 12-week period – two weeks of EPSL followed by up to 10 weeks of paid EFMLA).
Employers must post a notice that advises employees of their rights under the FFCRA in a conspicuous place on the employer’s premises (Department of Labor poster), email or mail the notice to employees, or post the notice on an employee information internal or external website.
II. Emergency Expansion of the Family Medical Leave Act (“EFMLA”)
The EFMLA amends the FMLA and creates a new leave entitlement (on a temporary basis). For purposes of the new entitlement only, FFCRA alters the definition of employer to include all employers with fewer than 500 employees and expands the definition of a “covered employee” to include all employees who have worked for covered employers for at least 30 days. Eligible employees may apply for EFMLA leave beginning on April 1, 2020.
An eligible employee may take up to 12 weeks of leave if he/she is unable to work (including telework) because the employee must care for his/her child who is under 18 years of age and whose school or place of daycare has closed due to the COVID-19 public health emergency.
The initial 10 days of leave are unpaid, but the employee may elect to use accrued paid sick leave and/or vacation/PTO during this unpaid period. After the initial 10-day period, an employee is entitled to two-thirds of his/her regular rate of pay for the number of hours he/she would be regularly scheduled to work, up to a maximum of $200 per day and $10,000 in total.
An employee may take both EPSL and EFMLA to care for his/her child whose school or childcare is unavailable due to COVID-19 related reasons, but the total amount of leave an employee may take is 12 weeks. The two weeks of EPSL covers the first 10 days of unpaid EFMLA leave. After the first 10 days, employees will receive two-thirds of their regular rate of pay for the hours they would have been scheduled to work in the subsequent 10 weeks under the Emergency Family Medical Leave Expansion Act.
Employers with more than 25 employees must reinstate an employee returning from EFMLA leave to the same or equivalent position. Employers with fewer than 25 employees must reinstate an employee returning from EFMLA to the position held by the employee when the leave commenced. If the position does not exist because of economic conditions or other changes in operations due to the public health emergency, the employer must make reasonable efforts to restore the employee to an equivalent position. If those efforts fail, the employer must make reasonable efforts for at least a year to contact the employee if an equivalent position becomes available.
III. Increments of Leave and Intermittent Leave
When an employee is working at their jobsite, EPSL and EFMLA must be taken in full-day increments. Once the employee begins taking either EPSL or EFMLA, the leave must continue until either the paid leave entitlement is exhausted, or the employee no longer meets the eligibility requirements.
Unless the employer agrees, intermittent leave is not allowed. But intermittent leave for an employee working at a jobsite is allowed only for childcare reasons. Teleworking employees may take EPSL on an intermittent basis for any of the six qualifying reasons, as long as the employer agrees.
IV. Required Documentation
EPSL:Employers need to obtain “appropriate documentation” of an employee’s need for EPSL. Appropriate documentation includes the source of any quarantine or isolation order (e.g., a copy of the employee’s actual Federal, State or local quarantine or isolation order) or written documentation by a health care provider advising the employee to self-quarantine due to COVID-19.
EFMLA: Employers must obtain “appropriate documentation” of an employee’s need for EFMLA. Appropriate documentation includes, but is not limited to, a notice of closure or unavailability from your child’s school, place of care, or child care provider, including a notice that may have been posted on a government, school, or day care website, published in a newspaper, or emailed to you from an employee or official of the school, place of care, or child care provider.
Employers must retain this documentation for tax credit purposes under the FFCRA for the paid leave provided under either EPSL or EFMLA.
If an employee is able to telework, even if their workplace closed, they are not eligible for EPSL or EFMLA. An employee is able to telework when the employer permits or allows the employee to perform work at home or at another remote location. But if an employee cannot telework due to one of the six qualifying COVID-19 related reasons, they could be eligible for EPSL or EFMLA.
VI. Closure of Business / Furlough of Employees
If a business closes or furloughs its employees—due to economic reasons or a state Stay-at-Home Order—the employees should apply for unemployment benefits, rather than paid leave. Employees who are off work (prior to April 1 or after April 1 but before the employee needs leave) for either economic reasons or a Stay-at-Home Order are not eligible for paid leave under the FFCRA because neither reason qualifies for EPSL or EFMLA.
VII. Tax Credits
Covered employers qualify for dollar-for-dollar reimbursement through tax credits for all qualifying wages paid under the FFCRA. Qualifying wages are those paid to an employee who takes leave under FFCRA for a qualifying reason, up to the appropriate per diem and aggregate payment caps. Applicable tax credits also extend to amounts paid or incurred to maintain health insurance coverage. For more information, see the Department of the Treasury’s website.
The U.S. Department of Labor’s Wage and Hour Division (WHD) has the authority to investigate and enforce compliance with the FFCRA. Enforcement is stayed until April 17, 2020.
COVID-19 Information For Employers
In review of various materials, here are some recommendations to consider when dealing with the potential closure of business sites and impacts of the virus:
- Ensure that you are following the proper cleanliness standards set forth by the CDC and OSHA
- Limit non-essential employee travel
- Set forth protocols for employees reporting that they are sick while also ensuring to maintain privacy rights and all applicable laws
- Ensure that work from home policies are up to date, that sensitive data is able to be protected and preserved, and that personal and business equipment is used appropriately
- Set forth clear guidelines as to when employees are required to stay home, including consideration of childcare
- Review and adjust your leave time and pay policies as appropriate while taking into consideration whether your employees are a party to an employment agreement or if a collective bargaining agreement exists
- Don’t forget to consider third parties who may interact with your business regularly
Phase I: provided additional funding for the SBA Economic Disaster Loan Relief Program referenced herein. This program is still being implemented, but seminars have been made available: https://www.mnchamber.com/blog/covid-19-business-toolkit.
Phase II: Includes paid sick time to employees and temporary expansion of the application of FMLA leave. The topics are further discussed in a separate summary provided by our office.
Phase III and Loan Support: There are two federal loan programs discussed here – the Economic Disaster Relief Loan and the Paycheck Protection Loan. You are only able to accept proceeds from one of the loan programs. It is assumed by many that the Paycheck Protection Loan (“PPP”) will be more beneficial to them. This will be true in many cases, but businesses should be aware that the forgivable amount of a PPP Loan is reduced when comparing your current employment to previous employment numbers, and the loan amount is limited based on previous payroll amounts. As a result, businesses should determine whether the loan amount under PPP is adequate enough to meet their needs. If not, it may be more beneficial to apply for an Economic Disaster Loan to obtain a larger loan amount. Also, please note we are still waiting for guidance from the SBA regarding the PPP loans meaning certain terms and interpretations of the legislation may change.
SBA Loans – Economic Disaster Relief
Every business in Minnesota is eligible to apply for Economic Disaster Relief Loans through the Small Business Administration. Further details of the loans are provided at the below links, but in summary:
proceeds may be used to pay fixed debts, payroll, accounts payable and other
bills that could have been paid had the disaster not occurred.
- The applicant must have an acceptable credit history and ability to repay the loan, as determined by the SBA.
- No cost to apply nor any obligation to accept the loan if approved.
- Interest rate of 3.75 for businesses and 2.75 for qualifying non-profits
- 15 year or 30 year term: term length is determined by SBA
- Can defer payments for up to one year, but interest does accrue
- If loan is under $200k, no personal guaranty is required
- Loans will not be denied because of inability to provide collateral but likely means a much lower loan amount
- If have existing SBA loan it does not disqualify you for Economic Injury Loan unless previous loan was under this same program
- No prepayment penalty
- Max loan amount is $2 million
- Owners with 20% stake will need to provide guarantees and financial info as well
- Timeline of about 3 weeks from application submission to funds being dispersed
- It’s recommended that applicants utilize Microsoft Edge in filling out the application or Chrome as a default
Additional information and application process:
Paycheck Protection Loan (“PPP”)
Loan can be applied for on April 3, 2020 for small business and non-profits.
Sole proprietors and independent contracts may begin apply on April 10, 2020.
The application will be open until June 30, 2020, but the total disbursed funds
are capped at $350 billion so applying sooner than later is preferred.
PPP applies to businesses of 500 or fewer employees
- the cap on the number of employees is waived for the hospitality industry and certain franchisees
Loan size is capped at 2.5x average of monthly payroll expenses for the preceding 12 months or $10 million, whichever is less
not count payroll in excess of $100k for any individual
- includes payment of health and retirement benefits – does not include federal taxes
- K-1 compensation is likely included in calculation if not solely a distribution but need to wait for SBA guidance
any amount that is not forgiven there is a 6-month deferment
- 0.5% interest rate and a two-year payment period
by private lenders
- All SBA lenders are approved
- All FDIC insured lenders will likely be approved to do so as well once the SBA regulations are issued
is conflict in legislation and the SBA application as to how the funds can be
SBA application asks the businesses certify funds will be utilized for only:
- Payroll, Mortgage payments, Lease payments, and utilities
- Whereas the legislation appears to allow for broader use for general working capital
- The SBA application asks the businesses certify funds will be utilized for only:
recommend that funds be limited to only the purposes stated in the application
as stated above. The application can be located on the SBA web site.
collateral or personal guaranty is required
– Underwriting is vastly reduced
or a portion of a PPP loan can be forgiven
- You must affirmatively seek forgiveness via your loan provider
- There is no requirement to do this yet but it is recommended to create a separate bank account to receive and disburse funds to better track how they’re being used for forgiveness purposes
loan is forgiven for amounts spent on payroll, mortgage interest, employee
benefit costs, lease payments, and certain utilities
- It is unclear if rent can be forgiven if landlord and tenant have same/similar ownership – hoping for SBA guidance on this
SBA will reduce your total forgiveness amount by looking to number of employees
on average per month from Feb 2020 to June 2020, and then compare to same
period for 2019
- it is assumed if there is a 30% reduction in employment the amount of the loan eligible for forgiveness is also reduced 30%, but the law is written incorrectly regarding the math formula so SBA guidance needs to be provided to clarify
- Further, if employee benefits are reduced by more than 25% between time the loan is granted until 8 weeks from that date, the amount of the loan eligible for forgiveness will be reduced by the same rate in excess of the 25% reduction
legislation does allow for an employer to rehire employees prior to June 30,
2020 and have those employees be factored into the formula regarding the
- This needs to be further clarified by the SBA because as written it would permit an employer to wait until June 30 to hire, but still have the full amount forgiven, which is not the intent of the legislation
Governor Walz issued executive order 20-01 declaring a state emergency. As a result of the state emergency, the Governor has issued additional executive orders pertaining to multiple issues, including the mandatory closure of many businesses. Action has also been taken to relieve financial burdens, such as:
- From March 1, 2020 through December 31, 2020 the one week wait for employees to begin receiving unemployment compensation has been eliminated. The definition of those who qualify for benefits has been broadened to include consideration of health impacts in addition to individuals who are unable to work because their childcare is no longer available and their employer is unable to accommodate the employee. Additional information can be found at: https://www.uimn.org/applicants/needtoknow/news-updates/covid-19.jsp. If you are in a situation of needing to lay off employees, we recommend that you direct your employees to the state of Minnesota Unemployment Insurance web site for additional information.
- As part of the Governor’s executive order he also ordered that unemployment benefits paid as a result of the pandemic not be used in calculation of an employer’s future unemployment tax rate. This will eliminate any future raises in an employer’s tax rate as a result of the virus.
- Also, people who are sick or isolated aren’t required to apply for work to maintain their benefits. The five-week limitation on business owners receiving unemployment has been waived.
The state of Minnesota granted a one-month extension for the payment of sales tax that was due March 20 for any business that was affected by the previous executive orders. The sales tax payment due on March 20, 2020 is now due April 20, 2020.
Executive Order 20-15 directs DEED to create a Small Business Emergency Loan Program by making available $30 million from special revenue funds. These dollars will be used by DEED’s lender network to make loans of between $2,500 and $35,000 for qualifying small businesses. The loans will be 50% forgivable, and offered at a 0% interest rate. If other financing becomes available to small businesses that received an emergency loan, such as federal funding, the emergency loan must be repaid. These emergency loans will be made by an existing network of lenders DEED works with across the state. Depending on the size of the loans offered to businesses, DEED estimates this emergency loan program will provide needed resources to between 1,200 and 5,000 businesses. DEED expects loan applications will available later this week through our lender network. Minnesota small businesses should send questions about this emergency loan program to ELP@state.mn.us.
Commercial Contracts: You should review all of your contracts you are concerned that you may not be able to comply with or that the other party may not be able to perform. The contract should be reviewed to determine if a Force Majeure clause is present. Force Majeure is a contractual term that can be defined in various ways, but is often defined similar to this definition:
a condition or occurrence not within the reasonable control of the party claiming its existence, including but not limited to “floods, storms, strikes, acts of God, unavailability of materials, delays of common carriers, failure of equipment, or explosions.
If a Force Majeure clause is not present in your contract, the Uniform Commercial Code included in Minnesota statutes has a similar provision for a Seller of goods, which is the defense of commercial impracticability. The elements of this defense are:
(1) a contingency has occurred which has made performance impracticable, (2) the nonoccurrence of that contingency was a basic assumption, (3) the seller has not assumed a greater obligation, and (4) the seller has seasonably notified the buyer that there will be a delay or non-delivery; additionally, seller must show it made a “fair and reasonable” allocation of its inventory once the unforeseen event occurred.
There may be additional remedies present in Minnesota common law/case law regarding the defense of impossibility and impracticality and legal counsel should be contacted regarding the same.
Determine the extent of your insurance coverage. Specifically review your insurance policies and the language pertaining to business interruption regarding reference to infectious diseases.
There is currently litigation in multiple states to determine the breadth of the application of “all risk” policies to pandemics. It will likely be months, if not years before the litigation is concluded.
Additional Resources for further updates and information:
Hanft Fride’s business and trial lawyers are located at 1000 U.S. Bank Place, in Duluth, Minnesota. Visit our website at www.hanftlaw.com for general information on the firm and our attorneys. Our employment lawyers include Tom Torgerson, Rob Merritt and Scott Witty. Richard Burns is now of Counsel.
The information provided in this E-letter is general in nature and should not be used as a substitute for professional services and advice. The communication and receipt of this information is not intended to create an attorney-client relationship. Readers should consult with their legal counsel before taking any action on matters covered in this E‑letter.
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Professional Association, 1000 U.S. Bank Place, 130 W. Superior Street, Duluth,
MN 55802. Phone 218.722.4766; Fax 218.529.2401.