This document provides a summary of a webinar about navigating legal issues related to COVID-19 and the Small Business Administration's Paycheck Protection Program. The webinar covered topics like creating a return to work plan, managing leave under the FFCRA, conducting lawful workforce reductions, applying for and qualifying for forgiveness of PPP loans, expanded unemployment benefits, payroll tax credits, and other CARES Act provisions. The presentation emphasized that this information is based on the latest available guidance but is not legal advice, and businesses should consult legal counsel on these complex issues.
How to Navigate COVID-19 Legal Issues and Small Business Administration's Paycheck Protection Program
1. parsonsbehle.com
HOW TO NAVIGATE COVID-19 LEGAL ISSUES
& SMALL BUSINESS ADMINISTRATION’S
PAYCHECK PROTECTION PROGRAM
Wednesday, April 29, 2020
2. 2
Webinar Format
All Lines Muted
Q&A
Webinar Will Be Recorded
Slides Will Be Shared With All Participants
3. 3
Things are changing rapidly. We are working extremely hard to keep
up with all that is happening. This webinar is based on available
information as of April 29, 2020, but everyone must understand that
this webinar is not a substitute for legal advice. If there are questions
about the information contained in the presentation and how it applies
to your business, then you should contact your legal counsel. This
presentation is not intended and will not serve as a substitute for legal
counsel on these issues. Given the complexity and rapidly changing
landscape, you must consult with your legal counsel on these issues.
Legal Disclaimer
4. 4
About Parsons Behle & Latimer
Established in 1882
Regional firm with offices in:
o HQ in Salt Lake City, Utah
o Lehi, Utah
o Idaho Falls, Idaho
o Boise, Idaho
o Reno, Nevada
o Missoula, Montana
5. Return to Work Plans & FFCRA
Sean A. Monson – Salt Lake City, Utah
6. 6
Return to Work
Create a Plan
o Who returns
o When they return/staggered work shifts
o PPE/Social Distancing (employees and customers)
o OSHA/CDC/local guidelines (PPE, distancing, cleaning)
o EPA approved cleaners
o Cleaning/sanitation schedules
o Safety huddles on a regular basis
7. 7
Return to Work
Create a plan (cont.)
o Communicating to EEs
o Training of EEs
o Temperature check
o Screening for symptoms (expanded symptom list from CDC)
o Response to symptom demonstration
• Contract tracing and isolation/quarantine
o Response to refusal to return because of safety concerns
o How manage FFCRA leave
8. 8
Return to Work
Why create a plan?
o Liability risk (employees and customers)
o Standard of care
o Immunity statutes
9. 9
FFCRA – Bucket 1 Leave Rights
Two weeks of pay
Because employee--
o is subject to a Federal, State, or local quarantine or isolation order
related to COVID-19;
o has been advised by a health care provider to self-quarantine
related to COVID-19;
o is experiencing COVID-19 symptoms and is seeking a medical
diagnosis;
o is caring for a family member subject to an order or self-quarantine
as described above
10. 10
FFRCA – Bucket 2 Leave Rights
Up to 12 weeks of leave because employee is caring for his
or her child whose school or place of care is closed (or child
care provider is unavailable) due to COVID-19 related
reasons
* Potential exemption if have fewer than 50
employees and can show leave would result in
significant economic harm
-- 3 factor test
* Exemption decided by employer
11. 11
FFCRA Leave Rights
Bucket 1 – full pay
o Capped at $511 daily and $5,110 in total
Bucket 2 – 2/3 pay
o Capped at $200 per day, $12,000 total
Eligibility
o Bucket 1 – immediate
o Bucket 2 – after 30 days (except for initial two weeks which have
same eligibility requirements as Bucket 1 rights -- immediate)
Create and distribute a policy!
12. 12
Reminders Regarding Reductions in Workforce:
RIF plan should be in writing and:
State the financial distress faced by the company
State that the financial situation will be resolved, in part,
through layoffs
Clearly identify objective criteria forming the basis for the
layoff decision
o Last hired, first fired
o Skill set of employees
o Departments that are not vital
13. 13
Reminders Regarding Reductions in Workforce:
Ensure that the process is not discriminatory and does not have a
discriminatory impact, if avoidable
Minimize the risk of a claim of discrimination from one of the terminated
employees
Form a diverse committee to choose who is selected for layoff and
ensure that the workers selected are selected based on objective criteria
and not for discriminatory reasons—DOCUMENT THE PROCESS
Once the employees are selected, you need to analyze the group for
discriminatory impact
Work with your outside or in-house legal counsel to analyze these issues
14. 14
Reminders Regarding Reductions in Workforce:
Determine if any of the affected employees have engaged in
any activities protected under state or federal law,
o Harassment or discrimination complaints
o Notifying OSHA of a perceived health or safety violation,
o Workers’ compensation claim
o FMLA claims, ADA issues, and other health issues
o Consult with legal counsel before making any final determinations
15. 15
Reminders Regarding Reductions in Workforce:
Determine if any of the employees who are being
considered for the RIF have employment agreements that
may impact their terminations
o Guaranteed terms of employment
o For cause
o Provisions for specific severance
o Collective bargaining agreement
o If you provide severance, use legally compliant severance release
agreements
16. 16
Reminders Regarding Reductions in Workforce:
Determine if the terminated employees are entitled to any
other pay and benefits
o Company severance plan
o Pay out of accrued time off—look at your polices and state law
o State laws may also mandate when you must pay terminated
employees
o COBRA notices
17. 17
Reminders Regarding Reductions in Workforce:
If you have over 100 employees, there are WARN Act
issues to be aware of for significant reductions in force or
plant closings
18. The PPP Loan Program and Other
CARES Act Options
Ross P. Keogh – Missoula, Montana
19. 19
CARES Act—the four legs of the table
$2.2 trillion in spending
Direct taxpayer subsidies ($1,200 payments), and
unemployment support (expands to self-employed)
$500 billion in Treasury directed intervention funds
$349 $659 billion through SBA 7(a) loan program for
Paycheck Protection Program (PPP) loan
Various tax changes and appropriations
20. 20
$659 Billion in Loans to Small Businesses –
the “Paycheck Protection Program”
Utilizes the SBA 7(a) Loan Program framework.
Any business with—generally-- < 500 employees that was
operating before 2/15/2020 is eligible. Size standards vary
significantly by industry.
Expands eligibility to include: non-profits (501(c)(3)), tribally
owned businesses, certain self-employed individuals, and
independent contractors.
No personal guaranty required.
Extensive Deferral and Forgiveness (more to follow).
$10,000,000 cap.
21. 21
Calculating eligible loan amount (Employer)
Use 941 from 2019.
Average monthly payroll * 2.5.
o Do not include independent contractors, but do include self employment
income to partners.
o $100k “wage” cap, but not other eligible costs (health care).
E.g.: 10 people at $2,500 = $25,000.
$100k annual cap per employee on eligible payroll.
Deferral of 6 months with interest subsidies also available.
1% interest rate; 2 year maturity.
22. 22
Calculating eligible loan amount (Self-Employed)
Self-employed use Schedule C of 2019 1040
o Must be completed by not necessarily filed
Line 31 “net profit” = “payroll costs” for purposes of PPP
o Divide by 12 then multiply by 2.5.
If Schedule C includes payroll expenses, then those expenses can be
included.
Schedule C and supporting documents must be provides (1099s, invoices,
bank statements, or books of record)
Records showing business in operation as of 2/15/2020 must also be
provided.
PPP proceeds limited to 2019 expense categories (interest, utilities, rent).
Gas is considered a “utility”.
23. 23
PPP Technical Observations and Recent Changes
PPP Loans > $2 million can expect significant scrutiny.
Applicant must certify, in good faith, that “current economic uncertainty
makes this loan request necessary to support the ongoing operation of
the Applicant”.
Payroll expenses limited to individuals whose “residence is in the
U.S.” See, 26 CFR § 1.121- 1(b)(2) for factors.
Loan eligibility is the total of: part and full time employees.
No “credit elsewhere requirement” but a public company with
substantial market value and access to capital markets likely does not
qualify.
Restrictions on related party payments in the lease context.
Lender has virtually no role in verification.
24. 24
Road Map to Forgiveness
Start planning before receiving proceeds, consider 10 day delay.
No cancelation of debt income.
PPP Loan proceeds should be reservoired—no constructive use.
Careful and detailed accounting.
Timing of expenses (cash basis accounting?).
75% of forgiveness amount on payroll.
Payrolls can be increased.
Proportional reduction of forgiveness based on FTEs during use
compared to two periods (at election of employer): 1/1/2020 –
2/29/2020 or 2/15/2019 to 6/30/2019.
25. 25
Expanded Unemployment
Self-employed and independent contractors now broadly
eligible for unemployment.
States are slowly rolling out programs:
o Idaho: $168-$448 per week. 39 weeks total benefits, retroactive to
2/2/2020. https://labor.idaho.gov/dnn/Unemployment-
Benefits/Pandemic-Unemployment-Assistance.
o Montana: http://dli.mt.gov/self-employed-contractors.
Can’t apply while using PPP proceeds. Unemployment
benefits (at incomes < $55,000) are beating employment.
PPP is a grant whereas unemployment is wages.
26. 26
Payroll Tax Credit
Credit is not available if you have a PPP loan
Available in two circumstances:
o Organizations suffering a partial or full shutdown (by Shutdown Order).
o Organizations whose gross receipts decline more than 50% as compared to
same quarter last year. Tax credit ends in quarter gross receipts exceed 80%.
Credit Amount
o Fewer than 100 employees: all wages paid in quarter subject to gross receipts
decline, or all wages paid during shutdown order.
o 100 or more employees: only wages paid to employees that were not providing
service eligible for credit.
$5,000 credit per employee
27. 27
Additional tax provisions of immediate interest.
RMDs from IRAs can be suspended.
NOLs can be carried back five years, start in 2018.
Effective in 2018 tax year, immediately depreciate improvements to the
interior portion of a commercial building.
Employer’s side of social security (6.2%) can be delayed. 50% to
12/31/2021 and 50% to 12/31/2022. In lieu of SBA loan forgiveness.
Business interest deduction cap increased to 50%.
28. 28
Disaster Relief Payments
The March 13, 2020 national emergency declaration triggered 26
USC § 139
Qualified disaster payments to individuals are now exempt from
gross income
The provision is extremely broad, allowing employers to
reimburse employees for “reasonable” expenses associated with
the pandemic.
Example include: costs to set up and maintain a home office,
medical expenses, housing, increased childcare expenses,
expenses to maintain social distancing, alternative commuting,
expenses associated with working from home.
29. 29
Tax Free Payments on Student Loans
Allows employers to make payments on an employee’s
student loan or to make payment to an employee that the
employee uses to make a payment on the student loan.
Tax free to Employee.
Could reduce salary (so long as not more than 25%- PPP
loan issues) and still pay the employee the same after tax
amount.
30. Force Majeure Clauses and
Impossibility of Performance
Christina W. Hardesty – Boise, Idaho
31. 31
Analysis
Problem: Sometimes a party can’t perform under a contract
because of circumstances beyond its control; for example,
because of COVID-19 and its economic shock.
Question: Is the non-performing party liable for damages? Or
is it immune from liability because its non-performance is
somehow excused? In other words, how did the parties agree
to allocate the risk of loss attributable to disasters out of the
parties’ control?
Answer: It depends on what the contract says.
32. 32
What is Force Majeure?
“Act of God” clause in a contract
May look something like this:
Force Majeure: The Parties shall each be excused from performance of
any obligations hereunder for the period of any delay beyond the
obligor’s reasonable control caused by strikes or labor disruption, civil
unrest, war or acts of terrorism, natural disaster, declared national or
regional emergency, government order or injunction, fire or other
casualty, trade embargos or industrial disturbances, or other acts of
God, provided that the party delayed provides prompt notice of any
such delay as soon as reasonably practicable, and undertakes
commercially reasonable efforts to minimize further delays, disruption,
and resulting damages.
33. 33
Could Force Majeure Apply for COVID-19?
It depends.
Contract must contain a force majeure clause.
Clauses are generally enforceable.
The types of events that constitute force majeure depend on
the specific language in the contract clause itself.
Force majeure clause interpreted according to the same
principles as any other clause in a contract.
34. 34
General Elements of Force Majeure
The event must be covered by the terms provided for in the contract’s
force majeure clause.
The event must have reasonably been beyond the control of the party
seeking to be excused from performance.
It must be determined what effect the force majeure event will have on
the obligations of the party seeking to be excused.
The party relying on the clause bears the burden of proving that the
event occurred without its fault or negligence.
The party must generally provide notice of the force majeure event to
the other party if required by the contract.
35. 35
What is the Relief?
It depends on what the clause provides.
Delay performance
Terminate the contract
Forgive the breach
36. 36
Example
Deloitte Consulting had booked every room in a 5-star hotel
for two, week-long celebrations of the achievements of its
top employees.
These celebrations were scheduled for late September
2001.
After 9/11, Deloitte cancelled both events.
37. 37
Analysis
Problem: Deloitte didn’t perform because of 9/11, an event
that was out of its control. shock.
Question: Was it liable for damages?
Answer: It depends on what the contract says.
38. 38
The Force Majeure Clause in the Deloitte Case:
A failure of either party to perform its obligations under this
agreement shall not constitute default under this Agreement or
give rise to any claim for damages if and to the extent such
failure is caused by occurrences (whether direct or indirect)
reasonably beyond the control of the party affected, including,
but not limited to: acts of God, war, government regulations,
disaster, strikes, civil disorder, curtailment of
transportation facilities, or other emergency, that makes the
Agreement inadvisable, illegal or if it is impossible to provide
the facility or hold the event.
39. 39
Bottom Line
Force majeure clause will be enforced according to its
terms.
Read force majeure clause in your contracts very closely.
Provide notice if required.
Take reasonable actions to minimize damage to yourself
and other parties.
40. 40
Impossibility of Performance
Generally applicable where a contract is no longer capable
of being performed because of the occurrence of an
unforeseen event that makes performance of the contract
impossible or highly impracticable.
State-specific analysis depending on case law or state
statute.
Courts apply sparingly.
41. 41
Idaho
Contract no longer capable of being performed.
Unforeseen, supervening act of a third party.
Performance of the contract must be actually impossible
and not just more difficult or more expensive.
Task itself must be impossible for anyone to perform and not
be merely impossible for that particular party to perform.
Only excused for time that it is impossible to perform.
42. 42
Montana
Unforeseen event at the time the parties entered into the
contract.
Contractual duties must be impossible for anyone to
perform.
Impossibility encompasses not only strict impossibility but
impracticability because of extreme and unreasonable
difficulty, expense, injury or loss involved.
43. 43
Montana
Montana Code Sec. 28-1-1301:
The want of performance of an obligation or of an offer of performance, in whole or in
part, or any delay therein is excused by the following causes, to the extent to which
they operate:
(1) when such performance or offer is prevented or delayed by the act of the creditor
or by the operation of law, even though there may have been a stipulation that this
shall not be an excuse;
(2) when it is prevented or delayed by an irresistible, superhuman cause or by the act
of public enemies of this state or of the United States, unless the parties have
expressly agreed to the contrary; or
(3) when the debtor is induced not to make it by any act of the creditor intended or
naturally tending to have that effect, done at or before the time at which such
performance or offer may be made, and not rescinded before that time.
44. 44
Montana
Montana Code Sec. 28-2-603
“Where a contract has but a single object and such object is
unlawful, whether in whole or in part, or wholly impossible of
performance or so vaguely expressed as to be wholly
unascertainable, the entire contract is void.”
48. 48
Things are changing rapidly. We are working extremely hard to keep
up with all that is happening. This webinar is based on available
information as of April 29, 2020, but everyone must understand that
this webinar is not a substitute for legal advice. If there are questions
about the information contained in the presentation and how it applies
to your business, then you should contact your legal counsel. This
presentation is not intended and will not serve as a substitute for legal
counsel on these issues. Given the complexity and rapidly changing
landscape, you must consult with your legal counsel on these issues.
Legal Disclaimer
49. 49
Presenter Contact Information
Sean A. Monson – smonson@parsonsbehle.com
Ross P. Keogh – rkeogh@parsonsbehle.com
Christina W. Hardesty – chardesty@parsonsbehle.com