When a paycheck protection effort meant to save jobs doesn’t
When a government initiative is called the “Paycheque Protection Program,” the assumption is that it will keep workers working. But that was not necessarily the case.
In the structure of the aid program, which uses taxpayer funds to support business loans, there are exemptions that employers can use to let workers go, even during the loan period, while watching these ” loans’ become grants.
At the same time, lenders, not the government, have primary responsibility for ensuring that businesses are using relief correctly, and very little, if any, information about how businesses are using money. are accessible to the public. This lack of transparency opens the program to fraudcritics say, and workers have little recourse if they feel they have been fired wrongly.
“Congress designed these programs to keep workers employed and yet we still don’t know the identity of the majority of P3 loan recipients and we have no verification of jobs retained by loan recipients,” Julie said. Farb, AFL-CIO spokesperson.
These are just a few of the criticisms leveled at the program, which is part of the $ 2 trillion CARES Act on Aid, Relief and Economic Security (CARES), passed by Congress and enacted by the United Nations. President.
“When we learned that they had received financial assistance from the government, we thought we might be going back soon,” said Oscar Melara, a worker who was on leave in March from the Luxe Rodeo Drive Hotel. in Los Angeles. Melara worked in the hotel’s kitchen, which closed permanently, hotel spokesperson Aron Harkham confirmed.
Luxe Hospitality Company LLC received a loan valued between $ 150,000 and $ 350,000, according to a Bloomberg Law analysis of PPP data. The direct employer of the workers at the Luxe Rodeo Drive Hotel, 360 N. Rodeo Drive LP, also received a loan worth between $ 350,000 and $ 1 million. Harkham confirmed that the two companies are separate and have both received funds “on the low end of the range.”
“The funds have allowed us to continue contributing to the health care of our employees while on leave and the hotel has been closed, and we are grateful for that,” Harkham said. “To the extent that PPP funds have been received, they have been allocated in accordance with Treasury guidelines. “
The government intended the program to “provide quick relief to small US businesses,” requiring 75% of loan proceeds to be used for payroll.
More than 5.2 million loans were distributed as of August 8, the program’s closing date, worth more than $ 525 billion, according to the Small Business Administration, the agency overseeing the program. Small businesses are now asking for a loan forgiveness.
Businesses demand another set of helpers, but it requires action from Congress. Negotiations between Democratic and Republican lawmakers, as well as the White House, on a new coronavirus relief bill are ongoing in a dead end.
The paycheck protection program includes exceptions that companies can take advantage of if they need to lay off workers to stay afloat during the loan period covered.
If an employer can prove that they will not be able to return to pre-pandemic activity levels because they are complying with state and federal guidelines related to Covid-19, they can eliminate an appropriate number of workers without triggering a loan forgiveness reduction, explained Graham Ryan, Jones Walker’s New Orleans partner.
Proskauer Rose partner Jeffrey Horwitz said an employer must maintain the same average number of full-time equivalent employees during the loan period compared to an earlier reference period in order to qualify for a loan forgiveness.
Unless business is bad compared to the previous period.
“The timing of the PPP did not anticipate the duration and depth of the effects on operations,” Horwitz said in an email from companies he has seen benefiting from PPP assistance and removing jobs. “The economy, especially for retailers, hotels, restaurants and others, is very stressed. Few businesses can operate in a zero or limited income environment.
Additionally, employers with a qualifying period of January 1, 2020 to February 29, 2020, who hired employees in the first week of March, can fire these new hires and continue to receive full loan forgiveness. Horwitz added that there are a number of other safe harbor provisions that negate the effects of layoffs on loan cancellation, if certain conditions are met.
The exemptions are “wide enough to drive a truck,” said researcher Marty Leary of UNITE HERE, a union that primarily represents workers in the hotel and restaurant industries. “What’s going to bring jobs back is when people want to get on a plane and stay in hotels again. If Congress wants to support laid-off workers, they must do so directly. “
Banks, not the government, audit
Most of the responsibility for verifying how the funds are used rests with the lenders, said Ann Murray, partner of Nelson Mullins. She has helped companies navigate PPP funds during the pandemic. The lenders certify or approve the cancellation of the loan, and then the SBA has a time frame to review the lenders’ approval, she said.
The catch is that the SBA noted it will “review all loans over $ 2 million, in addition to other loans, if applicable.” This means that countless other loans will not automatically be reviewed by the government, according to the agency’s May 15 guidelines.
“The PPP and other small business provisions under the CARES Act have been a historic lifeline for millions of small businesses and tens of millions of American workers,” said the senator.
Leader of the senator majority
Possible fraud in the program was also raised as an issue.
“The PPP and the expanded EIDL programs were aimed at providing essential economic assistance to small businesses during this time of enormous need. Financial institutions, like yours, are on the front line in providing PPP assistance, ”he wrote in the letter. “Allegations that employees of financial institutions have exploited the PPP or EIDL programs for their own benefit should be fully investigated. ” The Economic disaster loan, or EIDL, is another relief program available to businesses in temporary difficulty during the coronavirus pandemic.
McConnell’s office did not address the fraud issues. Congressional Democrats are trigger alarms on the risk of the program of widespread fraudulent activities.
If companies falsely certify that they properly terminated employees during the covered loan period, and the government or a worker finds out, the company could face liability under the False Claims Act. But it is difficult at best for a worker to know if an employer is requesting a loan forgiveness, given the paucity of publicly available data.
Understanding how an employer uses a loan is “next to impossible” for workers, said Kurt Petersen, co-chair of UNITE HERE Local 11. “In addition, their concentration tries to pass the next day. “
An employee could sue a company under the FCA, alleging that the funds were not being used for proper P3 purposes when the employer knowingly requested a loan forgiveness, said Nick Klenow, an associate at Selendy & Gay.
“It should also be noted that the FCA has protections for whistleblowers who raise the potential liability of the FCA with their employers,” he said in an email. “This could be another source of liability for companies who retaliate against employees who raise these issues. “
Murray, of Nelson Mullins, said a worker could also file a complaint with the SBA, or perhaps with the lender itself. To make these claims, however, an employee needs information, and very little is available.
UNITE HERE tried to learn how a hotel in southern california used its money, with little success. “We have no way of forcing owners to tell us what they’re doing with the money,” Leary said.
Ultimately, the hope was that the program would act as a bridge that would allow workers to keep their jobs until the economy recovers. This has not always happened.
“Ultimately, while the stated goal of the program was to keep employees in employment, the length and scale of the crisis made this impossible, although in some cases it helped keep employees working. employees for a while, ”said Yuval Tal, partner at Proskauer Rose, which advises corporate clients.