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Author Archives: Rebecca L. Simpson

Maintaining a Positive and Productive Workplace in 2024:  Increased Scrutiny of Non-Compete, Non-Disparagement, Confidentiality and Other Employment Agreements

Author By Rebecca L. SimpsonPosted on

Over the past year, we’ve seen an increased focus from federal regulators on limiting the scope of restrictive covenants in employment agreements such as non-compete, non-disclosure, and confidentiality agreements:

  • In January of 2023, the Federal Trade Commission issued a Notice of Proposed Rulemaking that would ban employers from imposing non-competes upon employees in most instances. It is anticipated that the FTC will vote on this proposal in April of this year.
  • In February of 2023, the National Labor Relations Board (“NLRB”) issued its McLaren Macomb decision (372 NLRB No. 58 (2023)) finding that offering employees severance agreements with broad confidentiality and non-disparagement provisions violated the National Labor Relations Act (“NLRA”).
  • In March of 2023, the NLRB’s General Counsel issued a Memorandum offering Guidance in Response to Inquiries about the McLaren Macomb Decision which included the following question and answer:

“How does this decision affect other employer communications with employees, such as pre-employment or offer letters?

Based on extant Board law, overly broad provisions in any employer communication to employees that tend to interfere with, restrain or coerce employees’ exercise of Section 7 rights would be unlawful if not narrowly tailored to address a special circumstance justifying impingement on workers rights. “

  • In May of 2023, the NLRB’s General Counsel issued a Memorandum to its Regional Directors, Officers-in-Charge, and Resident Officers, opining that non-compete provisions in employment agreements violate the NLRA except in limited circumstances. (This memorandum does not currently have the force of law.)
  • In September of 2023, the Equal Employment Opportunity Commission (“EEOC”) released its Strategic Enforcement Plan, outlining six subject matter priorities, including “Preserving Access to the Legal System,” including a focus on “overly broad waivers, releases, non-disclosure agreements, or non-disparagement Agreements”

What does this mean for Employers/Employees?

These developments evidence an increasing scrutiny of employers’ ability to restrict employees’ activities in these areas.  This means that employers should take a close look at onboarding and severance documents and policies to make sure they are narrowly tailored to specific circumstances and with this new focus in mind.  And it means that employees should carefully review employment documents and attempt to resolve any ambiguities or concerns before they sign the documents and before any issues arise.

Further, given that the FTC’s proposed rulemaking has not been finalized, and NLRB memoranda and EEOC enforcement plans define regulatory focus but are not law, it is anticipated that this area of the law will continue to evolve over time.  Employers and employees should make sure they stay up-to-date on any new developments, and that they consult experienced legal counsel to be fully advised of their rights and obligations under the law.

Maintaining a Positive and Productive Workplace in 2024:  Considerations When Using Artificial Intelligence in Employment Decisions

Author By Rebecca L. SimpsonPosted on

According to a 2022 study by the Society for Human Resource Management, nearly one in four organizations reported using automation or AI to support HR-related activities.  According to the study, while AI is being used in a myriad of employment decisions, the greatest use by far is in recruiting and hiring.

With this rise in the use of AI in employment decisions, regulators and law makers are turning their attention to ensuring that AI is used in a fair and responsible way that does not violate any laws aimed at protecting the rights of employees.

The EEOC is expanding its focus on AI in 2024.

As was noted in last week’s “Maintaining a Positive and Productive Workplace in 2024” blog post, one of the U.S. Equal Employment Opportunity Commission’s (“EEOC”) focuses announced in its Strategic Enforcement Plan for 2024 to 2028 is the use of AI in recruitment and hiring.  The concern is that the use of AI could intentionally or unintentionally lead to discriminatory practices in recruitment or hiring.  For example, if an AI algorithm was programed to screen out applicants over a certain age, that could constitute intentional discrimination.  Or, even if an algorithm was carefully programmed to avoid any discriminatory screening factors, it still might inadvertently screen out, for example, those with disabilities and therefore have an unlawful, discriminatory disparate impact.

This 2024 focus is a continuation of the EEOC’s scrutiny of and guidance surrounding use of AI in employment decisions.  In 2021, the EEOC launched its Artificial Intelligence and Algorithmic Fairness Initiative, aimed at ensuring that the use of AI and other emerging technologies used in hiring and other employment decisions comply with federal civil rights laws.

In May of last year, the EEOC released a technical assistance document, “Assessing Adverse Impact in Software, Algorithms, and Artificial Intelligence Used in Employment Selection Procedures Under Title VII of the Civil Rights Act of 1964.”  This document includes guidance in the form of questions and answers, including:

“3.     Is an employer responsible under Title VII for its use of algorithmic decision-making tools even if the tools are designed or administered by another entity, such as a software vendor?

In many cases, yes. For example, if an employer administers a selection procedure, it may be responsible under Title VII if the procedure discriminates on a basis prohibited by Title VII, even if the test was developed by an outside vendor. …”

Law makers are beginning to propose legislation regarding the use of AI in employment decisions.

In July of 2023, U.S. Senators Bob Casey (D-PA) and Brian Schatz (D-HI) U.S. Senator Bob Casey introduced the No Robot Bosses Act aimed at protecting and empowering workers by preventing employers from relying exclusively on artificial intelligence in making employment decisions. On July 20, 2023 the bill was referred to the Committee on Health, Education, Labor, and Pensions and no further action has been taken on it at this time.

Illinois and New York City have implemented legislation governing the use of AI in employment decisions, and more states and cities are proposing such legislation.  For a comprehensive look at 2023 state legislation proposed on a myriad of topics related to AI see the National Conference of State Legislators’ summary on Artificial Intelligence 2023 Legislation.

What does this mean for the use of AI in employment decisions?

The use of AI saves time and money and is a valuable tool for many companies.  No doubt the new and even more efficient and effective methods of using AI will expand over time and bring great benefits to the workplace.  It is important, however, to consider not only the benefits and efficiencies of using AI, but also the potential pitfalls, how to avoid them, and how to craft fair, unbiased, efficient, and effective AI employment tools.

Some practical advice to companies to ensure that their use of AI promotes a positive, productive, and lawful workplace includes:

  • Carefully select your AI vendor and inquire into the vendor’s knowledge regarding and practices for avoiding discriminatory selections processes.
  • Assess each AI tool to make sure it does not include any discriminatory selection factors.
  • Assess whether the AI selection procedure has an adverse impact on a particular protected group.
  • Continue to assess your AI tools on an ongoing basis.
  • Carefully determine which positions or decisions are appropriate for the use of AI tools and which are not.
  • Do not make employment decisions solely based on AI. Have qualified personnel review the results of the AI process.

As this emerging area of the law develops, it will be important to stay up-to-date on any new laws or regulations applicable to your company that address the use of AI in employment decisions.

Rebecca L. Simpson

Maintaining a Positive and Productive Workplace in 2024

Author By Rebecca L. SimpsonPosted on

Most of us spend a significant amount of time working and interacting with our colleagues, and we strive to make our workplace positive and productive.  As we dive into a new year, it is a good time to assess what we can do to maintain such a workplace.  A good place to start is reviewing policies and practices to make sure they reflect company culture and values and comply with existing and new employment laws and regulations.

Some considerations include:

  • Has your company expanded, potentially subjecting it to additional laws and regulations, or creating practical day-to-day challenges that need to be addressed?
  • When were your company policies and handbook last updated? Have there been changes in the law or in the culture, direction, or challenges of your business since that time?
  • Are your managers and supervisors well trained in your policies and practices and how to foster a work environment that fits with your culture, values, and desire for a positive workplace and with relevant laws and regulations?
  • Have your employees been trained in these matters as well?
  • What laws and regulations have changed that might impact your company?

Employment law considerations for 2024 include:

The U.S. Equal Employment Opportunity Commission (“EEOC”) has released its “Strategic Enforcement Plan” for Fiscal Years 2024 to 2028.  According to the Plan, its purpose “is to focus and coordinate the

agency’s work over a multiple fiscal year (FY) period to have a sustained impact in advancing

equal employment opportunity.” The Plan outlines the following six subject matter priorities:

  1. “Eliminating Barriers in Recruitment and Hiring,” including, for example, in the use of Artificial Intelligence.
  2. “Protecting Vulnerable Workers and Persons from Underserved Communities from Employment Discrimination,” including for example, individuals with arrest or conviction records, LGBTQI+ individuals, temporary workers, and older workers.
  3. “Addressing Selected Emerging and Developing Issues,” including, for example, protecting workers affected by pregnancy, childbirth, or related medical conditions.
  4. “Advancing Equal Pay for All Workers.”
  5. “Preserving Access to the Legal System,” including, for example, a focus on overly-broad waivers, releases, or non-disclosure or non-disparagement agreements.
  6. “Preventing and Remedying Systemic Harassment.”

According to the EEOC Plan, it will “help guide the EEOC’s work through all of the agency’s activities, including outreach, public education, technical assistance, enforcement, and litigation.”

The EEOC’s Strategic Enforcement Plan is a good reminder to make sure your company has up to date policies and procedures in these areas that support and foster a positive and lawful work environment, and on which your managers, supervisors, and employees are well educated.

This is the first of a series of blogs that will address in more detail each of the six subject matters areas listed above – as well as other employment topics – and offer practical advice on maintaining a positive and productive workplace in 2024.

Important lessons from the $137 million racial harassment judgment against Tesla

Author By Rebecca L. SimpsonPosted on

The $137 million judgment against car maker Tesla this week was one of the largest awards in a racial harassment case in U.S. history.   No doubt it has gained the attention of employers and employees alike.

A California federal jury ordered Tesla to pay Owen Diaz nearly $137 million dollars in damages for racial harassment, including $4.5 million for past emotional distress, $2.4 million for future emotional distress, and $130 million in punitive damages.

Diaz complained that he was subjected to persistent racial harassment including racial slurs. And he claimed that the harassing behavior continued even after he reported and complained about the conduct.

Tesla denies the harassing behavior and denies their responsibility for it, as Diaz was a contractor, not an employee.  The jury, however, found that Diaz was subjected to harassment, and that Tesla failed to sufficiently address it.  It is not clear if Tesla will appeal, or if they do if they will prevail.  Even if Tesla were to appeal and prevail, they would have spent years in very costly litigation.

What can employers do to protect their employees from harassment and themselves from lawsuits.

After seeing the headlines and reading about the Tesla case, employers may be asking themselves how they can insure their employees are safe from harassment and their company is protected from such a lawsuit.   Employers with the best of intentions can be vulnerable, and their employees can be vulnerable as well, if the right kind of policies, procedures, and training are not put in place.

Employers should:

  1. Have the right policies in place to prevent and address harassing behavior

Employers should have written policies that outline the types of behavior that will not be tolerated, a procedure for reporting any such behavior, how such behavior is to be investigated, and clear rules on the consequences of such behavior.

  1. Provide effective training for supervisors and employees on the policies

Even if an employer has solid policies in place, those policies cannot be effective if supervisors and employees are not aware of or do not understand the policies.   Periodic and clear training needs to be provided, so the policies can be followed and enforced.

  1. Enforce the policies

Employers need to be diligent in consistently enforcing their policies to make them effective.  If supervisors and employees see that policies are not being enforced, they may feel they don’t need to be followed and choose to ignore them.  And, if policies are enforced sometimes and not others, that in itself could create feelings and claims of unequal treatment and potentially harassment.

What should employees take from the Tesla Judgment?

The Tesla judgment sends a message to employees that:

  1. Juries may be taking a harder line against harassment

With its $130 million punitive damages award, the California jury sent the message that harassment will not be tolerated in the workplace and must stop or there will be dire consequences.  Punitive damages are on top of any actual damages and are meant to punish and send a message.   This message from the California jury is in line with our society’s increased focus over the last few years and months on issues of discrimination and harassment.  While the Tesla case was decided by a California jury, this could signal a shift toward harsher consequences from juries in harassment cases in other geographical areas as well.

  1. Employees should not be afraid to report harassment

Some employees may be afraid to report harassment because they do not want to seem like they are not a team player or because they are concerned the issue will not be addressed and they may be retaliated against.  The Tesla decision sends a message that employees should not tolerate harassment in the workplace, and that employers must take harassment seriously and have policies and procedures in place to investigate and stop the harassing behavior.  And, it send the message to employees that if the harassment is not dealt with effectively in the workplace, they can seek a remedy in the courtroom.

Effective policies, training and enforcement can help protect both employees and employers, and aid in maintaining a productive and harassment free workplace and avoiding lawsuits.

For legal assistance with workplace issues, contact our capable labor and employment law attorneys, including Steve Imm (513.943-5678) Matt Okiishi (513.943.6659) and Rebecca L. Simpson (513.797-2856).

Paycheck Protection Program: Self-Employed and Independent Contractors can now pay themselves more

Author By Rebecca L. SimpsonPosted on

 

 

 

 

 

 

Attorney Rebecca L. Simpson

New Regulations regarding changes to PPP in Flexibility Act

On Friday, June 5, the Paycheck Protection Program Flexibility Act was signed into law and significantly loosened many Paycheck Protection Program (“PPP”) rules to make it easier for small businesses to use the loans in a way that will be forgivable. Two of the major changes to the PPP in the Flexibility Act where:

  1. The loan forgiveness covered period (“Covered Period”) was extended from 8 weeks to 24 weeks, so borrowers have 24 weeks after receiving their funds to spend them
  2. The required payroll percentage was reduced from 75% to 60%, so borrowers can spend up to 40% on covered non-payroll expenses (mortgage interest, rent, utilities)

These and other changes in the PPP Flexibility Act raised many questions about the impact of the new rules on the calculation of PPP forgiveness.

In the last few days, the Small Business Administration (“SBA”) has issued three new sets of regulations announcing revisions to prior PPP SBA regulations, to make the regulations consistent with the changes in the Flexibility Act.

Major Revision Impacting Self-employed and Independent Contractors

One of the revisions announced by the SBA raises the cap on how much self-employed and independent contractors can pay themselves out of their PPP funds.

Prior to the PPP Flexibility Act and the SBA revisions to the regulations, in general the amount that self-employed and independent contractors could pay themselves out of PPP funds was capped at the lessor of:

  • 8 weeks (or 8/52) of 2019 net profit, OR
  • $15,385 per individual in total across all businesses

According to a revision issued by SBA yesterday, that cap for the 24-week Covered Period has been raised to the lessor of:

  • 2.5 months (or 2.5/12) of 2019 net profit, OR
  • $20,833 per individual in total across all businesses

This higher cap applies to those who file a Schedule C or F and who use the PPP 24-week Covered Period (rather than the 8-week Covered Period). Although the Covered Period was increased from 8 to 24 weeks in the Flexibility Act, if your PPP loan was made before June 5, 2020, you may elect to have your Covered Period be the 8-week period beginning on the date of your PPP loan. If, however, you want to take advantage of the higher cap described above, you will need to use the 24-week Covered Period.

Conclusion

As part of our new Small Business Solutions Group, we will continue to stay on top of changes that may impact your PPP loan forgiveness and we will post updates on our blog. If you need assistance maximizing the forgiveness of your PPP loan, please contact Rebecca L. Simpson at 513.797.2856.

Paycheck Protection Program:  New guidance on what Is required for your PPP loan to be forgiven

Author By Rebecca L. SimpsonPosted on
Attorney Rebecca L. Simpson

If you are one of the many small businesses that received a Paycheck Protection Program (PPP) loan, you’ve likely been wrestling with questions about how to make sure your loan is forgiven.  We blogged several days ago about the unanswered questions on forgiveness and the need for guidance from the SBA.

The SBA has now provided additional guidance on PPP forgiveness in its Loan Forgiveness Application, which you can find by clicking here.  You will submit this Application (or an online version of it) to your bank, or the holder of  your loan, to apply for PPP forgiveness.

The Application and its instructions provide significant clarification on what is required for forgiveness and what documents and certifications you will need to provide to your bank.  Here are some of the highlights:

In general, how is forgiveness calculated?

In general, forgiveness is calculated by adding your qualifying payroll costs to your qualifying non-payroll costs, and reducing that amount by “FTE” and “Salary/Hourly Wage Reductions” (if you did not maintain or restore levels of compensation and employment as required).  Once you do that calculation, if you spent at least 75% of your PPP loan on qualifying payroll costs, the total you spent on qualifying payroll costs and qualifying non-payroll costs (up to the total amount of your loan) can be forgiven. (Then, obviously, if you spent more than 75% of the loan amount on qualifying payroll costs, the loan will also be 100% forgiven.)

What are the major changes to PPP loan forgiveness guidance? 

The Application and its instructions provide significant new guidance on PPP loan forgiveness which changes and expands previous guidance. Here are some of the major changes:

  • Period you look at for forgiveness: Previously the SBA had issued guidance that PPP funds were to be spent and forgiveness was to be measured during the 8 weeks following the distribution of the funds to the borrower.  This is defined as the “Covered Period.”  The Application allows for a “Alternative Covered Period” for some purposes for borrowers with a biweekly, or more frequent, payroll schedule.  The Alternative Covered Period begins on the first day of the borrower’s first pay period following their PPP loan disbursement date.   If you are eligible for and choose to use the Alternative Covered Period, make sure you read the instructions closely as you fill out the Application, required PPP Schedule A to the Application, and the Schedule A worksheet.  Even if you choose the Alternative period, some calculations still require you to use the Covered Period.
  • When payroll is measured: The Application clarifies that qualifying payroll costs include those paid as well as those incurred during the 8-week Covered Period or the Alternative Covered Period.  So, for example, if you incur payroll costs prior to the end of the 8-week period, but those incurred amounts are not paid until your normal payroll date after the 8-week period, they still count in the forgiveness calculation.  The Application makes clear, however, that payroll costs incurred and paid in the 8 weeks can only be counted once.
  • Expansion of qualifying non-payroll costs: The Application confirms that only 25% of PPP funds can be used for qualifying non-payroll costs, and that those qualifying costs include mortgage interest, rent, and utilities.  The Application, however, expands the definitions of mortgage interest and rent to include not only interest and rent on real estate mortgages and leases, but also to “mortgage” interest and rent or lease payments on personal property.  Covered non-payroll costs count in the calculation of forgiveness if they are paid or incurred during the Covered Period (the Alternative Covered Period is not applicable to the calculation of qualifying non-payroll costs), and are on obligations that were in place prior to February 15, 2020.
  • Calculation of reduction of loan forgiveness if employee and/or compensation levels are not maintained as required: The Application provides tables to complete and detailed instructions on how to calculate the reduction in your loan forgiveness if, in general, you do not maintain your full time employee level or you decrease salaries and wages by more than 25% for any employee that made less than $100,000 annualized in 2019.  These calculations require you to analyze levels on an employee by employee basis during certain defined time periods and then compare those periods. The Application also confirms safe harbors for those who restore their employees and salary levels by June 30, 2020.

Conclusion

Although the Application and its instructions provide a great deal of guidance on PPP loan forgiveness, more guidance is still needed.  We anticipate that the SBA will, over the next several days and possibly weeks, issue further guidance. Finney Law Firm will stay on top of the latest and will update you though this blog.  And, if you have questions or need guidance on the Application or on the PPP in general, please contact Rebecca L. Simpson at 513.797.2856.

Paycheck Protection Program: May 14, 2020 Need Certification Safe Harbor Extended to May 18, 2020

Author By Rebecca L. SimpsonPosted on

 

Attorney Rebecca L. Simpson

We blogged earlier this week about a new need certification safe harbor for borrowers who received PPP loans of less than $2 million.  That safe harbor was created in question 46 of the SBA’s FAQ document, and it also gave further guidance to those with loans over $2 million.  Click here to read our blog about FAQ 46, the new safe harbor, and what it means for your business.

So that borrowers have time to assess their situations in light of the new guidance in FAQ 46, the SBA has now issued FAQ 47, which extends the May 14, 2020 need certification safe harbor to May 18, 2020:

  1. Question:  An SBA interim final rule posted on May 8, 2020 provided that any borrower who applied for a PPP loan and repays the loan in full by May 14, 2020 will be deemed by SBA to have made the required certification concerning the necessity of the loan request in good faith.  Is it possible for a borrower to obtain an extension of the May 14, 2020 repayment date?

Answer:  Yes, SBA is extending the repayment date for this safe harbor to May 18, 2020, to give borrowers an opportunity to review and consider FAQ #46.  Borrowers do not need to apply for this extension.  This extension will be promptly implemented through a revision to the SBA’s interim final rule providing the safe harbor.

To read more about the now extended May 14 safe harbor, click here.  If you have questions, please feel free to contact Rebecca L. Simpson at 513.797.2856

Paycheck Protection Program:  If you received less than $2 million in PPP, you are deemed to have made “Need Certification” in good faith

Author By Rebecca L. SimpsonPosted on
Attorney Rebecca L. Simpson

The SBA issued new guidance today which provides that If you and your affiliates combined received less than $2 million in Paycheck Protection Program (PPP) funds, you will be deemed to have made your “need certification” in good faith.  Upon application, every PPP borrower was required to make a good faith need certification, which reads:

Current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.

New guidance clears up confusion

Over the last several days, the SBA had issued guidance reminding borrowers that this “need certification” had to be made in good faith, and warning borrowers that if it was not made in good faith their PPP loan should be repaid by May 14, 2020.  This May 14 deadline had left many questioning what the SBA would consider in determining if a borrower made the need certification in good faith, and if the PPP should be repaid by tomorrow.  The SBA promised more guidance on this issue, which came today in new question 46 in the SBA’s FAQ document.

New safe harbor for those who received less than $2 million in PPP funds

The SBA defined a new safe harbor today in question 46 of its FAQ document:

Question: How will SBA review borrowers’ required good-faith certification concerning the necessity of their loan request?

Answer: …  SBA, in consultation with the Department of the Treasury, has determined that the following safe harbor will apply to SBA’s review of PPP loans with respect to this issue:  Any borrower that, together with its affiliates, received PPP loans with an original principal amount of less than $2 million will be deemed to have made the required certification concerning the necessity of the loan request in good faith. …

Purpose of less than $2 million safe harbor

The answer to FAQ 46 goes on to explain the reasons for this new safe harbor, including:

  • Those with PPP loans under $2 million are generally less likely to have had access to adequate sources of liquidity in this economic environment than those with larger loans
  • As PPP borrowers with more limited resources work to retain and rehire employees, this safe harbor will provide greater economic certainty
  • This safe harbor enables the SBA to focus its limited resources on larger loans, “where the compliance effort may yield higher returns”

Treatment of borrowers who received more than $2 million

While the answer to FAQ 46 acknowledges that those with PPP loans over $2 million may be able to show that their need certification was made in good faith, it also reiterates that the SBA will review all PPP loans in excess of $2 million.  And, it provides that if the SBA determines that that the borrower “lacked an adequate basis” for the certification, then the borrower must repay the loan and will not be eligible for loan forgiveness.  It further provides that if the borrower then repays the loan, the SBA will not pursue administrative enforcement.

Conclusion

For assistance with an application for a PPP loan or for PPP loan forgiveness, contact Rebecca L. Simpson (513.797.2856).

Paycheck Protection Program: Need Certification Safe Harbor Extended to May 14, 2020

Author By Rebecca L. SimpsonPosted on

Yesterday we posted our second blog on the SBA safe harbor for those whose PPP need certification may not have been in good faith. Yesterday evening, the SBA extended that safe harbor from May 7, 2020 to May 14, 2020.

Purpose of safe harbor

Every PPP applicant was required to certify that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”

Over the last several days, the SBA has issued guidance reminding PPP applications that this certification must have been made in good faith, and indicating that if it was not made in good faith, the PPP loan should be paid back within the safe harbor time period.

Safe harbor extended

The original deadline for the safe harbor was May 7, 2020. Late yesterday the SBA added question 43 to its PPP FAQ document extending that that deadline to May 14, 2020. Question 43, in part, reads:

SBA guidance and regulations provide that any borrower who applied for a PPP loan prior to April 24, 2020 and repays the loan in full by May 7, 2020 will be deemed by SBA to have made the required certification in good faith. Is it possible for a borrower to obtain an extension of the May 7, 2020 repayment date?

The answer to question 43 not only extends the deadline, but also indicates that the SBA will issue further guidance before May 14 on how they will determine if a borrower made the need certification in good faith:

SBA is extending the repayment date for this safe harbor to May 14, 2020. Borrowers do not need to apply for this extension. This extension will be promptly implemented through a revision to the SBA’s interim final rule providing the safe harbor. SBA intends to provide additional guidance on how it will review the certification prior to May 14, 2020.

To learn more about the safe harbor

Two learn more about the need certification safe harbor, please see our two previous blogs on it by clicking here and here. If you have questions, please contact Rebecca L. Simpson or 513.797.2856.

PAYCHECK PROTECTION PROGRAM: SAFE HARBOR ON CERTIFICATION OF NEED CLOSES THIS THURSDAY *After the posting of this blog, the SBA extended the safe harbor deadline to May 14, 2020. To learn more, see our blog with this update.

Author By Rebecca L. SimpsonPosted on
Attorney Rebecca L. Simpson

Several days ago we posted a blog on the SBA’s announcement that it plans to closely scrutinize whether borrowers’ certifications of need were made in good faith, and if the certification was not made in good faith, the borrower is advised pay their PPP funds back by May 7, 2020.

The need certification had to be made by every borrower upon application for the PPP loan, and it reads: “Current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”

SBA direction on the need certification applies to large and small companies

Though this direction from the SBA on the need certification came on the heels of attacks on the PPP for giving millions to large, publicly traded companies, the SBA has since made it clear that this direction applies to all borrowers, large and small.  According to the SBA, they will audit all PPP loans over $2 million, and all loans, no matter the size, are subject to being audited.

Anyone who is found to have not made the certification of need in good faith could be subject to criminal and civil penalties.

How can you show your need certification was made in good faith?

Unfortunately, it is not clear what evidence the SBA will require to prove your need certification was made in good faith.  The only direction that has been given is in the SBA’s FAQ document in the answer to question 31, which in relevant part reads:

Borrowers must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business.  For example, it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith, and such a company should be prepared to demonstrate to SBA, upon request, the basis for its certification.

Borrowers should carefully consider based on their particular business, industry and circumstances whether their certification of need was made in good faith.  And, for those who have made a good faith certification, they should document the factors they considered in making that certification.

What is the safe harbor?

For any company that may not have made their certification of need in good faith, the safe harbor is included in the SBA’s Interim Final Rule posted on April 24, 2020, and reads:

Any borrower that applied for a PPP loan prior to the issuance of this regulation and repays the loan in full by May 7, 2020 will be deemed by SBA to have made the required certification in good faith.

That safe harbor expires this Thursday, May 7,2020.

Conclusion

The SBA continues to issue guidance on the PPP, and that guidance often comes after it is needed and sometimes changes the rules of the PPP in the middle of the game.  Finney Law Firm is keeping a close eye on new guidance and will continue to update you through our blog.  For questions, please contact Rebecca L. Simpson at 513.797.2856.

 

 

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