Non-competition agreements that are part of the sale of a business can be binding even after the death of the person is who is supposed to refrain from competition.
The old saying goes: Nothing in life is certain but death and taxes. Well, the Alabama Supreme Court just made sure that your non-competition agreement is certain — even after you die. See Boyd v. Mills, No. 1190615, 2021 WL 1589331 (Ala. Apr. 23, 2021). At first blush, this seems like a ridiculous premise: How can I compete with anybody after I’m dead????
On closer examination, it looks like the Supreme Court was just trying to reach a fair result. In 2006, Thomas Batey sold his company, Batey & Sanders, to John Boyd for $2,136,631.62. Boyd was supposed to pay that amount in 120 equal monthly payments starting on December 1, 2006. Unfortunately, Batey died in April 2013 before the purchase price was paid-off. Boyd continued to make payments to Batey’s estate until December 2013. When he stopped, he still owed three years’ of payments totaling $640,989.36. Boyd claimed that he didn’t have to pay the remainder because the non-competition agreement was a personal services agreement by Batey (the service being a lack of competition). Since Batey’s death meant he could no long provide that service, Boyd thought he shouldn’t have to pay.
The Supreme Court addressed one issue: “whether the buyers’ obligation under the noncompete survived Batey’s death.” Thus, the real issue was not whether Batey was competing, but whether the buyer (Boyd) was still required pay. And, under the particular facts of this case, the Court found that Boyd should continue payments even after Batey’s death. In particular, the Court relied upon a decision from Georgia which held: “when a noncompetition agreement ancillary to the sale of a business does not also require the seller to affirmatively provide services to the buyer, the essential benefit to the buyer is purchasing the business’s goodwill (as opposed to the seller’s expertise) … [s0] the seller’s death does not deprive the buyer of his benefit.”
So, upon closer examination, the Batey case is not focused on competition as much as doing-the-right-thing. The main thing that Boyd bought in the transaction was the goodwill of Batey’s business. He shouldn’t get that goodwill at a steep discount simply because of Batey’s death.
The Court left-open the possibility that it could reach a different result in a case where a non-competition agreement was connected to employment or specific skills of the seller. So, there might be a more-important lesson to learn from the Batey case: Parties negotiating a non-competition agreement with installment payments should include a provision that clearly states the obligations of the parties if either dies.
Frank Lockwood at work — shortly before the fight of his life.
Many of my friends have shared or commented on a video making the rounds on social media from a group called “Frontline Doctors.” At least one of the “shares,” explicitly called COVID-19 a “hoax.” Apparently, some of my friends are upset that Facebook and Twitter are removing the video. I hope that they have actually watched this video. I have.
In the video, a doctor from Houston claims that there is a “cure” for COVID and no need to wear masks. According to her, hydroxychloroquine, combined with other regimens, is the solution.
In my opinion, those statements are irresponsible and openly encourage life-threatening conduct. Therefore, I wholeheartedly endorse removal of those statements from social media platforms.
Some of my friends believe that we should have a public debate about the benefits of hydroxychloroquine. That’s fine. But, please don’t rely solely upon this one doctor’s opinion.
My brother is a true Frontline Doctor. He is a family practice doctor in Stockbridge, Georgia. He treats people with COVID-19. He probably contracted COVID-19 performing his duty for patients. When he got sick, he checked himself into a hospital where he knows the physicians who are treating him. Now, he’s on a ventilator fighting for his life.
If there was a “cure” for COVID, I choose to believe that my brother and/or his team of physicians would have used it. To think otherwise would condemn Frank and millions of other physicians in this country. They would be endangering themselves and their patients by refusing to implement a simple remedy.
I’m not a doctor. I’m not a researcher. I have no way of personally knowing whether hydroxychloroquine helps to fight COVID. But, I know a lot of physicians and I’ve been talking to them regularly as Frank has fought this virus. None of them has suggested hydroxychloroquine would help. And, some of them have explicitly said that it won’t help. If I contract this disease, I’m going to place my life in their hands and follow their treatment.
Please, reach your own conclusions. If you have physicians who are friends, talk with them. To me, they are the best source of information. I’m not qualified to know which studies on the internet are trustworthy. (You may even review my timeline and see that I jokingly shared a link with some friends, who love Korean food, touting the remedial benefits of kimchi. It was later pulled by Facebook for spreading false information.) Instead, I am relying upon my known, trusted sources of information to reach my conclusion.
If you reach the conclusion that hydroxychloroquine can provide benefits in treatment, I support you one-hundred-percent. But, please, also try to determine if hydroxychloroquine is a “cure” for COVID-19. Figure out if there is a need for social distancing. Is there is a need to wear a mask in public?
Kay Ivey issued an order requiring masks for Alabama. (Sort of.)
This morning, Alabama Governor Kay Ivey ordered Alabamians to wear masks in an effort to combat the spread of COVID-19. Here is a link to the updated “Safer at Home” order: Mask Order. The order is effective at 5:00 PM tomorrow, July 16, 2020. Here’s what you need to know:
Masks Are Required in Three Places
Every person is required to wear a mask that covers the nostrils and mouth if they are within six feet of another person in one of the following places:
An indoor space open to the general public;
A vehicle operated by a transportation service; or,
An outdoor space where ten or more people are gathered.
Exceptions Abound
This really wouldn’t be a COVID-19-related order from Kay Ivey if it didn’t contain plenty of exceptions and explicitly protect Alabama’s state religion — football. So, here are the fourteen categories of people who don’t have to wear a mask:
Any person six years of age or younger.
Any person with a medical condition or disability that prevents him or her from wearing a covering. (Prepare for a proliferation of fake ADA mask preemption cards.)
Any person while consuming food or drink, or seated at a restaurant to eat or drink.
Any person who is obtaining a service (for example, a medical or dental procedure) that requires removal of the facial covering in order to perform the service.
Any person who is required to remove the facial covering to confirm his or her identity, such as for security or screening purposes.
Any person who is actively engaged in exercise in a gym or other athletic facility if he or she maintains six feet of separation form persons of another household.
Any person who is directly participating in athletic activities in compliance with the order. (Roll Tide.)
Any person who is in a swimming pool, lake, water attraction, or similar body of water, though wearing a face covering or social distancing is strongly encouraged if safe and practicable. (Point Mallard is already closed for the season. So, this one doesn’t affect me.)
Any person who is seeking to communicate with another person where the ability to see the person’s mouth is essential for communication (such as when the other person has a hearing impairment).
Any person speaking for broadcast or to an audience if the person maintains six feet of separation from person from another household. (After all, Kay’s gotta be seen during her press conferences.)
Any person who is voting, though wearing a face covering is strongly encouraged.
Any person who cannot wear a facial covering because he or she is actively providing or obtaining access to religious worship, though wearing a face covering is strongly encouraged.
Any first responder (including law enforcement officers, firefighters, or emergency medical personnel) if necessary to perform a public-safety function.
Any person performing a job function if wearing a face covering is inconsistent with industry safety standards or a business’s established safety protocols.
Requirements for Employers
Governor Ivey’s order continues to place requirements on employers, who must “take all reasonable steps, where practicable as work duties permit, to protect employees by:”
Encouraging use of masks and facial coverings;
Maintaining six feet of separation between employees;
Regularly disinfecting frequently used items and surfaces;
Encouraging handwashing;
Preventing employees who are sick from coming into contact with other persons;
Facilitating remote working arrangements; and
Minimizing employee travel.
Enforcement
When she announced the order, Governor Ivey said her plan was merely to “inform” people about masks, rather than arrests or fines. She also said the order would be “difficult to enforce.” In short, Kay would like you to wear a mask, but don’t sweat-it if you feel like infecting other people in the interest of maintaining your “freedoms.”
Are employers required to provide paid leave to employees with child care issues during Summer break?
Under the Families First Coronavirus Response Act (“FFCRA”) employees are entitled to paid leave if their child’s school is closed because of COVID-19. The exact language of the regulation is:
The Employee is caring for his or her Son or Daughter whose School or Place of Care has been closed for a period of time, whether by order of a State or local official or authority or at the decision of the individual School or Place of Care, or the Child Care Provider of such Son or Daughter is unavailable, for reasons related to COVID-19 ….
29 C.F.R. § 826.20(a)(v)(emphasis added). Well, what happens during a school’s regularly-scheduled Summer Break?
Employers might be tempted to deny paid leave because schools are no longer closed “for reasons related to COVID-19.” I strongly recommend you do not take that approach. The exception for child care is more expansive than just closure of a school. Instead, employees are also entitled to paid leave if the child’s “Place of Care” or “Child Care Provider” is unavailable. The definitions of those terms are expansive.
The term “Place of Care” means a physical location in which care is provided for the Employee’s child while the Employee works for the Employer. The physical location does not have to be solely dedicated to such care. Examples include day care facilities, preschools, before and after school care programs, schools, homes, summer camps, summer enrichment programs, and respite care programs.
29 C.F.R. § 826.10(a)(emphasis added).
So, if an employee would normally send their child somewhere for care during the Summer, and that place is closed because of COVID-19 concerns, they are still entitled to paid leave.
Plenty of employees also rely upon friends and family to provide child care during the Summer. Those friends and family fall within the definition of “Child Care Provider”:
The term “Child Care Provider” means a provider who receives compensation for providing child care services on a regular basis. The term includes a center-based child care provider, a group home child care provider, a family child care provider, or other provider of child care services for compensation that is licensed, regulated, or registered under State law …. Under the Families First Coronavirus Response Act (FFCRA), the eligible child care provider need not be compensated or licensed if he or she is a family member or friend, such as a neighbor, who regularly cares for the Employee’s child.
29 C.F.R. § 826.10(a)(emphasis added). So, if an employee would normally rely upon a family member or friend for child care during the Summer, but that person is unavailable because of COVID-19, the employee is still entitled to paid leave.
The best approach to resolving Summer Break issues is to have a discussion with your employee. How do you normally care for your child during the Summer? What is different this year from previous years? If the employee provides a COVID-19 related explanation for lack of child care, they are probably entitled to paid leave. In that instance, employers have obligations under the FFCRA to document the reasons for Summer leave.
Here is link to FFCRA regulations: FFCRA Regs. If you have further questions on child care and COVID-19 paid leave, contact your attorney.
Employers still have plenty of questions regarding their obligations to provide paid leave related to COVID-19.
By now, most employers know that Congress passed the Families First Coronavirus Response Act (“FFCRA”) which mandated paid leave for employees affected by COVID-19. In summary, the FFCRA contains two acts. First, the Emergency Family and Medical Leave Expansion Act (“EFMLA”) requires up to 12 weeks of leave for child care issues related to COVID-19. Second, the Emergency Paid Sick Leave Act (“EPSLA”) requires 80 hours of paid sick leave because of issues arising from a diagnosis/symptoms of COVID-19 or child care issues. Here’s a link to a post more-thoroughly discussing the EFMLA and EPSLA: EFMLA and EPSLA
In the days following passage, the United States Department of Labor (“DOL”) weighed-in with a set of Questions and Answers related to paid sick leave. Here’s a link to that guidance: DOL Q&A. Not to be outdone, the Internal Revenue Service also provided its own Questions and Answers: IRS Q&A.
Importantly, those Questions and Answers were not binding statements of the law. Paid leave required by the FFCRA became mandatory beginning on April 1, 2020. On that same day, DOL issued interim regulations and today placed those regulations into the Code of Federal Regulations (“C.F.R.”). Employers can now rely upon those regulations when making decisions related to paid leave. Here’s a link to the published regulations: Published Paid Leave Regs.
Here are 10 issues of importance in the regulations:
A “Child Care Provider” Includes Free Care by Family Members and Friends. Under the FFCRA, an employee is eligible for leave if “the child care provider of such son or daughter is unavailable” due to COVID-19 reasons. The FFCRA defined “child care provider” as “a provider who receives compensation for providing child care services on a regular basis ….” Some commentators believed that this definition prevented employees from receiving paid sick leave if they relied upon free child care from family members or friends. DOL dispensed with that argument by defining “child care provider” so that an “eligible child care provider need not be compensated or licensed if he or she is a family member or friend, such as a neighbor, who regularly cares for the Employee’s child.” 29 C.F.R. § 826.10
What is “telework?” The FFCRA makes clear that an employee is only entitled to paid leave if he/she is unable to work, or telework, because of qualifying reason. But, the FFCRA did not define “telework.” The regulations clarify that telework is “work the Employer permits or allows an Employee to perform while the Employee is at home or at a location other than the Employee’s normal workplace.” 29 C.F.R. § 826.10
What “symptoms” qualify for leave? One way for an employee to qualify for 80 hours of leave under the EPSLA is if they are “experiencing symptoms of COVID-19 and seeking medical diagnosis from a health care provider.” The regulations clarify than any one of four (4) symptoms suffice: (a) fever; (b) dry cough; (c) shortness of breath; or (d) any other COVID-19 symptoms identified by the U.S. Centers for Disease Control and Prevention. See 29 C.F.R. § 826.20(a)(4).
“Caring for an individual” is expansive. Another way for an employee to qualify for 80 hours of leave under the EPSLA is if they are “caring for an individual” who is subject to a quarantine order or directed to self-quarantine. The regulations provide an expansive definition of the “individuals” who may be cared for: (a) an employee’s immediate family member; (b) a person who regularly resides in the employee’s home; or, (c) a similar person with whom the employee has a relationship that creates an expectation that the employee would care for the person. See 29 C.F.R. § 826.20(a)(5).
“Caring for a son or daughter” is slightly restricted. Under both the EFMLA and EPSLA, an employee may receive leave if they are “caring for a son or daughter” whose school or child care provider is unavailable because of COVID-19. The regulations make clear that an employee is only entitled to that leave “only if no other suitable person is available to care for the Son or Daughter during the period of such leave.” 29 C.F.R. §§ 826.20(a)(8) and 826.20(b).
Taking paid leave does not affect FLSA overtime exemptions. As a general rule, the Fair Labor Standards Act (“FLSA”) allows employers to exempt salaried employees from overtime if they perform certain executive, administrative or professional duties. Another general rule of the FLSA requires that an exempt, salaried employee must be paid his/her entire week’s salary if he/she works any part of the work week. Many employers and commentators were worried that payment of sick leave under the FFCRA might affect FLSA exemptions. The regulations completely resolve those worries: “The taking of Paid Sick Leave or Expanded Family and Medical Leave shall not impact an Employee’s status or eligibility for any exemption from the requirements of” the FLSA. 29 C.F.R. § 826.20(c).
FMLA leave is limited to 12 weeks — paid or unpaid. The EFMLA expands the “regular” FMLA. The regular FMLA provides 12 weeks of unpaid leave to qualifying employees. Many employers wondered whether the EFMLA gave an additional 12 weeks. DOL answered that question with an emphatic: “No.” So, if an employee used 6 weeks of unpaid, “regular” FMLA earlier this year, they will only be entitled to 6 weeks of Emergency Family and Medical Leave. See 29 C.F.R. § 826.23.
The exemption for “health care providers” and “emergency responders” is broad. The FFCRA allows employers of “health care providers” and “emergency responders” to exempt those employees from paid leave. The regulations bring a wide-range of employees within those definitions. “Health care provider” includes “anyone employed at any doctor’s office, hospital, health care center, clinic, post-secondary educational institution offering health care instruction, medical school, local health department or agency, nursing facility, retirement facility, nursing home, home health care provider, any facility that performs laboratory or medical testing, pharmacy, or any similar institution.” It also includes people who provide support services to such facilities. “Emergency responder” includes: military or national guard, law enforcement officers, correctional institution personnel, fire fighters, emergency medical services personnel, physicians, nurses, public health personnel, emergency medical technicians, paramedics, emergency management personnel, 911 operators, child welfare workers and service providers, public works personnel, and persons with skills or training in operating specialized equipment or other skills needed to provide aid in a declared emergency, as well as individuals who work for such facilities employing these individuals and whose
work is necessary to maintain the operation of the facility.” See 29 C.F.R. § 826.25(c).
Small business may exempt themselves from paid leave. An employer with fewer than 50 employees can be exempt from the FFCRA’s requirements if an authorized officer of that employer determines and documents that one of three criteria exist: (a) paid leave would result in expenses and financial obligations exceeding available business revenues and cause the small business to cease operating at a minimal capacity; (b) the absence of the employee(s) requesting leave would entail a substantial risk to the financial health or operational capabilities of the business because of their specialized
skills, knowledge of the business, or responsibilities; or, (c) there are not sufficient workers who are able, willing, and qualified, and who will be available at the time and
place needed, to perform the labor or services provided by the employee(s) requesting leave, and these labor or services are needed for the business to operate at a minimal capacity.
You must document reasons for paid leave. Both the IRS and the DOL have mandated documentation to support any paid leave given to an employee. Every employee’s request must be supported by documentation containing: (a) the employees name; (b) the dates for which leave is requested; (c) the qualifying reason for the leave; and, (d) an oral or written statement that the employee is unable to work because of the qualifying reason. Additionally, if an employee, or somebody they care for, has been advised by a health-care provider to self-quarantine, the employee must provide the name of the health care provider. If a quarantine/isolation order has been issued, the employee must provide the name of the government entity issuing the order. For child care, the employee must also provide:
The name of the son or daughter cared for;
The name of the school, place of care, or child care provider that has closed or is unavailable; and,
A representation that no other suitable person will be caring for the son or daughter during the period for which leave is taken.
There are many more issues addressed by the regulations. If you have any particular questions about the FFCRA, you should consult with an employment attorney.
Governor Ivey’s so-called “shelter in place” order will have little impact on Alabama employers.
In recent days, Alabama Governor Kay Ivey has been the subject of increasing pressure to issue a “shelter in place” order — requiring Alabamians to stay home because of COVID-19. Today, she issued an order that claims to mandate “shelter in place.” Yet, the exceptions within that order are so enormous, they will have very little impact on Alabama employers. I also believe the order will do very little to change the behavior of ordinary people. Here’s a link to the order: Shelter In Place Order
The order beings quite convincingly: “Effective Saturday, April 4, 2020, at 5:00 P.M., every person is ordered to stay at his or her place of residence except as necessary to perform any of the following ‘essential activities’:” The key words here are “except” and “essential activities.” The order goes on to label almost every activity in Alabama as “essential,” including:
Obtaining necessary supplies — defined as anything necessary for the “routine operation of a home or residence.”
Providing necessary services — Anything necessary to preserve a person or pet’s health and safety.
Attending religious services — so long as you can maintain a consistent six-foot distance.
Taking care of others — defined to include taking care of a “pet in another household.”
To work. Obviously, this is the important one for this blog. People are allowed to leave home to perform work at “essential businesses and operations.” As detailed below, virtually all businesses are considered “essential.”
To engage in outdoor activity. After all, it’s Turkey Season.
To seek shelter.
To travel as required by law
To see family members. Defined as “to visit the residence of other persons who are related to him or her.”
OK. People can report to work at “essential businesses and operations.” Well, what are those? You name it, and you probably work for an “essential” business. Each of the following categories of business has laundry-list of specific occupations called-out in the order. If you have any question, check the order — you’re probably working for an “essential” business.
Government operations. Basically, any government agency and “workers and vendors that support” those agencies.
Health-care providers and caregivers. Again, this category is as broad as possible, including “medical practices” and “other ancillary healthcare services.”
Infrastructure operations. Utilities, wireless communication, dams, airports — those make sense. But, don’t forget car sales, Uber and Lyft drivers and RV Parks.
Manufacturing facilities. Any company that produces any “products used by any other Essential Business or Operation.”
Agricultural operations and farms.
Essential retailers. Almost anybody but clothes stores. Warehouse clubs, liquor stores, convenience stores, guns stores and boat supply and repair stores are essential.
Restaurants and bars. This is the only category with absolutely no specification.
Essential personal services. This one is a little vague. It includes home repair, warehouses, animal shelters, laundromats, dry cleaners and “providers of business services.”
Financial services. Banks and anybody else that provides “services related to financial markers” with a special shout out to “payday lenders.”
Professional services. If you’re reading this blog, you know lawyers are essential. So are accountants, insurance services and real estate services.
Providers of basic necessities to economically disadvantaged populations.
Construction and construction-related services. Also broad, to include exterminators, janitorial services, painting, movers and “other related construction firms and professionals providing essential infrastructure.”
Essential public services. This is any service “necessary to maintain the safety, sanitation and essential operations of residences and essential businesses and essential operations ….”
Military or defense operations. My government contracting clients in Huntsville are essential. This includes any companies or subcontractors supporting the Department of Defense.
Essential services or product providers. This includes “any vendors that provide services or products.”
Religious entities.
Federally-designated critical infrastructure. Just in case Alabama’s list isn’t comprehensive enough, Governor Ivey bootstrapped everything the federal government deems “essential.” Here’s a link to that list: “Critical Infrastructure Workers”
Other state-designated essential businesses and operations. Any business deemed essential by the Alabama Department of Public Health or the Alabama Emergency Management Agency.
Support operations for essential business and operations. This is the catch-all. It covers any businesses that are “employees, contractors, agents, suppliers, or vendors” of another essential business or operation.
Just in case law enforcement officials stop an employee traveling to or from an essential business, this order allows businesses to supply workers with “credentials … verifying their status as an employee of an essential business or operation.” I have drafted these credentials for several of my clients with offices in other states that are also subject to “shelter in place” orders.
Essential business are supposed to “take all reasonable steps” for employees and customers to maintain a consistent six-foot distance and to avoid gatherings of 10 or more people.
The only other big change in this “shelter in place” order involves “essential retailers.” They are only allowed to permit entry of customers so that occupancy of their buildings is limited to “50 percent of the normal occupancy load as determined by the fire marshal.” Their employees must not “knowingly allow” patrons to congregate within six feet of each other. Finally, they must take “reasonable steps to comply” with guidelines on sanitation from the Centers for Disease Control and the Alabama Department of Public Health.
I truly hope that this “shelter in place” order has some impact on slowing the spread of COVID-19. In my opinion, however, the exceptions in the order are so broad, that they impose virtually no further restrictions from the “social distancing” restrictions that were previously imposed on Alabamians. Here’s a link to my first blog post discussing Governor Ivey’s first “social distancing” order: Social Distancing Order
The IRS imposed documentation requirements on employees seeking paid leave related to COVID-19.
Late last night, the Internal Revenue Service imposed documentation requirements on employers whose employees want to take advantage of the paid sick leave benefits of the Families First Coronavirus Response Act (“FFCRA”). In total, the IRS posted 66 questions and answers — most of which dealt with the nuts-and-bolts of obtaining the federal tax credits that pay for the leave. Here is a link to the questions and answers: IRS Q&A Employers must pay special attention to questions 44, 45 and 46.
Those questions and answers impose very specific documentation requirements on employers and employees. I have developed a couple of forms to satisfy those requirements. If you would like a copy please e-mail me at: rlockwood@wilmerlee.com
For any type of COVID-19 paid leave, the employee must provide a written request with:
The employee’s name;
The date or dates for which leave is requested;
A statement of the COVID-19 related reason the employee is requesting leave and written support for such reason; and
A statement that the employee is unable to work, including by means of telework, for such reason.
Most of my clients are anticipating leave requests based upon an employee’s need for child care. The IRS’s documentation rules for child care-related leave impose two new restrictions. First, “special circumstances” must exist to grant leave to care for a child over the age of 14. Unfortunately, the IRS does not clarify what types of “special circumstances” qualify. Second, no other person can provide care for the child during the period in which the employee is receiving leave. In total, the employee must provide the following information in writing:
The name and age of the child/children to be cared for;
The name of the school that has closed or the place of care that is unavailable;
A representation that no other person will be providing for the child during the period for which the employee is receiving leave; and,
A statement that special circumstances exist requiring the employee to provide care for child older than 14 during daylight hours.
The FFCRA also provides 80 hours of Emergency Paid Sick Leave for employees who are directly dealing with a diagnosis of COVID-19. More detail on the quarantine/symptoms/care for quarantine can be found in this earlier blog: Paid Leave for Coronavirus The IRS’s questions and answer specify the documentation required for that leave:
The name of the governmental entity ordering quarantine; or, the name of the health-care professional advising self-quarantine; and,
If the employee is seeking leave to care for an individual who has been quarantined or advised to self-quarantine — the name of the individual being cared for and their relation to the employee.
As if the foregoing documentation requirements weren’t enough, the IRS also requires employers to maintain documentation supporting the amount of paid leave provided. Those requirements are found in question 45. In total, there are four types of documents that must be maintained, but the most significant is: “Documentation to show how the employer determined the amount of qualified sick and family leave wages paid to employees that are eligible for credit, including records of work, telework and qualify sick leave and qualified family leave.” Again, the IRS provides no guidance on the types of documentation that will suffice. At a minimum, if an employer allows an employee to telework for part of the day, the employer should require some type of time sheet or other documentation of hours worked.
Finally, question 46 makes clear that employers must maintain all of the foregoing paperwork for at least four years after the date any applicable payroll tax becomes due or is paid, whichever is later.
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) impacts employers throughout the United States.
On March 27, 2020, President Trump signed the Coronavirus Aid, Relief, and Economic Security Act, otherwise known as the “CARES Act.” The Act is 880 pages long. If you are a glutton for punishment, here is a link to the text of the entire Act: CARES Act
There are numerous provisions of the CARES Act that affect employers. I have attempted to provide you with a “high level” summary of those provisions. There are many aspects of the CARES Act that implicate tax law and I am not expert in that area. If you want to take advantage of any part of the CARES Act, I strongly recommend that you consult with a tax professional as well as your attorney. I have summarized each pertinent Section with its title and Section number.
I. Paycheck Protection Program (Section 1102 of the CARES Act)
What does it do? This program provides Small Business Administration Loans so that eligible employers can meet payroll costs and other expenses from February 15, 2020 to June 30, 2020. Here’s a link to a publication from the United States Chamber of Commerce which also describes the program: “Coronavirus Emergency Loans”
Who is eligible? Business with 500 employees or less are eligible. Other eligible businesses include: nonprofits; hospitality industry businesses with NAICS Code 72; veterans organizations; sole proprietors; tribal businesses; and, independent contractors.
What must the loan be used for? Any loan must be used for: payroll costs; continuation of group health care benefits; salaries, commissions or similar compensation; interest on mortgage obligations; rent; utilities; or, interest on debt incurred previously.
What is my loan amount? The maximum loan amount is the lesser of:
$10 million; or,
Your average total monthly payroll costs (determined 1 year prior to the loan date) — multiplied by 2.5
Do I have to give collateral or a personal guarantee? No.
What is the interest rate? The rate cannot exceed 4%
Is the loan forgivable? Yes. There is a math formula in the Act for calculating forgiveness. Generally, as long as you keep paying employees at normal levels during the eight weeks following loan origination, then the amount you spend on payroll costs (excluding costs for any compensation above $100,000 annually), mortgage interest, rent payments and utility payments can be forgiven. Forgiveness may be reduced if you reduce salaries or wages.
II. Pandemic Unemployment Assistance (Section 2102 of the CARES Act)
What does it do? This program provides up to 39 weeks of unemployment benefits to individuals who would not otherwise be entitled to unemployment benefits.
Who is eligible? Almost anyone who is out of work for COVID-19 reasons and is not otherwise eligible for unemployment benefits. This includes: self-employed individuals; independent contractors; and, individuals who have exhausted their regular unemployment benefits. An individual who “has the ability to telework with pay” or who is “receiving paid sick leave or other paid leave benefits” does not qualify.
How does my State get this benefit? The benefit will be administered through State unemployment programs. Therefore, each State must enter into an agreement with the Secretary of the Treasury to receive and disburse this benefit.
What will the benefit be? Eligible individuals will receive unemployment benefits calculated under the “regular” provisions of State law. In addition, through July 31, 2020, eligible individuals will receive an additional $600 per week.
How long is the benefit available? The 39 weeks of benefits will be available from January 27, 2020 through December 31, 2020.
III. Emergency Increase in Unemployment Compensation Benefits (Section 2104 of the CARES Act)
What does it do? This program provides an extra $600 per week to employees eligible to receive unemployment compensation benefits under State law.
Who is eligible? Individuals who are eligible for unemployment benefits under State law are eligible for the additional $600. Even if the employee made less than $600 before going on unemployment, they will receive the full benefit.
How does my State get this benefit? The benefit will be administered through State unemployment programs. Therefore, each State must enter into an agreement with the Secretary of the Treasury to receive and disburse this benefit.
How long is the benefit available? The benefit will be paid through July 31, 2020.
IV. Pandemic Emergency Unemployment Compensation (Section 2107 of the CARES Act)
What does it do? This section provides an additional 13 weeks of unemployment benefits through December 31, 2020 to help those who remain unemployed after state unemployment benefits are no longer available.
Who is eligible? Individuals who have: (1) exhausted all rights to state unemployment benefits; (2) have no other right to regular compensation; (3) are not receiving unemployment compensation from Canada; and, (4) are able to work, available to work, and actively seeking work.
How does my State get this benefit? The benefit will be administered through State unemployment programs. Therefore, each State must enter into an agreement with the Secretary of the Treasury to receive and disburse this benefit.
How long is the benefit available? The extra 13 weeks will be paid through December 31, 2020.
V. 2020 Recovery Rebates for Individuals (Section 2201 of the CARES Act)
This is the section that has been widely publicized promising $1,200 to each qualified individual. It is not directly employer related, so I will allow you to conduct your own homework on this one.
VI. Special Rules for Use of Retirement Funds (Section 2202 of the CARES Act)
Generally, employees may take a distribution up to $100,000 from their eligible retirement plan if they are diagnosed with COVID-19; have a spouse or dependent diagnosed with COVID-19; or, experience adverse financial consequences as a result of COVID-19. Speak with you retirement plan sponsor if you or your employees want to take advantage of this benefit.
VII. Exclusion for Certain Employer Payments of Student Loans (Section 2206 of the CARES Act)
Many employers establish plans under which they can provide tax-free payments for an employee’s education up to a value of $5,250. The CARES Act expands that benefit to loans that were taken by employees to pay for education. In short, employers can help pay for the past education of employees. Until January 1, 2021, employers can pay the employee, or their lender, for any principal or interest of a qualified education loan incurred by the employee for education of the employee. The total amount that can be paid is $5,250.00.
VIII. Employee Retention Credit to Employers Subject to Closure Due to COVID- 19 (Section 2301 of the CARES Act)
What does it do? This section provides a payroll tax credit for 50 percent of qualifying wages paid by employers to employees during the COVID-19 pandemic. In short, it is an incentive for an employer to retain employees – even though the employer is losing business because of COVID-19.
Who is eligible? The tax credit is available to employers whose: (1) operations were fully or partially suspended because of an order limiting commerce, travel, or group meetings due to COVID-19; or, (2) gross receipts declined by more than 50 percent when compared to the same quarter in the prior year.
There is a wage limit. There is a limit to the amount of wage per-employee upon which an employer can take the tax credit. The cap, per-employee, is $10,000 in wages. In other words, the maximum tax credit per employee is $5,000.00
What kind of benefit is provided? Eligible employers will receive a credit against employment taxes for each calendar quarter in an amount equal to 50% of the qualified wages for each employee.
For employers with more than 100 employees, the tax credit is only available for wages paid to employees who are not actually working because of the business slowdown.
For employers with 100 or fewer employees, the tax credit is for all wages paid to employees.
Over what period is the benefit paid? Qualifying wages paid from March 12, 2020, to December 31, 2020 are eligible for the credit.
Limitations on the tax credit. Employers cannot take this tax credit if they are also taking advantage of the small business interruption loan. The amount of the tax credit is also reduced to the extent that the employer is already taking a tax credit for paid leave under the Families First Coronavirus Response Act. (Here are links to two discussions of that Act: (1) FFCRA Paid Leave and (2) IRS Tax Credits for Paid Leave.) The credit is also reduced to the extent the employer is already taking a credit for employment of qualified veterans and credit for research expenditures of qualified small businesses.
VIII. Emergency Relief and Taxpayer Protections (Section 4003 of the CARES Act)
This wide-ranging section provides the Treasury Secretary with broad authority to make loans or loan guarantees to states, municipalities and eligible businesses. Subsection (c)(3)(D) authorizes the Secretary to create a program to assist mid-size businesses and imposes employment restrictions under any such program.
Which businesses are eligible? The Secretary’s program will provide low-interest loans (less than 2% per annum) to eligible business, including non-profits, with between 500 and 10,000 employees. No payment of principal or interest will be required for the first six months of the loan.
Are there any strings attached? Yes. Any business applying for the loan must make a “good faith certification” of the following ten conditions:
the uncertainty of economic conditions makes to loan necessary to support ongoing business operations;
the funds it receives will be used to retain at least 90 percent of the recipient’s workforce, at full compensation and benefits, until September 30, 2020;
the recipient intends to restore not less than 90 percent of its workforce that existed on February 1, 2020, and to restore all compensation and benefits to the workers of the recipient no later than 4 months after the termination date of the COVID-19 emergency;
the recipient is an entity or business that is domiciled in the United States with significant operations and employees located in the United States;
the recipient is not a debtor in a bankruptcy proceeding;
the recipient is created or organized in the United States or under the laws of the United States and has significant operations in and a majority of its employees based in the United States;
the recipient will not pay dividends with respect to the common stock of the eligible business, or repurchase an equity security that is listed on a national securities exchange of the recipient or any parent company of the recipient while the direct loan is outstanding, except to the extent required under a contractual obligation that is in effect as of the date of enactment of this Act;
the recipient will not outsource or offshore jobs for the term of the loan and 2 years after completing repayment of the loan;
the recipient will not abrogate existing collective bargaining agreements for the term of the loan and 2 years after completing repayment of the loan; and,
the recipient will remain neutral in any union organizing effort for the term of the loan.
• What is impact on compensation of officers and employees? If a business accepts one of these loans, limitations will be placed on highly-paid officers and employees. Officers or employees that received $425,000 or more in compensation in calendar year 2019 will have their future compensation capped at the amount they received that year. That compensation cap will remain in place while the loan is in effect and an additional year after the loan or loan guarantee is no longer outstanding. During that same period, severance or other termination benefit will be restricted to twice the total compensation received during 2019.
There are additional restrictions if the officer or employee made more than $3,000,000 in 2019. Their compensation is limited to: (1) $3,000,000; plus, (2) 50 percent of the excess over $3,000,000 received in 2019. For example, if the employee made $10,000,000 in 2019, the compensation would be limited to: (1) $3,000,00; plus (2) $5,000,000 (50% of $10,000,000).
The Department of Labor attempted to answer many questions surrounding the paid leave requirements of the Families First Coronavirus Response Act.
Today, the United States Department of Labor provided guidance for employers who are attempting to decipher the Families First Coronavirus Response Act. The release, titled “Families First Coronavirus Response Act; Questions and Answers,” is not a formal regulation but is intended to be “compliance assistance” for employers. Here is a link to the questions and answers: Questions and Answers. Generally, the Act requires employers to provide paid leave to employees who must miss work related to COVID-19. Here is a link to my blog post discussing the Act: Paid Leave for Coronavirus
Here are the highlights of the DOL’s Questions and Answers:
1. Effective Date: The law was signed on March 18, 2020 and provided that it would become effective in 15 days. Therefore, most lawyers thought it would be effective on April 2, 2020. DOL now says the effective date is a day earlier – April 1, 2020.
2. Joint and Integrated Employers Can Exceed 500 employees. I’ve gotten a lot of questions on how to “count” employees towards the Act’s 500-employee threshold. DOL appears to take an expansive stance for counting employees. If separate companies are considered “joint employers” under the Fair Labor Standards Act, they must each count their joint employees towards the threshold. Here’s a link to the standards for determining “joint employer” status: FLSA Joint Employer. In addition, if two entities meet the “integrated employer” test under the Family and Medical Leave Act, then all employees of the integrated employer will count towards determining coverage. Here is the link DOL provided for the “integrated employer” test (see page 9): FMLA Integrated Employer
3. Regular Overtime Counts Towards Paid Leave. If an employee regularly works overtime, then that period of time can be credited towards paid leave under the Emergency Paid Sick Leave Act. For example, if an employee is scheduled to work 50 hours every week, they should be paid 50 hours of paid leave during the first week, and 30 hours during the second week. Importantly, the extra 10 hours in the first week is not paid at time-and-a-half.
4. “Regular Rate of Pay” Clarified. Paid leave is based upon an employee’s “regular rate of pay,” but many employment lawyers questioned the period over which that rate would be determined. DOL clarified that that the rate is determined by “looking back” at the average rate of pay over six months. If the employee has not worked six months, the employer looks back at the average regular rate of pay for each week the employee has worked.
5. Emergency Paid Sick Leave Capped at 80 Hours. The Emergency Paid Sick Leave Act provides six (6) reasons for requesting paid leave. DOL clarified that an employee does not get 80 hours per reason — totaling 480 hours. Instead, the total number of hours for all reasons is capped at 80 hours.
6.Emergency FMLA and Emergency Paid Sick Leave Can Run Concurrently. Under the Emergency Family and Medical Leave Act, the first 10 days of leave (i.e., two work weeks) for child care are unpaid, and the next ten weeks are paid. In contrast, leave under the Emergency Paid Sick Leave is for two work weeks and begins immediately. DOL clarified what most employment lawyers thought — the unpaid portion of Emergency FMLA leave can run concurrently with the paid portion of Emergency Paid Sick Leave. In short, parents with COVID-19 related child care issues may qualify for 12 total weeks of paid leave.
7. No retroactivity. There has been some speculation that the IRS’s recent clarification of tax issues related to paid sick leave may allowed employers to retroactively designate leave give prior to April 1 as paid leave under the Act. Here is a link to my blog post about the IRS’s clarification: IRS Payroll Tax and Paid Leave. DOL clearly states that the paid leave is not retroactive.
The IRS will allow employers to retain their payroll taxes to pay for leave associated with COVID-19.
The Internal Revenue Service will allow employers to retain their payroll taxes to pay for newly-mandated leave associated with COVID-19. In a press release on March 20, 2020, the IRS provides some preliminary guidance that may ease the fears of many small employers. Here’s a link to that press release: IRS Press Release
I’ve received a lot of questions about the Families First Coronavirus Response Act. Here’s a blog that I wrote generally discussing the requirements of that act: Coronavirus Response Act. Broadly, the Act requires many small employers to provide paid leave for child care and other issues associated with COVID-19. Many of my clients are concerned that the cost of paid leave will be so great they will be out of business before being able to claim a tax credit. The IRS’s press release addresses those concerns.
Importantly, the press release is not a valid and/or final statement of the IRS’s interpretation of the Act. It plainly states that a formal guidance should be released this week. Nevertheless, the press release should relieve some employers’ fears. The IRS says that employers will be able to immediately pay for the leave by retaining their federally-mandated payroll taxes:
Under guidance that will be released next week, eligible employers who pay qualifying sick or child care leave will be able to retain an amount of the payroll taxes equal to the amount of qualifying sick and child care leave that they paid, rather than deposit them with the IRS.
The payroll taxes that are available for retention include withheld federal income taxes, the employee share of Social Security and Medicare taxes, and the employer share of Social Security and Medicare taxes with respect to all employees.
If there are not sufficient payroll taxes to cover the cost of qualified sick and child care leave paid, employers will be able file a request for an accelerated payment from the IRS. The IRS expects to process these requests in two weeks or less. The details of this new, expedited procedure will be announced next week.
Obviously, I will provide an update when the official guidance is released this week.
