Employers Pondering Layoffs Have Tough Choices
Attorneys say companies hoping for CARES Act relief should weigh pros and cons carefully

by Jessica Folker

Nearly 17 million Americans have filed for unemployment since mid-March. With COVID-19 likely to keep much of the U.S. economy shut down through at least the end of April, more layoffs, furloughs and hour reductions are on the way, and they’re expected to hit a wider swath of industries than  at the beginning of the pandemic.

Companies are dealing with tough choices about whether to lay people off or maintain payrolls. But employers need to weigh their options carefully before coming to a decision, as choices they make now can affect which programs and assistance they’re eligible for down the line.

“The overarching challenge facing employers is that there’s so much pressure to act quickly to try to stop the bleeding,” said Sherman & Howard member Brooke Colaizzi.

“But on the other hand, a lot of the lifelines and the stimulus packages and assistance that have just been put out there for companies work at odds with one another, so an employer needs to take some time to figure out a preferred course of action.”

The Coronavirus Aid, Relief and Economic Security Act, signed into law March 27, includes expanded unemployment benefits for people who have lost work as well as loans for small businesses that want to avoid layoffs.

THE LAYOFF ROUTE

Cutting staff might be an easy way to save on cash in difficult times, but uncertainty about how long the COVID-19 shutdown and its economic fallout will last might give companies pause about making short-term decisions.

While industries such as tourism, dining and entertainment have been crushed by the pandemic, employees laid off or furloughed from those businesses might find their skills in demand at Amazon, brick-and-mortar retailers and other companies that have been short-staffed during the crisis.

“There are a lot of companies that are hiring right now. So, if you start doing layoffs, the concern is that if people come off the payroll, then they’re going to find another job,” said Bill Berger of L2S Legal. “And if we all spin back up again in a few weeks or a month, are those people going to still want to come back to work for you?”

The CARES Act provides for a number of loans through the Small Business Administration to help companies stay afloat amid the coronavirus shutdown, including Paycheck Protection Program loans that are forgivable for businesses that keep all their employees on the payroll. Employers eyeing layoffs, or those that have already made cuts, could miss out on some of the biggest incentives in the coronavirus relief package.

“The CARES loans are extremely favorable to employers, but their forgiveness is tied directly to the employer’s ability to maintain payroll and to maintain employee count,” Colaizzi said. “It’s going to be difficult for a business to take advantage of those loans — at least full advantage of those loans — while simultaneously laying off employees.”

The CARES Act expands unemployment eligibility to many people, including gig workers and independent contractors, who would normally not receive benefits. From now until the end of July, those eligible for unemployment will receive an extra $600 per week in addition to regular state unemployment benefits.

“If you’ve got workers who will make more money on the layoffs — or furlough, if you want to call it that — then realize that you have the opportunity to help your workers make more money,” Berger said. “It’s counterintuitive, but if you can help them, you want to help them.”

The extension of unemployment benefits to independent contractors and gig workers shouldn’t create any extra burdens for employers, Colaizzi said. There has been some speculation that out-of-work freelancers applying for expanded unemployment benefits could bring cases of employee misclassification to light or, as Berger noted, give governments lots of data about how many independent contractors are out there and whether they have been taxed properly. Colaizzi said she has heard concerns about increased scrutiny of employee classification, but she doubts the government will have the capacity to pursue enforcement any time soon.

One question left unresolved at this point is whether the expanded unemployment benefits will affect an employer’s experience rating, which determines their unemployment insurance tax rates based on how much former employees have drawn in benefits. According to Colaizzi, the choice is being left up to the states, and it’s not clear yet what Colorado will decide.

STAYING FULLY STAFFED

If forgivable loans are an option, the decision to keep employees on the payroll might seem obvious. But Colaizzi said there’s a flip side to keeping people on staff.

“If an employer retains their employees, most employers will then be subject to the leave requirements in the [Families First Coronavirus Response Act], which can be extremely taxing from a financial standpoint,” she said.

Under the FFCRA, employees may be eligible for two weeks of paid sick leave at their regular rate of pay for a coronavirus-related absence. It also provides sick leave at two-thirds the pay for eligible workers with family caretaking obligations related to COVID-19.

Companies might have trouble getting their hands on the SBA loans, Berger said, as many banks are requiring borrowers have an existing account, or at least a relationship with an affiliate business, to qualify.

The money is going fast, too. As of Friday, $141 billion of the $350 billion available in Paycheck Protection Program loans had already been spoken for. Senate Republicans requested an additional $250 billion last week, but Democrats blocked the move Thursday in a bid to secure more funding for hospitals, food stamp programs and state and local governments.

Despite reported bottlenecks at the banks and high demand from businesses, Berger said he recently had a client approved for an SBA loan in just a matter of days. And despite a lack of specific guidance so far from the federal government on how and when the loans should be forgiven, he said, “it seems like the banks that are willing to write these loans are willing to tell their customers what those terms will be.” It’s important business owners understand those terms before jumping into debt they won’t be able to get rid of.

“These are real loans. You have to have a real clear understanding of what you’re applying for and what you’re going to spend it on, and whether it falls within the forgivable terms,” Berger said.

To read the rest of this article and other complete articles featured in the April 13, 2020, print edition of Law Week Colorado, copies are available for purchase online.