CARES Act Loans for Mid-Sized Businesses Come With Strings Attached
The Payroll Protection Program (“PPP”), which provides forgivable loans to businesses with fewer than 500 employees, has been among the most well-known provisions of the Coronavirus Response, Aid, and Economic Security Act (“CARES Act”). It is important to note, however, that the CARES Act will also provide non-forgivable loans to mid-sized businesses. Although the CARES Act does not include a timeline in which this program will launch, we will summarize the major points of the program.
What Businesses are Eligible for Such Loans?
An eligible “mid-sized” business (whether for-profit or not-for-profit) must employ between 500 and 10,000 employees, must be created or organized in the United States or under the laws of the United States, and have significant operations in and a majority of employees in the United States.
What Must an Eligible Business Certify To?
A prospective borrower must certify to the following:
The loan is necessary to support the borrower’s ongoing operations due to the uncertainty of economic conditions as of the date of the application;
Loan proceeds will be used to retain at least 90% of the borrower’s workforce, at full compensation and benefits, until September 30, 2020;
It intends to restore at least 90% of its employee headcount as of February 1, 2020, and all compensation and benefits to workers no later than 4 months after the COVID-19 public health emergency ends;
It is a United States company, domiciled in the United States with significant operations and a majority of its employees located in the United States;
It is not a debtor in a bankruptcy proceeding;
It will not pay dividends on its common stock or repurchase a listed equity security while the loan is outstanding unless pursuant to a contract in place before March 27, 2020;
It will not outsource or offshore jobs for the loan term and 2 years after completing repayment;
It will not abrogate existing collective bargaining agreements for the loan term and 2 years thereafter; and
It will remain neutral in any union organizing effort among the borrower’s employees during the loan term.
What Does It Mean to “Remain Neutral in any Union Organizing Effort”?
Although we are awaiting clarification on this point, as the CARES Act does not specifically define this phrase, it is likely that, at a minimum, receiving a mid-sized business loan would prohibit an employer from negatively commenting on the union or its organizing efforts. This would likely prohibit a loan recipient from educating employees on the disadvantages of union representation so that the only perspective they hear is the union’s. It may also result in the removal of secret ballot representation elections in favor of a card check provision whereby the union is automatically recognized if a majority of employees sign union authorization cards.
What Are the Terms of the Loan?
The loans have a maximum interest rate of 2%. No principal or interest is due or payable for the first 6 months of the loan. The CARES Act, however, does not set a maximum loan amount or maturity date.
Are there Any Other Notable Restrictions?
For the period until 1 year after the loan is no longer outstanding, an officer or employee of the borrower who received total compensation (e.g., salary, bonuses, stock awards) of more than $425,000.00 in 2019 cannot receive increase compensation for any 12-month period or receive severance pay or other termination benefits of more than twice his/her 2019 compensation. Any officer or employee whose 2019 total compensation was more than $3,000,000.00 cannot receive compensation greater than $3,000,000.00 plus 50% of the amount by which his/her 2019 total compensation exceeded $3,000,000.00.
What’s Next?
The CARES Act is silent on the timeline for instituting this program. In addition, there is no timeline for informal guidance or regulations to be issued for this program. Accordingly, there are many questions that remain to be answered. Nevertheless, mid-sized employers who may be considering a loan through this program must consider if the benefits of receiving the loan outweigh the ability to challenge a union organizing campaign.
For questions about this or any other labor and employment law matter, please do not hesitate to contact the attorneys at Hoffman & Hlavac.