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PPP Loan Forgiveness – What Happens If My Employee Turns Down My Offer To Return To Active Employment?

Many employers who laid off employees due to loss of business caused by the COVID-19 pandemic have since received a Paycheck Protection Program (“PPP”) loan.  One of the very attractive elements of this loan program is the potential for forgiveness from repayment of some or all of the loan proceeds if the employer brings its workforce back to pre-COVID-19 levels and spends 75% of the proceeds on payroll during the eight week period following the loan origination.  The problem?  Some employees are refusing the offers of reemployment.

On May 22, 2020, the Small Business Administration (“SBA”) and the Treasury Department issued an Interim Final Rule addressing this issue.  The regulations provide that employees who refuse an employer’s offer of reemployment may be excluded from the loan forgiveness reduction calculation if certain requirements are met.

In calculating the loan forgiveness amount, a borrower may exclude any reduction in full- time equivalent employee headcount that is attributable to an individual employee if:

  • the borrower made a good faith, written offer to rehire such employee (or, if applicable, restore the reduced hours of such employee) during the covered period or the alternative payroll covered period;
  • the offer was for the same salary or wages and same number of hours as earned by such employee in the last pay period prior to the separation or reduction in hours;
  • the offer was rejected by such employee;
  • the borrower has maintained records documenting the offer and its rejection; and
  • the borrower informed the applicable state unemployment insurance office of such employee’s rejected offer of reemployment within 30 days of the employee’s rejection of the offer.*

*A footnote in the regulations states “Further information regarding how borrowers will report information concerning rejected rehire offers to state unemployment insurance offices will be provided on SBA’s website.”

To avoid any ambiguity in case the employee fails to respond to the rehire letter, we recommend that the written offer advise the employee of the last day to respond, and that failure to respond will be treated as a refusal to return to work.  The offer should also include a statement that the employer is required to report a refusal to return to work to the Employment Development Department which may result in the individual being ineligible for continued unemployment benefits.

If you need help rehiring your employees or additional information about PPP Loan Forgiveness, contact our attorneys through our website at www.smlaw.com or call (707) 524-1900.  We are here to help.

Lisa Ann Hilario
Terry Sterling