Written by Tammy A. Brown, Esq., Chair, Wendel Rosen LLP Employment Practice Group

This blog post provides some general guidance on employment issues that many California businesses are facing related to employment in light of the COVID-19 crisis, including the new federal laws on paid sick leave and paid family leave for taking care of children. As you consider the challenges and response strategies discussed in greater detail below, please know that Wendel Rosen is available to advise and answer the specific questions that you may have.

Staying Open / Essential Businesses

Essential Businesses

Essential businesses can stay open. See attached summary of essential businesses under California’s shelter-in-place executive order.

(a) Protecting Employees

Once a business determines that it can operate as “normal“ because it is essential, it should be aware of a few additional factors. The first obviously is to take reasonable steps to protect its employees from the virus, and thus protect against claims of negligence.  This means assessing how the business is vulnerable to exposure to and/or spread of the virus. This would likely include methods of performing job duties while maintaining social distancing, providing protective gear, and some kind of training. The latter may just be a talk or memo with some common sense pointers and reiterating what the CDC and State has said.

(b) New Federal Laws for Sick Leave, etc.

Employers with less than 500 employees will be subject to the federal laws providing for paid sick leave and emergency family medical leave.   Beginning April 2, 2020, employers with less than 500 employees will be required to provide paid sick leave and paid “FMLA” for circumstances related to the COVID-19 outbreak.   The emergency FMLA is for employees who are unable to work, including telecommuting, because their minor child’s school/daycare has closed because of the virus.   For more details, see section C below.

Non-Essential Businesses

Non-essential businesses can operate, but in different formats. This may mean office workers telecommuting, restaurants providing only take-out meals, and bars being allowed to sell bottles of alcohol on a pick-up basis.

(a) Issues for Employers with Employees Working at Home

Having employees work at home raises a number of issues for employers, especially if they do not have telecommuting policies in place. Briefly:

• • • Non-Exempt employees should be reminded to take their rest and meal breaks. It would be good to have the employees report on a daily basis their time (including clocking out for meal breaks) and confirming they took their rest breaks.
    • Employees should be reimbursed for expenses associated with requirements for working from home, such as internet costs and phone. It is common to reimburse employees $50-$75/month for these expenses.
    • Workers comp – injuries incurred on the job while working at home should be reported immediately as they are still subject to workers comp.
    • Protect confidential and proprietary information.
    • If an employee refuses to work from home for a reason that is not protected by law (e.g., telecommuting does not work with their reasonable accommodation), then the employee can be furloughed or terminated, though the employer should consult with legal counsel.

(b) Federally Mandate Sick Leave and Leave Associate with Child Care

Employers with less than 500 employees will be subject to the federal laws providing for paid sick leave and emergency family medical leave. See section C below.

LAY-OFFS AND TERMINATIONS

Many employers are laying off or terminating employees or reducing their hours. Issues to keep in mind:

Last Day Issues

If employees are terminated or laid-off for an indefinite amount of time, then the employer must pay the employee on their last day of employment all amounts owed to the employees (just like before).  This includes hours worked to date, premiums for missed meal and rest breaks, unused vacation/PTO, and reimbursement for expenses.  Sick leave, whether provided by state or federal law or the employer, is not a wage and therefore is not paid out at termination.  There are different rules applying to employees who earn commissions based on future events.

If employees are laid off with a definite return-to-work date (furloughed), they are to be paid regularly and do not need to be paid unused vacation/PTO.  The return to work date should be reasonable; if it is too far into the future, the Labor Commissioner will consider it a termination for final pay purposes.  There is no set rule for what is reasonable.

Mass Layoffs

Employers may be subject to state or federal WARN Act requirements for mass layoffs.  California has suspended the penalties associated with not complying with the state’s WARN Act, but it has not suspended the requirements relating to notice to employees and local authorities.  See section D below.  The notices and triggering events can be complicated and employers should consult with their attorneys.

Unemployment Benefits

Unemployment is available immediately to employees who are let go during the crisis (no one-week waiting period).  The weekly benefit amount is about 60-70 % of wages earned in the prior 5 to 18 months, up to a maximum of $1300.

Also, full-time employees who lose income because of reduced hours may be eligible for unemployment benefits even if they are still working.  These are called “partial benefits” by California’s EDD.  Partial benefits occur in two circumstances for full-time employees:

• • Who are laid off for no more than two consecutive weeks, OR
  • Whose gross earnings, when reduced by $25 or 25 percent, whichever is greater, are less than their weekly benefit amount.

A full-time employee is eligible for partial unemployment under the following conditions:

• • The employee becomes partially unemployed through no fault of his/her own; and
  • The employee works less than normal full-time hours because of lack of work; and
  • The employee’s normal weekly earnings are reduced by lack of work; and
  • The employee’s gross earnings, after deducting the first $25 or 25 percent of the total earnings (whichever is greater), are less than his/her weekly Unemployment Insurance benefit amount.

NEW SICK LEAVE / CHILD CARE LAWS

On March 18, 2020, President Trump signed House Bill 6201, the Families First Coronavirus Response Act (“FFCRA”). The law takes effect on April 2, 2020, and remains in effect until December 31, 2020. The FFCRA amends portions of the FMLA and also provides for paid sick leave in certain circumstances related to the current COVID-19 pandemic.  It applies to employers with less than 500 employees.

Employers will be “reimbursed” for these paid wages by a credit against the tax employer’s pay roll taxes for each calendar quarter in an amount equal to 100 percent of the qualified sick leave wages paid by the employer.

The Federal government will be preparing guidelines for employers, but, at the time of writing, no further guidelines have been issued.

Federal Sick Leave Law

Amount:  It provides for 10 days of sick leave to be paid by employers.

Employee Qualifications:  Paid sick leave is available for immediate use, regardless of how long an employee has been employed.

Reason for Sick Leave:

Self-care:  Employee is sick due to COVID-19 OR employee is quarantined due to COVID-19 (quarantine can be imposed by government or by the employee’s medical provider) OR the employee is experiencing symptoms of COVID–19 and is seeking a medical diagnosis.

Care of Others:  Sick leave is also available for employees caring for someone who is experiencing symptoms of COVID–19 and who is seeking a medical diagnosis OR the employee is caring for a minor child whose school or day care provider is unavailable because of COVID-19.

Pay:  For full-time employees, it is 80 hours; part-time employees receive the number of hours that the employee works on average in a two-week period.

Employees are paid at their regular rate of pay as determined by the federal Fair Labor Standards Act (FLSA) or at the minimum wage, whichever is greater, for uses associated with the employee (i.e., self-care or quarantine). Employees are paid at 2/3 of their regular rate of pay for uses related to care of another, including childcare.

Paid leave is capped at $511 per day and $5,110 in the aggregate for self-care or quarantine and is capped at $200 per day and $2,000 in the aggregate for care of another.

An employee may use paid sick leave under this law before using other leave, but cannot be required to.

Federal Emergency Family Medical Leave – Child Care

The new law provides for 12 weeks of leave related to having to care for a minor child because of school closure or unavailability of child care related to COVID-19.  The first two weeks are not paid by the employer (though the employee can take the sick leave described above), whereas the remaining 10 weeks are paid at 2/3 the employee’s salary, subject to caps.        

Employee Qualifications:  Employees must have been employed by the employer for 30 days or more prior to the requested leave.

Reason for Emergency FMLA Leave:  The leave is only for employees who are unable to work, or unable to telework, due to a need to care for a minor child if the child’s school or place of care has been closed or the child care provider is unavailable due to a public health emergency related to COVID-19.

This leave does not apply to employees who are not permitted to come to work because of a shelter-in-place order but are unable to work from home for some reason (such as they do not have internet or no phone).

Pay:  Employers must provide paid leave for each day of emergency leave taken after the initial 10 days, in an amount not less than two-thirds of an employee’s regular rate of pay, with caps at $200 per day and $10,000 total.

Employees may elect to substitute any accrued paid vacation, parental, medical or sick leave for unpaid leave; employers cannot force them to use this time.

Exceptions:  Employers with less than 50 employees if compliance would jeopardize the viability of the business as an on-going concern.  Also, certain healthcare providers and emergency responders are exempt.

Job Protection:  Like “regular” FMLA, the new law provides for job protection of employees using it.  There is a limited exception for employers of less than 25 employees where the employee’s position no longer exists upon return to work due to economic conditions or other changes caused by the coronavirus emergency, and the employer has made reasonable efforts to restore the employee to an equivalent position.

“Regular” FMLA is still available pursuant to its own terms.

LAYOFF ISSUES – WARN ACTs

California and the federal government have WARN Acts (Worker Adjustment and Retraining Notification) that require notices be given to employees and certain government agencies.  The California act applies in specific circumstances to employers with 75 or more employees.  If the employer has 100 or more employees, they must also comply with the federal WARN Act.  Employers should consult with an attorney because there are a lot variables.  Below is a general summary.

California WARN

Triggering event under California law:  Layoff of 50 or more employees during any 30-day period regardless of percentage of work force.

The California WARN Act requires employers to provide 60 days’ advance notice when they conduct a mass layoff, relocation, or termination. Usually, failure to provide 60 days’ notice can result in severe liability – up to 60 days of back pay plus benefits for all laid-off, relocated, or terminated employees, in addition to civil penalties.

On March 17, 2020, Governor Newsom suspended the provisions of California’s WARN act that impose liability and penalties. His executive order waives the 60-day notice requirement for the duration of the COVID-19 emergency. The order applies where COVID-19-related business considerations result in mass layoffs, relocations, or terminations that were not reasonably foreseeable as of the time that notice would have been required.

To qualify for the waiver of the 60-day notice requirement under the order, employers must:

1. give written notice to employees; the EDD, the local workforce investment board, and the chief elected official of the local city and county government;
2. give as much notice as is “practicable,” along with a brief statement of the basis for reducing the 60-day notification period;

for written notice given after March 17, 2020, include the following statement: “If you have lost your job or been laid off temporarily, you may be eligible for Unemployment Insurance (UI). More information on UI and other resources available for workers is available at labor.ca.gov/coronavirus2019.”

Federal WARN Act

The federal WARN act applies to employers of 100 or more and is still in effect, though it contains an exception for “unforeseeable circumstances.” Triggering events vary, but include plant closures , permanent or temporary shutdown of a single site of employment or facility (or operating unit within a single site of employment) that involves 50 or more employees during a 30-day period if the number of affected employees is at least 33% of the workforce.

Notice requirements are much the same as California’s.  In either case, attorneys should be consulted.

Today the Supreme Court agreed to decide an ongoing conflict, pitting a trademark registrant’s First Amendment rights against longstanding law precluding trademark registration of “disparaging” marks.

In This Corner: Trademark Law & the USPTO

Section 2(a) of the Lanham Act, precludes trademark registration of marks that are: immoral, deceptive or scandalous matter; or matter which may disparage …or bring them into contempt or disrepute….” Since World War II, the United States Patent and Trademark Office (USPTO) has relied on Section 2(a) to deny registration to such marks, but in December 2015, for the first time, the legality of Section 2(a) was called into question.

In This Corner: The First Amendment & The Slants

An Asian-American rock band, The Slants, sought to register its name, but the USPTO rejected the name as disparaging. The Slants appealed to a federal district court, which affirmed the USPTO’s decision, but when The Slants appealed to the Federal Circuit, the majority found that Section 2(a) was unconstitutional restraint of free speech under the First Amendment.

The Slants asked the Federal Circuit to order the USPTO to register its trademark, but the court declined. The USPTO issued guidelines, advising trademark applicants that any applications with potentially disparaging marks would be held in limbo until the issue was resolved.  Then the USPTO asked the Supreme Court to decide the issue.

In This Other Corner: The Washington Redskins

Meanwhile in June 2014 the USPTO deregistered the Washington Redskins’ trademark under Section 2(a). The Washington football team appealed, lost in federal district court and appealed to the Fourth Circuit. While that appeal is currently pending, the Washington team has asked the Supreme Court to intercede.

The Judges’ Score Card: Key Issues

The Slants, the Washington team and the Federal Circuit majority basically argue that trademarks equal free speech. They contend that Section 2(a) amounts to viewpoint discrimination and is subject to strict scrutiny  review, Section 2(a) fails to withstand “strict scrutiny” and is therefore unconstitutional. “Strict scrutiny” requires the USPTO to prove that Section 2(a) serves a compelling government interest, that it is narrowly tailored to achieve that interest, and that it is the least restrictive means for achieving that interest.

The USPTO, the two federal district courts, and the Federal Circuit’s dissenting opinion argue that trademarks do not equal free speech, and Section 2(a) is not subject to “strict scrutiny.” They contend that Section 2(a) does not prohibit any speech but instead denies the benefits of registration to private disparaging speech. In short, The Slants and the Washington team are entirely free to call themselves whatever they want, to publicize their names and use their names in commerce, but they are not entitled to the extra benefits conferred by federal trademark registration.

TKO or 12 Rounds?

While today’s grant of certiorari is only the beginning of the first round, recent Court decisions upholding hateful speech in other situations would tend to indicate that USPTO may be punching above its weight class and Section 2(a) might hit the canvas.

 

Wendel Rosen is again participating in the Food from the Bar Food Drive in support of the heroic work of the Alameda County Community Food Bank (ACCFB).  The need has never been greater, and ACCFB needs our help.

• ACCFB estimates the need for food assistance has doubled since the start of the pandemic.
• ACCFB is distributing more than 1 million pounds of food per week. That’s enough food for 60,000 people daily.
• Every $1 donated helps provide two healthy meals.

The Food from the Bar drive officially starts May 1 and goes through May 31, but you can donate online now by using this link: ACCFB Virtual Food Drive (vfd-accfb.org).  Please be sure to click “Shop/Donate” for the Wendel Rosen LLP team to make your donation.   Donations of any amount truly help.  Together we can make a real difference in our community.

And, pass it on!  Please feel free to share the Food Drive donation link with friends and family members who may be interested.

Written by Anna Nagornaia – Associate, Wendel Rosen’s Business Practice Group

On April 17, 2021, the Small Business Association (SBA) released a comprehensive Restaurant Revitalization Fund (RRF) Program Guide outlining eligibility and the application process. Restaurants and other foodservice entities can now start preparing their RRF Grant Applications (SBA Form 3172).[1] The SBA has explicitly stated not to submit RRF forms at this time.

How to Apply?

Restaurants and other foodservice entities can apply through SBA-recognized Point of Sale Restaurant Partners or directly with the SBA in a forthcoming online application portal.

Please see my previous article about required documentation.

In addition to the core documentation required for all applicants, brewpubs, tasting rooms, taprooms, breweries, wineries, distilleries, and bakeries must provide documents evidencing that onsite sales to the public comprise at least 33.00% of gross receipts for 2019, which may include Tax and Trade Bureau (TTB) Forms filed, state or local government forms filed, or internally created reports from inventory management, sales reporting, or accounting software.

Inns that are applying for the RRF grant must provide documents evidencing that onsite sales of food and beverage to the public comprise at least 33.00% of gross receipts for 2019.

Foodservice entities, other than restaurants, that opened in 2020, must provide documentation evidencing that the original business plan contemplated at least 33.00% of gross receipts in onsite sales to the public.

How Much Can You Get?

The SBA may provide funding up to $5 million per location, not to exceed $10 million total for the applicant and any affiliated businesses.[2] The minimum award is $1,000. So, if your business requires less than $1,000, you are not eligible for the RRF grant.

How Much Time Do You Have To Use the Money?

You must use your entire RRF grant by March 11, 2023 on eligible expenses incurred beginning on February 15, 2020 and ending on March 11, 2023. If your business permanently closes before March 11, 2023, the covered period will end when the business permanently closes.

Awardees that are unable to use all of the funds on eligible expenses by the end of the covered period must return any unused funds.

What are Eligible Expenses?

You may use the RRF grant for the following expenses during the covered period:

1. Business payroll costs, including sick leave and costs related to the continuation of group health care, life, disability, vision, or dental benefits during periods of paid sick, medical, or family leave, and group health care, life, disability, vision, or dental insurance premiums;
2. Payments on any business mortgage obligation (both principal and interest; but not prepayment of principal on a mortgage obligation);
3. Business rent payments, including rent under a lease agreement (this does not include prepayment of rent);
4. Business debt service (both principal and interest; this does not include prepayment of principal or interest);
5. Business utility payments for the distribution of electricity, gas, water, telephone, or internet access, or any other utility that is used in the ordinary course of business for which service began before March 11, 2021.
6. Business maintenance expenses including maintenance on walls, floors, deck surfaces, furniture, fixtures, and equipment;
7. Construction of outdoor seating;
8. Business supplies, including protective equipment and cleaning materials;
9. Business food and beverage expenses, including raw materials for beer, wine, or spirits;
10. Covered supplier costs made by the business to a supplier for goods that:
    • Are essential to the operations of the business at the time at which the expenditure is made; and
    • Is made pursuant to a contract, order, or purchase order in effect at any time before you received the RRF; or
    • With respect to perishable goods, a contract, order, or purchase order in effect before or at any time during the covered period;

11. Business operating expenses (expenses incurred through normal business operations that are necessary and mandatory for the business such as rent, equipment, supplies, inventory, accounting, training, legal, marketing, insurance, licenses, and fees. Business operating expenses do not include expenses that occur outside of a company’s day-to-day activities.

The SBA has stated that past-due expenses are eligible if they were incurred beginning on February 15, 2020 and ending on March 11, 2023.

Good Faith Certification

You must make a good faith certification on the RRF application that:

1. Current economic uncertainty makes this funding request necessary to support the ongoing or anticipated operations of your business; and
2. You do not have a pending application for and have not received a Shuttered Venue Operator grant from SBA.

There is no further explanation of what constitutes necessity. This good faith certification requirement is similar to the PPP’s loan necessity certification.[3] Presumably, showing a reduction in revenue would indicate financial hardship. However, if your sales picked up at the time of application and the business is otherwise financially stable, we advise a further review of the necessity requirements to avoid complications down the road.

PPP and EIDL

If you received a Paycheck Protection Program (PPP) Loan, an Economic Injury Disaster Loan (EIDL), or any state and local small business grants (via CARES Act or otherwise), you can still apply for an RRF grant. Note that the amount you received through PPP, EIDL, or other grants must be subtracted from your gross receipts. If you have a pending application for a PPP loan when applying for Restaurant Revitalization funding, the SBA has made it clear that any pending PPP applications should be withdrawn.

For assistance preparing your application, you can contact the SBA call center support at 1-844-279-8898 or your local SBA District Office . If you still have questions or require additional clarifications, please contact the attorneys in Wendel Rosen’s Food & Beverage Practice Group.

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[1] Click here to review an application sample provided by the SBA.

[2] An Affiliated Business or affiliate is a business in which an eligible entity has an equity interest or right to profit distributions of not less than 50%, or in which an eligible entity has the contractual authority to control the direction of the business, provided that such affiliation shall be determined as of any arrangements or agreements in existence as of March 13, 2020.

[3] See SBA FAQ #31.

Written by Anna Nagornaia – Associate, Wendel Rosen’s Business Practice Group The Restaurant Revitalization Fund (RRF) was created to provide direct relief to restaurants and other foodservice venues affected by the COVID-19 pandemic.[1] As the Small Business Association (SBA) has yet to release the RRF applications, we encourage restaurant owners to continue monitoring the SBA website for news and updates on the RRF grants and the application process. In the meantime, the National Restaurant Association (Association) has issued updated FAQs on the RRF Grant Program. The Association provides the latest information about how the RRF grant process might work, as well as new developments on eligibility.  The FAQs can help you prepare for the RRF Application process, and we encourage all restaurant owners to review them. New Covered Period? The RRF covered period might be extended by an additional 14 months, which would mean applicants that received an RRF grant could be given until March 2023 to spend the money. Eligibility? According to the Association, restaurants and other foodservice entities that have permanently closed or those that are operating under bankruptcy protection (without an approved plan of reorganization) will not be eligible for the RRF grant. We know that bakeries, breweries, brewpubs, distilleries, taprooms, wineries and inns may apply for a RRF grant. In order to be eligible for the grant, those foodservice entities will have to show that at least a third of their revenues come from the sale of food and beverages consumed onsite. Required Documents? Restaurants and other foodservice entities that are entitled to RRF grants should prepare the following documents:

• An application form and the IRS Form 4506-T, as well as gross receipts documentation.
  • Applicants in operation before January 1, 2019 must supply gross receipts for 2019 and 2020
  • Applicants in operation through part of 2019 must supply gross receipts for 2019 and 2020
  • Applicants that began operations on or between January 1, 2020 and March 10, 2021 and applicants that have not yet opened as of March 11, 2021, but have incurred eligible expenses, must supply documentation of gross receipts and eligible expenses for the length of time in operation.

The documents to show gross receipts and eligible expenses, include:

• Business tax returns (IRS Form 1120 or IRS 1120-S)
  • IRS Forms 1040 Schedule C; IRS Forms 1040 Schedule F
  • For a partnership: partnership’s IRS Form 1065 (including K-1s)
  • Bank statements
  • Financial statements such as Income Statements or Profit and Loss Statements
  • Point of sale report(s), including IRS Form 1099-K

The Application Process? On March 30, 2021 the SBA clarified that, in order to streamline and simplify the application process, the RRF applicants will not be required to apply for a SAM (System for Award Management) number. The SBA stated that it plans to award RRF grants in the order in which applications are received. We will continue to monitor and provide updates on the RRF Grant Program. Should you have questions about the RRF applications, do not hesitate to contact the attorneys in Wendel Rosen’s Food & Beverage Practice Group.

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[1] You can find our first article on the RRF here.

Written by Anna Nagornaia – Associate, Wendel Rosen’s Business Practice Group

Help is on the way for restaurant owners who were hit hard by the COVID-19 pandemic. On March 11, 2021, President Joe Biden signed the American Rescue Plan Act of 2021  (the “Act’), a $1.9 trillion bill aimed at boosting the American economy during the COVID-19 pandemic. The Act created a $28.6 billion Restaurant Revitalization Fund (RRF). Unlike the Paycheck Protection Program (PPP) loans, the RRF will be administer directly by the Small Business Administration (SBA).

What is the RRF grant?

An eligible restaurant business may receive a tax-free federal grant equal to the amount of its COVID 19 pandemic-related revenue loss. Unlike the PPP, the RRF is a grant, which means you do not need to pay it back.

Who is Eligible for the RRF?

Eligible entities include: restaurants, food stands, food trucks, food carts, caterers, saloons, inns, taverns, bars, lounges, brewpubs, tasting rooms, taprooms, licensed facilities or premises of beverage alcohol producers where the public may taste, sample, or purchase products, or other similar place of business in which the public or patrons assemble for the primary purpose of being served food or drinks.

If you own more than twenty restaurants, your business is not eligible for the RRF. Publicly traded companies are also not eligible for the RRF. However, if you own a franchise of a publicly traded company, your business is eligible.

For an initial period (one to two weeks), the SBA will prioritize awarding grants for small businesses owned and controlled by women, veterans, or socially and economically disadvantaged small business concerns.

How much money is available?

In total, $23.6 billion will be available for restaurant businesses of different sizes based on annual gross receipts. Specifically, $5 billion will be available to businesses with gross receipts of $500,000 or less during 2019.

How much can you get?

Generally, the total RRF grant amount for an eligible business and any affiliated businesses is capped at $10 million and is limited to $5 million per physical location of the business.  Specifically, the RRF grant is based on your pandemic-related revenue loss.

To calculate your revenue loss, subtract your 2020 gross receipts from the 2019 gross receipts. If your business was not in operation for the entirety of 2019, the total revenue loss is the difference between 12 times the average monthly gross receipts for 2019 and the average monthly gross receipts in 2020 (or a formula from SBA). If your business was not in operation until 2020, you can still receive a grant equal to the amount of “eligible expenses” subtracted by your gross receipts received (or a formula from SBA). If your business was not yet in operation as of the application date, but it has made “eligible expenses,” the grant would be made equal to those expenses (or a formula from SBA).

Note that your pandemic-related revenue losses are reduced by any amounts received from the PPP First Draw and Second Draw loans in 2020 and/or 2021. However, any funding received from the Economic Injury Disaster Loans (EIDL) or Employee Retention Tax Credit (ERTC) will not count towards your 2020 revenues. Even so, you must make sure that the EIDL and/or ERTC funds are not used to cover the same expenses as the RRF grant.

What are Eligible Expenses?

The RRF is to help restaurant owners maintain operations.  “Eligible Expenses” under the RRF  include payroll, principal or interest on mortgage obligations, rent, utilities, maintenance including construction to accommodate outdoor seating, supplies such as protective equipment and cleaning materials, normal food and beverage inventory, certain covered supplier costs, operational expenses, paid sick leave, and any other expenses that the SBA determines to be essential to maintaining operations.[1]  (Note: you cannot use these funds to embark on re-designing the interior of your restaurant or to expand indoor seating.)

Eligible expenses are those incurred from February 15, 2020 to December 31, 2021 (the “Covered Period”), or a date determined by the SBA. If your business did not spend all of its RRF funds, or your business permanently closes before the end of the Covered Period, you must return unused funds to the Treasury.

When will the RRF grants be available?

We do not have a concrete date as to when the SBA will start taking RRF applications. According to Rep. Earl Blumenauer (D- Or.), the SBA will likely open up the RRF grant applications “within weeks, not months.”

The SBA’s current relief efforts can be found at www.sba.gov/coronavirusrelief, additional details about RRF grants will also be posted on the website.

What can you do to prepare?

We know demand will be extremely high for the RFF grants (remember the chaos around the first round of PPP loans). Therefore, we recommend you do everything to be as prepared as possible. While you wait for the RRF applications to open, you should (1) get your DUNS number here, and (2) get your SAM number here. You will need these numbers to register with the SBA in order to apply for the RRF grant. Also, you should begin compiling your receipts and financial statements to show your 2019 and 2020 revenues.

Should you apply for RRF and PPP?

Yes. Remember, there is no guarantee that everyone who is eligible for an RRF grant will actually receive it. Also, it is likely that RRF funds will run out very quickly.

If you are eligible for a PPP loan, the U.S. Chamber of Commerce suggests that you apply for it as soon as possible.[2] Even though your RRF revenue losses are reduced by the amount of your PPP loan, if you are using the PPP funds correctly, your PPP loan will be forgiven, and the PPP program continues to be a viable lifeline for many businesses.

Should you have questions about your PPP or RRF applications, do not hesitate to contact the attorneys in Wendel Rosen’s Food & Beverage Practice Group.  Our restaurant and café clients range from single location businesses to nationwide chains, and they routinely turn to us for guidance based upon our years of industry experience.

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[1]Covered supplier costs are expenditures for the supply of goods that (a) are essential to the operations of your business at the time at which the expenditure is made and (b) are made pursuant to a contract, order or purchase order (i) in effect at any time before the covered period with respect to the applicable covered loan or (ii) with respect to perishable goods, in effect before or at any time during the covered period.

Covered operations expenditures are any payments for any business software or cloud computing service that facilitates business operations; product or service delivery; the processing of payments or tracking of payroll expenses, human resources, sales and billing functions; or accounting or tracking of supplies, inventory, records and expenses.

[2] The deadline to apply for a PPP loan is March 31, 2021, and unless Congress extends the PPP, access to those funds will cease this month. For more information on PPP loans, please see https://www.wendel.com/publication/ppp-second-draw-loans-here-we-go-again/.

In an article by Food Navigator USA, Partner Bill Acevedo comments on the recent legal challenges leveled against Sargento Foods and the “no antibiotic” claim used on many of its’ product packaging. The December 2020 and January 2021 lawsuits state that the phrasing on Sargento Foods’ packaging is false and misleading, pointing to independent lab tests that show Sargento cheese products contain detectable levels of antibiotics.

Food Navigator looked to Bill for guidance on what this food litigation portends, as labeling claims continue to be challenged in court and remain a potential liability risk for food manufacturers. Bill offered his thoughts on the challenges facing the food manufacturer as well as recent labeling guidance relevant to the dairy industry. Click on the link to read these insights.

To read the full article, visit Food Navigator USA.

Join Tammy Brown and David Goldman for a discussion of the challenges of managing employees in the age of COVID-19. The presentation will include a review of the laws and regulations that pertain to COVID-19, working remotely, handling employees returning to the workplace, sick leave and employee vaccinations. In addition, the most relevant new employment laws enacted and affecting employers will be reviewed, many of which require changes in existing policies and procedures, and updating employee handbooks. If you are doing business in California and have employees or independent contractors working for you, you will want to attend and become familiar with your new obligations to employees.

The topics to be discussed include:

• COVID in (and out) of the workplace – prevention plans, outbreak orders, and sick leave
• Expansion of the California Family Rights Act and employee leaves of absence
• When is a worker your employee or an independent contractor—changes in the law—again
• New employer pitfalls when employees file claims with the Labor Commissioner
• New legal exposure when you buy a business that lost an employee wage claim

DATE January 21, 2021

TIME 1:00 PM – 2:00 PM PST

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Food Navigator-USA published an article on December 21, 2020 about the outlook of the food and beverage industry in 2021. They sought information from food and beverage attorneys, including Wendel Rosen Partner Bill Acevedo. In the article, Bill lists the issues the industry may continue to face as the impacts of COVID-19 transfer to the new year. Bill and his industry peers share insights that every food and beverage company should consider as they plan for 2021.  Read the article here.

Written by Anna Nagornaia, Associate, Wendel Rosen LLP’s Business Practice Group

Regardless of what industry you are in, if you applied for a loan under the Paycheck Protection Program (PPP), there are major developments that you need to know.  On June 3, 2020, the Senate passed H.R. 7010 entitled the Paycheck Protection Program Flexibility Act of 2020 (the “PPPFA”). On June 5, 2020, President Trump signed the PPPFA into law. The PPPFA significantly changes a number of provisions in the Paycheck Protection Program (PPP) loan program enacted as part of the CARES Act.

Summary of the PPP[1]

The PPP authorizes up to $659 billion in forgivable loans to small businesses to pay their employees during the COVID-19 crisis. The program is overseen by the Small Business Administration (“SBA”), but banks are the ones who handle the application process. As of now, there are approximately $140 billion still left unallocated for small businesses.

The amount of the PPP Loan is based on not more than 2.5 times the average total monthly payroll costs incurred in the one-year period before the loan is made. That amount is subject to a $10 million cap. The CARES Act provides for a different applicable time period to calculate the maximum amount for seasonal and new businesses. Payroll costs will be capped at $100,000 annualized for each employee.

In general, the PPP is aimed at businesses with 500 or fewer employees. Because the pandemic is inflicting tremendous economic damage on the hospitality industry, the CARES Act permits businesses in the lodging and restaurant industries with operations at more than one physical location to participate in the PPP as long as they have 500 or fewer employees at each location.

Loan Maturity Changes

Even though the CARES Act provided for a maximum loan maturity of 10 years, the SBA decided that PPP loans would have a 2-year maturity. The PPPFA extends the minimum maturity of PPP loans to 5 years. The new loan maturity period applies to any PPP loan made on or after the enactment of the PPPFA. Although lenders and borrowers are not required to modify PPP loans to provide for a longer payment period, they may mutually agree to modify the maturity terms of prior-disbursed PPP loans. In order for borrowers with an existing PPP loan to take advantage of the new law, their lenders have to agree to the 5-year maturity period. It seems unlikely that lenders will be thrilled to extend maturity of these low-interest loans.

Forgiveness Changes

Covered Period

Under the new law, the covered period for PPP loan forgiveness will extend from 8 weeks from the date of origination to the earlier of 24 weeks from the origination date or December 31, 2020. If you received a PPP loan before the enactment of the PPPFA, you may choose to continue using the 8-week covered period set forth in the CARES Act. The new law provides more time for borrowers to spend PPP funds, which means borrowers have more time to spend the loan on allowed payroll and non-payroll expenses.[2]

The new covered period also increases the amount of time a borrower has to hire or re-hire employees in order to avoid a reduction in loan forgiveness. By hiring employees back before the end of 2020, borrowers will be able to increase their loan forgiveness amount.

The PPPFA also makes it easier for borrowers to maintain their wages/salaries levels, and presumably avoid reduction in loan forgiveness. The PPP loan amount was calculated by multiplying one month of 2019 payroll by 2.5, which equaled approximately 10 weeks of payroll. With the increased covered period, borrowers now have the flexibility to spend 10 weeks of payroll until the end of 2020.[3] This will make receiving complete loan forgiveness more likely.

Reduction in FTEs

The PPPFA adds a new exemption regarding hiring or re-hiring full-time equivalent (FTE) employees to qualify for full loan forgiveness. The current PPP loan forgiveness rules contain a provision which reduces loan forgiveness in proportion to the reduction of a borrower’s employees during the 8-week period, provided that the borrower fails to hire or rehire the same number of employees by June 30th.

The PPPFA states that the amount of loan forgiveness will not be reduced due to a reduction in the number of FTE employees if a borrower, in good faith, documents (i) the inability to rehire individuals who were employees on February 15, 2020; and (ii) the inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020.

Moreover, the amount of loan forgiveness will not be reduced due to a reduction in the number of FTE employees if a borrower, in good faith, documents the inability to return to the same level of business activity at which the borrower operated on or before February 15, 2020, due to compliance with federal governmental requirements or guidance (DHHS, CDC or OSHA) issued between March 1, 2020, and December 31, 2020, relating to standards of sanitation, social distancing, or other worker or customer safety requirements due to COVID-19.

Requirement to Spend 75% on Payroll

Currently, in order to be eligible for full loan forgiveness, the SBA requires that a borrower spend at least 75% of the PPP funds on payroll expenses.

Under the PPPFA, borrowers must use 60% of the PPP funds for payroll expenses, and may use up to 40% for permitted mortgage, rent, utilities, and interest on secured debt to receive loan forgiveness. As currently drafted, the PPPFA requires borrowers to spend at least 60% of PPP funds to receive any loan forgiveness. This means that if at least 60% of the PPP funds are not spent on payroll, borrowers will not be eligible for loan forgiveness. This is a major change from the 75%/25% rule created by the SBA, which reduced the amount of loan forgiveness if less than 75% of the PPP funds was used to cover payroll expenses.

Payment Deferral

The PPPFA replaced the 6-month deferral of payments due under PPP loans with deferral until the date on which the amount of forgiveness determined under the CARES Act is remitted to the lender. If a borrower does not apply for forgiveness, the borrower must begin making payments 10 months after the covered period ends (the new covered period is the earlier of 24 weeks from loan origination or December 31, 2020 for all current PPP borrowers).

Payroll Tax Deferral

Lastly, the PPPFA allows all employers to take advantage of the CARES Act deferral of the 6.2% employer portion of social security payroll taxes, regardless of whether they have had a PPP loan forgiven.[4]

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[1] For more information on the PPP please visit the CARES Act section.

[2] See https://www.wendel.com/news/covid-19-cares-act-guidance/ for a definition of allowed payroll and non-payroll expenses.

[3] Section 1106(d)(3)(A) of the CARES Act states that the amount of loan forgiveness will be reduced by the amount of any reduction in total employee salary/wages during the covered period, if that reduction exceeds 25% of the total salary/wages of the employee during the most recent full quarter during which the employee was employed before the covered period. The PPPFA amends the term “covered period.” Now, it should not be a problem for most borrowers to spend at least 75% of payroll of one quarter throughout the rest of this year. This may be an unintended consequence that will be rectified down the road, but at least for now, it is the law.

[4] CARES Act Section 2302(a)(3) required borrowers who received PPP loan forgiveness to cease the deferral of payment of employer old age, survivors and disability insurance (OASDI).