August 2020 – COVID-19 Update
August 2020 – COVID-19 Update
By: D. Keith Dunnagan, Esq.
August 4, 2020
August brings with it new challenges and potential changes for Americans as the COVID pandemic continues to impact American society. With the surge of COVID cases in California and across the country, renewed economic lockdowns occurred impacting multiple business sectors. Many of these sectors employ a large number of people and as those sectors have been shutdown again, unemployment has begun to rise again. These economic challenges create a multitude of difficulties and today we address some of these issues.
PPP Loan
In March of 2020, the Congress passed the CARES Act which created the popular Paycheck Protection Program. There is no shortage of information on this program but many small businesses are nevertheless still worried. These businesses took loans that are designed to help small businesses retain employees and as part of the ability to obtain loan forgiveness, the businesses had to maintain certain staffing levels and use the funds for payroll. Originally, required to be used within 8 weeks, that time-frame was extended to 24 weeks under the Paycheck Protection Program Flexibility Act passed in June.
Under the PPPFA, while use of the PPP funds for payroll was reduced to 60% of the loan proceeds, for businesses to obtain the loan forgiveness they have to use a minimum of the proceeds for payroll. Using less than 60% can jeopardize the ability to obtain forgiveness. More problematic is that with the second wave of shutdowns, many businesses are concerned about the ability to maintain staffing. The PPPFA did create some flexibility in staffing requirements. However, if a business does not return to normal staffing levels, it must show good faith efforts to rehire and document those attempts or show restriction in business capacity based upon CDC, OSHA or DHHS restrictions. Additional information describing these requirements can be found here.
The concern for small business will be the ability to return to anything near pre-COVID levels to justify the employment expense and unfortunately, simple business contraction does not appear to justify reduced employment numbers and can have a negative impact on the ability to qualify for full forgiveness.
Unemployment Benefits
One of the main stop gaps helping the recently unemployed was the federal program increasing unemployment benefits by $600 a week. This created a significant safety net to allow the unemployed to continue to meet their needs economically. The federal program increasing the unemployment benefits expired on July 31, 2020 and have not been renewed which means for the currently unemployed and newly unemployed benefits will be significantly reduced. Such reduction will create a problems by increasing the likelihood of default on rent and mortgages.
The other potential problem that the unemployed are likely to suffer is lack of medical care. Under the Affordable Care Act, many employees were covered by group plans offered through employers. When the employment relationship is terminated so is the ability to participate in group insurance. Most are then given the option to sign up for COBRA insurance coverage which is very costly. Covered California also modified the enrollment period to allow individuals with a qualifying event, such as loss of employment to sign up for insurance through the Covered California program. However, with reduced unemployment benefits, the ability to obtain coverage will likely be in jeopardy because of lack of resources to pay for the insurance by the unemployed.
Evictions
Many tenants were relieved when the state acted to curtail evictions. Initially, landlords and attorneys were forced to scour the various different restrictions related to eviction moratoriums at the local level. In April, the California Supreme Court enacted emergency rules prohibiting evictions Superior Courts from issuing a summons for eviction. However, last week, the Supreme Court and California Judicial Council decided that they will vote on August 14, 2020 on whether to terminate this emergency rule and informed the Assembly of the upcoming vote.
If the restriction it does not necessarily mean that evictions will resume. The Governor previously issued an executive order allowing local jurisdictions to determine eviction moratorium needs at the local level through September 30, 2020. However, without more concrete action, the eviction moratorium will come to an end. It is incumbent upon landlords and tenants to work this out. There were some tenants that took advantage of these moratoriums and did not work with the landlords on reasonable modifications to leases. Like every other situation, when someone takes advantage of a mechanism the rest pay for it. Landlords need to pay the mortgages on their property and need to have income from those properties to pay those mortgages. While there are large corporate landlords, many landlords are mom and pops that own one or two properties and depend on that income to supplement their income.
It is likely that when these restrictions lift there will be an up-swell of eviction filings. As the eviction filings increase so will the bankruptcy filings as renters look for any means necessary to protect their interests and the place they reside.
Legislative responses
There have been many legislative issues in the works. The one most being talked about right now is whether Congress will negotiate a deal to extend unemployment benefits. For several weeks there has been on again off again discussion about a stimulus bill. Some are concerned that a blanket number of dollars per week may discourage workers from going back into the workforce. There is some evidence to suggest that workers making more money on unemployment were not taking opportunities to re-enter the workforce. However, that problem can be solved by tying unemployment to actual unemployment and not voluntary unemployment. It is easy at some level to track because some employees were refusing to rehire offers. One of the sticking points has been that some in Congress have wanted to tie unemployment to a percentage of prior wages with a cap. Additionally, there has been concerns about liability exposure to businesses. Some businesses especially in hospitality, retail and restaurant industries are rightfully concerned about liability exposure in bringing employees back to work before the COVID pandemic is over.
It is a sticky situation to tell employers that at some level they have to operate and pay employees (take PPP requirements) and then in same breath tell them that if they do operate they run the risk of being sued. Risk management is always a part of business operations. Businesses want their customers and employees safe and healthy and they are not going to take unnecessary risks. Consequently, one of the sticking points has been to create a federal legal framework to deal with these issues and give the federal courts exclusive jurisdiction to hear these cases. It seems likely that a stimulus package will get done, it is just a matter of when and what the final legislation looks like.
At the state level two bills (AB 1436 and AB 828) continue to work their way through the legislative process. Both seek to provide additional tenant protections in the wake of COVID. This proposed legislation could force landlord to defer rents for extended periods of time or alternatively give courts the ability to extend tenancies even when there is no hardship. While these policies are still in the legislative process, it is clear that some are not looking at the unintended consequences of these legislative actions.
Much continues to unfold as COVID continues to apart of our daily lives.
The information presented in this Article is not to be taken as legal advice. Every person’s situation is different. If you are facing a legal issue of any kind, get competent legal advice in your State immediately so that you can determine your best options
August 2020 – COVID-19 Update
By: D. Keith Dunnagan, Esq.
August 4, 2020
August brings with it new challenges and potential changes for Americans as the COVID pandemic continues to impact American society. With the surge of COVID cases in California and across the country, renewed economic lockdowns occurred impacting multiple business sectors. Many of these sectors employ a large number of people and as those sectors have been shutdown again, unemployment has begun to rise again. These economic challenges create a multitude of difficulties and today we address some of these issues.
PPP Loan
In March of 2020, the Congress passed the CARES Act which created the popular Paycheck Protection Program. There is no shortage of information on this program but many small businesses are nevertheless still worried. These businesses took loans that are designed to help small businesses retain employees and as part of the ability to obtain loan forgiveness, the businesses had to maintain certain staffing levels and use the funds for payroll. Originally, required to be used within 8 weeks, that time-frame was extended to 24 weeks under the Paycheck Protection Program Flexibility Act passed in June.
Under the PPPFA, while use of the PPP funds for payroll was reduced to 60% of the loan proceeds, for businesses to obtain the loan forgiveness they have to use a minimum of the proceeds for payroll. Using less than 60% can jeopardize the ability to obtain forgiveness. More problematic is that with the second wave of shutdowns, many businesses are concerned about the ability to maintain staffing. The PPPFA did create some flexibility in staffing requirements. However, if a business does not return to normal staffing levels, it must show good faith efforts to rehire and document those attempts or show restriction in business capacity based upon CDC, OSHA or DHHS restrictions. Additional information describing these requirements can be found here.
The concern for small business will be the ability to return to anything near pre-COVID levels to justify the employment expense and unfortunately, simple business contraction does not appear to justify reduced employment numbers and can have a negative impact on the ability to qualify for full forgiveness.
Unemployment Benefits
One of the main stop gaps helping the recently unemployed was the federal program increasing unemployment benefits by $600 a week. This created a significant safety net to allow the unemployed to continue to meet their needs economically. The federal program increasing the unemployment benefits expired on July 31, 2020 and have not been renewed which means for the currently unemployed and newly unemployed benefits will be significantly reduced. Such reduction will create a problems by increasing the likelihood of default on rent and mortgages.
The other potential problem that the unemployed are likely to suffer is lack of medical care. Under the Affordable Care Act, many employees were covered by group plans offered through employers. When the employment relationship is terminated so is the ability to participate in group insurance. Most are then given the option to sign up for COBRA insurance coverage which is very costly. Covered California also modified the enrollment period to allow individuals with a qualifying event, such as loss of employment to sign up for insurance through the Covered California program. However, with reduced unemployment benefits, the ability to obtain coverage will likely be in jeopardy because of lack of resources to pay for the insurance by the unemployed.
Evictions
Many tenants were relieved when the state acted to curtail evictions. Initially, landlords and attorneys were forced to scour the various different restrictions related to eviction moratoriums at the local level. In April, the California Supreme Court enacted emergency rules prohibiting evictions Superior Courts from issuing a summons for eviction. However, last week, the Supreme Court and California Judicial Council decided that they will vote on August 14, 2020 on whether to terminate this emergency rule and informed the Assembly of the upcoming vote.
If the restriction it does not necessarily mean that evictions will resume. The Governor previously issued an executive order allowing local jurisdictions to determine eviction moratorium needs at the local level through September 30, 2020. However, without more concrete action, the eviction moratorium will come to an end. It is incumbent upon landlords and tenants to work this out. There were some tenants that took advantage of these moratoriums and did not work with the landlords on reasonable modifications to leases. Like every other situation, when someone takes advantage of a mechanism the rest pay for it. Landlords need to pay the mortgages on their property and need to have income from those properties to pay those mortgages. While there are large corporate landlords, many landlords are mom and pops that own one or two properties and depend on that income to supplement their income.
It is likely that when these restrictions lift there will be an up-swell of eviction filings. As the eviction filings increase so will the bankruptcy filings as renters look for any means necessary to protect their interests and the place they reside.
Legislative responses
There have been many legislative issues in the works. The one most being talked about right now is whether Congress will negotiate a deal to extend unemployment benefits. For several weeks there has been on again off again discussion about a stimulus bill. Some are concerned that a blanket number of dollars per week may discourage workers from going back into the workforce. There is some evidence to suggest that workers making more money on unemployment were not taking opportunities to re-enter the workforce. However, that problem can be solved by tying unemployment to actual unemployment and not voluntary unemployment. It is easy at some level to track because some employees were refusing to rehire offers. One of the sticking points has been that some in Congress have wanted to tie unemployment to a percentage of prior wages with a cap. Additionally, there has been concerns about liability exposure to businesses. Some businesses especially in hospitality, retail and restaurant industries are rightfully concerned about liability exposure in bringing employees back to work before the COVID pandemic is over.
It is a sticky situation to tell employers that at some level they have to operate and pay employees (take PPP requirements) and then in same breath tell them that if they do operate they run the risk of being sued. Risk management is always a part of business operations. Businesses want their customers and employees safe and healthy and they are not going to take unnecessary risks. Consequently, one of the sticking points has been to create a federal legal framework to deal with these issues and give the federal courts exclusive jurisdiction to hear these cases. It seems likely that a stimulus package will get done, it is just a matter of when and what the final legislation looks like.
At the state level two bills (AB 1436 and AB 828) continue to work their way through the legislative process. Both seek to provide additional tenant protections in the wake of COVID. This proposed legislation could force landlord to defer rents for extended periods of time or alternatively give courts the ability to extend tenancies even when there is no hardship. While these policies are still in the legislative process, it is clear that some are not looking at the unintended consequences of these legislative actions.
Much continues to unfold as COVID continues to apart of our daily lives.
The information presented in this Article is not to be taken as legal advice. Every person’s situation is different. If you are facing a legal issue of any kind, get competent legal advice in your State immediately so that you can determine your best options