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ALERT: SBA Clarifies Loan Forgiveness When Laid-Off Employee Refuses Re-Hire Offer

Posted on May 04, 2020

Alert: New Question #40 in SBA's FAQs posted 5/3/2020 - No reduction in PPP loan forgiveness for laid-off employee's refusal of rehiring by PPP loan borrower

On May 3, 2020, a new question (#40) was posted in the SBA's FAQs regarding the Paycheck Protection Program loans. Specifically, the question states as follows:

"40. Question: Will a borrower’s PPP loan forgiveness amount (pursuant to section 1106 of the CARES Act and SBA’s implementing rules and guidance) be reduced if the borrower laid off an employee, offered to rehire the same employee, but the employee declined the offer?

Answer: No. As an exercise of the Administrator’s and the Secretary’s authority under Section 1106(d)(6) of the CARES Act to prescribe regulations granting de minimis exemptions from the Act’s limits on loan forgiveness, SBA and Treasury intend to issue an interim final rule excluding laid-off employees whom the borrower offered to rehire (for the same salary/wages and same number of hours) from the CARES Act’s loan forgiveness reduction calculation. The interim final rule will specify that, to qualify for this exception, the borrower must have made a good faith, written offer of rehire, and the employee’s rejection of that offer must be documented by the borrower.[emphasis added] Employees and employers should be aware that employees who reject offers of re-employment may forfeit eligibility for continued unemployment compensation."

In short, if a PPP loan borrower offers to rehire a laid off employee at the same salary and hours and that employee refuses the written offer, then such refusal will not be counted in the loan forgiveness reduction calculations.

While not specified in the answer, it also seems that the SBA is looking at specific employees in the headcount calculations, even though the Act (and current limited guidance) uses a "full time equivalent employee" measurement in the loan forgiveness. Also, it is not clear whether the employee must be offered his or her same position with the employer, or whether just a position (at the same wages and hours) would also qualify.

It is also not clear as to what type of documentation will be needed to substantiate the written offer and the refusal, and some additional guidance (and perhaps examples) will be needed from the SBA and Treasury. Finally, the answer does seem to allude to the fact that the interim final rule on loan forgiveness should be issued very soon.

For more information, please contact Sarah Holland.