Notes on Social Distancing, Defense Production, and COVID-19 Relief Legislation
Published on March 30, 2020
In the past couple of days, the federal government has taken several steps to respond to the worsening COVID-19 crisis. Among the most notable are: 1) extending social distancing guidelines through the end of April, 2) conferring the power of the Defense Production Act to increase the supply of health supplies, and 3) passing the Families First Coronavirus Response Act and the Coronavirus Aid, Relief, and Economic Security Act. Below are relevant notes of each.
Social Distancing Guidelines Extended
Heeding advice from his top health advisors, President Trump held a press conference yesterday afternoon at the Rose Garden to announce that social distancing guidelines must continue until the end of the April month.
The Defense Production Act Allows for Increased Production of Medical Supplies
On March 27, 2020, President Trump issued an Executive Order to build surge capacity and expedite the distribution of critical medical supplies to combat the virus, through the Defense Production Act (DPA). The Defense Production Act was first signed into law by President Truman in the 50s to ensure it had the necessary equipment for its engagement in the Korean War. The order will allow for a collaboration between the government and private businesses to meet increased needs, expanding production to secure an adequate supply of personal protective equipment (PPE), diagnostic testing equipment, and essential medical supplies. Large companies, such as 3M and General Motors, are ramping up production to meet the rapidly escalating needs.
Labor Provisions in the Families First Coronavirus Response Act
The Families First Coronavirus Response Act (Public Law 116-127) requires employers of less than 500 employees to provide paid sick and family leave in exchange for a tax credit intended to cover all expenses related to those provisions. The effective date of enactment is April 1, 2020. Last week, the Department of Labor (DOL) published a list of Q&As to help shed light on many of the labor provisions in the law. In its interpretation, DOL indeed asserts that employers that have closed operations prior to the April 1st date will not benefit from these provisions. In Puerto Rico’s context, this could be devastating for workers since many employers in Puerto Rico were forced to close prior to April 1, 2020. The Secretary of the Department of Labor in Puerto Rico, Briseida Torres Reyes, raised concerns in a March 27, 2020 letter to Eugene Scalia, the U.S. Secretary of Labor. We’ll continue to monitor the issue.
Small Business Loans Extend to Hotels and Restaurants
Last week, CNE published a preliminary analysis of what was included in the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Since then, we have identified legislative fine print tucked into the package that will benefit certain hotels and restaurants. If you are a restaurant or hotel owner that has been impacted by the virus, you may qualify for federal aid.
The Small Business Administration (SBA) administers several programs that support small businesses and encourage lenders to provide loans “that might not otherwise obtain financing on reasonable terms and conditions.” Section 7(a) of the Small Business Act of 1953 authorizes the agency to provide business loans and loan guarantees, up to specified percentages based on the principal amount. Title I of the recently signed law makes substantial changes to the traditional programs administered by the SBA, including its leading 7(a) loan guarantee program. The law appropriates a total of $349 billion for the cost of guaranteed loans up to 100 percent, known as the Paycheck Protection Program.
Interested borrowers must submit applications to private lenders. Through its guarantee, SBA assures lenders that if borrowers are unable to repay the loan, they will reimburse the full amount of losses for the covered period through the end of the calendar year 2020. The federal agency is expected to announce participating financial institutions in Puerto Rico as early as this week. Allowable uses for the loan proceeds include:
- providing sick leave;
- maintaining payroll;
- meeting increased operational costs due to the virus;
- making payments for rent, mortgage, and utility;
- and repaying obligations that would otherwise not be met due to revenue losses.
When expanding eligibility, Congress ensured all sole proprietors, independent contractors, self- employed individuals, small businesses, 501c3 nonprofit organizations, veterans’ organizations, and tribal businesses, with less than 500 employees would be eligible for these loans. In the fine print, it extends this relief to hotels and restaurants, as identified by its North American Industry Classification System (NAICS) code 72. It also extends aid to “any business concern operating as a franchise.” See language below.
TITLE I—KEEPING AMERICAN WORKERS PAID AND EMPLOYED ACT
Section 1102. Paycheck Protection Program –
‘‘(ii) INCLUSION OF SOLE PROPRIETORS, INDEPENDENT CONTRACTORS, AND ELIGIBLE SELF-EMPLOYED INDIVIDUALS.—
‘‘(I) IN GENERAL.—During the covered period, individuals who operate under a sole proprietorship or as an independent contractor and eligible self-employed individuals shall be eligible to receive a covered loan.
‘‘(II) DOCUMENTATION.—An eligible self- employed individual, independent contractor, or sole proprietorship seeking a covered loan shall submit such documentation as is necessary to establish such individual as eligible, including payroll tax filings reported to the Internal Revenue Service, Forms 1099–MISC, and income and expenses from the sole proprietorship, as determined by the Administrator and the Secretary. ‘‘
(iii) BUSINESS CONCERNS WITH MORE THAN 1 PHYSICAL LOCATION.—During the covered period, any business concern that employs not more than 500 employees per physical location of the business concern and that is assigned a North American Industry Classification System code beginning with 72 at the time of disbursal shall be eligible to receive a covered loan.
‘‘(iv) WAIVER OF AFFILIATION RULES.—During the covered period, the provisions applicable to affiliations under section 121.103 of title 13, Code of Federal Regulations, or any successor regulation, are waived with respect to eligibility for a covered loan for—
‘‘(I) any business concern with not more than 500 employees that, as of the date on which the covered loan is disbursed, is assigned a North American Industry Classification System code beginning with 72;
‘‘(II) any business concern operating as a franchise that is assigned a franchise identifier code by the Administration; and
‘‘(III) any business concern that receives financial assistance from a company licensed under section 301 of the Small Business Investment Act of 1958 (15 U.S.C. 681).