May 8, 2020 UPDATE: SBA Will Not Penalize PPP Loan Employers Whose Laid Off Employees Refuse to Come Back to Work


The SBA is continuing to post information in question and answer format. One of the more interesting posts on May 6 includes guidance for employers who laid employees off before getting the PPP. If those employees refuse to now come back to work, the SBA will now NOT penalize the employer’s loan forgiveness, if the employer goes through certain steps:

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. Employees and employers should be aware that employees who reject offers of re-employment may forfeit eligibility for continued unemployment compensation.

While this section can be broadly interpreted, it seems that if you properly document this situation, it can reduce the chance that the SBA will reject or lessen the loan forgiveness. I highly recommend you to read the SBA FAQs (click here) as there may be other issues which directly affect your loan and/or forgiveness. If you have any questions about the implementation of the above question, or any issue with your employees, please do not hesitate to contact me.

Battling the novel coronavirus is difficult for everyone. We are here if you need us. With best wishes for your, and your family’s, health and safety.

Gregory S. Lisi, Esq.
Partner in Charge, Employment & Labor practice group | 516.248.1700