New Employment Laws Affecting California Employers Effective March, 2020

On March 4, 2020 California’s Governor Newsom declared a state of emergency to help the state prepare for the spread of COVID-19. The state of emergency freed up funding, permitted California to receive additional federal funding and prepare its healthcare system for the upcoming onslaught of pandemic related critical care patients.

On March 19, 2020 Governor Newsom issued a “Stay at Home Order” applying to all citizens and shutting all but the most essential places of business. The work at home / stay at home order has brought many businesses to the brink of failure.

There are several significant developments in California & federal employment law relating to the pandemic which require your attention:

1 – The Families First Coronavirus Response Act (“FFCRA”). Effective April 1, 2020, all employers with 500 or fewer employees must provide three (3) new paid leave benefits for covered employees:

1. Two weeks (up to 80 hours) of paid sick leave at the employee’s regular rate of pay where the employee cannot work because the employee is quarantined (under Federal, State, or local government order or advice of a health care provider), and/or experiencing COVID-19 symptoms and seeking a medical diagnosis.
2. Two weeks (up to 80 hours) of paid sick leave at two-thirds the employee’s regular rate of pay where the employee cannot work because of a bona fide need to care for an individual subject to quarantine (under federal, State, or local government order or advice of a health care provider), or care for a child (under 18 ) whose school or child care provider is closed or unavailable for reasons related to COVID-19, and/or the employee is experiencing a substantially similar condition as specified by the Secretary of Health and Human Services, in consultation with the Secretaries of the Treasury and Labor.
3. An additional 10-weeks of paid expanded family and medical leave at two-thirds the employee’s regular rate of pay where an employee cannot work due to a bona fide need for leave to care for a child whose school or childcare provider is closed or unavailable for reasons

Small businesses (those with fewer than 50 employees) may qualify for exemptions (a) from the requirement to provide leave due to school closings or childcare unavailability, and (b) if the leave requirements would jeopardize the viability of the business as a going concern. See U.S. Department of Labor publications under the FFCRA re: Employee Paid Leave Rights; and Employer Paid Leave Requirements.

Employers are also required to provide notice to their employees of the new benefits. A copy of the federal notice is attached.

The FFCRA pressures employers to provide out of pocket benefits to employees. To help, the FFCRA provides for tax credits to employers as against payroll taxes for employers who provide paid leave benefits. The IRS promises that reimbursement will be quick. Regulations detailing how to apply should be forthcoming in the next several weeks.

The federal government is also providing Disaster Loan Assistance loans for businesses, private non-profits, homeowners and renters by way of an online and streamlined application process. Under certain circumstances, the stated plan is to forgive these loans in the future and if certain conditions are satisfied. Additional benefits will be provided via the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), discussed via a separate summary.

Recommended Action. Post the attached FFCRA poster, and email copies to all employees working remotely. If you believe that and you should not have to pay FFCRA benefits (listed above) and could qualify for an exemption, document how and why your business qualifies. This documentation will help you apply for an exemption once the Department of Labor issues guidance on how an exemption can be claimed. Finally, employers whose business has been detrimentally affected by the California Shelter at Home emergency orders should apply for SBA Emergency loans.

2 – The California WARN Act temporarily and partially suspended. The California Warn Act (‘Cal-WARN”) provides that ‘[a]n employer may not order a mass layoff, relocation, or termination at a covered establishment unless, 60 days before the order takes effect, the employer gives written notice….” A “Mass layoff” means “a layoff during any 30-day period of 50 or more employees at a covered establishment.” A “covered establishment”, is “any industrial or commercial facility or part thereof that employs, or has employed within the preceding 12 months, 75 or more persons.”

Effective March 17, 2020, the California Governor temporarily suspended part of Cal-WARN, specifically the 60-day notice requirement to temporarily or permanently close their business to prevent or mitigate the effects of the COVID-19 pandemic but could not provide their employees the usual 60-days advanced notice.

However, employers must still comply with all other parts of Cal-WARN. Employers must provide written notices to:

• All employees affected by the mass layoff, relocation, or termination;
• All representatives of employees affected (e.g. unions, if applicable); and
• The EDD, the Local Workforce Development Board, and the chief elected official of each city and county government within which the termination, relocation, or mass layoff occurs.

For more information about the partial suspension of Cal-WARN, see COVID-19:WARN FAQs.

3 – The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law. The CARES Act provides for substantial relief for both individuals and employers, which will become available within fifteen (15) days – as soon as regulations can be written. The legislation is long and complex. Some of the benefits available to employers are summarized below:

New Forgivable SBA Loan Program created. The CARES Act a new federal Small Business Association Administered federal loan program to provide loan to businesses with less than 500 employees, sole proprietors, independent contractors, and self-employed individuals for up to $10 million or 2.5 times the average monthly Payroll Costs (as defined below) in the one-year period before the date of the loan. Payroll Costs as defined includes salary, wages, tips, sick and family leave, paid vacation, PTO, severance payments, group health benefits, including insurance premiums, retirement benefits, and state or local taxes assessed on employee compensation. There are, however, caps for employees earning $100,000 or more. The new loans are not directly tied to establishing losses, as there is a presumption of negative impact from the pandemic, and these loans do not require collateral or guarantees.

The loan must be used for Payroll Costs (as defined), continuation of group health care benefits during periods of paid sick, medical, or family leave, or insurance premiums; salaries or commissions or similar compensation; interest on mortgage obligations; rent; utilities; and interest on other outstanding debt. Funds can also cover mortgage interest payment, rent, and utilities incurred or paid by the borrower during the eight week period beginning on the loan origination date to be forgiven, and any portion of the loan forgiven is excluded from taxable income.

For portions of the loan not forgiven, borrows will be charged not more than four percent (4%) annual interest and repayment must be completed in less than ten (10) years.

However, if the borrower lays off employees or reduces the wages or salaries of its workforce between February 15, 2020 and June 30, 2020, the amount forgiven will be reduced by (a) any reduction in employees retained compared to historical levels, and (b) the decrease in pay of any employee beyond 25% of their historical compensation. Layoffs, therefore, impact this loan forgiveness analysis. To encourage workforce stabilization, the Act takes into account that businesses may have or will have to lay off personnel and/or cut salaries. If changes were made between February 15, 2020 and April 26, 2020, the changes are not counted provided the business rehires the number of personnel or returns the adjusted salary by June 30, 2020.

$10,000 Grant. Created to provide quick relief for applications awaiting processing of SBA Economic Injury Disaster Loans (“EIDL”), grants up to $10,000 will be available to cover immediate payroll, mortgage, rent, and other specified expenses, and need not be repaid. A business that receives an EIDL can apply for, or refinance its EIDL into, the forgivable loan. Lenders on existing SBA backed loans are encouraged to provide payment deferments and extend maturity dates to avoid balloon payment or requirements that would increase debt because of deferment. The SBA will pay lenders the deferred principal and interest for a period.

Employee Retention Credits. Employers may be eligible for a refundable tax credit for the employer’s share of the 6.2% Social Security tax (the “SSI Tax Credit”). The potential SSI Tax Credit is for 50% of the first $10,000 in qualified wages (including health plan expenses) paid to each employee commencing on March 13, 2020. To be eligible, an employer must (a) have had operations fully or partially suspended because of a shut-down order from a governmental authority related to COVID-19, or (b) have had gross receipts decline by more than 50% in a calendar quarter when compared to the same quarter in 2019 (eligibility continues until the earlier of (i) gross receipts exceeding 80% relative to the same quarter in the prior year, or (ii) December 31, 2020.

The SSI Tax Credit is not available if the employer receives a covered loan from the SBA, as discussed above under Forgivable SBA Loan Program.

Payroll Tax Deferral. The Act allows employers to defer the payment of the employer’s share of the 6.2% Social Security tax on wages paid beginning on March 27, 2020 and ending on December 31, 2020. The deferred amounts are payable in two installments, with 50% of such taxes being due on December 31, 2021, and the remainder due on December 31, 2022. However, this deferral of Social Security taxes is not allowed where the employer has had a covered loan forgiven, as discussed above under Forgivable SBA Loan Program.

Business Tax Relief. The Act provides for assistance to businesses by way of modification of rules related to net operating losses, interest expense deductions, alternative minimum tax credits and trade or business losses of non-corporate taxpayers including amending prior tax returns to obtain tax refunds and maintain cash reserves. It is recommended that you consult with your business CPA.

Retirement Plan Disbursements and Loans. Eligible individuals can take a penalty-free disbursement or loan from their vested qualified retirement accounts of up to $100,000 to pay for expenses or make up lost income related to the pandemic. These loans can then be repaid with additional contributions beyond the normal contribution limits during the next three years.

Immediate Tax Rebate. The Act provides for an immediate tax rebate of $1,200 for an individual, $2,400 for couples filing joint return plus $500 per child. For those with annual incomes more than $75,000 per individual taxpayer, the rebate would phase out by 5% of any income over $75,000, gradually dropping to $0 for incomes above $99,000 per year.

Action Recommended: To receive these benefits consult with your CPA about amending your business tax returns and apply for SBA Emergency loans as the CARE Act grants and loans can will also be managed by the SBA.

4 –Summary of State Benefits Provided to California Employees. In addition to the federal benefits, employees are also entitled to California state benefits, summarized in the attached table.

Should you have questions about these or any other workplace laws, please contact me at doug@dmwadelaw.com.

The materials contained herein are for informational purposes only and not for the purpose of providing

legal advice. For advice about a particular problem or situation, please contact an attorney.

Summary of Benefits Provided to California Employees*

* From the Labor Workforce Development Agency.