Tag Archives: covid-19

Paycheck Protection Program: Guidance On Forgiveness

May 29, 2020 marks 8 weeks since Paycheck Protection Program (PPP) loans were first made available and thus the beginning of borrowers’ eligibility to apply for loan forgiveness.  On May 22, 2020, the SBA released two rules to help clarify various aspects of loan forgiveness and inform on the SBA’s review process, discussed below.

Loan Forgiveness Process:  Lenders determine loan forgiveness on a borrower-by-borrower basis.  To receive loan forgiveness, borrowers must complete and submit the Loan Forgiveness Application (or a lender’s equivalent) to their lenders.  Lenders have 60 days from the date the Loan Forgiveness Application is submitted to issue its decision to the SBA, which in turn has 90 days to remit the appropriate forgiveness amount to the lender.  (For a more detailed discussion on what costs qualify as forgivable, see our prior post here.)

Alternative Payroll Covered Period:  Borrowers are not required to base forgiveness amounts on the 8-week period that begins with the date of disbursement.  Instead, borrowers may opt to use an 8-week period beginning on the first day of the first payroll cycle after loan funds are disbursed (the “alternative payroll covered period”).  For example, if a borrower receives its PPP disbursement on June 1, but the borrower’s first pay cycle after disbursement begins on June 7, the borrower may elect to calculate its loan forgiveness amount by using the period from June 7 to August 1 (8 weeks after June 7).

Costs Incurred but not Paid During Covered (or Alternative Covered) Payroll Period:  Payroll costs incurred during the borrower’s last pay period of the covered period (or alternative payroll covered period) are eligible for forgiveness if paid on or before the next regular payroll date; otherwise, payroll costs must be paid during the covered period (or alternative payroll covered period) to be eligible for forgiveness.  Additionally, non-payroll costs that are otherwise eligible for forgiveness and are incurred within the covered period or alternative covered period and paid on or before the next regular billing date are also eligible for forgiveness.  For example, a rent or utility payment paid after the designated 8-week covered period can still qualify for loan forgiveness to the extent the payments were for rent or utilities incurred during said period.  However, advance payments for interest on mortgage obligations do not qualify for forgiveness.

Payroll Caps:  Payroll costs are forgivable to the extent that they cover employees’ salary, wages, or commissions during the covered or alternative covered period and do not exceed a prorated annual salary of $100,000.  This also applies to bonuses, hazard pay, and the salary, wages, or commissions paid to furloughed employees.  Further, the amount of loan forgiveness requested for owner-employees and self-employed individuals’ payroll compensation can be no more than the lesser of 8/52 of 2019 compensation (i.e., approximately 15.38 percent of 2019 compensation) or $15,385 per individual in total across all businesses.

Reductions to Loan Forgiveness Amounts:  The CARES Act provides that a borrower’s loan forgiveness amount will be reduced if a borrower reduces its full-time equivalent (FTE) employees (meaning 40 hours or more of work each week) or reduces any employees’ (who made less than $100,000 in 2019) salary or wages by more than 25%.  The CARES Act also allows borrowers to avoid such reductions if employees are rehired and restored salary and wage levels by June 30, 2020.  The May 22nd interim rules clarify that borrowers may still be entitled to avoid such forgiveness reductions so long as they offer to rehire FTE employees or restore employees’ hours, even if they do not accept.  Such offers must be made in good faith and be for the same salary, wages, and number of hours that the employee earned prior to separation or reduction in hours.  Records of these offers and rejections must also be maintained, and the borrower must inform the applicable state unemployment insurance offer within 30 days of the employee’s rejection.  Moreover, to ensure that borrowers are not doubly penalized, salary/wage reductions apply only to the portion of the decline in employee salary and wages that are not attributable to an FTE employee reduction.  Further, if an employee is fired for cause, voluntarily resigns, or voluntarily requests a schedule reduction, then no corresponding loan forgiveness reduction will be imposed.

SBA’s Review Process:  As discussed in our prior post addressing borrowers’ potential liability under the False Claims Act, all PPP loans in excess of $2 million, and any other loans “as appropriate,” will be reviewed by the SBA.  Either way, if the SBA reviews a borrower’s loan, it will look at borrower eligibility, loan amounts and use of proceeds, and loan forgiveness.  Borrowers are required to maintain PPP documentation for six years after the date the loan is forgiven or repaid in full and must permit the SBA access to such files upon request.  If the SBA believes that a borrower may not have been eligible for the loan, the loan amount, or the loan forgiveness amount, the SBA will require the lender to contact the borrower in writing to request additional information and may also request information directly from the borrower.  If the SBA determines that a PPP loan recipient should have been ineligible, no forgiveness will be permitted.  The SBA may also seek repayment of the outstanding PPP loan balance or pursue other available remedies.  Another interim rule will be issued that addresses how recipients ruled ineligible can appeal such a determination.

Modifications Expected:   On May 28, 2020, the U.S. House of Representatives approved legislation (the “Paycheck Protection Flexibility Act,” H.R. 7010), that would extend the time PPP recipients have to spend their funds and receive forgiveness from eight weeks to 24 weeks.  The bill would also lower the portion of PPP funds borrowers must spend on payroll costs to qualify for full loan forgiveness from 75% to 60%.  The House bill passed under special rules established to expedite legislation while the House is not in full session, requiring a two-thirds vote for passage instead of a simple majority.  The House bill will now need to pass the Senate before making its way to President Trump’s desk to be signed into effect.  A separate bill advancing through the Senate would double the covered period of forgivable PPP spending to 16 weeks but would not change the 75% payroll cost requirement.  We will continue to track these bills and provide updates accordingly.

Stubbs Alderton Authors:
Caroline Cherkassky
Garett Hill

For more information on worker’s rights and business liability, visit our COVID-19 Preccelerator Resource Center :

Los Angeles County’s Eviction Moratorium/Rent Deferment Order

On April 14, the Los Angeles County Board of Supervisors amended its March 19 order that mandated an eviction moratorium on both residential and commercial tenants and gave defaulting tenants the ability to defer rental payments that become due through May 31, 2020 for months.

(March 19: https://covid19.lacounty.gov/wp-content/uploads/19032020HP_MFP_M577143825.pdf; April 14: http://file.lacounty.gov/SDSInter/bos/supdocs/145198.pdf#search=%22moratorium%20eviction%22.)

Specifically, the April 14 amendment expands coverage of the March 19 order to all cities in Los Angeles County that have not enacted their own eviction moratorium/rent deferment order and mobile home parks who rent space to mobile homeowners, in addition to the unincorporated areas of Los Angeles County that the March 19 order initially covered.  Thus, cities within Los Angeles County who have enacted their own order, like the City of Los Angeles, do not fall under the Los Angeles County order.

Critically, while Los Angeles County’s order initially required defaulting commercial and residential tenants to demonstrate an inability to pay rent and/or related charges due to “financial impacts” related to COVID-19 in order to not be evicted for nonpayment of rent, the April 14 amendment provides that both commercial and residential tenants may “self-certify” their inability to pay as a result of “financial impacts,” and requires landlords to accept such self-certification.  Tenants must still provide notice to their landlords of their inability to pay within 7 days of the due date.

“Financial impacts” include “substantial loss of household income due to business closure, loss of compensable hours of work or wages, layoffs, or extraordinary out-of-pocket medical expenses” that are “related to COVID-19” (i.e. if it is a result of any of the following: (1) diagnosed with COVID-19, or caring for a household or family member who is diagnosed with COVID-19; (2) layoff, loss of hours, or other income reduction resulting from business closure or other economic or employer impacts of COVID-19; (3) compliance with a recommendation from the County’s Health Officer to stay home, self-quarantine, or avoid congregating with others during the state of emergency; (4) extraordinary out-of-pocket medical expenses related to diagnosis and testing for and/or treatment of COVID-19; or (5) child care needs arising from school closures related to COVID-19).

Los Angeles County’s order as amended also prohibits both residential and commercial evictions based on the presence of unauthorized occupants, pets, or nuisance necessitated by or related to COVID-19.  Further, the April 14 amendment extends a defaulting tenant’s time to pay back the deferred rental payments from 6 months after the expiration of the moratorium period (which is currently set for May 31, 2020 but may be extended) to 12 months.

It is worth reiterating that if a city within Los Angeles County has enacted its own order, then that order would apply over Los Angeles County’s.  It is thus crucial for landlords and tenants alike to familiarize themselves with the order that is applicable to their location, as the vast majority of cities both inside and outside of Los Angeles County, as well as other counties themselves, do not allow for similar “self-certification,” and instead require a defaulting tenant to “demonstrate” or “show” an inability to pay rent due to COVID-19.  When such demonstration or showing is required, tenants should be prepared to provide some form of supporting documentation, which might include bank statements, financial statements, accounts payable/receivable, or any other reasonable documentation.  Given a lack of guidance on what constitutes sufficient supporting documentation, tenants should immediately begin the process of negotiating with their landlords to determine the supporting documentation that will be provided.

In sum, municipal eviction moratorium/rent deferment orders may differ from Los Angeles County’s order by: (a) excluding commercial tenants, or certain commercial tenants, from protection; (b) providing alternative timeframes for notifying landlords of an inability to pay or for making deferred rent payments once the applicable order or the COVID-19 emergency period expires; and (c) requiring a demonstration or showing of an inability to pay because of COVID-19.

For instance, while the City of Los Angeles’ eviction moratorium/rent deferment order also covers both residential and commercial tenants, it: (a) does not extend protections to commercial tenants that are publicly traded companies, transnational companies, or companies with over 500 employees; (b) only grants defaulting commercial tenants a 3 month window after the emergency period to make up deferred payments (defaulting residential tenants have a 12 month window); and (c) was revised to not require defaulting tenants to “show” an inability to pay rent for reasons related to COVID-19; however, it also does not provide for self-certification – whether and to what degree tenants will need to substantiate an inability to pay because of COVID-19 under this order is thus unclear at this time.  (LA City’s Order: http://clkrep.lacity.org/onlinedocs/2020/20-0147-S19_ORD_186585_03-31-2020.pdf.)

In light of the foregoing, all tenants (and to the extent applicable, landlords) should immediately:

  • Familiarize themselves with their applicable order, specifically the notice requirement and deferment periods;
  • If the applicable order so requires, be prepared to provide documentation demonstrating an inability to pay because of COVID-19; and
  • Understand that you will need to pay any deferred rent eventually, so start the conversation with your landlord as soon as possible to work out an agreement.

Preccelerator COVID-19 Resource Center

SA&M authors:

Garett Hill

Jeff Gersh

For more information on these matters, please contact our COVID-19 Task Force at info@stubbsalderton.com or one of our attorneys at SA&M.

COVID: Now What?

We’ve now been in the thick of this pandemic for a few weeks. We are all watching the number of people infected with COVID-19 rise at an alarming clip, a $2 trillion stimulus package no one really knows how to use, and people continuing to freak the fuck out about the coronavirus.

Ok, now that that depressing sh*t is out of the way, here’s the silver lining we’re seeing in the market with agency partners, clients, and prospects.

  • Ostriching is slowing down
  • Native e-commerce brands are crushing it
  • Companies are planning with purpose
  • Kindness is winning

To read the full article visit here.



Founder & CEO
Elevate My Brand

*Digital marketing, marketing strategy, business development, social media marketing

With a background and education in business and law from Rutgers University, and a passion for food, wine and lifestyle brands, Laurel’s expertise in marketing has been built and solidified through her work with prestigious restaurateurs and major brands across the nation.

Laurel established her influence as a creative marketing expert in the city of Brotherly Love. She was responsible for the production and promotion of high-profile, buzz-generating special events for Le Bec Fin, Philadelphia’s only restaurant with five stars from Mobil and a three-star Michelin rated restaurant. She developed Public House Restaurant Group’s flagship restaurant and managed the execution of their national marketing campaign strategy.

Upon returning to her native Los Angeles, Laurel took on the role of Executive Vice President and In-House Counsel for Bassett, and subsequently began consulting for beauty, food, beverage and consumer brands. Inspired by the success she found bringing her fresh approach to marketing to a wider group of clients, she founded Elevate My Brand in 2009. She now sits on the board of directors for the American Heart Association, the Fender Music Foundation, One With The Water, Ten X, and the British American Business Counsel. Laurel is also on the Social Committee for the Network of Executive Women, a Recipient of the Los Angeles Business Journal Women Making A Difference Award 2014, Keynote speaker for the Women and Business Enterprise Conference 2014, and runs her own exclusive networking group, ”The Taste Salon.” She is regularly featured in Inc. Magazine, where she has her own column, “On Brand.”

Laurel lives in Los Angeles, California, where she steers our digital marketing and event planning efforts.

For more information, please visit our COVID-19 Resources page.

COVID Legal Briefing – SBA 7(A) Loan Programs: Affiliation Considerations For Startups

The Coronavirus Aid, Relief, and Economic Security (CARES) Act was recently signed into law, and includes, among other things, a new loan type under the 7(a) loan program of the Small Business Administration (SBA), called the Paycheck Protection Program (PPP). Also available under the SBA framework are Economic Injury Disaster Loans (EIDLs). Our focus here is specifically on potential issues emerging growth companies may face in the context of these loan programs regarding deemed “affiliation” between a company and its investors.

Why does affiliation matter? Understanding whether an applicant’s investors will be deemed to be affiliated is important to ensure that an applicant does not breach a maximum level of employees required for eligibility under the loan programs. In order to be eligible for 7(a) loan programs, an applicant must employ no more than 500 employees.[1] For many early-stage companies, the 500 employee threshold would at first glance appear to be easily satisfied, but the SBA 7(a) loan programs require that an applicant includes in its headcount the employees of any companies under common control, or affiliated, with the applicant. For the SBA’s purposes, affiliation is defined more broadly than in many other contexts, and currently available guidance suggests that some common contractual rights held by venture capital investors could trigger a finding that an investor such as a VC fund would be affiliated with the applicant and that in turn the other portfolio companies of such fund would be deemed affiliates and be required to be included for purposes of the 500 employee threshold.

What triggers a finding of “affiliation”? There are several bases on which affiliation may be found, including the following:[2]

1.  Majority ownership. This is likely the easiest category to assess. If an investor owns more than 50% of the voting equity, that investor controls the company and shall be affiliated with the company, along with any other companies that such investor controls.

2.  Veto rights, aka protective provisions or negative controls.

a.  This is the category that has caused the most confusion in the startup ecosystem. A minority investor may, notwithstanding the minority ownership position, be deemed an affiliate based on its ability to negatively control (i.e., have veto power over) the applicant’s operations. Since most VC investors take minority positions, this is where most of the action is for assessing a startup’s likelihood of triggering a finding of affiliation with its investors.

b.  There is, unfortunately, no bright-line list of triggering provisions, but there are past decisions by the SBA Office of Hearings and Appeals (OHA) from which guidance can be drawn. Generally, the SBA focuses a finding of affiliation by negative control on whether the negative controls are operational in nature, as opposed to fundamental matters seen as reasonable for protection of a minority investor’s interests. Thus, a right to veto a sale of the company is unlikely to result in a finding of affiliation, but a right to veto capital expenditures probably would trigger such a finding.

c.   The National Venture Capital Association (NVCA) has put out a helpful summary of veto rights that, based on past OHA determinations, are likely to trigger a finding of affiliation with an investor holding any such rights (though it is important to bear in mind that removing any such negative controls does not guarantee that no finding of affiliation will be found). Those veto rights that are likely to be problematic are summarized below:[3]

i. Making distributions or paying dividends (other than tax distributions).
ii. Establishing a quorum for a board or stockholders meeting.
iii. Approving the budget or capital expenditures outside the budget.
iv. Determining employee compensation.
v. Hiring and firing officers.
vi. Changing the company’s strategic direction.
vii. Establishing or amending an option plan.
ix. Incurring or guaranteeing debts.
x, Initiating or defending a lawsuit.
xi. Entering into contracts or joint ventures.
xii. Amending or terminating leases.

d.  A couple of additional important considerations:

i.  Negative control is assessed not only with respect to the investor entity as an equity holder having blocking rights but also where an investor-appointed director has the ability to block actions at the board level.

ii.  Negative control is assessed with respect to a minority investor acting alone. However, this does not mean that the investor must have a right granted specifically to them; rather, a company must look at its ownership. For instance, if negative controls are granted to a company’s Series A holders as a group, and a single investor holds a majority of the Series A voting power, that investor constructively holds the veto right and will be found to hold those negative controls. In contrast, if an investor holds a large portion of the Series A but not a majority, this large ownership stake alone is unlikely to result in a finding that such investor holds those negative controls, because they do not, acting individually, have a blocking right.

3.  Convertible or exercisable securities, or agreements to sell. The SBA will give present effect, i.e. deem to have occurred for purposes of the affiliation analysis, any convertible instruments or agreements to sell. This includes, for instance, taking into account exercisable securities for calculating ownership thresholds, as well as in certain cases letters of intent to merge or sell securities.

4.   Management. Entities under common management may be deemed to be affiliated. This may include, for instance, where one entity controls the management of the applicant through a management agreement, or where one or more officers of the applicant control the management and/or the board of one or more other entities.

What if an investor has rights that would trigger affiliation, but they do not exercise them? For purposes of the SBA 7(a) loan programs, affiliation is measured based on rights held, regardless of whether such rights are exercised.

What actions should a startup take now? We recommend all startup companies applying for an SBA 7(a) loan familiarize themselves with the rights held by their investors. If an applicant has agreements in place with investors that are likely to trigger a finding of affiliation, it may be possible to amend those agreements to mitigate the likelihood of a finding of affiliation.

Will these guidelines change? There are substantial efforts in progress by the NVCA and other groups lobbying for guidance to clarify affiliation matters and ensure that startups are not inadvertently deemed affiliated with their investors by virtue of control provisions. There is no guarantee such efforts will be successful, and unless and until they are, companies will need to operate assuming the currently available guidance will apply. On Thursday April 2, 2020, House Minority Leader Kevin McCarthy (R-Calif.) told the Axios Pro Rata Podcast[4] that he spoke with Treasury Secretary Mnuchin and that guidance would be forthcoming in a couple of days to set out clearer guidelines for PPP loan eligibility.

Author: Caroline Cherkassky

The attorneys of Stubbs Alderton & Markiles, LLP are continuously monitoring the current COVID-19 situation and publishing relevant updates that pertain to your business. Contact one of our legal professionals at info@stubbsalderton.com, if you have any questions.

For more information please visit our COVID-19 Resources page.

[1] Note that there are exceptions for certain franchises or applicants in the hotel or foodservice industry, but these exceptions will not be relevant for most technology or other startups.

[2] This is a non-exhaustive list of the bases most likely to be relevant for startups. See 13 CFR §121.301(f) for a complete listing.

[3] See NVCA Affiliation in the Context of SBA Loans – Guidance for Venture Capital Investors at https://nvca.org/wp-content/uploads/2020/03/VC-SBA-Lending-and-Affiliation-Guidance-for-SBA-Loan-Programs.pdf

[4] See https://www.axios.com/coronavirus-vc-startups-small-business-loans-6ae9e125-fbbb-4349-9d67-ce68d4a5ac57.html.

COVID-19 Legal Briefing – Payroll Protection Program (PPP)

Making payroll is one of the most stressful issues on every business owner’s mind, and thankfully, the Paycheck Protection Program (PPP) section of the CARES Act provides significant aid to provide some financial relief. The final PPP loan application is now available here.

Who Can Apply? According to the Dept of Treasury’s Information Sheet, all businesses with 500 or fewer employees can apply. Businesses in certain industries can have more than 500 employees if they meet applicable SBA employee-based size standards.   Business types that qualify for PPP loans include independent contractors, LLCs, S corporations, C corporations, sole proprietorships, as well as other types of businesses including certain nonprofits, veterans’ organizations, and tribal business concerns.  Businesses who have received Economic Injury Disaster Loans (EIDLs) through the SBA between January 31, 2020 and April 3, 2020 are not prohibited from obtaining a PPP loan so long as the EIDL was executed for purposes other than the permitted uses of a PPP (see below for discussion of PPP permitted uses).

The SBA’s affiliation standards have been waived for this Program for companies that are (a) in the hotel or food services industries; (b) franchises in the SBA’s Franchise Directory; and (c) receiving financial assistance from small-business investment companies licensed by the SBA.  The affiliation standards have been the source of much confusion in the venture-backed startup community; and we explore those considerations in more detail here and will be monitoring for expected new guidance in that area and updating as that becomes available.

What Do I Need to Do to Apply?  A business owner must apply through an approved SBA 7(a) Lender, or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating.  Applications are open as of April 3, 2020 for small businesses and sole proprietors.  Independent contractors can begin the application process as of April 10, 2020.  All applications must be submitted to an approved lender by June 30, 2020.

Applicants will need to certify that the business is suffering from economic hardship due to the current COVID-19.  In addition to the certification in good faith that the funds will be used to maintain payroll and make mortgage, lease or utility payments, the applicant will need to provide:

  • Documentation that demonstrates the number of full-time employees on payroll, total payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities for the eight weeks after getting this loan. Independent contractors (1099 workers) engaged by an applicant are not included for this analysis, but note that the PPP does provide opportunities for independent contractors to apply for their own PPP loan.
  • Certification that the business owner has not and will not receive any other loan assistance under the CARES Act.

How Much Can You Apply For?  The amount of the loan is for up to 2.5 times a business’s average monthly payroll costs from the last year plus any outstanding amounts owed on an EIDL executed between January 31, 2020 and April 3, 2020, if any, and less any emergency advance amounts obtained through the EIDL program, if any.  Note, this amount cannot exceed $10 million.  If you are a seasonal or new business, you will use different applicable time periods for your calculation.  Individual employee payroll costs are capped at $100,000 annualized, so anything above that is not considered for determining average payroll costs.

What Are the Permitted Uses of a PPP? A PPP loan can be used for “payroll costs” and other specific operating expenses.

Payroll costs include salary, wages, commissions, payment of vacation, sick, parental/family/medical leave, payment of retirement contributions, group health coverage premiums and state and local taxes assessed on payroll.  Payroll costs do not include Federal Payroll Tax, compensation paid to employees in excess of $100,000, or compensation paid to employees outside the U.S.

In addition to payroll costs, PPP loans can be used to cover interest on mortgage obligations, rent, and utilities that were in use before February 15, 2020, and interest on other debt obligations incurred before February 15, 2020.

Loan Terms. PPP loans will be executed at an interest rate of 1% with a maturity date of two years.

When Do I Have to Pay it Back?  A business’s loan repayment term is two years, with the first 6 months of payments deferred with interest accruing during deferment.  There is no pre-payment penalty if paid back within that two-year period.

Is the Loan Forgivable?  A business owner is eligible for loan forgiveness for the amounts they spend over the eight weeks after receiving the loan disbursement on the qualifying expenses named above (aside from interest on debt obligations incurred before February 15, 2020), provided that  at least 75% of the forgiven amount must have been used for payroll costs.

If the number of full-time employees is reduced over the eight weeks or if the salary or wages of employees who earned $100,000 or less in 2019 are reduced by 25% or more, then the amount of the loan eligible for forgiveness will be reduced.  However, depending on the timing of any such workforce or salary/wage reductions, reduced loan forgiveness can be avoided if the reductions are undone by June 30, 2020.

The lending bank will determine a business’s eligibility for loan forgiveness based on the criteria mentioned and has 60 days to render a decision.

Can I Still Qualify if I Already Have an SBA Loan?  A business owner can have more than one SBA loan as long as the total combined amount of the loans does not exceed the maximum amount set by the SBA, and in the case of EIDL and PPP loans, a borrower cannot take out both types of loans unless they are for different purposes. EIDL loans executed before a PPP loan can be rolled into a PPP loan.  In other words, the principal of an EIDL could later become part of a PPP loan, likely resulting in lower interest rates.

What are the similarities and differences between PPP loans and EIDL? Can I get both?  As mentioned, you can receive both loans as long as the amount doesn’t exceed the maximum amount allowed by the SBA, and the proceeds are used for different things.  EIDL can be used for payroll, paid sick leave, costs incurred due to supply chain disruption, rent or mortgage payments, and repayment of amounts owed that cannot be paid due to loss of revenue from a disaster’s (i.e. COVID-19) impact.  Further, EIDL applicants can receive up to a $10,000 emergency advance, which does not have to be repaid even if the loan application is later denied but will reduce the principal of a PPP loan if such applicant subsequently executes one.

As addressed above, PPP can be used for payroll costs, group health care benefits, mortgage interest costs, rent, utilities and interest on debt incurred before February 15, 2020.  Because the PPP is forgivable in certain cases, and forgiveness is tied to usage of the PPP loan on payroll specifically, borrowers should carefully evaluate which loan to use for which expenses where an expense is eligible to be paid by either type of loan. We have provided a useful flow chart, available at: PPE: EIDL Comparison Chart.

Heidi Hubbeling
Garett Hill
Caroline Cherkassky
Greg Akselrud

The attorneys of Stubbs Alderton & Markiles, LLP are continuously monitoring the current COVID-19 situation and publishing relevant updates that pertain to your business. Contact one of our legal professionals at info@stubbsalderton.com, if you have any questions.

For more information please visit our COVID-19 Resources page.

COVID-19 Legal Briefing: The Impact Of A “Force Majeure” Clause On Your Agreements & Other Possible Excuses For Non-Performance

Force Majeure provisions in an agreement may excuse performance by one or both parties to a contract as a result of events that can neither be anticipated nor controlled.  These provisions range from simple and boilerplate to extraordinarily detailed.  But you may also be excused from performance of a contract if performance of the agreement impossible or impracticable.

In the case of the outbreak of the current coronavirus (“COVID-19 Pandemic”), there are several terms or phrases to look for in an agreement, including a Force Majeure provision, when considering whether an event may provide a party with the ability to be excused from performance.  However, you must also review the entirety of the applicable agreement to determine if there is any specific exclusion or exception to certain events that do not constitute a Force Majeure or otherwise justify non-performance.

  • The most obvious is, whether there is any reference to viruses, particular illnesses, pandemic, plague, etc. For example, an explicit reference to a “virus” or “pandemic” would most likely excuse performance based on the COVID-19 Pandemic.  COVID-19’s classification as a “pandemic” by the World Health Organization (“WHO”) will trigger a Force Majeure clause that expressly accounts for “pandemics.”   However, the declaration of this event as a pandemic all by itself – without a reference to pandemics in a Force Majeure clause – will not automatically constitute an excuse from performance given the courts’ focus on whether the event is specified within the specific language in the agreement. Clauses that are silent on pandemics, epidemics, or other viral outbreaks are likely to be insufficient for a Force Majeure defense to performance due to COVID-19, unless, of course, courts change the analysis to account for the existing current situation.  Further, courts may still evaluate whether measures could have been taken to avoid the consequences of the Force Majeure event or if the actions exacerbated the likelihood of the Force Majeure event causing non-performance.
  • In addition to the foregoing, the enactment of substantial governmental regulations, as many local, state, and the federal governments have recently done, including limiting the movement of “non-essential” workers, which could impact the supply chain and physical performance on many contracts, as well as on travel, large gatherings and the like have all resulted in significant business interruptions with significant impact on many businesses.  If the applicable Force Majeure provision provides that if inability to perform is the result of governmental orders or regulations which makes performance impossible, businesses may be able to invoke the Force Majeure provision to excuse any contractual obligation to perform resulting from these events.  Although if the provision does not include a reference to viruses, illness or the like, it may be more limited, as any non-performance will need to be caused by government action, not the virus or illness alone.
  • Finally, “open-ended” or “catch-all” language does not always work to cover a situation not explicitly stated in an agreement. It is most likely that these provisions will only apply to Force Majeure events that were not foreseeable at the time of contracting.  Courts are typically reticent to allow broadly worded Force Majeure provisions to excuse performance, and whether an unprecedent outbreak of a virus or disease is something that a court would find to be “foreseeable” will vary by jurisdiction.

California Courts’ Interpretation of Force Majeure Provisions

Foreseeability Standard For “Open-Ended”- Catch-All” Provisions

Reasonable Control Requirement

Interpretation of Force Majeure Provisions in Other States

Force Majeure and the COVID-19 Pandemic

Can Performance Be Excused Without a Force Majeure Clause and the Impact of California Civil Code Section 1511?

Impossibility or Impracticability of Performance

Authors:  Jeffrey Gersh 
Celina Kirchner
Crystal Jonelis
Karine Akopchikyan

The attorneys of Stubbs Alderton & Markiles, LLP are continuously monitoring the current COVID-19 situation and publishing relevant updates that pertain to your business. Contact one of our legal professionals at info@stubbsalderton.com, if you have any questions.

For more information please visit our COVID-19 Resources page.

COVID-19 Legal Briefing – The CARES Act

Signed into law on March 27, 2020, The Coronavirus Aid, Relief and Economic Security Act — or “CARES Act”, among other things, provides significant relief for small businesses. The Act injects roughly $2 trillion into the economy for coronavirus relief – providing roughly $350 billion in small business loans and an additional $500 billion in relief to distressed companies in distressed industries, expanding unemployment compensation, and providing rebate checks/tax relief to individuals, families and businesses.  This relief is intended to last 3 months.

Small Business Loans – The CARES Act allocates up to $350 billion in emergency loans for small businesses with fewer than 500 employees (including sole proprietors, independent contractors and the self-employed) affected by COVID-19.  These loans can be for up to $10 million and will be available through June 30, 2020.  Proceeds from these loans may only be used on payroll and compensation costs, interest on debt obligations incurred prior to February 15, 2020, utilities, and/or rent payments.  These loans will be guaranteed by the Small Business Administration and do not require any fee, collateral or personal guarantees from borrowers.  Moreover, so long as these loans are used for the permitted purposes as previously stated, they will largely be forgiven (subject to any employee or wage reductions).

Click here for more info on terms and eligibility on these small business loans.

The CARES Act also expands the current Economic Injury Disaster Loan (“EIDL”) loan program through December 31, 2020.  The Act not only increases the categories of businesses eligible for the EIDL program, but it also eliminates certain requirements of the current program, such as personal guarantees on loans for $200,000 or less, the inability to find credit elsewhere, and that businesses be operational for 1 year prior to applying.  EIDL applicants can also be approved solely on their credit score, as opposed to tax returns, and will be eligible for a fully forgivable $10,000 emergency advance that can be received within 3 days.

To learn more about the changes to the EIDL program, click here.

Severely Distressed Sectors – The CARES Act, specifically, the Coronavirus Economic Stabilization Act (“CESA”), authorizes $500 billion for loans, loan guarantees, and other investments in support of eligible businesses. CESA earmarks $25 billion for passenger air carriers; $4 billion for cargo air carriers; and $17 billion for businesses that work in national security.  The remaining $454 billion (and any unused amounts in the above categories) are to be used for the benefit of businesses, States, and municipalities.

Specifically, these funds will go towards purchasing obligations or other interests directly from issuers of such obligations or other interests; purchasing obligations or other interests in secondary markets or otherwise; or making loans, including loans or other advances secured by collateral.  Note, loans executed under CESA are not forgivable.

To learn more about terms and eligibility, click here.

Unemployment Insurance – The CARES Act Section, Relief for Workers Affected by Coronavirus Act (“RWACA”), provides funding for unemployment compensation (“UC”) to workers adversely impacted by COVID-19.  RWACA extends the availability of UC to those workers who are not otherwise covered by State UC laws or that have exhausted State UC benefits.

For specifics, click here.

Relief for Individuals, Families, and Businesses –

Individuals and Families:  Individual payments of $1,200 for individuals and $2,400 for couples. The payments are reduced for individuals with incomes over $75,000 (or $150,000 for couples) and provides an additional $500 per child. The payments are eliminated for those with an income over $99,000 ($198,000 for couples).

Businesses: Employers, including tax-exempt organizations but not governmental entities – will have the option to receive a refundable payroll tax credit equal to 50% of the first $10,000 in wages per employee (including certain health plan expenses).

For more information regarding eligibility, click here.

The U.S. Senate Committee on Small Business & Entrepreneurship has published a Guide to the CARES Act https://www.sbc.senate.gov/public/index.cfm/guide-to-the-cares-act 

Small Business Owner’s Guide to the CARES Act

The attorneys of Stubbs Alderton & Markiles, LLP are continuously monitoring the current COVID-19 situation and publishing relevant updates that pertain to your business. Contact one of our legal professionals at info@stubbsalderton.com, if you have any questions.

For more information please visit our COVID-19 Resources page.

COVID-19 Legal Briefing – Families First Coronavirus Response Act (FFCRA)

Families First Coronavirus Response Act (FFCRA)

The FFCRA was signed into law on March 18, 2020, by President Trump to provide emergency relief and support in response to the COVID-19 (or “coronavirus”) pandemic. The three provisions of the FFCRA discussed below significantly change employees’ rights to paid sick leave and employers’ responsibilities for providing it. It is therefore crucial for employers that need to comply with the FFCRA (those with less than 500 employees) to understand the impact of this new legislation.

1. The Emergency Family and Medical Leave Expansion Act (EFMLEA):

The EFMLEA requires employers with fewer than 500 employees to provide to employees that qualify under the Act with up to 12 workweeks of leave. However, the first 10 days are unpaid (discussed further below) and the next 10 workweeks are paid leave. An employee is qualified if he/she has been employed with the employer for at least 30 days and is “unable to work (or telework) due to a need for leave to care for the son or daughter under 18 years of age of such employee if the school or place of care has been closed, or the child care provider of such son or daughter is unavailable.” Notably, this does not apply to employees who cannot work because of: a recommendation or order by a public official or health care provider to quarantine due to exposure to or symptoms of coronavirus; or the need to care for a family member who is in quarantine based on a recommendation or order due to exposure to or symptoms of coronavirus.

As mentioned, the first 10 days of a qualifying employee’s leave are unpaid under the EFMLEA; however, if the employee is already entitled to paid time off, such as accrued vacation time, medical, or sick days, they could apply those days to the 10 days of unpaid leave and should be paid for the applicable time. For the remainder of the 12-workweek period, employers are required to provide qualifying employees with two-thirds pay for the number of hours the employee would otherwise be scheduled to work, with a cap of $200 per day and $10,000 in the aggregate.

Further, the EFMLEA gives the Department of Labor (DOL) explicit authority to create regulations that exempt businesses with fewer than 50 employees from the requirements of the EFMLEA “when the imposition of such requirements would jeopardize the viability of the business as a going concern.” The DOL has not acted on this yet and updates will be provided as changes occur.

Additionally, businesses with fewer than 25 employees will not be required to restore the job of an employee who takes leave under the EFMLEA if: (i) the employee’s position no longer exists due to economic conditions and (ii) the employer makes reasonable efforts to restore the employee to an equivalent role with equivalent pay and benefits or if a position is not available, the employer must make reasonable efforts for a 1 year period to contact the employee if an equivalent position becomes available.

Because the EFMLEA is technically an amendment to the Family and Medical Leave Act of 1993 (FMLA), the rights provided to employees under the FMLA, such as enforcement and a prohibition on retaliation, apply equally to the EFMLEA. Similarly, since the FMLA limits the 12 workweeks of leave to any 12-month period, an employee that has already exhausted 12 workweeks of leave under the FMLA in a 12-month period would be prohibited from additional paid leave under the EFMLEA.

The EFMLEA is set to go into effect on April 2 and will remain in effect until December 31, 2020.

2. The Emergency Paid Sick Leave Act of 2020 (EPSLA):

While the EFMLEA does not really deal with an employee who is ill, the EPSLA was enacted to deal with this in some part, although there is some overlap. The EPSLA requires employers with fewer than 500 employees to provide up to two workweeks of paid sick leave to all employees for almost any issue related to the coronavirus. Under the EPSLA, full-time employees will receive up to 80 hours of paid sick leave while part-time employees will be entitled to paid sick leave pro-rated by the average number of hours worked over a two-week period. This will apply to all employees regardless of how long the employee has been employed.

Unlike the EFMLEA, paid sick leave under the EPSLA will apply to any of the following situations:

To self-isolate because the employee is diagnosed with coronavirus;
To obtain a medical diagnosis or care if such employee is experiencing the symptoms of coronavirus;
To comply with a recommendation or order by a public official or health care provider to quarantine due to exposure to or symptoms of coronavirus;
To care or assist a family member who is self-isolating because of a coronavirus diagnosis or who is experiencing symptoms of coronavirus and needs to obtain medical diagnoses or care; or
To care for a child if the child’s school or place of care is closed or the child-care provider is unavailable.
To self-isolate due to any other substantially similar condition specified by the Secretary of Health and Human Services.
If an employee takes paid sick leave under reasons 1-3 as listed above, the leave will be paid at the employee’s regular rate or the minimum wage (whichever is higher) and is capped at $511 per day and $5,110 in the aggregate. If the employee takes leave due to reasons 4-6 as listed above, that leave will be paid at two-thirds of the employee’s regular pay or minimum wage rate and capped at $200 per day and $2,000 in the aggregate.

Employers must make paid sick leave under the EPSLA available in addition to what is already provided by an employer’s existing paid leave policies. Further, employers are prohibited from changing their existing leave policies to avoid this requirement (and are also prohibited from conditioning EPSLA paid sick leave on an employee’s finding a replacement). Employees will also be able to first use paid sick leave under the EPSLA before using other accrued paid sick leave, and an employer cannot require the employee to use other paid sick leave first. Unused paid sick leave under the EPSLA will not carry over from one year to the next and will not need to be paid out at the end of an individual’s employment. Moreover, the EPSLA can be applied in conjunction with the EFMLEA by employees who qualify under both Acts to cover the first 10 days of unpaid leave under the EFMLEA.

Employers will be required to post a notice related to the EPSLA in the workplace. A model notice will be provided by the DOL by March 25. Employers who fail to comply with the EPSLA will be subject to penalties under the Fair Labor Standards Act. Like the EFMLEA, the EPSLA will go into effect on April 2 and will remain in effect until December 31, 2020.

3. Tax Credits for Paid Sick and Paid Family and Medical Leave:

The FFCRA does extend some relief to employers that are required to provide paid leave to employees under the EFMLEA or the EPSLA. These employers will receive payroll tax credits subject to certain limitations. Credits for wages paid under the EPSLA will be capped at $511 per day for days in which full pay is required, and $200 per day for days in which two-thirds pay is required and are available for up to 10 days per employee per calendar quarter. EFMLEA credits are capped at $200 per day (and at $10,000 with respect to all calendar quarters). These credits are refundable to the extent they exceed the employer’s payroll tax and are not available to employers that are also receiving credits under Internal Revenue Code Section 45S for paid family and medical leave. The FFCRA also extends tax credits to the self-employed, which carry additional considerations.

SA&M is actively monitoring the labor issues and resources that become available to businesses during this time. For more information or if you have questions about labor or employment issues for your business, please contact Jeff Gersh at jgersh@stubbsalderton.com.

The attorneys of Stubbs Alderton & Markiles, LLP are continuously monitoring the current COVID-19 situation and publishing relevant updates that pertain to your business. Contact one of our legal professionals at info@stubbsalderton.com, if you have any questions.

For more information please visit our COVID-19 Resources page.

COVID-19 Legal Briefing – SBA Economic Injury Disaster Relief Loans (EIDLs)

The U.S. Small Business Administration (SBA) has announced that it has made Economic Injury Disaster Relief Loans (EIDLs) of up to $2 million available to qualifying small businesses suffering substantial economic injury as a result of the Coronavirus (COVID-19). An EIDL is a working capital loan to help qualifying small businesses to meet their ordinary and necessary financial obligations that cannot be met as a direct result of the disaster. These loans are intended to assist through the disaster recovery period.  The interest rate for small businesses is 3.75%, while the interest rate for non-profit organizations is 2.75%.

COVID-19 EIDLs – General Overview

You can find the SBA requirements for COVID-19 related EIDLs at https://disasterloan.sba.gov/ela/Information/EIDLLoans.

To apply for an EIDL, please visit:  https://disasterloan.sba.gov/ela/Account/Login?ReturnUrl=%2Fela%2FLoanApplication%2FStartApplication.

  • EIDLs are only available to:
    • any of the following types of businesses:
      • for-profit businesses;
      • small agricultural cooperatives; or
      • most private, non-profit organizations;
    • that are located in a declared disaster area (see the SBA press release in “Recent Updates” below);
    • that have suffered substantial economic injury;
    • are unable to obtain credit elsewhere; and
    • are defined as “small” by SBA size regulations (see “SBA size regulations for ‘small business’” below).

What constitutes a “small” business?

  • When it comes to the “small” business size standards, government agencies vary.
    • Each agency’s small business definition determines your responsibilities and eligibility for small business benefits.
  • Additionally, a small business can operate under any business structure (i.e., a sole proprietorship, partnership, LLC, or corporation).
  • The Small Business Administration (SBA), the Affordable Care Act (ACA), and Internal Revenue Service (IRS) each define what qualifies as a small business.

SBA size regulations for “small business”:

  • Unfortunately, there is no single metric for SBA size standards.
  • Use your U.S. Census Bureau industry code on the SBA website to see if you are considered a “small business” by the SBA: https://www.sba.gov/size-standards/.
    • This determination is based on your business’s industry, average annual sales, and the average annual number of employees.
  • For ease of reference, the following contains a short summary of certain applicable size standards, organized by common larger industries:
    • Agriculture: Maximum of $750,000 in average receipts.
    • Utilities: Maximum number of employees ranges from 250 (for renewable electric power generation subsectors) to 1,000 (for electric power and natural gas distribution businesses).
    • Manufacturing: Maximum number of employees ranges from 500 to 1,500 (with approximately 27% of all manufacturing businesses having a maximum employee cap at 500 employees).
    • Wholesale Trade: Maximum number of employees ranges from 100 to 250.
    • Retail Trade: For one-third of all retail trade sub-industries, size standards are set at $7.5 million in average annual receipts. Other industries are defined by 100 to 500 employee maximums.
    • Transportation and Warehousing: Maximum number of employees ranges from 500 to 1,500. Some sub-industries in transportation and warehousing are defined by a range of $7.5 million to $37.5 million in average annual receipts.
    • Information: Maximum number of employees ranges from 500 to 1,500, depending on the sub-industry. The maximum average annual receipts for this industry ranges from $7.5 million to $38.5 million.
    • Finance and Insurance: A maximum of 1,500 employees (for direct property and casualty insurance carriers), and a maximum in average annual receipts ranging from $32.5 million to $38.5 million.
    • Real Estate, Rental, and Leasing: A maximum of $7.5 million to $32.5 million in average annual receipts.
    • Professional, Scientific, and Technical Services: A maximum of $7.5 million to $20.5 million in average annual receipts, or a maximum of 1,000 to 1,500 employees.
    • Health Care and Social Assistance: A maximum of $7.5 million to $38.5 million in average annual receipts.

COVID-19 Economic Injury Disaster Relief Loans – Additional Details and Key Takeaways

Application Filing Deadline: December 16, 2020.

  • Credit Requirements:
    • Credit History – Applicants must have a credit history acceptable to the SBA.
    • Repayment – Applicants must show the ability to repay the loan.
    • Collateral – Collateral is required for all EIDL loans over $25,000. The SBA takes real estate as collateral when it is available. The SBA will not decline a loan for lack of collateral, but the SBA will require the borrower to pledge collateral that is available.
  • Loan Terms: The law authorizes loan terms up to a maximum of 30 years. The SBA will determine an appropriate installment payment based on the financial condition of each borrower, which in turn will determine the loan term.
  •  Loan Amount Limit: The law limits EIDLs to $2,000,000 for alleviating economic injury caused by the COVID-19 disaster. The actual amount of each loan is limited to the economic injury determined by the SBA, less business interruption insurance and other recoveries up to the administrative lending limit. The SBA also considers potential contributions that are available from the business and/or its owner(s) or affiliates. If a business is a major source of employment, the SBA has the authority to waive the $2,000,000 statutory limit.
  •  Loan Eligibility Restrictions:
    • Noncompliance – Applicants who have not complied with the terms of previous SBA loans may not be eligible. This includes borrowers who did not maintain required flood insurance and/or hazard insurance on previous SBA loans.
  • Note: Loan applicants should check with agencies/organizations administering any grant or other assistance program under the COVID-19 emergency relief declaration to determine how an approval of an EIDL from the SBA might affect their eligibility.
  • Refinancing: Economic injury disaster loans cannot be used to refinance long term debts.
  • Insurance Requirements: To protect each borrower and the SBA, the SBA may require you to obtain and maintain appropriate insurance. By law, borrowers whose damaged or collateral property is located in a special flood hazard area must purchase and maintain flood insurance. The SBA requires that flood insurance coverage be the lesser of (1) the total of the EIDL, (2) the insurable value of the property, or (3) the maximum insurance available.

Recent Updates to the Economic Injury Disaster Relief Loans


In a March 17, 2020 press release, the SBA Administrator issued revised criteria for states or territories seeking an economic injury declaration related to Coronavirus (COVID-19), which made it much easier for states and territories to request SBA assistance more broadly for their respective jurisdictions.

In sum, these relaxed criteria are expected to have the following immediate effects:

  • Faster, Easier Qualification Process for States Seeking SBA Disaster Assistance.
    • Historically, the SBA has required that any state or territory impacted by disaster provide documentation certifying that at least five small businesses have suffered substantial economic injury as a result of a disaster, with at least one business located in each declared county/parish.
    • Under the revised criteria, states or territories are only required to certify that at least five small businesses within the state/territory have suffered substantial economic injury, regardless of where those businesses are located.
  • Expanded, Statewide Access to SBA Disaster Assistance Loans for Small Businesses.
    • SBA disaster assistance loans are typically only available to small businesses within counties identified as disaster areas by a Governor.
    • Under the revised criteria, disaster assistance loans will be available statewide following an economic injury declaration.  This applies to current and future disaster assistance declarations related to COVID-19.

We are actively monitoring the resources that become available to businesses for relief during this time. For more information or if you have questions about resources as they become available, please contact David A. Stoops at dstoops@stubbsalderton.com.

The attorneys of Stubbs Alderton & Markiles, LLP are continuously monitoring the current COVID-19 situation and publishing relevant updates that pertain to your business. Contact one of our legal professionals at info@stubbsalderton.com, if you have any questions.

For more information please visit our COVID-19 Resources page.