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The CARES Act: An Employment Law Firm’s Take On Worries and Remedies

The Novel Coronavirus (“COVID-19”) has caused significant economic damage across the entire economy.  As we all know, small businesses (including many of our clients) have been impacted, causing them to layoff or furlough workers and reduce wages.  In response, these businesses have turned to the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act’s Paycheck Protection Program (“PPP”) to receive financial assistance in keeping workers employed and their businesses operating.  Under the act, a small business may borrow up to $10 million with low interest rates with the possibility of the federal government even fully forgiving loans if the money is used for certain approved expenses and the borrower retains a certain percentage of its workforce.  PPP loans may be used for several enumerated reasons, including a business’s payroll costs, mortgage obligations as well as rent and utility payments.

Fraud and misrepresentation are of particular concern during this emergency loan process as the rapid disbursement of billions of dollars in federal aid creates ample opportunity for unscrupulous behavior.  The government is rushing to get these PPP funds out to businesses on an aggressive timeline, but this haste provides little opportunity to fully vet PPP applications before the issuing of loans.  Inevitably, funds are not precisely disbursed according to where the need exists and many individuals and businesses may receive funds that they may not be entitled to.

Indeed, the failure to adequately vet PPP loan applications has produced unbalanced and sometimes quite unfortunate results.  A substantial portion of the $349 billion in PPP funds has, for example, been provided to areas of the United States with comparatively few COVID-19 cases and to companies that do not even qualify as small businesses.  For example, Texas businesses received more PPP loans than any other state in the country, despite just 25,000 confirmed cases of COVID-19 across the state at the time of this writing.  New York, which is undoubtedly the most affected state, received substantially less funding, despite suffering from approximately 295,000 confirmed cases to date.

Astonishingly, large business such as Ruth’s Chris Steak Houses, which has more than 5,000 employees and made more than $486 million last year, received millions in PPP funding, depriving small businesses owners of much needed aid.  Similarly, the beloved restaurant chain Shake Shack received over $10 million in PPP loans, despite its status as a large and successful corporation.  Moreover, certain businesses classified as “essential”, meaning they have been operating during this time, have still received PPP funds.  Notably, this includes businesses in the construction industry, which has received the most aid of any industry despite its “essential” classification in all but six states.  We note, that to their credit, many businesses that received funding without pressing need have returned the funds.  We are safe to assume however, that many others did not.

The distribution of emergency funds to businesses without an apparent need for those funds will likely elicit greater scrutiny from the government as the situation becomes clearer over time.  To prevent fraud and abuse, the Federal government has at its disposal the False Claims Act (“FCA”), which allows the government to impose civil penalties upon and collect damages from individuals or companies who submit false claims for payment to the government.  Individuals that report such abuse, known as relators, can pursue claims on behalf of the government and receive a portion of a potential fine under what has been traditionally referred to as a qui tam action.  Notably, the FCA also contains an anti-retaliation provision designed to protect employees who are retaliated against for reporting this fraud to further encourage compliance with the law.

Given the unprecedented scale of the payments made under the CARES Act (which is currently a staggering $2.2 trillion), the opportunity for abuse is self-evident.  Accordingly, the United States Department of Justice is encouraging the public and legal community alike to report any suspected fraud related to COVID-19 and the PPP.  The vigilance of all at this time will improve the chances that this process is administered more fairly.  At The Boyd Law Group, our employment law attorneys have experience in helping employees navigate qui tam actions and prosecuting retaliation actions. The government is doing its best and we can help, with you, to police abuse where it is needed.  If you would like to discuss how we can help, please call us at (800) 617-4254 for a case evaluation. #theboydlawgroup #letustaketheworryoutofyourwork

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