LEGAL CORNER: The HEALS Act: Still in Limbo
John Dolgetta, Esq. | August 7, 2020
On July 27, 2020, the Senate introduced eight bills, referred to as the Health, Economic Assistance, Liability Protection and Schools Act (HEALS Act), that would offer additional relief for individuals and businesses affected by the COVID-19 Pandemic. On July 31, 2020, an important element of the previously enacted COVID-19 relief packages, the Pandemic Unemployment Assistance program benefit expired. The PUA offered individuals, as well as independent contractors (for the first time), who lost their jobs or incomes due to the COVID-19 Pandemic, the ability to apply for an additional $600 per week in unemployment benefits, supplementing the existing unemployment benefits individuals were entitled to under state law.
On July 29, 2020, the National Association of Realtors, released a helpful summary highlighting the important elements of the HEALS Act (see https://bit.ly/2Pqz8JO). The eight bills within the HEALS Act are as follows: (1) Emergency Appropriations provisions (see https://bit.ly/39ZDi4D); (2) the Safeguarding America’s Frontline Employees to Offer Work Opportunities Required to Kickstart the Economy (SAFE TO WORK) Act (see https://bit.ly/31jWd6d); (3) the American Workers, Families, and Employers Assistance Act (see https://bit.ly/30unPGS); (4) the Continuing Small Business Recovery and Paycheck Protection Program Act (see https://bit.ly/3i2u7De) (the “Continuing PPP Act”); (5) the Safely Back to School and Back to Work Act (see https://bit.ly/3fxugwN); (6) the Supporting America’s Restaurant Workers Act (see https://bit.ly/39UMuax); (7) the Restoring Critical Supply Chains and Intellectual Property Act (see https://bit.ly/3gy7OFi); and (8) the Time to Rescue United States Trusts Act of 2020 (TRUST Act) see https://bit.ly/2Xt2Odt).
At press time, the White House and Senate Republicans, and the Democrats in the House of Representatives have yet to come to an agreement on the proposed HEALS Act. The summary provided by NAR focuses on those aspects of the HEALS Act that “most directly impact Realtors, consumers and the real estate industry as a whole.” Hopefully, the provisions of the HEALS Act are agreed upon, but there are several areas of disagreement. For example, Democrats would like to maintain the Pandemic Unemployment Assistance payments at $600 per week, as well as eliminating the controversial SALT deductions for 2020 and 2021 (see Wall Street Journal article at https://on.wsj.com/3gKvHK5). Below are just some of major elements of the HEALS Act.
Proposed Improvements to the Paycheck Protection Program
Eligibility of 501(c)(6) Tax Exempt Organizations
Under the newly proposed Continuing PPP Act, an organization exempt under Section 501(c)(6) of the Internal Revenue Code would now be eligible to receive a Payroll Protection Program loan. NAR was a major advocate of this provision. A 501(c)(6) tax exempt entity was not eligible under the original CARES Act to receive a PPP loan, and, unfortunately, many Realtor Associations, and other trade organizations, are 501(c)(6) tax exempt organizations. The newly proposed provisions would allow a 501(c)(6) entity to apply for a PPP loan, provided that:
(a) the organization does not receive more than 10% of its receipts from lobbying activities;
(b) the lobbying activities of the organization do not comprise more than 10% of the total activities of the organization;
(c) the organization employs not more than 50 employees; and
(d) the covered loan is not more than $500,000.
Additional Eligible Expenses Under the PPP
According to NAR, Section 101 of the Continuing PPP Act would make the following additional expenses permissible, and forgivable, when paid using PPP loan funds:
• Expenses and payments made for any software, cloud computing and other human resources and accounting needs.
• Expenses related to property damage due to public disturbances that occurred during 2020 that are not covered by insurance.
• Expenditures to a supplier pursuant to a contract for goods in effect prior to Feb. 15, 2020 that are essential to the recipient’s current operations.
• Investments in and expenses paid in connection with personal protective equipment and other investments made, and expenses paid, in connection with required compliance with federal COVID-19 health and safety guidelines between March 1, 2020, and Dec. 31, 2020.
Simplified Application for PPP Loan
Section 104 of the Continuing PPP Act provides for a more simplified application process. For loans under $150,000, borrowers would no longer need to provide the documentation originally required under section 1106 of the CARES Act. All borrowers would need to “…attest to a good faith effort to comply with Paycheck Protection Program loan requirements, retain relevant records for three years, and may complete and submit demographic information.” The Small Business Administration would reserve the right to review and audit any PPP loans to ensure there is no fraud and that the information provided is accurate.
For loans between $150,000 and $2 million, borrowers would not be required to submit to the lender documentation originally required by section 1106 of the CARES Act, but must “…complete the certification required by that section [rather than simply attest as indicated above for loans under $150,000], retain relevant records and worksheets for three years and may complete and submit demographic information.” Upon reviewing the borrower’s application, the lender may then submit the loan to the SBA.
The Second-Draw Provision of the Proposed Continuing PPP Act
A new and important element of the Continuing PPP Act is the inclusion of Section 106. This provision would allow eligible businesses to apply for a second draw from the PPP loan program. As summarized by the Senate, eligible entities must:
• meet the SBA’s revenue size standard, if applicable;
• employ not more than 300 employees; and
• demonstrate at least a 50% reduction in gross receipts in the first or second quarter of 2020 relative to the same 2019 quarter.
Section 106 defines “eligible entities” as “any business concern, nonprofit organization, veterans’ organization, Tribal business concern, eligible self-employed individual, sole proprietor, independent contractor or small agricultural cooperative.” The new law would also specifically exclude businesses listed on a national securities exchange, which was a hot button issue with the passage of the initial PPP loan program.
Borrowers would be eligible to receive a loan amount of up to 2.5 times the average total monthly payroll costs in the one year prior to the loan, up to $2 million. For newer entities without a full year of expenses, the calculation would be 2.5 times the sum of total monthly payments divided by the total number of months in which payments were made. Further, an eligible entity may only receive one covered loan and any businesses which received a PPP loan may not receive another SBA loan that totals more than $10 million combined.
Borrowers of a “Paycheck Protection Program Second Draw” loan would be “…eligible for loan forgiveness equal to the total payroll costs, covered mortgage payments, rent, utility payments, covered operations expenditures, covered property damage costs, covered supplier costs and covered worker protection expenditures that is incurred before Jan. 1, 2021.” The 60/40 cost allocation between payroll and non-payroll costs as approved in the PPP legislation that passed in June would still apply in order to qualify for forgiveness. The new legislation would set aside $25 billion in funds for businesses employing 10 or fewer employees, and would also “prioritize underserved communities.”
Business Liability Protections Under the Safe to Work Act
Under the Safe To Work Act (see https://bit.ly/3fs1Jc8), Congress has a duty to “…safeguard its investment of taxpayer dollars under the CARES Act and other coronavirus legislation. Congress must ensure that those funds are used to help businesses and workers survive and recover from the economic crisis, and to help health care workers and health care facilities defeat the virus.” The Safe To Work Act’s purpose is to:
(1) establish necessary and consistent standards for litigating certain claims specific to the unique coronavirus pandemic;
(2) prevent the overburdening of the court systems with undue litigation;
(3) encourage planning, care, and appropriate risk management by small and large businesses, schools, colleges and universities, religious, philanthropic and other nonprofit institutions, local government agencies and health care providers;
(4) ensure that the nation’s recovery from the coronavirus economic crisis is not burdened or slowed by the substantial risk of litigation;
(5) prevent litigation brought to extract settlements and enrich trial lawyers rather than vindicate meritorious claims;
(6) protect interstate commerce from the burdens of potentially meritless litigation;
(7) ensure the economic recovery proceeds without artificial and unnecessary delay;
(8) protect the interests of the taxpayers by ensuring that emergency taxpayer support continues to aid businesses, workers and health care providers rather than enrich trial lawyers; and
(9) protect the highest and best ideals of the national economy, so businesses can produce and serve their customers, workers can work, teachers can teach, students can learn and believers can worship.
The Safe To Work Act provides for “…rules governing liability for certain coronavirus-related tort claims, protecting businesses, nonprofits, and individuals.” First, a plaintiff must establish by “clear and convincing evidence” that a defendant caused harm or injury. A defendant, however, may avail himself or herself of a “safe harbor” and avoid liability if he or she “(1) ha[s] made reasonable efforts to comply with applicable public health guidelines, and (2) has not engaged in willful misconduct or grossly negligent behavior.” If passed, this new legislation would make it more difficult for a plaintiff to prevail against a defendant, as the plaintiff would have to show that the defendant acted recklessly. One element of the legislation is that a one-year statute of limitations would apply. It also allows a case to be moved to federal court. Additionally, the legislation would “…impose limits on compensatory damages, and prohibits punitive damages (except for willful misconduct).”
Pandemic Unemployment Assistance Program
One of the main points of disagreement between the White House and Senate Republicans, and the House Democrats is how to deal with the Pandemic Unemployment Assistance Program. The new HEALS Act would provide $200 supplemental payments per week through September 2020, in addition to state benefits. Under the CARES Act, the PUA payments were $600 per week through July 31st. These $600 payments were also in addition to the state unemployment benefits. Ultimately, some of those receiving both state unemployment benefits and PUA supplemental payments were making more in unemployment benefit income than from their employment.
The new legislation would then provide, beginning in October, that the supplemental unemployment benefit would be replaced with a payment of up to $500 per week, which when combined with the state unemployment benefits, would replace 70% of lost wages. The Republicans argue that keeping the benefit at a level that is higher than the individual’s actual income is a disincentive to return to work. Ultimately, the number will likely fall somewhere in the middle. The HEALS Act also provides states with additional funding of up to $1.15 billion for processing unemployment claims and make additional technological upgrades.
A Resolution is Needed Soon
While it is imperative for both sides to come to an agreement, it is also important for both sides to get it right. The pandemic has forced our leaders to provide unprecedented stimulus and aid to individuals, businesses, state governments and the entire country as a whole. However, no matter what happens, there will surely be a need for additional assistance in the future. The COVID-19 virus is an enemy that we have not seen the likes of in history. Our leaders will need to come together to fight this enemy. The death and despair that has been caused by the virus worldwide is devasting, and our hearts go out to every single person that has lost a life or a loved one, or has been affected in any way by this formidable enemy. It will take the will of all people to come together and fight this until it is defeated. While we eagerly await a vaccine, we and our leaders must continue to do all that can be done on both a personal and economic level.