PPP loan forgiveness available if employee refuses to come back?

The Treasury Department has announced that PPP loan forgiveness will not be reduced for laid-off employee(s) who refuse to come back to work. This is great news for employers as increasingly, employees are refusing to return to work. In a large number of circumstances, current unemployment benefits pay more than the amount employees normally earn working full time. As a result, many employees are incentivized to refuse to return to work to attempt to continue collecting enhanced unemployment benefits. One question troubling employers is whether a laid-off employee’s refusal to return to work, even after an offer to rehire, will reduce the loan forgiveness amount.

The Treasury Department has stated that employers will not have to include these employees in their salary/hour loan forgiveness reduction calculation. Generally, an employer must reduce the amount of their expenses eligible for loan forgiveness to account for reduced hours or salaries paid to their employees.

To qualify for this relief, the employer must have made a good faith, written offer of rehire, and the employee’s rejection of that offer must be documented by the employer. Employees and employers should also be aware that employees who reject offers of re-employment may forfeit their eligibility for continued unemployment compensation. You may want to work with your attorney in drafting a written offer of rehire.

While the SBA may excuse a few job losses based on employee refusals, the SBA may not excuse widespread refusals if they dramatically impact an employer’s average FTE. Similarly, the Treasury has not addressed whether this exemption will apply where an employer alters the terms and conditions of employment in extending a rehire offer; for example, where an employer reduces pay rates or scheduled hours for returning employees.

The SBA and Treasury are expected to issue an interim final rule that will hopefully provide further guidance and clarification. In the meantime, employers should begin developing strategies for responding to refusals to return as part of their larger return-to-work planning.