By Associate Attorney Danielle Nodar
While the world reels from the impact of government-mandated shutdowns and the threat of illness due to coronavirus, many businesses are reexamining their contracts to determine their obligations and rights during these unprecedented times. Some contracts may contain a force majeure clause excusing the parties from performing under the terms of the contract. A force majeure clause allows parties to cancel or delay the performance of their obligations, or even terminate the contract altogether, if it is impossible for a party to perform due to events that cannot be reasonably anticipated or controlled by the parties.
But not all force majeure clauses are created equally. A sample force majeure clause might look something like this:
"The Parties’ performance under this Agreement is subject to acts of God, war, terrorism, disaster, government regulation, or any other emergency beyond either Parties’ control which makes it impossible for a Party to perform their obligations under this Agreement. Either party may cancel this Agreement for any one or more of such reasons upon written notice to the other Party."
Some force majeure clauses may excuse performance of one party but not the other. Or, perhaps performance is excused by not the payment of money. For example:
"Other than for Tenant's obligations under this Lease that can be performed by the payment of Rent, such party shall not be responsible for any delays due to strikes, riots, acts of God, shortages of labor or materials, war, or acts of terrorism, or any other causes of any kind whatsoever which are beyond the control of such party."
If your contract contains a force majeure clause, is coronavirus a triggering event? Perhaps if the contract explicitly mentions government-mandated closures or pandemics, but what about disasters or acts of God? Before you decide not to perform, you should get advice from an attorney who can interpret the contract for you. If the other party disagrees with you, litigation over whether or not coronavirus is a triggering event will be costly and time consuming. It is normally in everyone’s best interest to negotiate.
If you have questions about how your contractual obligations may be impacted by coronavirus, your rights under a business contract, or your options to alter or terminate a contract, please contact Jesson & Rains.
Mecklenburg County’s Stay-At-Home Order expired yesterday. As we previously wrote here, the County’s order was stricter than the state’s. Therefore, starting today, there will be some businesses that can start operating (for example, pet groomers, vape shops, and realtors, to just name a few). However, the state’s stay-at-home order is in place through May 8, so it is not yet business as usual.
A link to Governor Cooper’s Order is here. Keep in mind, even if your business is deemed “essential,” you must still comply with social distancing and keep employees and customers six feet away from one another.
Please contact Jesson & Rains if you need assistance in getting back to work!
We previously wrote about the Families First Coronavirus Response Act, which expanded emergency FMLA leave to employers with fewer than fifty employees. The Act requires employers to pay partial payments to employees who have to stay home to care for children because no other caretaker is available when that employee cannot telework and would otherwise have work to do at their job. The Act as signed by the President contains a provision stating that the Department of Labor has authority to issue regulations exempting small businesses with fewer than fifty employees from the Act if “the imposition of such requirements would jeopardize the viability of the business as a going concern.”
The Department of Labor has spoken, and we now have the exemption regulations. Instead of a small business potentially being exempted as a matter of course, the regulations are applied on a per-employee basis. A small business employer can deny emergency FMLA leave to an employee if:
1. such leave would cause the small business's expenses and financial obligations to exceed available business revenue and cause the small business to cease operating at a minimal capacity; OR
2. the absence of the employee or employees requesting such leave would pose a substantial risk to the financial health or operational capacity of the small business because of the employees’ specialized skills, knowledge of the business, or responsibilities; OR
3. there are not enough workers who are available, able, willing, and qualified to perform the labor or services provided by the employee or employees requesting leave, and those labor or services are needed for the small business to operate at a minimal capacity.
Because it is applied per-employee, and not to the small business as a whole, the small business employer is still required to post the FFCRA notice because the law technically applies to all small businesses.
An employer does not need to send anything to the Department of Labor if it chooses to exercise the exemption. It needs to keep records of each approval and denial of such leave. If an employer decides to deny an employee’s request for emergency FMLA leave, the employer must document its authorized officer’s determination that the criteria is satisfied. If an employee makes oral statements supporting leave, the employer must document them. Documentation must be retained for at least four years.
If you are a small business owner and wondering how these laws apply to you or your employees, please give Jesson & Rains a call.
On Friday, March 27, 2020, President Trump signed into law the CARES Act. It is 335 pages long and covers a wide range of programs, tax credits, and industries.
We read it last weekend, so you don’t have to. It is so long, we’re sending out two blogs this week. This second blog deals with individual benefits and healthcare provisions.
1. Recovery Rebates for Individuals.
The IRS will issue rebates to eligible individuals (everyone except non-resident aliens, dependents, and estates and trusts) in the following amounts:
But the credit shall be reduced by 5 percent of so much of the taxpayer’s adjusted gross income (based on 2019’s tax records if filed; if not, 2018’s) as exceeds:
This means that a married couple filing jointly with no children will not receive any credit if their income is $198,000.
As written, the credit will be refunded to the account the IRS has on file for past refunds in tax years 2018 or 2019, and the IRS will mail a notice to the taxpayer upon payment. The IRS has recently issued guidance that it will create an online portal in the coming weeks where people can register for their rebate if the IRS does not have an account on file for them.
2. Special Rules for Use of Retirement Funds
An employee who takes money out of a retirement account for a “coronavirus-related distribution” will not be subject to the 10% early distribution tax penalty so long as the amount taken out of the plan for that employee is not more than $100,000.
The employee can choose to repay it in one or more payments over the next three years. Otherwise, the income tax is spread out over the next three years automatically unless the taxpayer elects for it not to be (we’re assuming it would all be assessed at the end of the three-year period if a taxpayer made this election and did not repay it).
A “coronavirus-related distribution” is defined as any distribution from an eligible retirement plan made: (i) on or after January 1, 2020 and before December 31, 2020, (ii) to an individual who is diagnosed with COVID-19, or whose spouse or dependent is diagnosed with COVID-19, or who experiences adverse financial consequences as a result of being quarantined, furloughed, laid off, had hours reduced, or other factors as determined by the Secretary of the Treasury
during the COVID-19 pandemic.
The maximum loan amount against a 401(k) or 403(b) plan has been increased from $50,000 to $100,000 if taken before September 23, 2020. Additionally, if the due date of any other outstanding loan occurs between the date of enactment of the CARES Act and December 31, 2020, the due date shall be delayed by one year.
Finally, Required Minimum Distributions are suspended for 2020. If an employee has already taken a required minimum distribution in 2020, there are some workarounds – talk to your plan provider.
3. Special Rules for Charitable Donations
The CARES Act allows people to take an “above the line” tax deduction for charitable contributions of up to $300 for 2020, which lowers gross income even for those of us who do not itemize (thanks to the $25,000 standard deduction). Additionally, limits on certain charitable or other qualified contributions are disregarded for 2020.
4. Student Loans
Federal student loan payments are deferred through September 30, 2020. During this time, no interest shall accrue, and the deferred months shall count towards any loan forgiveness period. The deferred payments are not to be reported negatively to a credit bureau, and any involuntary collections (wage garnishment, tax refund garnishment) are suspended.
5. Healthcare Provisions
The CARES Act expands Medicare and Medicaid coverage for telehealth and other remote care services and COVID-19 related treatments; allows telehealth to be used for hospice recertification requirements; allows high-deductible health plans with a health savings account to cover telehealth services before the members reaches his or her deductible; eliminates the home visit requirements for doctors of dialysis patients; increases coverage and lowers cost for COVID-19 tests and treatments; and increases reimbursement for over-the-counter drugs through certain plans.
6. Credit Protection
If a creditor agrees to allow deferred or partial payments, or agrees to a forbearance of payments, the creditor has to report the account as “current” to the credit bureaus (or whatever the account status was prior to January 31, 2020 if not current). The covered period is from January 31, 2020, until 120 days after the date the national emergency declaration is terminated. This credit protection does not apply if the account is charged off.
7. Federally-Backed Mortgages - Foreclosures & Evictions
The CARES Act prohibits foreclosures on certain federally-backed mortgages for a 60-day period beginning on March 18, 2020, and provides up to 180 days of forbearance for borrowers who have experienced a COVID-19-related financial hardship. Here, a federally-backed mortgage includes loans for properties house one to four families and: insured by the FHA, insured under section 255 of the National Housing Act, purchased by Fannie Mae and Freddie Mac, made, guaranteed, or insured by the VA or Department of Agriculture, and certain HUD-insured loans. When a forbearance request is made, the servicer shall not require any additional documentation other than the borrower’s attestation to a financial hardship caused by COVID–19. A borrower can also request an additional 180-day forbearance if made during the covered period. No interest or fees shall accrue during this period.
Federally-backed mortgages on multi-family properties (five or more) may also qualify for forbearance. Upon receipt of an oral or written request for forbearance from a multifamily borrower, a servicer shall--
(A) document the financial hardship;
(B) provide the forbearance for up to 30 days; and
(C) extend the forbearance for up to 2 additional 30-day periods provided that the borrower’s request for an extension is made during the covered period and at least 15 days prior to the end of the forbearance.
For the multi-family borrowers who take advantage of forbearance, they cannot evict tenants or charge them late fees during the forbearance period. The types of federally-backed mortgages that qualify under the multi-family rules are larger (basically, any loan that has anything to do with the federal government or its agencies).
In this section, the covered period ends on the date that is the earlier of (1) the date the national emergency declaration is terminated or (2) December 31, 2020.
8. Other Evictions
For 120 days beginning on the date of enactment of the CARES Act, landlords are prohibited from initiating evictions or charging fees, penalties, etc. for nonpayment of rent if the landlord’s mortgage on that property has anything to do with the federal government or its agencies.
On Friday, March 27, 2020, President Trump signed into the law the CARES Act. It is 335 pages long and covers a wide range of programs, tax credits, and industries.
We read it this weekend, so you don’t have to. It is so long, we’re sending out two blogs this week. The first one (this one) pertains to business loans, grants, and taxes, as well as unemployment. The second blog will deal with individual benefits and healthcare provisions.
1. Paycheck Protection Program under 7(a)(2)(F)
From February 15, 2020 through June 30, 2020, qualifying businesses can apply for a loan equal to 2.5 X the business’s average monthly payroll costs, plus any refinance of (b)(2) loans (Economic Injury Disaster Loans), up to $10 million. Qualifying businesses are businesses which existed as of February 15, 2020, and include businesses with up to 500 employees or which meet the applicable size standard for the industry per SBA's existing regulations; businesses in the accommodation and food services industries with no more than 500 employees at each physical location; nonprofit organizations; and 1099 workers, sole proprietors, and eligible self-employed individuals.
The loans will be made through SBA-approved banks, credit unions, and some nonbank lenders. Within thirty days from the passage of the CARES Act, the SBA must issue guidance to the approved lenders. So far, these loan applications are not yet available. Borrowers must certify that: (1) they’ll only use the loan proceeds for qualified payroll costs, rent/mortgage, utilities, and interest on mortgage and other debt obligations; they do not have an application pending for a loan under 7(a)(2) for the same purpose and duplicative of amounts applied for or received under a covered loan; and (3) from February 15, 2020 to December 31, 2020, that they have not received amounts under 7(a)(2) for the same purpose and duplicative of amounts applied for or received under a covered loan. Qualified payroll costs include vacation, health care and retirement benefits, and most taxes, but it does not include compensation for a single employee in excess of $100,000, compensation for non-U.S. residents, and qualified sick or family leave for which a credit is allowed under the FFCRA passed last week.
Lenders are required to defer repayments and interest for no less than six months but no more than a year. Interest rates are capped at 4%. No personal guarantees are required, and the law provides that owners are not subject to personal liability for non-payment. Finally, there is no requirement that the business be unable to get credit elsewhere.
Loan forgiveness is available in an amount equal to the 8 weeks of payroll and other qualified expenses (meaning, expenses the borrower was obligated to as of Feb. 15, 2020) starting on the date of the origination of the loan, not to exceed the actual loan amount. The loan forgiveness amount is reduced if the business lays off an employee or reduces an employee’s pay by more than 25%. If an employee is rehired within thirty days of the enactment of this Act, they do not count negatively.
In order to get the forgiveness, the borrower needs to present accurate employment, expense, and tax records to the lender (who shall enter a decision within 60 days). Therefore, you should work with an accountant during this period of time to ensure you can take advantage of this. The forgiven amount is not included in gross income. If there is any loan balance remaining after the forgiveness, the maximum maturity of the loan is ten years, at which time the borrower can again apply for forgiveness of the remainder of the loan.
Finally, express loans have been increased from $350,000 to $1 million.
2. Emergency Economic Injury Disaster Loans and Grants
The CARES Act also expands eligibility for borrowers applying for Emergency Economic Injury Disaster Loans under 7(b)(2). Qualifying businesses must be in business as of January 31, 2020, and suffering substantial economic injury, and include businesses, cooperatives, and ESOPs with up to 500 employees (including affiliates), private non-profits, and 1099 workers, sole proprietors, and eligible self-employed individuals.
The Act waives the requirements that (1) the borrower provide a personal guarantee for loans up to $200,000, (2) the business be in operation for one year prior to the disaster, and (3) the borrower be unable to obtain credit elsewhere. The SBA may approve “small dollar loans” solely on the basis of the applicant’s credit score or other alternative methods without the applicant having to provide tax returns or transcripts.
Most importantly, applicants may request an emergency advance of up to $10,000 upon self-certification, under penalty of perjury, that the business is eligible to receive an emergency economic injury disaster loan. The SBA must provide the funds within three days after receipt of the application. If the application is denied, the business does not have repay the $10,000 advance. Emergency advance funds must be used for payroll costs, sick leave, increased material costs, rent or mortgage payments, or for repaying obligations that cannot be repaid due to lost revenue. If the business later receives loan forgiveness through a 7(a) Paycheck Program Loan, the $10,000 advance will be deducted from the forgiveness amount.
3. Subsidy for Certain Loan Payments
For SBA-issued 7(a), 504, and microloans, the SBA will pay the principal, interest, and associated fees for 6 months starting with the first payment due after the enactment of the Act (whether pre-existing or entered-into within the six-month period following the enactment of the Act, so you can still apply for these and take advantage of the deferment). The SBA will extend maximum loan maturity during the year following the enactment of the Act.
4. Pandemic Unemployment Assistance
This law greatly expands the classes of people who are eligible to include unemployment benefits, to include furloughed, self-employed, and those who have exhausted all other available federal and state unemployment benefits. The only individuals expressly excluded from coverage are those who have the ability to telework with pay and those who are receiving paid sick leave or other paid benefits. To qualify, a person must be unable to work for essentially any coronavirus-related issue; however, the individual must also be actively seeking work unless unable to do so due to a coronavirus-related issue. The law applies to both loss of full-time employment and a reduction in hours of employment.
The unemployment benefits will be administered by each state, which can waive the typical waiting periods. The total benefit cannot extend more than 39 weeks (which includes any waiting periods for benefits under applicable state law AND any unemployment benefits received under existing state or federal law, unless the duration of other state and federal benefits is extended, in which case the total benefit may extend beyond 39 weeks) during the period January 27, 2020 through December 31, 2020. The amount of the benefit is the employee’s regular compensation as determine by state law. Additionally, if the state of North Carolina agrees, the federal government will also fund an additional $600 per week starting on the date of the law’s enactment through July 31, 2020.
Finally, the Labor Department was ordered to establish a process for making Pandemic Unemployment Assistance available for the weeks beginning on or after January 27, 2020, through the date of enactment of the Act.
5. Employee Retention Credit for Employers
This provision would provide a refundable payroll tax credit for 50 percent of wages paid by eligible employers and non-profits whose operations have been fully or partially suspended as a result of a government order limiting commerce, travel or group meetings. The credit is also provided to employers who have experienced a greater than 50 percent reduction in quarterly receipts, measured on a year-over-year basis.
Wages of employees who are furloughed or face reduced hours as a result of their employer’s closure or economic hardship are eligible for the credit. For employers with 100 or fewer full-time employees, all employee wages are eligible, regardless of whether an employee is furloughed. The credit is provided for wages and compensation, including health benefits, and is provided for the first $10,000 in wages and compensation paid by the employer to an eligible employee. Wages do not include those taken into account for purposes of the payroll credits for required paid sick leave or required paid family leave, nor for wages taken into account for the employer credit for paid family and medical leave. This credit is not available if the employer is receiving assistance through the Paycheck Protection Program.
6. Delay of Payment of Employer Payroll Taxes
This provision would allow taxpayers to defer paying the employer portion of FICA and half of SICA payroll taxes through the end of 2020, with all 2020 deferred amounts due in two equal installments, one at the end of 2021, the other at the end of 2022.
7. Modification of Net Operating Losses, Limitations of Losses, Limitations of Interest Expenses, and more – Go see your accountant!
Today, Governor Cooper issued a stay-at-home order for the entire state beginning on Monday, March 30, 2020 at 5 p.m. to remain in effect for thirty days unless otherwise repealed.
The state-wide order trumps the local county orders to the extent that the county orders are less restrictive, meaning that if you are not an essential business under the state-wide order, you have to cease travel by Monday at 5 p.m.
However, that is not likely to be many people in Mecklenburg County because the County’s order is much more restrictive than the state’s order. If you are a non-essential business under the county order, you must remain home, regardless of the state’s order. In other words, if the county and state order conflict, Gov. Cooper said the more restrictive measure applies.
If Mecklenburg County issues an order adopting the state’s order, a lot more business owners would be able to travel to work. Not only are there more essential businesses listed in the state’s order (read it here), but the state’s order contains a broad category of essential businesses that can remain open if the business meets “Social Distancing Requirements . . . Between and among its employees; and . . . Between and among employees and customers except at the point of sale or purchase.” Social distancing requirements are defined as:
a. maintaining at least six (6) feet distancing from other individuals;
b. washing hands using soap and water for at least twenty (20) seconds as frequently as possible or the use of hand sanitizer;
c. regularly cleaning high-touch surfaces;
d. facilitating online or remote access by customers if possible
Additionally, the Governor’s state-wide order contains a provision allowing businesses excluded from the list of essential businesses who believe that they may be essential to request to be included to the North Carolina Department of Revenue (the "Department") via a point of contact and procedure to be listed on its website. The Department may grant such request if it determines that it is in the best interest of the State to have the business continue operations in order to properly respond to this COVID-19 pandemic. A business that has made a request to the Department to be included as an essential business may continue to operate until that request is acted upon.
Finally, the state order is in effect for longer than the County’s. If the County does not adopt the state’s order, County residents will be subject to the County order until April 16 and then switch over to the State’s order until April 29 (unless either are repealed earlier or extended).
We will continue to monitor the situation and provide an update if Mecklenburg County adopts the State’s order.
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