News & Insights

President Signs Cares Act Attaching Strings To Business Loans

On March 27, 2020, President Trump signed the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which is a $2 trillion relief package aimed to help diminish the economic impact of the COVID-19 pandemic. The Act includes certain provisions particularly relevant to employers.

Among many other things, the Act creates a loan program for mid-size companies, including non-profit organizations, that employ between 500 and 10,000 employees. Loans authorized through this provision are subject to an annualized interest rate no higher than 2%, and provide for no interest or principal payment for at least the first six months after the loan is made. However, this loan also comes with extensive strings attached.

Under this provision, eligible businesses would have to remain neutral in any union organizing effort for the term of the loan. For unionized employers, the loan is conditioned on agreeing not to “abrogate” existing collective bargaining agreements for the term of the loan and two years following loan repayment. In addition, an eligible borrower must make a good-faith certification that:

  1. The loan is necessary for and will be used to support the employer’s ongoing business operations due to the current uncertain economic situation;
  2. The funds received through the loan will be used to retain at least 90% of the employer’s workforce, with full compensation and benefits, until September 30, 2020;
  3. The employer intends to restore no less than 90% of the employer’s workforce that existed as of February 1, 2020, and to restore all compensation and benefits to the workers no later than four months after the date on which the currently-declared public health emergency terminates;
  4. The employer is an entity or business that is domiciled in the U.S. with significant operations and employees located in the U.S.;
  5. The employer is not currently in bankruptcy proceedings;
  6. The employer will not pay dividends on its common stock, or engage in any stock buybacks for the employer’s or its parent company’s stocks listed on a national securities exchange during the term in which the loan is outstanding (unless obligated to do so under the terms of an existing contract); and
  7. The employer will not outsource or offshore jobs for the term of the loan and for two years after completing repayment of the loan.

As such, affected employers should analyze these requirements as they may have significant consequences regarding their ability to obtain a loan and eventually have an economic impact on their company during this unprecedented time.