In its most recent addition to the questions and answers for the Payroll Protection Program loans,[1] the SBA has given some protection on forgiveness for an employer that attempts to rehire an employee if the employee declines the offer of employment.

Question 40 provides:

Question: Will a borrower’s PPP loan forgiveness amount (pursuant to section 1106 of the CARES Act and SBA’s implementing rules and guidance) be reduced if the borrower laid off an employee, offered to rehire the same employee, but the employee declined the offer?

Answer: No. As an exercise of the Administrator’s and the Secretary’s authority under Section 1106(d)(6) of the CARES Act to prescribe regulations granting de minimis exemptions from the Act’s limits on loan forgiveness, SBA and Treasury intend to issue an interim final rule excluding laid-off employees whom the borrower offered to rehire (for the same salary/wages and same number of hours) from the CARES Act’s loan forgiveness reduction calculation. The interim final rule will specify that, to qualify for this exception, the borrower must have made a good faith, written offer of rehire, and the employee’s rejection of that offer must be documented by the borrower. Employees and employers should be aware that employees who reject offers of re-employment may forfeit eligibility for continued unemployment compensation.

The key points to note are the requirement for the employer to issue a written offer to rehire the employee and that the employer must document the rejection of the offer. While not explicitly stated, the final sentence regarding the loss of unemployment benefits suggests that it is reasonably possible the SBA may forward the evidence of the offer of employment and documentation of the rejection of the offer to the appropriate state agency for action if the employee did not volunteer that he/she had turned down employment.

That may cause some employers concern that they may effectively face the choice of losing the forgiveness of the debt or facing the consequences of employee relation issues for what will be likely be viewed as the threat of turning in the employee.

As well, we must also wait to see if the SBA will still limit forgiveness to the amounts expended, so that the borrower may need to return the funds it was unable to pay. The relief is that the borrower will be given a benefit in not reducing the forgiveness that otherwise would exist based on the funds actually expended due to the loss of FTEs from employees turning down the job offer or failing to meet the 75% of prior quarter earnings for the employee that declined to be rehired.

It seems likely the borrower will still need to pay back funds if the employer is unable to expend sufficient funds in the 8 week period. That also could create problems if the employer does not reserve back the funds it was unable to spend on covered expenses, including a potential sanction for using the funds for unauthorized purposes if the borrower cannot document spending the funds on other covered expenses before June 30, 2020 (which would be not long after the end of the 8-week period for an employer receiving the loan at this point).

[1] “Payroll Protection Program Loans Frequently Asked Questions (FAQ),” May 3, 2020 version, https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Frequently-Asked-Questions.pdf (retrieved May 3, 2020)