As employers, businesses and nonprofit organizations have many questions about the impact of the various relief measures enacted by Congress or implemented by the United States Government, including Small Business Administration (SBA) loan programs, tax credits, paid sick and family leave, and other measures, in response to the COVID-19 pandemic emergency. As the economic impact of this emergency deepens and broadens, employers will need to consider the implications of these special relief measures, as well as existing employment laws, as they make decisions that impact their employees.
This update addresses some questions and key issues that employers need to think about, including some special considerations for faith-based for-profit and nonprofit employers.
Have the laws and rules adopted in response to COVID-19 changed the way that federal anti-discrimination laws apply to employers?
In general, COVID-19 legislation enacted by Congress did not create any new protected class of employees, but it did expand the range of employers to which federal anti-discrimination laws apply to include all borrowers of the Paycheck Protection Program loans (PPP loans) and COVID-19 Economic Injury Disaster Loans (EIDLs). We address these changes and their implications for large and small non-religious employers, faith-based nonprofit employers, and faith-based for-profit employers below.
A. Non-Religious Employers with 50 or More Employees.
For non-religious employers with 50 or more employees who are already subject to federal anti-discrimination laws, the COVID-19 legislation will likely not change significantly the way federal anti-discrimination laws apply, since most such employers already are prohibited under federal law from discriminating in employment or provision of products or services on the bases of race, sex, age, national origin or religion. Note that the Equal Employment Opportunity Commission (EEOC) interprets “sex’ to include sexual orientation and gender identity, though the U.S. Supreme Court is expected to decide later this year whether the EEOC’s interpretation is supported in the law.
B. Non-Religious Employers with Fewer than 50 Employees.
For non-religious employers with fewer than 50 employees, who as a result of their number of employees are generally exempt from certain federal anti-discrimination laws, applying for a PPP Loan or an EIDL will result in new application of federal anti-discrimination laws. More specifically, borrrowers that apply for a PPP Loan or an EIDL must agree to be subject to laws prohibiting discrimination in employment or provision of products or services on the bases of race, sex (note the EEOC’s interpretation discussed in A above), age, national origin or religion, regardless of their number of employees. With respect to discrimination in employment, the non-discrimination rules apply to hiring, promotion, disciplinary actions, termination and other negative employment actions (including with respect to compensation), among other things. These smaller employers will need to be mindful of these rules and, as many smaller employers may be unfamiliar with how to apply these rules, they should consult with a qualified HR professional and/or an attorney in advance of taking any such actions. Faith-based for-profit employers face additional considerations, discussed in D below.
C. Faith-Based Nonprofits.
The SBA has released a set of Frequently Asked Questions designed specifically to help faith-based organizations as they consider whether to apply for a PPP Loan or an EIDL and to help them understand the implications of obtaining such a loan. The SBA’s FAQ is available at https://www.sba.gov/document/support–faq-regarding-participation-faith-based-organizations-ppp-eidl. The SBA’s FAQ provides much-needed clarity for faith-based nonprofit organizations with respect to the application of federal anti-discrimination laws, as the (necessarily) hasty drafting of the CARES Act (under which PPP Loans and EIDL loans were made available in response to COVID-19) as well as the application forms developed by the SBA created confusion over those issues for faith-based nonprofit organizations because they were primarily drafted with for-profit businesses in mind. The SBA’s FAQ makes clear that faith-based organizations are eligible to receive PPP Loans and EIDLs and that they are eligible for such loans regardless of whether (or not) they provide secular social services. The SBA’s FAQ goes further to expressly recognize that certain SBA regulations (i.e., 13 C.F.R §§ 120.110(k) and 123.301(g)) “impermissibly exclude some religious entities” and that the SBA will decline to enforce those particular regulations and “will propose amendments to conform those regulations to the Constitution.” The SBA’s FAQ provides that only the same limitations that apply to all other recipients of PPP Loans and EIDLs (such as those that relate to PPP loan forgiveness based on use of more than 25% of PPP Loan proceeds for non-payroll costs) will apply to faith-based organization borrowers.
The SBA’s guidance also appears to confirm that normal exemptions and leeway enjoyed by religious nonprofit organizations in hiring and in activities and service delivery will continue to apply if a faith-based nonprofit organization obtains a PPP Loan or an EIDL. In other words, if a faith-based nonprofit organization obtains a PPP Loan or an EIDL, the organization is not deemed to have assumed greater obligations, or lost or narrowed its otherwise applicable exemptions, under federal anti-discrimination laws, except as follows:
1. As a result of obtaining a PPP Loan or an EIDL, an organization with fewer than 50 employees will become subject to federal anti-discrimination laws applicable to employment and in delivery of products or services, but subject to the exemptions from such laws that exist for religious organizations generally, and
2. As a result of obtaining a PPP Loan or an EIDL, all such organizations, regardless of size, will be subject to federal anti-discrimination laws (a) regarding employment for jobs not related to the employer’s religious exercise (examples may include a janitor, a bookkeeper or an IT professional, none of whom is involved in teaching or propagating the religious message of the organization or carrying out religious duties) or (b) offering products or services to the public.
Some important qualifications to 1 and 2 above, that provide significant assurance to faith-based nonprofit organizations, are contained in the SBA’s FAQ. These include:
a. That receipt of an SBA loan through any SBA program does not:
i. Limit the authority of religious organizations to define the standards, responsibilities, and duties of membership,
ii. Limit the freedom of religious organizations to elect individuals to perform work connected to that organization’s religious exercise (i.e., the “ministerial exception”), nor
iii. Constitute waiver of any rights under federal law, including rights protecting religious autonomy and exercise under the Religious Freedom Restoration Act of 1993 (RFRA), 42 U.S.C. § 2000b et seq., Section 702 of the Civil Rights Act of 1964, 42 U.S.C. § 2000e-1(a), or the First Amendment.
b. That SBA Regulations make clear that federal non-discrimination requirements “do not limit a faith-based entity’s autonomy with respect to membership or employment decisions connected to its religious exercise,” and
c. That while SBA non-discrimination regulations apply with respect to goods, services or accommodations offered generally to the public by PPP Loan and EIDL recipients, they “do not apply to a faith-based organization’s ministry activities within its own faith community,” nor do they limit, for example, “a faith-based organization’s ability to distribute food or closing exclusively to its own members or co-religionists.” Note: While it is reassuring that the SBA’s non-discrimination regulations will not limit ministry activities within an organization’s own faith community, there are some concerns that faith-based organizations should be aware of that the SBA’s seeming distinction between (i) ministry activities directed to an organization’s own faith community and (ii) activities, goods and services directed to the public creates an impermissible bifurcation of a faith-based organization’s activities and limits its ability to adhere to the tenets of its faith when offering activities, goods and services to the public. The SBA has been responsive to faith-based organizations’ concerns about religious liberty implications of the COVID-19 loan programs, and it can be hoped that the SBA will review its interpretation giving rise to this distinction, but in the meantime faith-based organizations should be aware of this potential concern.
D. Faith-Based For-Profits.
For faith-based for-profit employers, the landscape may be more complicated. For such employers with 50 or more employees, there is generally no change to the way that federal anti-discrimination rules apply. For such employers with fewer than 50 employees, they may be faced with the application of federal anti-discrimination rules in a new way much like any other small employer that, but for obtaining a PPP Loan or an EIDL, would be exempt from such rules based on number of employees. The impact of federal anti-discrimination laws, particularly in employment, is a significant issue, especially those that have a faith-oriented mission and seek to hire employees who are able to apply the tenets of their faith (such as biblical principles) in their work because of that mission. Among others, financial advisors, law firms, accountants, small healthcare providers and others whose mission involves applying the tenet of their faith to their work and advice given to clients, will face this issue. For those employers, the following points will be helpful:
1. Of some comfort is the SBA’s assurance that once an SBA loan, including a PPP Loan or EIDL, is forgiven or paid off, the obligations (including non-discrimination obligations) assumed by the borrower in connection with the loan end. From a practical standpoint, this means that these obligations are of limited duration. Ideally, in the context of a PPP Loan, the obligations may only last a few months if the borrower uses loan proceeds solely for forgivable purposes and if it timely applies for and receives full loan forgiveness or is otherwise able quickly to pay off the non-forgiven portion of the loan. Over those few months, the chances that an employer will do much hiring may be low, unless the employer has already laid off employees and wants to push its headcount back up to the pre-layoff level to avoid loan forgiveness reduction. If the employer doesn’t hire while the loan is outstanding, then the risk in the context of hiring is very limited.
2. If the employer does hire during the period when the loan remains unpaid and/or unforgiven, then the employer will need to take extra care when hiring to ensure that any preference for hiring a person who shares a particular faith commitment is based on a bona fide occupational qualification (or “BFOQ”). The job description should make clear why it is necessary for the person to be able to apply the tenets of the faith in the course of performing their work—why this is mission-critical, how it integrates with and advances the mission and purposes of the organization. This must be well-grounded in fact, and not simply a way to “dress up” the job description so the employer can hire a co-believer. An employer should ask itself what is it about the particular role that makes it necessary for the person performing it to apply the tenets of the faith, such that the person hired for the role should be a person who actually affirms those beliefs personally?
3. An effective screening process for job applicants can be useful in hiring. A hiring screening process can be designed to use non-discriminatory questions asked of prospective candidates at the point of application for a job to help the employer gain a sense of how good a fit the person would be from a culture standpoint. Often, with a well-designed screening process, the candidates themselves will realize that they are, or are not, a good fit and may decide not to apply or follow through after an application is submitted. An effective application screening process of this type will need to be carefully developed to produce useful results and to avoid violations of anti-discrimination laws, and so significant internal thinking by the employer, and outside legal input, will be needed.
4. Where an employer is re-hiring the same persons it laid off, anti-discrimination laws are not likely to be of significant concern, as there are many non-discriminatory reasons why an employer would want to hire someone who knows the employer’s business and the job well, and not consider other candidates. We also expect that the federal government will want to encourage re-hiring of employees who were laid off as a first preference. Accordingly, the above discussion about non-discrimination in hiring will apply primarily where an employer is not able to rehire the same employees or does not want or need to do so.
What are some key considerations for employers regarding employment decisions if COVID-19 economic uncertainty continues?
There is great uncertainty about how long current federal, state and local shelter-in-place and social distancing orders related to COVID-19 will remain in place. Some state or local governments will lift such orders sooner and some later, depending on local circumstances. Moreover, even if mandated business closures and other restrictions affecting employers’ operations and sales are lifted, it is also unclear how long the economic downturn related to COVID-19 will continue. As a result, employers need to be thinking about longer-term questions that affect their workforce, such as whether to lay off or furlough employees, reduce pay or hours worked, or make changes to or eliminate certain fringe benefits. Even if such changes are unlikely to be made for several months, employers need to begin planning now to comply with legal requirements and reduce their risk of claims and lawsuits related to workforce changes.
Here are two key areas for employers to consider now:
A. Many employers have already laid off, furloughed, or reduced working hours or pay for many employees. There will likely be more such actions to come, even for those employers who obtain a PPP Loan, since the proceeds of a PPP Loan need to be spent within 8 weeks of receiving the loan, and each borrower can only get one PPP Loan (unless further, similar relief is enacted). In that case, borrowers need to be mindful that there may be a heightened risk of discrimination claims related to such “negative employment actions” as individual employees seek to protect their jobs or gain some financial cushion if their job and/or pay is reduced. In other words, employees in protected classes may be more likely than usual to file EEOC complaints or lawsuits related to termination of employment or other adverse employment actions. Employers, including those with 50 or fewer employees who become subject to the anti-discrimination laws as a result of taking an SBA loan, will need to think ahead starting now about:
1. Documenting their employee files to substantiate a non-discriminatory reason (such as performance, restructuring to eliminate positions not needed, or economic reasons) for a possible eventual termination, furlough, or pay or hours reduction.
2. If an employee’s performance is likely to be considered in making a decision about termination or other adverse action, talking with or warning the relevant employee about his or her performance and documenting that discussion, and if in good faith an employer would take improvement of performance into account in making a decision with respect to a particular employee, putting the employee on a performance improvement program. Employers should also consider whether to offer some or all terminated employees severance benefits in exchange for a release of claims against the employer. Although a release of claims cannot by law include a waiver of the right of an employee to file a charge with the EEOC, it can include a waiver of the right to collect monetary damages in connection with an EEOC charge or proceeding. Because of the complexity of these issues, an employer should consult with an attorney when considering terminations or other negative employment actions or offering severance, because even the way the severance program is offered and administered needs to be non-discriminatory.
3. If an employer has a reasonable basis to think it will lay off, or furlough without pay, 50 or more employees at a single location that has 100 full-time equivalent employees, the employer needs to investigate now whether it needs to comply with the federal Worker Adjustment and Retraining Notification (WARN) Act or any similar state laws. The WARN Act requires written notice of actual or potential layoffs or furloughs to be given to all potentially affected employees and to the state and local government at least 60 days in advance, (if at all possible). Accordingly, employers who may consider taking such action should, as early as possible, assess whether they are subject to the WARN Act at the affected location and begin preparing to give such notices.
4. Many states now require employers who furlough or reduce the working hours of employees to file partial unemployment claims on behalf of the affected workers. Some states offer incentives to employers for doing so, while others impose significant penalties on employers that fail to do so, including in some cases requiring employers to reimburse the state unemployment compensation program for the full amount of unemployment benefits paid to affected employees. Many states have made it possible for employers to file partial unemployment claims in batches online, and states encourage this to reduce the number of individual claims they must process.
5. Employers who are considering reducing employee pay, or working hours (with the indirect effect of reducing pay), must be mindful of the following:
a. Such reductions may affect the amount of loan forgiveness available to the employer if the employer has obtained a PPP loan. This is discussed in more detail in our separate update on PPP Loans and EIDLs. If you would like to receive that update, please contact one of the authors of this update listed below;
b. If such reductions would cause the employee’s weekly pay to fall below overtime pay exemption thresholds under federal or state wage and hour laws, the employer must pay the employee at least the minimum wage applicable in that location (the highest of applicable federal, state and local minimum wage rates) and overtime, per applicable federal, state and local law;
c. Such reductions may affect an employee’s eligibility for health insurance benefits (or other insurance benefits) if the employer’s health insurance plan requires the employee to be “actively employed” (however defined in the plan documents), and employers should confirm whether the plan documents for their own insurance plans contain such a requirement, or other provisions that would be triggered by reductions in pay or working hours and would adversely affect the benefits available to such employees.
B. Employers who do not have Employment Practices Liability Insurance (EPLI) may want to consider adding such coverage now. While we understand the decision to purchase additional insurance is impacted by the employer’s current economic condition, EPLI can be very helpful to employers. Bear in mind that such insurance many times will not cover events or claims that have already occurred, but it may be worth a conversation with your insurance agent to determine whether purchasing EPLI would be the right thing for your business moving forward.