The Coronavirus Aid, Relief and Economic Security (CARES) Act (H.R. 748) has passed the Senate unanimously and the House of Representatives by a voice vote. The Act is headed to the President’s desk perhaps as early as today, Friday, March 27, 2020. Employers intending to apply for financial support via the Coronavirus Economic Stabilization Act of 2020 provisions must become familiar with the various attendant labor law requirements—including commitment to existing collective bargaining agreements and potentially to neutrality in union organizing efforts, depending on the size of the enterprise.
Section 4003 of the Act provides the Secretary of the Treasury with the authority to provide up to $500 billion in “loans, loan guarantees, and other investments in support of eligible businesses, States, and municipalities….” The Act also provides the Secretary of the Treasury with significant discretion to determine the terms of such loans but requires him to publish “procedures for application and minimum requirements” within 10 days after the date of enactment.
The various subsections of Sec. 4003(b) specify the breakdown of that amount: $25 billion is set aside for passenger air carriers and related service providers (Sec. 4003(b)(1)); $4 billion is set aside for cargo air carriers (Sec. 4003((b)(2)); $17 billion is set aside for critical national security providers (Sec. 4003(b)(3)); and the remaining $454 billion will be invested in Federal Reserve–established programs to more generally provide liquidity for lending to other eligible businesses and entities (Sec. 4003(b)(4)).
Among the statutory loan requirements for air carriers, cargo air carriers, and businesses implicating national security (i.e., those applying for support under Secs. 4003(b)(1)-(3)), are the following:
- A prohibition on stock buybacks for the period of the loan and 12 months after;
- A prohibition on stock dividends or other similar capital distributions for the period of the loan and 12 months after; and
- Agreement to maintain March 24, 2020 employment levels to extent practicable, but in any case, not to reduce employment levels by more than 10% until September 30, 2020.
These businesses must also certify that they are created under the laws of the United States and that they base significant operations and a majority of employees in the United States. Finally, the law prohibits the Secretary of the Treasury from conditioning the issuance of assistance on the recipient’s entry into negotiations with its employee’s union representatives—presumably to keep employers from pressuring these unions into reopening agreements to make financial concessions.
Businesses seeking support through the Federal Reserve programs described in Sec. 4003(b)(4) must additionally comply with limitations on compensation set forth in Sec. 4004 of the Act. These include the following, for the term of the loan and for one year after:
- No officer or employee whose 2019 compensation exceeded $425,000 shall receive compensation in any 12-month period that exceeds 2019 compensation;
- No such officer or employee shall receive twice their 2019 compensation as severance from employment; and
- No officer or employee whose 2019 compensation exceeded $3 million may receive compensation in any 12-month period that exceeds the sum of $3 million plus 50% of the excess amount beyond $3 million received in 2019.
Finally, the Act includes numerous additional commitments for “mid-sized businesses” seeking support through Sec. 4003(b)(4). These employers—businesses or nonprofit organizations with between 500 and 10,000 employees—can apply for direct loans at an APR of 2%, with repayments beginning 6 months after the loan. Any such employer must certify the following, among other things:
- The funds received will be used to retain at least 90% of the workforce at full pay and benefits through September 30, 2020;
- It intends to restore at least 90% of the workforce that existed on February 1, 2020, at restored pay and benefit levels within 4 months after the public health emergency concludes;
- It will not pay dividends, buy back stock, etc.;
- It will not outsource or offshore jobs for the term of the loan or for 2 years after;
- It will not abrogate any existing collective bargaining agreements for the term of the loan or for 2 years after; and
- For the term of the loan, the employer “will remain neutral in any union organizing effort….”
That last obligation is likely to raise eyebrows from both practical and legal enforceability perspectives. Obviously, potential recipients need to evaluate all such potential obligations and positions in developing overall strategic approach.