Workplace Warnings: The Need for a New and Improved Paycheck Protection Program
- Issuer
- Small Business Administration (SBA) belatedly
- Document type
- PDF source document
- Date
- 2020-12-01
Source document: Reporting Requirem ents During the CO VID-19 Pandem ic .................................................. 10; document type: court-filings.
Full text
WORKPLACE WARNINGS:
The Need for a New and
Improved Paycheck
Protection Program
COVID STIMULUS
WATCH
D E C E M B E R 2 0 2 0
Workplace Warnings:
The Need for a New and Improved
Paycheck Protection Program
By: Mellissa Chang
December 2020
Good Jobs First
202-232-1616
www.goodjobsfirst.org
© Copyright 2020 by Good Jobs First
TABLE OF CONTENTS
Executive Summary .................................................................................................................... 2
Background: Federal Response to the COVID-19 Economic Crisis .............................. 4
The CARES Act ................................................................................................................................... 4
The Paycheck Protection Program (PPP) ................................................................................. 5
Measuring Success of the PPP................................................................................................ 8
Tracking Layoffs –The WARN ACT ................................................................................................ 9
Reporting Requirements During the COVID-19 Pandemic .................................................. 10
Layoffs Among PPP Recipients – Key Findings .................................................................... 11
Timing .................................................................................................................................................. 11
Location .............................................................................................................................................. 13
Industry .............................................................................................................................................. 13
Jobs to Be Retained ....................................................................................................................... 13
Redesigning the Paycheck Protection Program ............................................................... 14
Expanded Support .......................................................................................................................... 14
Stricter Loan Forgiveness Provisions ...................................................................................... 14
Increased Layoff Monitoring ........................................................................................................ 15
Stricter Eligibility ............................................................................................................................ 15
Appendix A: Methodology ........................................................................................................ 16
Appendix B: Results by State ................................................................................................. 17
Endnotes ...................................................................................................................................... 18
www.goodjobsfirst.org WORKPLACE WARNINGS: THE NEED FOR A NEW AND IMPROVED PPP 1
EXECUTIVE SUMMARY
More than 190,000 American workers have been laid off since March across
1,900 companies that received loans through the Paycheck Protection Program
(PPP). The companies intended to support 251,000 workers – instead, they laid
off 76 percent of them. About one in eight of those workers lost their jobs
permanently.
Among the affected workers in 41 states and the Small Business Administration (SBA) belatedly
District of Columbia, virtually none got 60 days’ disclosed on December 1, 2020 would yield more
advance notice of their layoffs and more than two- PPP-WARN matches.
thirds got no advance warning at all. Indeed, four
out of five of the PPP loans were approved after Furthermore, because the WARN Act does not cover
layoffs had already occurred. For transactions with all businesses and layoffs, the number of PPP loan
sufficient disclosure, loans were approved an recipients that laid off workers is certainly far more
average of 32 days after WARN notices were widespread than even the most comprehensive WARN
issued. analysis can estimate.
These discoveries come from Good Jobs First’s Through our investigation, we conservatively
national analysis of Worker Adjustment and identified 1,892 businesses that both received a PPP
Retraining Notification (WARN) Act notices. The loan of $150,000 or more and filed a WARN Act
WARN Act requires certain employers to provide notice since the beginning of the pandemic. In total,
advance notice of layoffs to workers and the state. these layoffs affected 190,917 jobs across 41 states
At the time of analysis, only PPP loans of $150,000 and the District of Columbia. The corresponding
or above had been disclosed, so our analysis PPP loans for these businesses amount to more than
matches only those loan recipients with WARN $3.6 billion – an estimated $1.9 million per
notices. business.i
Although smaller firms are less likely to give These job losses raise serious questions about the
WARN notices, we speculate that the additional 4.5 success of the PPP, which was specifically designed
million loans (for less than $150,000), which the to keep workers on payroll despite substantial
i At the time of analysis, PPP loan amounts were disclosed in ranges. The midpoint of each range is used in our calculations.
www.goodjobsfirst.org WORKPLACE WARNINGS: THE NEED FOR A NEW AND IMPROVED PPP 2
declines in business revenue caused by the COVID- The recent spikes in COVID-19 cases and threat of
19 pandemic. more lockdowns has reignited stimulus talks and,
more specifically, renewed interest in extending or
Of these employment losses, more than 72 percent even expanding the PPP. If the PPP is reauthorized,
(138,230) were classified as layoffs, 21 percent these major flaws will need to be addressed to
(40,275) were tied to business closures, and the guarantee high rates of compliance and job
remaining 8 percent, (14,541) were uncategorized. retention.
For notices that indicate whether the employment
loss is temporary or permanent, 347 notices – Based on our observations, we propose four
which covered almost 31,000 jobs – were explicitly modifications to correct these weaknesses in any
specified as a permanent. extension of PPP by Congress:
The timing of WARN notice filings, layoff start
dates, and PPP loan approval dates also raise
Businesses should be given more sizeable loans
for longer-term payroll support.
concerns about how effective the PPP was in saving
jobs. Although most WARN Act notices were filed
Loan forgiveness requirements should be
tightened to encourage job retention.
in March and April, the overwhelming majority of
layoffs took place in March alone, meaning that
Companies with regulatory penalties for
misconduct such as wage theft or defrauding the
many employers laid off workers before issuing any federal government should only be offered less-
WARN Act notice. Specifically, 129,466 workers – favorable loan terms.
or 68 percent of the dislocated workers – received
no advance warning of their dismissal. Further
The SBA should implement layoff monitoring
procedures to track job retention throughout the
concerning is that of the loans with approval dates, duration of the PPP.
80 percent were approved after layoffs occurred.
Each PPP-WARN overlap identified in this report
represents a case in which an employer may failed
to meet its promise of job retention; however, our
findings are not a blanket criticism of all the 1,900
companies, as the specific circumstances
surrounding each layoff is unknown. Instead, our
findings bring to light flaws in the PPP that allowed
these layoffs to occur, namely: delayed loan
approvals, insufficient loan amounts, and overly
generous loan forgiveness provisions.
www.goodjobsfirst.org WORKPLACE WARNINGS: THE NEED FOR A NEW AND IMPROVED PPP 3
Background: Federal Response to
the COVID-19 Economic Crisis
On February 29, 2020, the United States recorded its first coronavirus-related
death – a man in his 50s from Washington state.1 That same day, the state declared
a state of emergency, and within 20 days, every state had followed suit. By April 7,
almost every state had imposed a stay-at-home order, placing unprecedented limits
on travel and in-person gatherings and forcing non-essential businesses to close.2 3 4
The economic effects of these lockdowns were
widespread and severe. According to Yelp,
The CARES Act
approximately 180,000 businesses that were open on To respond to the growing health crisis and its
March 1 had been closed by April 15.5 From March to impending economic fallout, Congress passed four
April, the unemployment rate increased by more than pieces of legislation, allocating more than $1.4
10 percentage points – the largest one-month increase trillion to government agencies, health care
ever recorded – to 14.7 percent – the highest post-war providers, small businesses, workers, and entire
unemployment rate ever recorded.6 The number of industries.
individuals on temporary layoff had increased ten-fold
and the number of individuals who had permanently On March 27, the Coronavirus Aid, Relief, and
lost their jobs had quadrupled. Between March 14 and Economic Security Act (CARES Act),11 the largest
March 21, the number of individuals filing initial and most notable of Congress’ coronavirus
claims for unemployment benefits increased by over stimulus packages, was signed into law. Among the
1,000 percent and the last week of March would break many allocations in the CARES Act was $342
the record for the greatest number of filings in a single billion for the Paycheck Protection Program (PPP),
week at over 6.6 initial claims.7 8 which was intended to support small businesses
impacted by the pandemic.
With 23.1 million Americans out of work, an
estimated 5.6 million suddenly without health The PPP reflected Congress’ desire to reduce the
insurance, and state unemployment insurance agencies strain on unemployment insurance programs and
buckling under the weight of the demand, the pressure allow as many workers as possible to retain
was on the federal government to save the economy employer-sponsored benefits – especially health
from total collapse.9 10 insurance coverage.
www.goodjobsfirst.org WORKPLACE WARNINGS: THE NEED FOR A NEW AND IMPROVED PPP 4
Congress hoped that the PPP would, through The Program was also open to non-profit corporations,
forgivable payroll loans, encourage businesses to Tribal businesses and organizations, independent
retain or rehire workers despite significant contractors, and self-employed individuals. Businesses
lockdown-induced revenue losses. could only receive one loan from the Program.
The Paycheck By April 16, the SBA had issued over 1.6 million loans
and depleted its entire $342 billion allocation.13 On
Protection Program April 24th, Congress appropriated to the Program an
additional $310 million.
The PPP was designed to support small businesses
impacted by the COVID-19 pandemic through low- By the end, the SBA approved 5.2 million loans
interest loans which carry generous loan amounting to $525 billion. The average loan size
forgiveness provisions if funds are mainly used to was approximately $101,000 and more than 87
maintain payrolls. The Program opened to percent of the loans were under $150,000.14 Loans
applicants on April 3 and offered loans amounting of $150,000 and above account for 12 percent of
to up to 2.5 months’ worth of payroll costs, all approved transactions but over 70 percent of all
including benefits, with a ceiling of $10 million. loan amounts.15
The loans are funded by the Small Business
Administration (SBA) and processed by private
Endless Rule Changes
banks and non-profit lending institutions.
It did not take long for the public to learn that not
To qualify for loan forgiveness at maturation, at all approved loans were going to businesses that fit
least 60 percent of the loan must have been spent SBA size criteria for small businesses. SEC filings
on payroll. The remaining 40 percent may be used revealed that a substantial number of publicly
to cover rent, utilities, and interest on debt traded companies, often through subsidiaries,
obligations, such as mortgages. If a business received PPP loans.16 After these early
knowingly uses funds for unauthorized purposes controversies emerged, the SBA began issuing
(i.e. expenses not related to payroll or business eligibility rule changes to prevent other large
operations), it will be subject to fraud charges.12 corporations from accessing PPP funds.
Generally, only businesses with fewer than 500 The first major rule clarifications came with “safe
workers or businesses that qualified as a small harbor” provisions that allowed businesses to
business under the SBA’s industry-specific size return PPP loans in excess of $2 million without
standards were eligible for PPP loans. penalties if the clarifications indicated they were
not, in fact, eligible for a loan.17
www.goodjobsfirst.org WORKPLACE WARNINGS: THE NEED FOR A NEW AND IMPROVED PPP 5
Case Study: How Corporate Structuring Frustrates Program Goals
Despite its relative anonymity and veiled relationships with cosmetics distributors, Spatz Labs has been leading
the cosmetics industry in R &D and manufacturing since it opened in the 1950s.
Spatz Labs has a complicated ownership structure. Under its corporate umbrella, it houses SEED Beauty, Beta
Beauty, and ColourPop. The latter has annual sales estimated in excess of $70 million and product rollouts that
often sell out within hours of release. On paper, they are all distinct legal entities but functionally are all owned
by Spatz Labs and run by the same management team. The Spatz Labs’ incubator, SEED Beauty, also has
significant research, design, and manufacturing relationships with Kylie Cosmetics and Kim Kardashian-West’s
line KKW, each of which is valued at $1 billion. In 2017 alone, Spatz Labs’ contract with Kylie Cosmetics
brought in an estimated $180 million in revenue.[i]Spatz Labs also has manufacturing relationships with an
undisclosed number of major cosmetics brands. Notably, in 2015 Spatz reportedly produced $28 million in
product for L’Oreal.
In early April 2020, Spatz Labs, ColourPop, and Beta Beauty received three separate PPP loans of $1.2 million,
$4.6 million, and $860,000, respectively, for a total of $6.4 million in loans given to Spatz companies.
Meanwhile, Spatz, ColourPop, and Beta Beauty laid off a combined 900 workers – twice as many workers as
they said they intended to retain with their PPP funds. Of these 900 layoffs, 100 were permanent.
PPP rules state that borrowers are only entitled to one loan, however, company franchisees and subsidiaries can
also receive their own PPP loan. The only requirement is that franchisees and subsidiaries include employees at
all affiliate companies in their headcount to determine eligibility, but numerous companies have been
documented breaking these rules.[i]
This fragmented approach to granting PPP loans may allow companies to artificially make themselves look
smaller to potentially skirt eligibility rules and receive multiple PPP loans. Because of the sheer number of PPP
loans, it may never be possible to identify all the businesses that have found creative methods for obtaining
multiple PPP loans.
This fragmented approach to obtaining loans also inflates the overall number of businesses that were apparently
assisted by the Program: each loan might not be supporting a unique business, further complicating evaluations
of the PPP’s results. Moreover, that a company with millions in sales between its high-profile brands and
affiliates could receive PPP loans raises questions about the effectiveness of PPP eligibility requirements and
the criteria used to classify small businesses.
www.goodjobsfirst.org WORKPLACE WARNINGS THE NEED FOR A NEW AND IMPROVED PPP 6
For loans under $2 million affected by the rule For a worker earning $19.33 an hour – the median
changes, the SBA deemed that the businesses non-supervisory wage in 2019 – that would allow an
applied in “good faith” and would not need to repay hourly decrease of almost $5.24
their loan or be subject to an audit.19 As the public
uncovered more cases of businesses exploiting It is worth noting that there are also safe harbor
eligibility loopholes, the SBA continued to issue provisions and exceptions to these staffing
additional eligibility rule changes in response. requirements. Borrowers would not be penalized if
staffing levels were reduced under one of the following
To date, the SBA had issued two dozen rule four conditions: (1) the business was not able to
changes. However, subsequent rule changes did not resume full operations because of health guidelines; (2)
offer opportunities to return loans penalty-free. employees that were laid off prior to the loan
Instead, the SBA carved out exceptions for these disbursement declined rehire offers; (3) an employee
businesses that allowed them to keep their loans or was fired for cause; or (4) an employee voluntarily
maintain eligibility for loan forgiveness. resigned or requested a reduction in hours, and the
business was unable to hire similarly qualified
Despite widespread allegations of misuse, the SBA individuals.25
has only committed to reviewing loans more than
$2 million.20 21 22 Businesses that decreased staffing levels for other
reasons would have the share of their loan forgiveness
reduced to reflect these staff reductions and would
need to repay the remaining balance and interest.
Loan Forgiveness
Loans from the PPP program carry an interest rate Although the Program was intended to support jobs
of one percent; however, if a business complies with exceptionally generous loan forgiveness
with certain job retention requirements, its PPP provisions, businesses also have the right to spend PPP
loan principal and interest can be forgiven in whole funds on non-forgivable businesses expenses and then
or in part. Initial loan forgiveness provisions not seek loan forgiveness. In comparison to the 1
required at least 75 percent of the loan be spent on percent interest rate on a PPP loan, the median interest
payroll costs, but that threshold was later reduced rate for a fixed-rate small business loan in the second
to 60 percent.23 The remaining 40 percent could be quarter of 2019 was 5.68 percent.26 For a five-year
used to cover nonpayroll expenses, such as rent $150,000 loan, this is almost a $19,000 difference in
and utilities. To be eligible for forgiveness, interest; for a $2 million loan that difference is more
employers must have also maintained pre- than $250,000. In other words, a business could treat
pandemic staffing levels and paid workers at least the Program as a deeply discounted source of working
75 percent of their pre-pandemic salary or wage for capital even while laying workers off.
the loan coverage period.
www.goodjobsfirst.org WORKPLACE WARNINGS: THE NEED FOR A NEW AND IMPROVED PPP 7
Measuring Success of the PPP
PPP was an unprecedented program intended to address an unprecedented economic
disaster. As such, there is no standard through which the results of the Program can
be benchmarked. Nevertheless, the ultimate goal of the PPP was to keep workers
employed amidst extraordinary declines in economic activity.
Preliminary reports released by the SBA on June 30 Despite the rigor of these estimates, more concrete
claimed that the Program supported 51.1 million job retention numbers remain elusive. SBA job
jobs.27 However, these figures were taken from PPP retention data will only be available after all loan
loan applications in which businesses themselves forgiveness applications have been processed, but
reported how many jobs they intended to support these numbers will also be self-reported and only
with their loan. As detailed, the acceptable uses of loans of $2 million and above will be audited.
PPP loans extended beyond just payroll costs, and Because the deadline for some loan forgiveness
the only penalty for businesses that did not applications is set at five years after loan approval,
maintain reported staffing levels is a reduction in it is also unclear when such firm data will be
loan forgiveness on loans that were extremely available.
cheap. Therefore, these estimates may not
accurately reflect the number of jobs actually The companies we found with PPP loans and
retained. WARN Act notices may or may not represent cases
where an employer reneged on its promise of job
Several independent research groups have issued retention by laying off workers – exactly what the
far smaller impact estimates. Opportunity Insights, Program sought to prevent. In other cases,
a non-profit, non-partisan policy research group companies may have laid workers off after their
based at Harvard University, estimates that, at a PPP job-retention period expired. Other companies
cost of $377,000 per job, the Program saved 1.29 may have lowered their job-retention obligations by
million jobs from April through August 15.28 laying workers off before or as they were obtaining
Additionally, economists at MIT estimated that the PPP loans. We leave the question of possible PPP
Program boosted employment by between 1.36 violations to the SBA and other authorities.
million and 3.20 million at a cost of between
$162,000 and $381,000 per job.29
www.goodjobsfirst.org WORKPLACE WARNINGS: THE NEED FOR A NEW AND IMPROVED PPP 8
Tracking Layoffs – For example, unforeseeable businesses
circumstances such as the loss of a large contract, a
The WARN Act deep economic downturn, or a natural disaster are
all grounds for exemption.31
The Worker Adjustment and Retraining
Notification (WARN) Act requires businesses In addition to the WARN Act, which covers all states,
with 100 or more full-time employees to provide eight states have so-called “mini-WARN Acts” with
workers, the locality, the state, and the workplace enhanced layoff notice requirements.32
union(s) if it has any, with 60 days’ notice of
employment losses.30 The highest level at which WARN Act notices have
ever been collected is at the state level; there has
The WARN Act specifically applies to plant never been a national or centralized database of
closings affecting more than 50 workers, layoffs WARN Act data. State disclosure of WARN Act
affecting more than 50 percent of workers where notices is entirely voluntary: 47 seven states and
these workers also account for 33 percent or more the District of Columbia publish compilations of
of total staff, and layoffs affecting 500 or more their notices online.ii
workers. The Act defines employment loss as
involuntary separations, layoffs in excess of six Since it took effect in 1989, there have been many
months, and reductions in working hours of 50 critical studies of the WARN Act’s limitations,
percent or more. Short-term layoffs that extend loopholes and lack of enforcement by sources
beyond six months or several layoffs in a 90-day ranging from the Government Accountability
period may also trigger the WARN Act reporting Office33, academic studies, non-profit
requirements. organizations, and legal assistance centers such as
the Sugar Law Center.34 There have also been
When businesses are found to be in violation of recurring proposals to reform the law.The WARN
the WARN Act, they can be sued for back pay – Act is a flawed law, but it remains the best
including benefits – for those days workers publicly-available sources of up-to-date, firm-level
received less than 60 days’ notice and fined $500 job loss data. This makes the data useful for this
for each day their notice was below the 60-day analysis and allows us to highlight potential
threshold. shortcomings in the PPP.
There are exceptions to these reporting
requirements if an employer could not reasonably
anticipate the employment loss.
ii Three states which do not post their WARN notices online and from which we were not able to receive data upon request are
Arkansas, New Hampshire, and Wyoming.
www.goodjobsfirst.org WORKPLACE WARNINGS: THE NEED FOR A NEW AND IMPROVED PPP 9
WARN Reporting Because mini-WARN Acts often expand the scope
of businesses that are required to report closings
Requirements During and layoffs beyond the federal requirements, the
the COVID-19 relaxing of state requirements likely resulted in
fewer reports than would have been the case under
Economic Crisis normal circumstances. Conversely, many
businesses that are not technically subject to the
As businesses shuttered en masse due to the
WARN Act have voluntarily reported layoffs as a
COVID-19 pandemic, employers were unsure
precautionary or goodwill measure during the
whether the WARN Act applied to these closings
pandemic.
and layoffs. At the beginning of the pandemic,
many did not anticipate layoffs would exceed six
months – after all, the PPP covered eight weeks’
worth of payroll expenses. However, the U.S.
Department of Labor (DOL) quickly released
guidance indicating that the WARN Act would
apply in full force throughout the pandemic.35
While the DOL held the line with federal WARN
requirements, some states relaxed their own layoff
reporting standards. In the face of the pandemic,
California suspended the state-level 60-day notice
requirement.36
In New Jersey, state-level notice requirements were
suspended, as were pending adjustments to the state
WARN Act that would have required severance
payments, increased the required notice period, and
lowered the threshold for what is considered a mass
layoff.37 Other states, including Hawaii and
Vermont, instituted similar suspensions of state-
level WARN requirements.38 39
www.goodjobsfirst.org WORKPLACE WARNINGS: THE NEED FOR A NEW AND IMPROVED PPP 10
Layoffs Among PPP Recipients –
Key Findings
Our analysis of PPP loan data and state and federal WARN notices identifies,
conservatively, 1,892 businesses that both received a PPP loan of $150,000 or more
and also filed a WARN Act layoff or closing notice between the beginning of
March and early October 2020. These notices cover approximately 194,136 jobs in
41 states and the District of Columbia.iii The corresponding PPP loans for these
businesses amount to over $3.6 billion.iv The average layoff or closing affected 103
workers and the average loan amount was just over $1.9 million.
Of the notices, more than 72 percent (138,230) The day on which notices were submitted most
were classified as layoffs, 21 percent (40,275) were frequently was March 20, three days after emergency
classified as closures, and the remaining 8 percent, stay-at-home orders had been issued in all states.40
(14,541) were uncategorized. For notices that
indicate whether the employment loss is temporary A close comparison of the effective layoff dates with
or permanent, 347 notices – which covered almost the notice-filing dates reveals that the vast majority of
31,000 jobs – were explicitly specified as layoff events (67 percent) occurred in March, and that
permanent. This actual number of permanent many employers laid off workers before notifying local
layoffs is likely larger, as only a handful of states or state governments. Specifically, there are over 920
disclose whether employment losses are temporary notices that indicate layoffs started before WARN
or permanent. notices were filed and 395 notices with the same
reporting and start dates.
Timing
For these notices, layoffs occurred, on average, 23 days
Data from WARN notice submissions indicate that before the WARN notices were filed. This means that
over 75 percent of notices were submitted in March 129,466 workers, or 68 percent of all workers
and April, with 46.9 percent (889) submitted in identified in this report, apparently received no
March and 26.6 percent (503) submitted in April. advance warning of their dismissal.
iii Three states which do not post their WARN notices online and from which we were not able to receive data upon request are
Arkansas, New Hampshire, and Wyoming. There were no matches for the remaining six states.
iv PPP loan amounts were disclosed in ranges. The midpoint of each range is used in our calculations.
www.goodjobsfirst.org WORKPLACE WARNINGS: THE NEED FOR A NEW AND IMPROVED PPP 11
There are only 317 notices in which the scheduled There are several possible explanations for this
layoff date comes after the date the WARN Act pattern of layoffs occurring before loan approvals.
notice was issued. And instead of 60 days’ notice, The most obvious is that federal support was not
the average lead time was only 17 days. available to some businesses quickly enough to
prevent layoffs. Although the PPP distributed an
Further concerning is that of the loans with unprecedented number of loans in record time,
approval dates, more than 75 percent were research from the House Select Subcommittee on
approved after the loan recipient had issued a the Coronavirus Crisis indicates that wealthier
WARN Act notice and 80 percent were approved borrowers and large corporate clients had their
after the layoff actually occurred. Only 17 percent loans approved faster. The PPP’s biggest lender, J.P.
of the loans have an approval date earlier than the Morgan Chase had a wait time of 3.7 days for loans
corresponding WARN Act notice-issue date. For all over $5 million compared to 14.5 days for loans of
loans with loan approval information, loans were $100,000 and below.41
approved an average of 32 days after WARN
notices were issued.
Case Study: Giti Tire – A Foreign Company Recklessly Exploiting the PPP
In April 2020, Giti Tire Pte. Ltd, a Singaporean-based company with over $3.04 billion in annual sales
and 35,000 employees in 130 countries across 40 subsidiaries, managed to secure two PPP loans
through its two American subsidiaries. Despite receiving these two loans, it still laid off all 589 South
Carolina workers that it said it intended to support, plus an additional 47 workers. That a company of
this size received loans speci cally meant for small businesses and may have reneged on its promise of
job retention raises serious concerns.
In the most technical sense, Giti could claim PPP eligibility. At the time of its application, limited SBA
guidance and a team of skilled lawyers helped Giti get approved. Under nal SBA rulings now in place,
Giti would have been unambiguously ineligible.
Unfortunately, these same SBA clari cations also grandfathered eligibility for the companies they
weren’t able to disqualify earlier, like Giti. These “safe harbor” provisions generally exempt businesses
that would no longer be eligible under the new rules if they applied for and received their loans “in
good faith.” From April to November, the SBA issued 24 of these rulings – almost one per week –
suggesting many businesses were slipping through the cracks.
Giti’s exploitation of the looser early SBA rules diverted funds from more-deserving small businesses in
need of federal aid. It is regrettable that a large foreign corporation with billions in annual sales and an
almost $700 million market capitalization was able to receive over $9.8 million in American taxpayer
dollars intended for small businesses. More dismaying is the fact that Giti might qualify for forgiveness
despite laying off the majority of its workforce. If Giti rehires workers before the end of the year and
pays them at least 75 percent of their wages, it can apparently still have portions of its loan forgiven.
www.goodjobsfirst.org WORKPLACE WARNINGS: THE NEED FOR A NEW AND IMPROVED PPP 12
We also recognize that that some businesses may Louisiana had the worst (i.e., most negative days)
have rehired workers after receiving loans, but this average lead time, with WARN notices filed 71
does not remedy the significant disruptions in days after a layoff started. The remaining 14 states
income that workers experienced while included in this study did not have information on
unemployed. both layoff start dates and WARN filing dates.v
Additionally, while expanded unemployment
benefits provided by the CARES Act alleviated Industry
many individuals’ financial woes, expanded
benefits were only retroactive to March 29 – nine Industry information taken from North American
days after the most frequent submission date Industry Classification System (NAICS) codes
among the identified matches.42 submitted on PPP loans show that “Full-service
Restaurants” (722511) account for the greatest
number of WARN/PPP matches at 25 percent. The
Location second most common industry is “New Car
Dealers” (441110) at 9 percent. The overarching
Although businesses in California and New York NAICS categories WARN/PPP align with the retail
only account for 45 percent of all the WARN sales trend; the “Accommodation and Food
notices collected for this study, they represent 64 Services” NAICS category (72) accounts for over
percent of all WARN-PPP matches. (This could 37 percent of all WARN-PPP matches and “Retail
reflect the two states’ mini-WARN Acts covering Trade” (44-45) at 13 percent.
more employers.) The top five states by number of
workers affected – California, New York, Florida, When categorized by share of job losses, subsets of
Wisconsin, and Pennsylvania – represent 141,860 “Accommodation and Food Services” represent
workers or 74 percent of all employment losses. four out of the top five industries, with 76,241 jobs
impacted. “New Car Dealers” round out the top
In only ten states did workers, on average, receive five industries with 10,942 jobs affected.
their WARN notices before their layoff date.
Excluding New Mexico, which only had one
WARN-PPP match, North Carolina had the most
time, on average, between the WARN filing and
Jobs to Be Retained
layoff start at 15 days. When categorized by share of job losses, subsets of
“Accommodation and Food Services” represent
Seventeen states and the District of Columbia had four out of the top five industries, with 76,241 jobs
a negative lead time, meaning that, on average, impacted. “New Car Dealers” round out the top
notices were filed after layoffs took place. five industries with 10,942 jobs affected.
v Six states had no PPP-WARN notice matches and three states don’t disclose their WARN notices.
www.goodjobsfirst.org WORKPLACE WARNINGS: THE NEED FOR A NEW AND IMPROVED PPP 13
Redesigning the Paycheck
Protection Program
In order to more closely align program outcomes with program goals and ensure
high rates of job retention, major flaws in the program design must be addressed if
PPP is extended. We propose the following four modifications to correct these
weaknesses:
support.
First, businesses should be given more sizeable loans for longer-term payroll
retention
Second, loan forgiveness requirements must be tightened to encourage job
and salary level maintenance
retention
Third, the SBA should implement layoff monitoring procedures to track job
throughout the duration of the PPP.
defrauding
Fourth, Companies with regulatory penalties for misconduct such as wage theft or
the federal government should only be offered less-favorable loan
terms.
Expanded Support Stricter Loan
Until the virus is contained, and until confidence Forgiveness Provisions
in public safety is restored, expanded support for
payroll costs for the duration of the pandemic will Current loan forgiveness standards allow employers to
be essential to ensuring that small businesses stay reduce worker salaries by up to 25 percent without
afloat. Analysis from McKinsey suggests that the penalty. For low-wage workers, these reductions are
pandemic will functionally endure through 2021, especially detrimental. Borrowers should be required
which will prolong the need to support small to maintain worker salaries at 100 percent of pre-
businesses strained by the pandemic for at least an pandemic levels in order to qualify for loan
additional six to eight months.43 forgiveness.
Instead of 2.5 months of payroll coverage, Additionally, PPP loans should carry interest rates
borrowers should be allowed to receive loans that comparable to other CARES Act loan programs, like
cover payroll costs for at least six months. the Economic Injury Disaster Loan Program (EIDL)
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and Main Street Lending Program (MSLP), to
Stricter Eligibility
more strongly encourage job retention (i.e., by
raising the price of non-compliance with job A September 2020 report by Good Jobs First
retention). found that over 38,000 PPP and EIDL loan
recipients have paid over $3.3 billion in fines for
Seeking loan forgiveness is also entirely optional, serious regulatory violations, including wage and
making the PPP an extremely attractive offer for hour claims (i.e., wage theft), Occupational Safety
companies seeking discounted working capital. and Health Administration violations, and False
The EIDL and MSLP also offer low-interest Claims Act violations (such as defrauding
business loans with rates ranging from 2.75 percent Medicare).44
to 3.75 percent. If PPP loans had comparable
interest rates, these borrowers would be directed Similar to our recommendation for raising interest
toward these other programs that have more rates on PPP loan balances to align with other
favorable repayment terms. CARES Act programs, future iterations of the PPP
could levy higher interest rates for businesses with
a history of serious regulatory violations, like
Increased Layoff False Claims Act convictions or substantial wage
Monitoring theft settlements or fines.
We recommend two job-retention monitoring
enhancements: audits of a random sample of loan
recipients (of all loan sizes) and use of
unemployment insurance (UI) premium records,
again on a random testing basis. The UI records,
filed by employers on Form ES202, are a
recognized best practice by state economic
development agencies to verify job creation or
retention by employers that have received
incentives.
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Appendix A: Methodology
PPP loan data was obtained through Covid Stimulus Watch, Good Jobs First’s
CARES Act-monitoring website.45 Forty-seven states and the District of Columbia
post compilations of WARN notices online. Arkansas, New Hampshire, and
Wyoming do not disclose WARN notices. For states that do report, WARN data was
either downloaded or scraped from each state’s respective employment agency
website.
Two methods of record linking were used to match The second match relies on probability matching,
PPP loan recipients to companies that filed WARN also known as fuzzy matching, to determine the
notices. likelihood of a match. Company name, city, and
state fields are all used in this match. These
The first regularizes company names and then suggested matches are also verified manually.
returns potential matches based on the first five
characters in a company name, and matching city When both sets of matches were complete, the two
and state fields. These suggested matches were lists were then reconciled to create a final list of
then manually checked for verification. matches.
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Appendix B: Results by State
Days Days
Between Between
Workers Workers
State Matches Filing and State Matches Filing and
Affected Affected
Layoff Layoff
Start Start
AK 2 698 8 MI 9 778 -12
AZ 6 1,135 N/A MT 1 10 -28
CA 839 77,282 -4 NC 11 1,493 15
CO 6 463 -1 NE 1 99 N/A
CT 11 2,125 12 NJ 17 1,833 N/A
DC 3 808 -24 NM 1 64 51
DE 3 1,173 N/A NV 9 1,180 N/A
FL 56 8,509 -4 NY 502 45,321 -19
GA 25 1,706 N/A OH 32 3,566 -21
HI 19 3,098 N/A OK 2 203 N/A
ID 2 77 10 OR 12 1,890 4
IL 50 3,885 N/A PA 38 4,757 N/A
IN 11 964 15 RI 2 358 9
KS 2 - N/A SC 6 1,472 N/A
KY 7 473 5 TN 23 2,698 -12
LA 5 942 -72 TX 23 2,436 -10
MA 14 2,604 -25 VA 12 1,313 -7
MD 13 720 -28 VT 1 - N/A
MI 16 1,065 -36 WA 33 4,438 -10
MN 13 1,422 N/A WI 47 6,863 -6
MO 6 906 15 WV 1 90 -11
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Endnotes
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17. Small Business Administration. “Business 23. Small Business Administration, and U.S.
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