Kirk Huth Law

What a difference a few weeks makes. Businesses in Michigan, and across the country, have been forced to grapple with the immediate fall-out of the COVID-19 crisis—as well as start planning for the inevitable, and likely deep and painful, recession to come. From how to shore up liquidity to reductions in workforces, business leaders face immense and complex challenges.

In an effort to provide some clarity amid the storm, in this article we address some of the key issues and resources that businesses should be aware of to guide their decision-making in the days to come. Surviving the crisis, and coming out stronger on the other side, will require swift, bold, and strategic leadership.

Michigan Expanded Unemployment Benefits

Many businesses are already being forced to lay off workers due to the economic slowdown. The State of Michigan has already closed all schools, public and private, as well as temporarily closing casinos and dine-in service for bars and restaurants. Ford Motor Company, General Motors, and Fiat Chrysler recently announced that they are closing all U.S. plants. These circumstances, and many others, will lead to a significant spike in unemployment in Michigan and elsewhere.

On March 16, Governor Whitmer issued Executive Order 2020-10, in effect until Tuesday, April 14 at 11:59 p.m., which expands eligibility for unemployment benefits during the COVID-19 crisis.  Pursuant to the executive order, unemployment benefits are being extended to:

  • Workers who have an unanticipated family care responsibility, including those who have childcare responsibilities due to school closures, or those who are forced to care for loved ones who become ill.
  • Workers who are sick, quarantined, or immunocompromised and who do not have access to paid family and medical leave or are laid off.
  • First responders in the public health community who become ill or are quarantined due to exposure to COVID-19.

In addition, access to benefits for unemployed workers is being extended:

  • Benefits will be increased from 20 to 26 weeks.
  • The application eligibility period will be increased from 14 to 28 days
  • The normal in-person registration and work search requirements will be suspended.

Employers whose operations have been closed or limited by another executive order issued by Governor Whitmer will not be charged for unemployment benefits related to their impacted employees.

Families First Coronavirus Response Act

On March 18, President Trump signed into law the Families First Coronavirus Response Act (the “Act”). The Act contains many provisions aimed at mitigating the effects of COVID-19 for American workers, including leave provisions that will become effective no later than 15 days after its enactment. Among other things, the Act guarantees free COVID-19 testing, secures paid emergency leave, enhances unemployment insurance, strengthens food security initiatives, and increases federal Medicaid funding to states.

Under the Act, employees of employers with fewer than 500 employees and government employers, who have been on the job for at least 30 days, will be provided with 12 weeks of paid family and medical leave. In addition, the Act provides that employers with fewer than 500 employees and government employers are required to provide up to two weeks of paid sick leave to their employees under certain conditions related to the COVID-19 crisis.

We describe the Act, and its impact on paid leave, in detail in this article. Employers who must pay expanded benefits pursuant to the Act will receive an employment tax credit for paid leave coverage, up to the maximum available coverage for individual employees. The tax credits are to be used against taxes imposed by Sections 3111(a) or 3221(a) of the Internal Revenue Code, but the total value of the tax credits cannot exceed the amount owed under Sections 3111(a) or 3221(a).

In addition, while the expanded family and medical leave under the Act continues to provide employees the right to return to employment, it contains an exception for employers having under 25 employees. A small employer is not required to provide employment if the position no longer exists due to changed economic circumstances caused by a public health emergency and the employer makes reasonable efforts to find an equivalent position. The employer also must make reasonable efforts to place the employee in an equivalent position for one year following the end of the FMLA provided leave period or when the employee no longer has a qualifying need, if earlier.

Review Insurance Policies and Commercial Contracts

A critical component of business continuity planning in preparation for the downturn involves reviewing your business’ insurance policies and commercial contracts.

From lost revenue to third party claims, businesses should be evaluating their financial exposure due to COVID-19, and evaluating whether they have insurance coverage for direct losses and potential claims. Coverage for business interruptions and supply chain issues is particularly important in this environment, although there are questions as to whether damages due to COVID-19 would count as a covered loss. While every policy is different, most business interruption policies contain clauses that exclude losses due to a “virus or bacteria” or those caused by a shutdown imposed by a governing body.

Businesses should also review important commercial contracts. From event cancellations to breaches of supply agreements, COVID-19 is forcing companies to make difficult decisions leading to terminations of business relationships and a wide range of damages. There will almost certainly be a great deal of litigation in the months and years to come related to actions businesses are being forced to make now due to COVID-19. At this moment, when many businesses will be forced to make short-term decisions regardless of their long-term consequences, it’s important to review your commercial contracts to determine what flexibility you—and your counterparties to contracts—have regarding contract performance. Contract terms that may have previously been overlooked as mere boilerplate, such as “force majeure” clauses, should be carefully analyzed in light of current circumstances.

Access to Capital for Small Businesses

Businesses will need to shore up their cash liquidity in order to stay afloat during the downturn, and the Michigan state and federal governments are working to provide relief.

On March 19, Governor Whitmer announced that the U.S. Small Business Administration (“SBA”) approved her request for a statewide Economic Injury Disaster Loan (“EIDL”) declaration, which would provide opportunity to small businesses to access low-interest loans from the SBA. The EIDL designation allows Michigan small businesses, small agricultural cooperatives, and nonprofits that have suffered economic losses from the COVID-19 outbreak to apply for low-interest loans as part of $1 billion in funding made available to the SBA by Congress earlier this month.

Also on March 19, the Michigan Small Business Relief Program was approved by the Michigan Strategic Fund. The program will provide up to $20 million in grants and loans to Michigan’s small businesses impacted by COVID-19 outbreak.

Information related to SBA loans and the Michigan Small Business Relief Program is available on the Michigan Economic Development Corporation’s website.

If you have any questions or need help navigating the challenges facing businesses in today’s difficult economic environment, please contact Raechel Badalamenti.

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