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06.19.2020 | Firm Post

On June 16, 2020, the U.S. Small Business Administration (“SBA”) released:

  • an updated Loan Forgiveness Application, and
  • an Alternative Loan Forgiveness Application for certain borrowers to implement the PPP Flexibility Act (“PPP Flex”), and
  • a revised interim final rule (the “IFR”) on June 17, 2020 implementing changes from the PPP Flex.

The updated Loan Forgiveness Application covers the following changes:

  • Alternative Payroll Covered Period applies to the 24-week (168-day) covered period; provided the Alternative Payroll Covered Period does not extend beyond December 31, 2020. Note: if a Borrower received its PPP loan before June 5, 2020, the Borrower may elect to use an eight-week (56-day) covered period.
  • Clarifies one of the Full Time Employee (FTEs) reduction exceptions: A position will not be included in the calculation if the Borrower made a good-faith, written offer to rehire an employee who was employee on February 15, 2020 AND the Borrower was unable to hire similarly qualified employees for unfilled positions on or before December 31, 2020.
  • Changes the documentation required for FTEs from the average number of FTEs per month to the average number of FTEs per week.
  • Employer health insurance and retirement contributions for business owners: employer health insurance and employer retirement contributions on behalf of a self-employed individual, general partners, or owner-employees of an S-corporation should not be included in the health insurance expenditures calculation or retirement expenditures calculation, respectively.

A copy of the updated application is here and the instructions are here.

A shortened version of the forgiveness application is available for the following borrowers:

  • Self-employed, independent contractors, or sole proprietors with no employees;
  • Borrowers who did not reduce salaries by more than 25% during the covered period and did not reduce the number of employees or the average paid hours of employees from January 1, 2020 to the end of the Covered Period (ignoring reductions from the safe harbor related to an inability to hire qualified employees, and reductions due to an employee refusing to accept a restoration of hours); and
  • Borrowers who did not reduce salaries by more than 25% during the covered period and were unable to operate during the covered period at the same level of business activity due to COVID-19 related safety requirements promulgated by the CDC, HHS, or OSHA.

The Alternative Loan Forgiveness Application is here and the instructions are here.

The SBA also released a revised interim final rule (the “IFR”) on June 17, 2020 implementing changes from the PPP Flex. The IFR provides the following:

Increases the cap on individual employees’ salaries from $15,385 during the 8-week covered period to $46,154 during the 24-week covered period.

Increases the cap on owner compensation from $15,835 during the 8-week covered period, to $20,833 for a 24-week covered period.

For sole proprietors: business mortgage payments, business rent payments, and business utility payments, as listed on Form 1040 Schedule C, are now included as amounts eligible for forgiveness.

Loan forgiveness amount cap: the amount of loan forgiveness is capped by the full principal amount of the loan plus accrued interest.

A copy of the IFR can be found here.

Our experienced team of attorneys are available to further assist you with any more questions or concerns you may having regarding PPP Forgiveness and PPP Flex.

Of Counsel
Corporate & Bus Law
+1.925.460.3367
Shareholder/Chair
Estates & Trusts
+1.408.947.2437
Attorney
Corporate & Bus Law
+1.925.460.3370
Shareholder, Chair
Employment Law
+1.408.947.2456
Shareholder
Real Estate & Commercial
+1.925.460.3365

This information is provided as an educational service by Hoge Fenton for clients and friends of the firm. This communique is an overview only, and should not be construed as legal advice or advice to take any specific action. Please be sure to consult a knowledgeable professional with assistance with your particular legal issue. © 2020 Hoge Fenton


06.08.2020 | Firm Post

A breath of fresh air for PPP borrowers! The Senate unanimously passed the “Paycheck Protection Program Flexibility Act of 2020” (H.R. 7010) (the “PPP Flex”) on Wednesday (6/3) evening and the President signed it into law today. The PPP Flex addresses many concerns with the PPP loan program and relaxes some of the requirements in the original PPP program. We expect the Treasury and the SBA to issue more guidance on the PPP Flex in the near future. Although the PPP Flex offers some relief and clarity, there are new considerations. Borrowers who already plan on using the PPP funds within the original 8 week covered period can choose to do so and may decide to request loan forgiveness as soon as possible. Below is a list of major changes covered in the PPP Flex bill:

Update PPP / Initial SBA Guidance  PPP Flex
1) Extended Loan Forgiveness Covered Period
8 weeks (56 days) from receipt of loan proceeds, or from first date of payroll period after receipt of loan proceeds for those eligible to apply “Alternative Payroll Covered Period”.
Earlier of 24 weeks or December 31, 2020. Borrowers who received a PPP loan before the date of the enactment of PPP Flex may retain the 8 week covered period.
2) Lower Payroll Cost Percentage Requirement At least 75% of loan proceeds must be spent on eligible payroll costs, otherwise the loan forgiveness amount will be proportionally reduced.
At least 60% of loan proceeds must be spent on eligible payroll costs. This now appears to be a cliff. (i.e., a Borrower who spends only 59% on eligible payroll costs will receive no forgiveness)*
[* Note: Subject to SBA regulation to determine if it is a cliff, but the current statutory language suggests it is a cliff ] 
3) Extended Reduction in Work Force Safe Harbor Rehire Date June 30th deadline to rehire employees separated between February 15, 2020 and April 26, 2020, to avoid a reduction in loan forgiveness. December 31, 2020 deadline to rehire employees separated between February 15, 2020 and April 26, 2020, to avoid a reduction in loan forgiveness.
4) New Exceptions for Borrowers who do not hire/rehire workers before the Rehire Date No reduction in loan forgiveness if the Borrower offers reemployment and workers reject the offer to return to work.
New exceptions (in addition to the prior exception) if the Borrower:
  • Could not rehire employees who were employed as of February 15, 2020; or
  • Could not find qualified employees to hire by December 31, 2020; or
  • Could not restore business to pre-February 15, 2020 level of activity because of social distancing or other federal health guidance/requirements
5) Longer Repayment Period 2 years  5 years (for loans after the enactment of PPP Flex; existing PPP borrowers might ask lenders to extend the loan.
6) Deferral of Employer Share of Payroll Taxes Not available for a Borrower who had the PPP loan forgiven.  Available for all PPP borrowers regardless of forgiveness status; allows Borrowers to defer payment of 50% of payroll taxes until 2021, with the remaining 50% due in 2022.  

Our experienced team of attorneys are available to further assist you with any more questions or concerns you may having regarding the Paycheck Protection Program Flexibility Act of 2020.

Of Counsel
Corporate & Bus Law
+1.925.460.3367
Shareholder/Chair
Estates & Trusts
+1.408.947.2437
Attorney
Corporate & Bus Law
+1.925.460.3370
Shareholder, Chair
Employment Law
+1.408.947.2456
Shareholder
Real Estate & Commercial
+1.925.460.3365

This information is provided as an educational service by Hoge Fenton for clients and friends of the firm. This communique is an overview only, and should not be construed as legal advice or advice to take any specific action. Please be sure to consult a knowledgeable professional with assistance with your particular legal issue. © 2020 Hoge Fenton


06.04.2020 | Firm Post

We are Here to Help

Hoge Fenton understands that our clients, employers, and organizations may have numerous questions and concerns about reopening their business. As you begin to face the business and legal implications of the COVID-19 crisis, our attorneys remain committed to assisting you overcome these obstacles.

To provide some guidance on some of the issues that have affected or will be affecting businesses, we have created a Reopening California resources page to support you in the following areas:


This information is provided as an educational service by Hoge Fenton for clients & friends of the firm. This communique is an overview only, & should not be construed as legal advice or advice to take any specific action. Please be sure to consult a knowledgeable professional with assistance with your particular legal issue. © 2020 Hoge Fenton


05.19.2020 | Firm Post

On the evening of Friday, May 15, the SBA released long-awaited guidance for borrowers looking to claim forgiveness of their Paycheck Protection Program (“PPP”) loans.

The PPP Loan Forgiveness Application provides detailed instructions for borrowers to calculate the amount of their PPP loan forgiveness. The application has four parts:

  1. the PPP Loan Forgiveness Calculation Form;
  2. PPP Schedule A;
  3. the PPP Schedule A Worksheet; and
  4. an optional PPP Borrower Demographic Information Form.

Borrowers are required to submit the Calculation Form and PPP Schedule A to their lender.

What Costs are Eligible for Forgiveness?

The SBA’s guidance provides for four broad categories of costs that are eligible for forgiveness:

  1. payroll costs;
  2. business mortgage interest payments;
  3. business rent or lease payments; and
  4. business utility payments.

In accordance with prior guidance, the SBA requires that at least 75% of the forgiven amount be attributable to payroll costs.

Calculation of Eligible Payroll Costs for Forgiveness

The SBA’s guidance allows a PPP borrower to deduct payroll costs paid or incurred during the borrower’s eight-week (56 day) “Covered Period,” which is defined as the eight-week period that begins on the date the PPP loan was disbursed, or an Alternative Payroll Covered Period.

Alternative Covered Period

The strict eight-week Covered Period may not align with a borrower’s actual pay period. In these cases, the Alternative Covered Period may be used. The Alternative Payroll Covered Period allows Borrowers with a biweekly (or more frequent) payroll schedule to choose a 56 day period that begins on the first day of their first pay period following their PPP Loan Disbursement Date.

  • Example: Borrower received its PPP loan proceeds on Monday, April 20. The first day of its first pay period following its PPP loan disbursement is Sunday, April 26. Therefore, the first day of the Alternative Payroll Covered Period is April 26 and the last day of the Alternative Payroll Covered Period is June 20 (a Saturday).

Borrowers who elect to use the Alternative Payroll Covered Period must apply the Alternative Payroll Covered Period wherever there is a reference in this application to “the Covered Period or the Alternative Payroll Covered Period.”

Note: The Alternative Payroll Covered Period applies to Payroll expenses only! Borrowers must apply the Covered Period (not the Alternative Payroll Covered Period) for other costs!

Date when Payroll Costs are Considered to be Paid

Payroll costs are considered paid on the day that paychecks are distributed or the day that the borrower originates an ACH credit transaction. Payroll costs are considered incurred on the day that the employee earned the pay. This distinction allows employers some flexibility in timing their use of PPP funds.

If a payroll cost is incurred but not paid during the borrower’s last pay period of the Covered Period or the Alternative Payroll Covered Period, that payroll cost is still eligible for forgiveness if the borrower pays it by its next regular payroll date. Otherwise, all payroll costs must be paid during the Covered Period or the Alternative Payroll Covered Period.

Calculation of Eligible Non-Payroll Costs for Forgiveness

Non-payroll costs eligible for forgiveness consist of the following three categories:

  • Covered mortgage obligations: Payments of interest (any prepayment or payment of principal is excluded) on any business mortgage obligation on real or personal property incurred before February 15, 2020.
  • Covered rent obligations: Business rent or lease payments pursuant to lease agreements for real or personal property in force before February 15, 2020.
  • Covered utility payments: Business utility payments during the Covered Period for business utilities for which service began before February 15, 2020. Allowable business utility payments include payments for electricity, gas, water, transportation, telephone, or internet access.

An eligible non-payroll cost must be either:

  • paid during the Covered Period, or
  • incurred during the Covered Period and paid on or before the next regular billing date, even if the billing date is after the Covered Period.

Eligible non-payroll costs cannot exceed 25% of the total forgiveness amount. Borrowers are to count non-payroll costs that were both paid and incurred only once.

Determining Full-Time Equivalency of Employees

The CARES Act, which created the PPP, provided that a borrower’s forgiveness amount is limited if there is a reduction in the average number of full-time equivalent employees during the Covered Period as compared to a past reference period.

The SBA’s guidance provides rules for calculating the average full-time equivalency (“FTE”).

  • Borrowers calculate the average number of hours paid per week for each employee during the Covered Period or the Alternative Payroll Covered Period.
  • This number is divided by 40, and rounded the total to the nearest tenth an hour. The maximum for each employee, however, is capped at 1.0. Alternatively, borrowers can use a simplified method that assigns a 1.0 for employees who work 40 hours or more per week and 0.5 for employees who work fewer hours may be used at the borrower’s election.

Borrowers should be relieved to learn that the SBA’s guidance provides several exemptions to the FTE reduction rules that would otherwise limit the borrower’s forgiveness. For example, a borrower will not be penalized for FTE reductions that result from either of the following circumstances:

  • Reductions related to any positions for which the borrower made a good-faith, written offer to rehire an employee during the Covered Period or the Alternative Payroll Covered Period that was rejected by the employee.
  • Reductions related to any employees who during the Covered Period or the Alternative Payroll Covered Period (a) were fired for cause, (b) voluntarily resigned, or (c) voluntarily requested and received a reduction of their hours

Overall, the PPP Loan Forgiveness Application and associated guidance provides some much needed clarity for borrowers. Please note there is more information provided in the guidance than is covered by this communication. Please reach out to any of our Hoge Fenton attorneys below for further information.

Of Counsel
Corporate & Bus Law
+1.925.460.3367
Attorney
Corporate & Bus Law
+1.925.460.3370
Jenn Protas
Shareholder
Employment Law
+1.408.947.2435
email here
Sarju Naran
Shareholder/Chair
Employment Law
+1.408.947.2456
email here

This information is provided as an educational service by Hoge Fenton for clients and friends of the firm. This communique is an overview only, and should not be construed as legal advice or advice to take any specific action. Please be sure to consult a knowledgeable professional with assistance with your particular legal issue. © 2020 Hoge Fenton


05.15.2020 | Firm Post

The SBA’s new rule enables lenders to increase existing PPP loans to partnerships and seasonal employers. In addition, it provides additional clarification on the return of funds and self-certification aspects of the PPP funds.

Partnerships who completed their loan applications before April 14: PPP lenders are now allowed to increase existing PPP loans to partnerships to include appropriate amounts to cover partner compensation in accordance with the April 14 interim final rule.

The April 14 interim rule prohibited partners in partnerships from submitting a separate PPP loan application for themselves as self-employed individuals. Instead, the self-employment income of general active partners was to be reported as a payroll cost (up to $100,000 annualized). Partnerships, including accounting firms, that had submitted PPP applications prior to April 14th without including partner self-employment income likely did not receive the maximum amount of PPP loans for which they were eligible.

Seasonal Employers: PPP lenders are now allowed to increase existing PPP loans to seasonal employers to include appropriate amounts based on the seasonal employer’s maximum loan value using the alternative criterion posted on April 24.

Extension of date to return PPP funds: Borrowers who received PPP loans now have until May 18th to return the PPP funds if they are unable to make good-faith certification of the necessity of their loan requests.

Businesses who accepted less than $2 million in PPP funds: The SBA will take these businesses’ self-certifications of necessity on good faith and will not require them to prove the necessity of their loan.

If you have any questions or need assistance with your PPP loan, please do not hesitate to contact Darlene Chiang.

Of Counsel
Corporate & Bus Law
+1.925.460.3367

This information is provided as an educational service by Hoge Fenton for clients and friends of the firm. This communique is an overview only, and should not be construed as legal advice or advice to take any specific action. Please be sure to consult a knowledgeable professional with assistance with your particular legal issue. © 2020 Hoge Fenton


05.06.2020 | Speaking Engagements & Firm Events

Advocacy Webinar for Non-Profits and Board Directors – May 14, 2020 with Hon. Catharine B. Baker

Tri-Valley NonProfit Alliance hosts Hon. Catharine Baker of Hoge Fenton and Jennifer Fearing of Fearless Advocacy for a webinar program that is a must-see for nonprofits and their board directors. They will be discussing best practices for advocating your organization to local and state governments. In this age of challenges presented by COVID-19, nonprofit organizations small and large will need to work to relay the significance of their missions to the people and government entities that matter most to their success. Catharine and Jennifer will explore how to develop deep relationships with key decision makers in the legislature, the executive branch, and local governments.

After the meeting, registered participants will additionally receive a link to Jennifer Fearing’s chapter in the new textbook: “A Practitioner’s Guide to Lobbying and Advocacy in California,” published by Kendall-Hunt.

Date: May 14, 2020

Time: 10:30am-12pm

About our Speakers:

Hon. Catharine Baker is currently Special Counsel at Hoge Fenton Law in Pleasanton, California. Catharine was a Member of the California State Assembly for the 16th District from 2014 – 2018. During her legislative tenure, Catharine developed a reputation as an independent, bipartisan voice in the CA Legislature, fostering collaboration that led to breakthroughs in significant legislation, particularly on transportation, the environment, and government accountability.
Jennifer Fearing is President of Fearless Advocacy, based in Sacramento, California. Jennifer has led efforts to recruit and activate citizen advocates, developed a new legislative caucus, prepared multiple voter scorecards, produced myriad lobby days, and helped with the formation of a new Assembly select committee on the nonprofit sector. Jennifer authored a chapter on nonprofit lobbying included in a new textbook entitled “A Practitioner’s Guide to Lobbying and Advocacy in California.”

04.24.2020 | Firm Post

Thank you to everyone who joined us for our “Your COVID-19 Funding and Employment Questions Answered!” webinar yesterday.
Please find the recording of the webinar below.
We hope you found the discussion helpful. Please reach out to our advisors below if you need more guidance and visit our COVID-19 Resources page for additional support.
Sarju Naran
Hoge Fenton
Shareholder/Chair
Employment Law
+1.408.947.2456
email here
Steve Tessler
California Bank of Commerce
Executive VP
+1.510.499.9509
email here
Jenn Protas
Hoge Fenton
Shareholder
Employment Law
+1.408.947.2435
email here
Ray Scheaffer, CPA
Abbott, Stringham & Lynch
Principal
+1.408.377.8700
email here
Darlene Chiang
Hoge Fenton
Of Counsel
Corporate & Bus Law
+1.925.460.3367
email here

This information is provided as an educational service by Hoge Fenton for clients and friends of the firm. This communique is an overview only, and should not be construed as legal advice or advice to take any specific action. Please be sure to consult a knowledgeable professional with assistance with your particular legal issue. © 2020 Hoge Fenton

04.24.2020 | Firm Post

COVID-19 Federal Aid Alternatives to PPP and EIDL

Although Congress passed another round of funding this week for the Paycheck Protection Program (PPP) and Economic Injury Disaster Loans (EIDLs), due to unprecedented need these programs will likely reach their capacity within a few weeks, if not days. There are, however, alternatives to the PPP and EIDL that are important to highlight.

Main Street Lending Program

The Federal Reserve (the “Fed”) established the Main Street Lending Program (the “Program”) to support lending to small and medium-sized businesses that were in good financial standing before the COVID-19 pandemic. The program operates through two arms: the Main Street New Loan Facility and the Main Street Expanded Loan Facility. While the Main Street Lending Facility process remains undefined, the following information is known about it :

  • This program is offering loans of as little as $1 million and as much as $150 million to businesses with up to 10,000 employees or $2.5 billion in 2019 revenue.
  • This is a $600 billion program.
  • The Fed is expected to release additional guidance on the loan application and bank underwriting requirements shortly.
  • Banks are not yet able to take applications.

Other Alternatives to the PPP and EIDL:

Here are two alternatives to the PPP and EIDL that may provide some assistance:

  • The Employee Retention Credit (“ERC”)
    • The ERC provides a refundable payroll tax credit for 50% of the wages paid by employers during the COVID-19 pandemic up to $5,000 per employee per quarter. This credit is applied to the employer’s quarterly tax liability reported on Form 941.
      • An employer who receives a loan under the Paycheck Protection Program is ineligible for the ERC.
      • Eligible employers must fall into one of two categories:
        • The employer’s business is fully or partially suspended by government order due to COVID-19 during the calendar quarter (a “COVID-19 Related Closure”).
        • The employer’s gross receipts are below 50% of the comparable quarter in 2019. Once the employer’s gross receipts go above 80% of a comparable quarter in 2019, they no longer qualify after the end of that quarter (a “COVID-19 Impact”).
  • The tax credit is provided for the first $10,000 of compensation paid to an employee and is based on qualified wages paid.
  • For employers with more than 100 employees, “qualified wages” are all wages paid to only those employees who are being paid not to work. If employers with 100 or fewer employees, the credit is based on wages paid to all employees, regardless if they worked or not. If the employees worked full time and were paid for full time work, the employer still receives the credit.
  • “Qualified wages” also include the employer’s contribution to health-insurance costs (subject to the cap of $10,000) but exclude any amounts already received as tax credit.
  • No application is required for the ERC. Eligible employers simply claim a payroll credit against its 6.2% of Social Security tax equal to 50% of the qualified wages it paid during the applicable quarter.
  • The refundable ERC is reported on the eligible employer’s return beginning in the second quarter for reporting its liability for Federal Insurance Contributions Act (“FICA”) and Railroad Retirement Tax Act, as applicable. For FICA tax purposes, the quarterly Form 941 is used for reporting for most employers.
  • The Internal Revenue Service (“IRS”) does not require a business to wait until it files its payroll tax return to claim the ERC. Instead, eligible employers can be immediately reimbursed for the credit by reducing their required deposits of payroll taxes that have been withheld from employees’ wages by the amount of the credit. If the eligible employer’s employment tax deposits are not sufficient to cover the credit, the employer may receive an advance payment from the IRS by submitting Form 7200, Advance Payment of Employer Credits Due to COVID-19.
  • The credit is claimed on a quarterly basis and is applicable to wages paid between March 13, 2020, and December 31, 2020, for any quarter the business suffered a COVID-19 Related Closure or a COVID-19 Impact.
  • Employer Payroll Tax Deferral
    • Employers can defer without penalty the deposit and payment of applicable employment taxes due for the rest of year.
    • Fifty percent (50%) of the deferred taxes must be repaid by December 31, 2021, with the remaining due by December 31, 2022.
    • “Applicable employment taxes” include the employer’s portion of the social security tax that would otherwise be required to be made from March 27 until December 31, 2020.
    • Employers who receive a loan under the Paycheck Protection Program are not eligible for this payroll tax deferral once their loan is forgiven.
    • Except for the limitation for employers who receive a loan under the Paycheck Protection Program, all employers are eligible for the payroll tax deferral.

If you have any questions about how these provisions of the CARES Act may apply to your business, please contact Hoge Fenton’s COVID-19 Rapid Response Team.

Embert Madison, Jr.

Attorney

Corporate & Bus Law

+1.925.460.3370

email here

Darlene Chiang

Of Counsel

Corporate & Bus Law

+1.925.460.3367

email here

Sarju Naran

Shareholder/Chair

Employment Law

+1.408.947.2456

email here


This information is provided as an educational service by Hoge Fenton for clients and friends of the firm. This communique is an overview only, and should not be construed as legal advice or advice to take any specific action. Please be sure to consult a knowledgeable professional with assistance with your particular legal issue. © 2020 Hoge Fenton


04.16.2020 | Speaking Engagements & Firm Events

Join our trusted advisors at California Bank of Commerce, Abbott Stringham & Lynch CPAs, and Hoge Fenton as they provide a “Situation Room” update and answer your questions about COVID-19 funding and employment law issues.

In this exclusive complimentary webinar, our panel will discuss:

  • The current status of PPP, EIDL, and other government loan programs
  • Updates on federal, state, and local guidance for managing employee furloughs, FFCRA paid leave, and unemployment insurance benefits
  • Tax strategies and implications of government programs

Meet our Trusted Advisors:

Sarju Naran
Hoge Fenton
Shareholder/Chair
Employment Law
+1.408.947.2456
email here
Steve Tessler
California Bank of Commerce
Executive VP
+1.510.499.9509
email here
Jenn Protas
Hoge Fenton
Shareholder
Employment Law
+1.408.947.2435
email here
Ray Scheaffer, CPA
Abbott, Stringham & Lynch
Principal
+1.408.377.8700
email here
Darlene Chiang
Hoge Fenton
Of Counsel
Corporate & Bus Law
+1.925.460.3367
email here

This information is provided as an educational service by Hoge Fenton for clients and friends of the firm. This communique is an overview only, and should not be construed as legal advice or advice to take any specific action. Please be sure to consult a knowledgeable professional with assistance with your particular legal issue. © 2020 Hoge Fenton


04.09.2020 | Firm Post


Thank you to everyone who joined us for our Families First Coronavirus Response Act (“FFCRA”) Leave and the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) Webinar last Tuesday.
Please find the recording of the webinar below.
We hope you found the discussion helpful. Please reach out to our advisors below if you need more guidance and visit our COVID-19 Resources page for additional support.

Our Trusted Silicon Valley Advisors

Chair/Shareholder
Employment Law
+1.408.947.2456
Shareholder
Employment Law
+1.408.947.2435
Of Counsel
Corporate & Business Law
+1.925.460.3367

This information is provided as an educational service by Hoge Fenton for clients and friends of the firm. This communique is an overview only, and should not be construed as legal advice or advice to take any specific action. Please be sure to consult a knowledgeable professional with assistance with your particular legal issue. © 2020 Hoge Fenton


04.09.2020 | Firm Post

COVID-19 Relief: Hoge Fenton Partners up with Urban Community to Launch Non-Profit, San Jose Ship Kits Inc., to help people in need

We are grateful for the opportunity to team up with real estate developers Gary Dillabough and Jeff Arrillaga, partners at San Jose-based Urban Community Fund to help create San Jose Ship Kits Inc., a non-profit distributing medical and supply kits to local families and workers affected by COVID-19. Visit sjshipkits.com to donate or volunteer.
Read more about the inspiring initiative here.


04.07.2020 | Firm Post

CARES Act Assistance for Businesses with More than 500 Employees

The CARES Act, signed into law March 27, grants financial incentives to small businesses that retain workers instead of laying them off. The measures include forgivable loans, tax credits and deferrals, and funding for an unemployment program offered through employers.
The CARES Act also has a loan program for businesses that employ between 500-10,000 employees. It’s called the CARES Act Title IV Midsize Business Loans program (also known as the Section B(4) Funds).
The CARES Act does not include a specific timeline for the launch of this particular program. However, it is expected that the US Treasury will provide regulations and guidelines in the next couple weeks for this loan program.
We will advise our clients on the loan program once the Treasury guidelines are out.
Businesses should also contact their existing bank (s) to get updates regarding this loan program.
Is my business eligible?
Eligible business which is defined to include:

  1. air carriers or
  2. a US business “that has not otherwise received adequate economic relief in the form of loans or loan guarantees provided under the CARES Act.” (Sect. 4002(4))

Such businesses must have been

  1. created or organized in the United States or under the laws of the United States and
  2. have significant operations in and a majority of its employees based in the United States. (Sec. 4003(c)(3)(C))

Nonprofit organizations may also be eligible to the extent practicable.
Applications must be submitted prior to December 31, 2020.
What is the interest rate on the loan?
The interest rate will not exceed 2%.
What is the tax treatment of the loan?
The loan is to be treated as debt for tax purposes.
When will we have to pay principal and interest on the loan?
Payments will be automatically deferred for at least six months.
Can the loan be forgiven in whole or in part?
No loan forgiveness is planned at this time.
What Conditions are Attached to Receive a Midsize Business Loan?

  • No Payment of Dividends. The borrower will be prohibited from paying dividends or making other capital distributions on its common stock during term of the loan, and for a year after the date the loan is no longer outstanding (Sec. 4003(c)(3)(A)(ii)(I));
  • No Stock Buybacks. The borrower cannot make stock buybacks of equity securities of the borrower, or any parent of borrower, that are listed on a national securities exchange (except to the extent required by a preexisting contract), during term of the loan, and for a year after the date the loan is no longer outstanding (Sec. 4003(c)(3)(A)(ii)(I));
  • Employee Compensation Cap. The borrower must agree to cap all employee compensation (including salary, stock, and bonuses) for a period ending one year after the loan is repaid as follows:
  1. Employees receiving more than $425,000 per year cannot receive (i) more compensation than they received in 2019 (except for compensation determined through a collective bargaining agreement entered into prior to March 1, 2020) or (ii) severance pay or other benefits upon termination exceeding twice the 2019 compensation amount. (Sec. 4003(c)(3)(A)(ii)(III) referencing Sec. 4004(a)(1)).
  2. Officers or employees receiving more than $3 million per year cannot receive total compensation in excess of (i) $3 million plus (ii) 50% of the excess over $3 million. (Sec. 4003(c)(3)(A)(ii)(III) referencing Sec.4004(a)(2).

The Treasury may waive the forgoing conditions as necessary “to protect the interests of the Federal Government.” (Sec. 4003(c)(3)(A)(iii)).
What Certification is Required by the Borrower?

  • Impact of COVID-19. The loan request is necessary to support the ongoing operations of the borrower due to the impact of COVID-19.
  • Intent to Maintain Compensation. Funds will be used to retain at least 90% of the borrower’s workforce, at full compensation and benefits, until September 30, 2020;
  • Intent to Maintain Workforce. The borrower intends to restore at least 90% of the workforce that existed as of February 1, 2020, and to restore all compensation and benefits to the workers of the borrower no later than 4 months after the COVID-19 public health emergency is canceled;
  • Domestic Status. The borrower is (i) created or organized in the United States, (ii) domiciled in the United States, and (iii) has significant operations and a majority of its employees based in the United States;
  • No Bankruptcy. The borrower is not a debtor in a bankruptcy proceeding.
  • No Outsourcing. The borrower will not outsource or offshore jobs for the term of the loan and two years after completing repayment.
  • Collective Bargaining Obligations. The borrower will not abrogate existing collective bargaining agreements for the term of the loan and two years after; and
  • Neutral in Organizing Efforts. The borrower will remain neutral in any union organizing effort for the term of the loan.

Our Hoge Fenton Rapid Response team is ready to assist you. Please contact Darlene Chiang if you have any additional questions on the CARES Act Loan Program. For more COVID-19 Corporate & Business Law resources, click here.

Of Counsel/Attorney
Corporate & Business Law
+1.925.460.3367

This information is provided as an educational service by Hoge Fenton for clients and friends of the firm. This communique is an overview only, and should not be construed as legal advice or advice to take any specific action. Please be sure to consult a knowledgeable professional with assistance with your particular legal issue. © 2020 Hoge Fenton


04.03.2020 | Speaking Engagements & Firm Events

We are hosting a complimentary webinar on these laws
Tuesday, April 7 at 12:00pm
Register here

As discussed in our recent articles the federal government has passed two monumental acts of legislation to address the COVID-19 pandemic: the Families First Coronavirus Response Act (“ FFCRA ”) and the Coronavirus Aid, Relief and Economic Security Act (“ CARES Act ”). The federal departments have now issued regulations and guidance on both the FFCRA and the CARES Act to assist employers in interpreting and applying the new laws to their workplace.
Please join Hoge Fenton’s team for a complimentary webinar on Tuesday, April 7, 2020 at 12:00pm, where we will discuss and answer questions regarding these new laws, regulations, and guidance.

Hoge Fenton’s team is standing by to help you retain your employees and serve your customers during the COVID-19 pandemic. Please do not hesitate to contact any of us below, and click here to join us for Tuesday’s webinar.

Chair/Shareholder
Employment Law
+1.408.947.2456
Shareholder
Employment Law
+1.408.947.2435
Of Counsel
Corporate & Business Law
+1.925.460.3367

This information is provided as an educational service by Hoge Fenton for clients and friends of the firm. This communique is an overview only, and should not be construed as legal advice or advice to take any specific action. Please be sure to consult a knowledgeable professional with assistance with your particular legal issue. © 2020 Hoge Fenton


04.03.2020 | Firm Post

Paycheck Protection Program | Application Assistance and FAQs

Can I get help completing and submitting my application?
Yes. Our Hoge Fenton Rapid Response team is ready to assist you. Please contact Darlene Chiang or Embert Madison, Jr.
Am I eligible?
Lenders will rely on borrower certifications to determine borrower eligibility. Applications will be submitted by or through a SBA – approved lender.
In general, you are eligible for a PPP loan if (i) you have 500 or fewer employees whose principal place of residence is in the United States or are a business that operates in a certain industry and meet the applicable SBA employee-based size standards for the industry and (ii) one of the following applies:

  • You are a small business concern, as defined in section 3 of the Small Business Act (15 USC 632), and subject to SBA’s affiliation rules under 13 CFR 121.300(f) unless specifically waived in the Act, or
  • You are a tax-exempt nonprofit 501(c)(3) organization, or
  • You are a tax-exempt veterans organization 501(c)(19), or
  • You are a tribal business concerns 31(b)(2)(C)

Additionally, (iii) you must have been in operation on February 15, 2020 and either had employees for whom you paid salaries and payroll taxes or paid independent contractors (as reported on a Form 1099-MISC).
Independent contractors or eligible self-employed individuals may also apply so long as you were in operation on February 15, 2020.
Certain circumstances, such as illegal businesses, may still disqualify you.
How much can I borrow?
The maximum loan amount is the lesser of $10 million or an amount based on this formula:

  1. Use payroll costs from the last 12 months for employees who reside in the U.S.
  2. Subtract compensation paid to an employee, independent contractor, or sole proprietor in excess of $100,000 per person per year
  3. Divide by 12
  4. Multiply by 2.5
  5. Add the outstanding amount of an Economic Injury Disaster Loan made between January 31, 2020 and April 3, 2020
  6. Subtract the amount of any EIDL “COVID-19 advance” because it does not have to be repaid

Example:

  1. Annual payroll: $1,500,000
  2. $300,000 was paid to an employee, independent contractor, or sole proprietor in excess of $100,000 per person per year. $1,500,000-$300,000 = $1,200,000
  3. Average monthly qualifying payroll = $100,000
  4. Multiply by 2.5. $100,000 x 2.5 = $250,000
  5. Add EIDL loan of $10,000. $250,000+$10,000 = $260,000

Maximum loan amount is $260,000
How are annual Payroll Costs calculated?
Payroll Costs consist of compensation to employees (whose principal place of residence is in the United States) such as:

  • Salary, wages, commissions, or similar compensation
  • Cash tips or equivalent based on records or good faith estimation by employer
  • Payment for vacation, parental, family, medical, or sick leave
  • Allowance for separation or dismissal
  • Payment for provision of employee benefits such as group health care coverage (including insurance premiums) and retirement
  • Payment of state and local taxes assessed on employee compensation

The following are excluded from the definition of Payroll Costs:

  • Compensation of an employee whose principal place of residence is outside the United States
  • Compensation of an individual in excess of an annual salary of $100,000, prorated as necessary
  • Federal employment taxes imposed or withheld between February 15, 2020 and June 30, 2020, including employee’s and employer’s share of FICA and Railroad Retirement Act taxes
  • Income taxes required to be withheld from employees
  • Qualified sick and family leave wages for which a credit is allowed under the Families First Coronavirus Response Act

What is the interest rate on a PPP loan?
The interest rate will be 1%
What is the maturity date of a PPP loan?
The maturity is two years
When will I have to being paying principal and interest on my PPP loan?

  • You will not have to make any payments for six months following the date of disbursement of the loan, however interest will continue to accrue on PPP loans during this six month deferment
  • The Act authorizes the Administrator to defer loan payments for up to one year

Can my PPP loan be forgiven in whole or in part?

  • Yes. The amount of loan forgiveness can be up to the full principal amount of the loan and any accrued interest
  • The borrower will not be responsible for any loan payment if the borrower uses all of the loan proceeds for forgivable purposes and employee and compensation levels are maintained
  • Not more than 25% of the loan forgiveness amount may be attributable to non-payroll costs

How should PPP loans be used?

  • At least 75% for the loan proceeds must be used for payroll costs
  • Costs related to continuation of group health care benefits during periods of paid sick, medical, or family leave
  • Group health care insurance premiums
  • Mortgage interest payments (not principal payment or prepayment)
  • Rent payments
  • Utility payments
  • Interest payments on any other debt obligations incurred before February 15, 2020
  • Refinancing an SBA EIDL loan made between January 31, 2020 and April 3, 2020

Can I apply for more than one PPP loan?
No
Is the PPP “first-come, first-served?”
Yes
Hoge Fenton is ready to assist you with completing your PPP application so that:

  • You apply for the appropriate amount
  • Your application is submitted correctly the first time
  • Your application is submitted as quickly as possible

Our Hoge Fenton Rapid Response team is ready to assist you. Please contact Darlene Chiang or Embert Madison, Jr.

Of Counsel/Attorney
Corporate & Business Law
Intellectual Property
Mergers & Acquisitions
Tech Transactions
+1.925.460.3367
Attorney
Real Estate and Land Use
Corporate & Business Law
Cannabis Law
Commercial Leasing
+1.925.460.3370

This information is provided as an educational service by Hoge Fenton for clients and friends of the firm. This communique is an overview only, and should not be construed as legal advice or advice to take any specific action. Please be sure to consult a knowledgeable professional with assistance with your particular legal issue. © 2020 Hoge Fenton


04.01.2020 | Firm Post

Force Majeure in the Wake of the COVID-19 Pandemic

Businesses across the spectrum are suddenly and severely impacted by the COVID-19 pandemic. Forced to make difficult decisions about whether and how to continue their operations, many are asking: How can I get out of this contract? How can I avoid paying rent while I am forced to limit the operations of my business?
Many business owners and commercial tenants are hearing about a funky, unfamiliar legal term: “force majeure.” Contracts may contain force majeure clauses, but what do they really mean? Further, in the absence of a force majeure clause, California law excuses contract performance in certain extreme, unpredictable circumstances. Both situations are discussed in this article.

Scenario 1: The Contract Contains a Force Majeure Clause

A force majeure clause is a contract provision that excuses a party from performing one or more of its obligations under the contract in the event that an unforeseeable event or circumstances beyond the party’s control arise, making such party’s performance under the contract impossible, inadvisable, commercially impracticable, or illegal.
These circumstances are identified in the contract as “force majeure events” – meaning if they occur and impact performance under the contract, and are beyond the reasonable control of the impacted party, performance is excused. It is critical to carefully review the “force majeure” events identified in the contract.
Common force majeure events include, but are not limited to: natural disasters (such as earthquakes, hurricanes, and fires), epidemics and pandemics, terrorist acts, war, government action, and even union activities such as strikes.
For example, a buyer, located the San Francisco Bay Area, wishes to purchase a commercial real estate building. This buyer must wire her purchase price to an escrow agent located out of state. The day before buyer is set to wire her funds, a major earthquake hits the Bay Area. The buyer is now unable to complete her wire transfer in time, by no fault of her own. As such, because of the force majeure clause in the purchase agreement, buyer would not be in default of her purchase agreement for failing to wire her purchase price in time.
To determine whether an event occurred that allows enforcement of a force majeure clause, the following three criteria must be satisfied:

  • The unforeseeable event must be one that is out of the reasonable control of the party seeking to excuse its obligations;
  • The event must actually prevent a party’s performance under the contract and make it impossible, commercially impracticable, inadvisable, or illegal; and
  • The party seeking to excuse its obligations due to an event of force majeure must have actively taken all reasonable steps to mitigate the event or avoid its consequences.

In the midst of the current COVID-19 pandemic, parties to a contract for an event rental space would be forced to rely on the contract’s force majeure clause to excuse their respective obligations: the party renting an event center would not be able to use the event center due to a government-mandated shelter in place order (such as Executive Order N-25-20, issued by California Governor Gavin Newsom on March 12, 2020), and the party owning the event center would not be permitted to host events due to the same order.
While force majeure clauses generally excuse performance for certain enumerated events, they can be conditioned on other performance continuing, such as giving notice of the event, attempting to mitigate or reduce damage from the event, having and implementing a disaster recovery plan, or using diligent efforts to avoid the event or its consequences.

Scenario 2: There Is No Force Majeure Clause in the Contract

In the absence of a specific force majeure clause in the contract, California law can provide relief. It may take litigation to prove this, however.
California Civil Code section 1511 provides relief when performance of an obligation is made impossible by either: an irresistible, superhuman cause; or, an act of public enemies of California or the U.S.
Keep in mind that expense alone does not excuse performance. The unforeseen event must make obligating performance both “extreme and unreasonable” – in other words, impracticable.
Impracticality means that performance, while logically possible, is excused where performance would be so extreme and unreasonable that the situation is no different from one where performance is impossible. Alternatively, the frustration of purpose defense might apply. This defense is based on the premise that the contract’s purpose no longer exists. While performance may technically be possible (similar to impracticability), performance is functionally meaningless, useless, or senseless.
For example, if a company entered into a short-term lease with a landlord to rent a studio to be used for an art exhibitor in the San Francisco Bay Area from March 18 through May 15, 2020, the purpose of the lease would be determined to be a “Non-Essential Activity” under Governor Newsom’s Shelter in Place order, and no one would be able to attend the art exhibition. If the Lease contains a force majeure clause, the company could invoke a government order to be the triggering event to excuse its obligations under the lease. However, if the lease did not contain a force majeure clause, then the company would have the ability to assert a claim of frustration of purpose, because it’s foreseeable that no one would be able to attend an art exhibition due to the Shelter in Place order.
Interpreting force majeure clauses is complicated, as is determining whether performance is excused in the absence of force majeure rights due to impracticability and/or frustration of purpose. In addition, with respect to government orders, it’s important to understand that the most stringent and restrictive government order must be followed in the event that the terms of federal, state, and county orders are in conflict.
Hoge Fenton’s qualified team is here to help guide you during this difficult time. Please do not hesitate to reach out to our team below.

Shareholder/Chair
Real Estate & Land Use
Litigation
+1.925.460.3362
Of Counsel/Attorney
Corporate & Business Law
International Law
+1.925.460.3367
Attorney
Corporate & Business Law
Real Estate & Land Use
+1.408.947.2423
Attorney
Business Litigation
Insurance Coverage
+1.408.947.2414

This information is provided as an educational service by Hoge Fenton for clients & friends of the firm. This communique is an overview only, & should not be construed as legal advice or advice to take any specific action. Please be sure to consult a knowledgeable professional with assistance with your particular legal issue. © 2020 Hoge Fenton


03.26.2020 | Speaking Engagements & Firm Events


COVID-19 poses evolving challenges for all employers, especially start-ups, small, and medium-sized businesses so vital to our Tri-Valley ecosystem. We have assembled a panel of our trusted regional advisors to provide guidance and answer your questions. This complementary webinar is presented by Hoge Fenton and Sensiba San Filippo, in partnership with iGATE and Innovation Tri-Valley Leadership Group.
Tri-Valley advisors will take your questions and address urgent issues including:
What are the best strategies for helping my business survive a big pause in revenue while treating my employees well, especially the ones we might have to let go?
How can I take advantage of unemployment benefits and other government programs?
Could we restructure our small businesses to make sure employees have unemployment benefits if we have to lay people off?
Are options like moving to an employee-owned business a bad idea because it removes benefits for the employees?
Are there creative business solutions to keep our talent even if business drops off?
Please share this webinar information with any business leaders who may find this information helpful.
For more information please call:
Lynn Naylor
Innovation Tri-Valley Leadership Group
925.989.0188

Meet our Trusted Tri-Valley Advisors:

Speaker
EMP Law Attorney
+1.408.947.2435
Moderator
Executive Director
+1.925.231.2333
Speaker
Corporate Attorney
+1.925.460.3367
Speaker
Managing Partner
+1.925.271.8700

Register here

Please note the webinar has capacity of 500 participants


This information is provided as an educational service by Hoge Fenton for clients and friends of the firm. This communique is an overview only, and should not be construed as legal advice or advice to take any specific action. Please be sure to consult a knowledgeable professional with assistance with your particular legal issue. © 2020 Hoge Fenton

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