Over the last month, COVID-19 has caused drastic changes to our lives, our workplaces, and our ability to engage in arts and cultural activities. Non-profit arts organizations have been hit particularly hard as many states, including Colorado, have issued stay-at-home orders, banned large gatherings, and closed all theaters, concert halls, and performance and music venues. As a result, many arts organizations have had to cancel upcoming programming and events.
With revenue dropping from closures and cancellations, many arts organizations are struggling and may be wondering if they will be able to meet payroll costs and other expenses. Arts-related businesses in Colorado employ over 111,500 individuals. One of the most difficult questions facing arts organizations (as well as many other businesses) is how to ensure that employees, artists, and performers are financially supported even though revenue and donations have significantly declined. This article will address employment law considerations and the impact of the recently-passed Coronavirus Aid, Relief and Economic Security Act (CARES Act) on arts organizations concerned about their ability to retain their workforce. The good news is that the CARES Act provides significant relief for arts organizations, employees, and independent contractors striving to keep producing great art during this challenging time.
Option 1: Retaining Employees
The best-case scenario for any organization right now is to remain open and retain its workforce. Although that may seem financially difficult or impossible with the loss of planned arts programming, the CARES Act provides significant financial incentives to businesses that retain their employees. The CARES Act offers small businesses with less than 500 employees, including non-profit organizations, the ability to apply for economic injury disaster loans as well as forgivable loans under the Paycheck Protection Program. By utilizing these relief funds, arts organizations can essentially obtain grants (as long as certain criteria are satisfied) to cover operating expenses and payroll for the next several months.
More specifically, a small business (including a non-profit organization), self-employed individual, independent contractor, or sole proprietor can take out a Paycheck Protection loan in an amount equal to 2.5 times the organization’s average monthly payroll. A Paycheck Protection loan can be used to cover expenses such as the following: payroll costs (including salaries, wages, and commissions); paid leave (except for leave under the Families First Coronavirus Response Act); group health care benefits; state or local taxes on employee compensation; independent contractor compensation; rent and utility payments; and mortgage interest. Paycheck Protection loans do not require any collateral or personal guarantees, and the maximum interest rate is 4 percent.
The best feature of the Paycheck Protection loans is that they are forgivable if certain conditions are met. Borrowers are eligible for forgiveness of up to 100 percent of costs incurred and payments made during an eight-week covered period for payroll costs, mortgage interest, and rent and utility payments. The forgivable amount will be reduced if an organization reduces its workforce or cuts employee wages by more than 25 percent. However, if an organization has already laid off employees or reduced salaries, the organization can still receive the full loan forgiveness amount if it rehires those employees and/or eliminates any reduction in salaries by June 30, 2020.
For organizations needing immediate cash relief, the CARES Act also expands eligibility for access to Economic Injury Disaster Loans (EIDL). Small businesses, non-profits, and independent contractors may apply for loans up to $200,000 without any personal guarantee. As part of the EIDL process, an applicant may request an emergency grant advance of up to $10,000 that will be distributed within three days. The advance may be used to provide paid sick leave, maintain payroll during business closures, pay rent or a mortgage, or satisfy other obligations that cannot be met due to revenue loss. An applicant will not have to repay the advance even if the loan application is not approved. However, businesses cannot “double dip.” If the applicant is also approved for a Paycheck Protection loan, the amount of the EIDL advance will be deducted from the loan forgiveness amount. Likewise, proceeds of an EIDL loan cannot be used for payroll costs or uses already covered by an approved Paycheck Protection Loan.
Option 2: Reduced Hours or Work Sharing
Another alternative to laying off employees is to reduce their hours, which has the benefit of keeping workers employed and providing continued access to benefits (depending on plan eligibility requirements). A reduction in hours, however, may have implications under the Fair Labor Standards Act (FLSA) if the employees at issue are classified as exempt. Exempt, salaried employees generally must receive their full salary in any week in which they perform any work. In contrast, non-exempt employees are only paid for hours worked, so a reduction in their hours would not create any issues under the FLSA. Nevertheless, organizations should provide non-exempt employees with advanced notice of any reductions and should ensure that such reductions are not a violation of any employment agreements or state-specific requirements.
Employees whose hours or pay has been reduced can seek supplemental income through unemployment. In Colorado, employees working less than 32 hours a week and earning less than the weekly amount of unemployment benefits pay (approximately 55 percent of average weekly earnings over a 12-month period) may receive partial unemployment benefits.
Colorado’s Department of Labor and Employment also offers the Work-Share Program that might be a good option for organizations needing to reduce hours for multiple employees. In order to qualify, an organization must have reduced normal weekly work hours for at least two employees by at least 10 percent, but no more than 40 percent. A worker on a reduced schedule through a work-share arrangement is eligible to collect partial unemployment benefits. An organization must also meet certain requirements related to payment of unemployment premiums and must fill out an application in order to participate in the program.
Option 3: Layoffs and Unemployment
Since the pandemic began, many employers have had to make the difficult decision to layoff or terminate employees. Organizations contemplating layoffs should make sure to consider whether collective bargaining agreements pose any barriers to termination. For mass layoffs, they should also determine whether advanced notice of the layoff is required pursuant to the Worker Adjustment and Retraining Notification Act (WARN Act). Additionally, in Colorado, accrued vacation time will likely need to be paid out to employees at the time of termination. Finally, an organization contemplating layoffs should ensure that the layoff is conducted in a manner that does not violate any anti-discrimination or anti-retaliation laws.
If a layoff is the only option for an organization, the CARES Act does ensure that more workers are provided with more robust unemployment benefits than were available before the pandemic. Many arts organizations rely on the services of independent contractors and self-employed artists. Typically, independent contractors and self-employed individuals would not be eligible for unemployment, but the CARES Act expands eligibility requirements to allow them to receive the same unemployment benefits as employees. Colorado is currently awaiting federal guidance on this provision and expects to begin accepting applications from self-employed individuals in April. In addition to expanding the group of eligible workers who can receive unemployment, the CARES Act also provides an additional $600 a week to workers on top of state-provided unemployment benefits, and extends the eligibility period from 26 to 39 weeks through the end of the year.
In conclusion, although this is a difficult time for arts organizations and artists, there is assistance available to those who need it. Please note that guidance on the CARES Act and unemployment is changing on an almost daily basis. If you need legal assistance regarding employment decisions, please reach out to CAFTA.
About the author: Heidi Wilbur is an employment attorney with over eight years of experience representing and counseling employers on a wide variety of workplace issues. She is also a passionate advocate and supporter of the arts in Colorado. You can reach her at firstname.lastname@example.org.
*This article was updated on April 1, 2020.