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Business owners, if you received a PPP loan and are now contemplating a change of ownership, you may need consent from your lender and even the SBA under certain circumstances. Read on to learn what qualifies as a “change of ownership” and what to be aware of before moving forward with the sale.

For purposes of the PPP, what is a “change of ownership”?

1. At least 20 percent of the common stock or other ownership interest of a PPP Borrower is sold or otherwise transferred.
2. The Borrower sells or otherwise transfers at least 50 percent of its assets.
3. A Borrower is merged with or into another entity.

Regardless of any change of ownership, the Borrower remains responsible for a variety of tasks, most notably, the performance of all obligations under the PPP loan. Additionally, prior to the closing of any change of ownership transaction, the Borrower must notify and provide the Lender with a copy of the proposed agreements.

What if the PPP Note is fully satisfied prior to the change of ownership?

There are no restrictions on a change of ownership if, prior to closing the sale or transfer, the Borrower has:

• Repaid the PPP Note in full; or
  • Completed the loan forgiveness process in accordance with the PPP requirements; and
    • SBA has remitted funds to the Lender in full satisfaction of the PPP Note; or
    • The Borrower has repaid any remaining balance on the PPP loan.

What if the PPP Note is NOT fully satisfied prior to the change of ownership?

Prior approval of the SBA IS NOT required:

• If the change of ownership is structured as a stock sale of 50 percent or less of the common stock of the Borrower, or if the Borrower completes a forgiveness application reflecting its use of all PPP loan proceeds and submits it to the Lender, and an interest-bearing escrow account is established with funds equal to the outstanding balance of the PPP loan.

• If the change of ownership is structured as an asset sale, if:
  • The Borrower completes a forgiveness application reflecting its use of all the PPP loan proceeds and submits it to the Lender, and an interest-bearing escrow account is established with funds equal to the outstanding balance of the PPP loan.
  • After the forgiveness process is completed, the escrow funds must be disbursed first to repay any remaining PPP loan balance plus interest.
  • The Lender must notify the appropriate SBA Loan Servicing Center of the location of, and the amount of funds in, the escrow account.

Prior approval of the SBA IS required if a change of ownership does not meet the conditions above. When this approval is needed, contact us or your accounting professional for guidance on how to make the submission.

If you have an outstanding PPP loan and are contemplating a sale of your business or its assets, our attorneys are ready to answer questions regarding this latest guidance or any other COVID-19 related legal concerns. For assistance, please contact us at (631) 738-9100 and visit our Mergers & Acquisitions practice area to learn more about our services.

The information in this article is from: SBA Procedural Notice, Small Bus. Admin. (Oct. 2, 2020)

Thank you to Daniel Axelrod for his research and writing assistance for this article.

Campolo, Middleton & McCormick, LLP is proud to announce that seven attorneys at the firm, in multiple practice areas, have been named to the 2020 Super Lawyers list. The CMM attorneys recognized this year, in practice areas including Business and Corporate, Personal Injury, Real Estate, Business Litigation, Mergers & Acquisitions, Construction Litigation, Employment Litigation, Civil Litigation, and Appeals, are:

• Joe Campolo
• Scott Middleton
• Patrick McCormick
• Christine Malafi
• Jeffrey Basso
• Donald Rassiger
• David Green (Rising Star)

The rigorous Super Lawyers selection process is based on peer evaluations, independent research, and professional achievement in legal practice. The “Rising Stars” recognition denotes superior professional achievement by attorneys who have been in practice for under 10 years or are under age 40. No more than 2.5 percent of lawyers in New York State are named to the Rising Stars list.

Learn more about CMM’s outstanding legal professionals here.

By Christine Malafi

As Election Day approaches, employers should take note: last year, you may recall that New York State’s Election Law was amended to increase the amount of paid time off that employees could take to vote from two hours to up to three hours. This year, the law has reverted to the previous provisions with additional changes outlined below.

As of April 12, 2019, Election Law § 3–110 required that employees in New York who are registered voters may request and receive up to three hours paid time off to vote, regardless of their work schedule and without loss of pay. Under the 2020 amendments, the law reverts back to up to two hours of paid time off to vote, but only if the employee did not have four or more consecutive hours off between either the time the polls opened and the start of their shift, or the end of their shift and the time the polls closed.

Every employer must post the new Election Law requirements in a noticeable place, accessible to all employees and on company grounds, at least 10 days prior to every election, and leave the notice up through at least the close of the polls on Election Day. Additionally, employee handbooks need to be updated to reflect the new Election Law requirements.

Employees are allowed time off to vote only at the beginning or at the end of their work shift, at the employer’s discretion, unless another time is agreed upon between employee and employer. Employees must also notify their employer at least two working days prior, though not more than ten, to an election if they require time off to vote. Notably, the time off is “up to” two hours, not two hours. The law states that employees cannot be required to utilize any form of earned leave time or paid time off (PTO) to vote.

This law applies to all elections under the Election Law in its entirety—including primary and special elections. Specifically, the Election Law covers federal, state, county, city, town, or village office elections, as well as elections on ballot questions that are submitted to voters either state, county, city, town, or village-wide.  It does not apply to school district, fire district, or library district elections and budget votes, as these are generally governed by laws other than the Election Law. The amended law does not indicate whether an employer is permitted to request proof of voter registration or require a voting receipt or other proof that the employee actually used their time off to vote.

Changes such as this one can leave businesses, especially small businesses, scrambling to stay on top of the requirements and at increased risk for non-compliance. For any questions about how to implement these changes at your organization in the least disruptive way possible, please contact our office.

By Christine Malafi

A year of unprecedented circumstances has wreaked economic havoc on businesses. Since March, employers have been necessarily focused on ensuring the survival and continuity of their businesses. However, during this “work from home during COVID-19” age, employers must ensure that compliance with the Fair Labor Standards Act (“FLSA”) remains a priority. Given the sudden, mandatory work-from-home Executive Orders in March, and the continued use of remote work to reduce in-person numbers even as the economy reopens, staying on top of the requirements can be a challenge. Here’s a look at what employers need to know.

What does the FLSA require?

The FLSA requires all non-exempt employees be paid for all hours worked, including overtime hours, regardless of whether the work is performed outside the office, including at home.[1] This has been held to include employee time spent checking email and voicemail, work-related telephone calls and texts, etc., as compensable.

When it comes to working from home, employers must pay non-exempt employees for all time utilized in remote work, “even if [the employer] d[oes]not ask for the work, even if they did not want the work done, and even if they ha[ve] a rule against doing the work” after set work hours. However, employers do not have to pay for work they do not, or should not, know about. Employers must pay for work done after hours only if they have actual or constructive notice of such work.

How can my business track employee time?

Given that employers may be on the hook for employees’ hours worked even if the employer did not request the work, did not want the work, or even prohibited the work, employers cannot simply close their eyes to tracking remote work by employees. They must use reasonable diligence to inquire into, and track, their employees’ work hours. Employee time sheets are a good first step, but they are not sufficient to establish “reasonable diligence” by employers to ensure time is not being spent outside of “normal” work hours.

Employers should establish procedures by which employees can report additional work time so as to be compensated.[2] This procedure should include proper instruction on how to report additional work time and actively encourage employees to report the additional work time. Under no circumstance should an employee be implicitly or overtly discouraged or impeded from the accurate reporting of work hours. Further, simply establishing a rule against unauthorized work is not enough to absolve the employer of its responsibility to pay for that time. Indeed, the Department of Labor’s Wage and Hour Division issued a Field Assistance Bulletin (“FAB”) on August 24, 2020, emphasizing that employers “ha[ve] the power to enforce the rule and must make every effort to do so.” The employer’s obligation is not unlimited: the FAB confirms that if an employer has a procedure in place for reporting time, and “an employee fails to report unscheduled hours worked through such a procedure, the employer is not required to undergo impractical efforts to investigate further to uncover unreported hours of work.”

Therefore, being able to accurately track hours is key. While there are time and attendance software or cloud services available, they aren’t a good fit in all workplaces, and additional steps should be taken anyway and incorporated into the procedures adopted by a business. These steps include directing exempt employees/management not to send/deliver emails, texts, etc. to non-exempt employees after hours, and requiring those employees to remind non-exempt employees to report after-hours work in accordance with the procedures put into place by the employer.

CMM can help you review and revise your procedures both to ensure compliance as well as to maximize the productivity of your workplace. In these unprecedented times, there’s no one-size-fits-all solution. Please contact us at (631) 738-9100 for personalized guidance and the peace of mind you need to keep your business moving forward.

[1] 29 C.F.R. 785.12.

[2] Field Assistance Bulletin No. 2020-05, Wage & Hour Administrator Cheryl M. Stanton; Allen v. City of Chicago, 865 F.3d 936 (7^th Cir. 2017) (City not liable for uncompensated time police officers spent reading and responding to emails received on their Blackberrys after hours, as City was not shown to have actual or constructive notice of same).

Campolo, Middleton & McCormick, LLP, a premier law firm with offices across Long Island, is thrilled to announce that that Senior Partner Christine Malafi has been recognized by her peers for the fourth year in a row to be featured in The Best Lawyers in America® in the category of Employment Law – Management (2021 edition). With this distinction, Malafi ranks among the top five percent of private practice attorneys nationwide as determined by a rigorous peer-review process.

For over three decades, the legal profession and the public have turned to Best Lawyers as one of the most credible measures of legal integrity and distinction in the nation. Inclusion in Best Lawyers is based on over seven million confidential evaluations by top attorneys. The Best Lawyers’ founding principle forms the basis of this transparent methodology: the best lawyers know who the best lawyers are. No fee to participate is permitted.

Malafi chairs the Corporate and Labor & Employment Departments at CMM, which was recently recognized by Forbes as a Top Trusted Corporate Law Firm in America. Her practice focuses on mergers and acquisitions, corporate governance, routine and complex transactions, drafting and negotiating a wide range of agreements, and helping businesses navigate all types of human resources matters. She routinely represents buyers and sellers in multimillion-dollar transactions and serves in a general counsel role for many of the firm’s corporate clients.

This year, Malafi has also played a critical role on CMM’s Coronavirus Response Team, answering a myriad of questions from the business community about various aspects of businesses’ handling of COVID-19 issues, including HR issues impacting their companies’ survival. Based on her strong labor and employment background, clients turn to Christine both for answers to their most important employment concerns and for solutions to move forward. 

In addition to her legal work, Malafi serves on the Boards of Directors of Family Service League and Girl Scouts of Suffolk County, among others. She also sits on the Board of Governors of Touro Law School and the New York State Pro Bono Scholars Task Force.

Within days of Governor Cuomo’s “New York State on PAUSE” Executive Order in March, CMM led the way with the launch of a first-of-its-kind coronavirus hotline, providing free, immediate guidance to business owners and employers fighting for survival.

As Long Island reopens, our Coronavirus Response Team continues to provide critical counsel to businesses navigating unprecedented challenges, including:

• Partnership Disputes and Business Succession: Due to the prolonged economic disruption of COVID-19, many business owners are looking to plan for the next generation of their business, dissolve partnerships, or creatively restructure their businesses. Contact Joe Campolo.
• HR Questions: Employers turn to us for guidance on the complex employment issues they now face including workplace safety, sick leave, remote work, healthcare and HIPAA issues, benefits plan administration, closures, worker’s compensation, wage and hour, the Americans with Disabilities Act, and more. Contact Christine Malafi.
• Commercial Lease Renegotiation: CMM’s busy commercial leasing practice has taken on new urgency as businesses continue to weather the economic fallout of the pandemic. We have helped countless businesses renegotiate their commercial leases and stay afloat. Contact Arthur Yermash.
• Banking Issues: CMM has worked with many Long Island businesses to renegotiate their financial instruments and bank lines. We also work closely with accountants and financial professionals to offer key guidance on cash flow management, PPP, and more. Contact Don Rassiger.

As in good times, CMM is here to help businesses become as strong and resilient as possible. Don’t go it alone – CMM can help you get through this. Contact us today.