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PPP Loan Forgiveness and Employees Who Refuse to Come Back to Work

Coronavirus COVID-19 CARES Act PPP Loan Forgiveness & Employees Who Refuse to Come Back to Work

Many employers have found themselves in the following situation. First, they were required to furlough or layoff employees due to COVID-19. Second, the employers were fortunate enough to obtain a loan under the Paycheck Protection Program (PPP), which in turn allowed the employers to offer jobs back to their laid-off employees. But then, employees refused to return to work, citing among other reasons the fact that with state unemployment benefits and the additional $600 per week they are receiving under the CARES Act, they are actually making more money on unemployment than when they were working.

The question then arises, how is the employers’ PPP loan forgiveness amount impacted by employees who refuse to return to work?

The Small Business Administration (SBA) recently provided guidance on this issue in its updated FAQs on the PPP. The short answer to the question is that a borrower’s PPP loan forgiveness will not be reduced if the borrower laid off an employee, and makes a written offer of re-employment to the employee which the employee refuses and which refusal is documented by the borrower. Employees beware – employees who reject good-faith offers of re-employment may find themselves ineligible for continued unemployment benefits.

The full FAQ (#40) is set forth as follows.

“40. Question:Will a borrower’s PPP loan forgiveness amount (pursuant to section 1106 of the CARES Act and SBA’s implementing rules and guidance) be reduced if the borrower laid off an employee, offered to rehire the same employee, but the employee declined the offer?

Answer: No. As an exercise of the Administrator’s and the Secretary’s authority under Section 1106(d)(6) of the CARES Act to prescribe regulations granting de minimis exemptions from the Act’s limits on loan forgiveness, SBA and Treasury intend to issue an interim final rule excluding laid-off employees whom the borrower offered to rehire (for the same salary/wages and same number of hours) from the CARES Act’s loan forgiveness reduction calculation. The interim final rule will specify that, to qualify for this exception, the borrower must have made a good faith, written offer of rehire, and the employee’s rejection of that offer must be documented by the borrower. Employees and employers should be aware that employees who reject offers of re-employment may forfeit eligibility for continued unemployment compensation.”

If you have any questions about this post or any other related matters, please feel free to contact me at For more information related to COVID-19, visit our Coronavirus Thought Leadership Connection.

The information contained in this post may not reflect the most current developments, as the subject matter is extremely fluid and constantly changing. Please continue to monitor this site for ongoing developments. Readers are also cautioned against taking any action based on information contained herein without first seeking advice from professional legal counsel.