Is Your Employer Abusing Their PPP Loan?

When the CARES Act was passed in March, the Paycheck Protection Program (PPP) provided $659 billion in crisis funds for businesses affected by coronavirus-related quarantine measures. So many businesses applied for PPP loans that the first round of funding was exhausted within 13 days!

With most businesses unable to earn income during mandated closures, the PPP was designed to help businesses continue to pay their employees. The goal was to keep employees earning at least 75% of their normal weekly pay.

What Are PPP Loans and How do They Affect Employees?

While PPP loans were only available to employers, the loans were designed to benefit employees. In fact, 75% of any loan funds received by a business were supposed to go directly toward payroll costs.

Many employees may not have recognized that these loans were really all about employee rights. Unfortunately, many business owners mistakenly thought they could use the loans however they wanted to such as, for example, paying themselves and laying off employees. Even worse, some individuals simply committed fraud and had no intention of using the PPP funds as intended.

If your employer received a loan, they are required to track and report how they spend the loan funds. Since the majority of loan funds are supposed to be reserved for payroll, employers who receive PPP loans should be able to avoid layoffs and furloughs. Granted, loan recipients are permitted to reduce employees’ pay by 25%, so you may be paid less than you were before quarantine.

What Should I Know About PPP Loan Fraud?

PPP loan fraud is a serious violation of federal law and the government is prepared to prosecute employers who abused the terms of the loan. Many people assume fraud must be intentional – in other words, an employer must have knowingly misused the funds they received. However, even inadvertent misuse of PPP loan funds can land an employer in hot water.

Examples of PPP Loan Fraud

The Department of Justice announced their first PPP loan fraud case on May 5th. In that case, two men were charged after certifying that they had “dozens of employees” when they had no employees at all.

Another individual was charged with fraud after it was determined that he used $1.5 million (out of a $2 million PPP loan) to purchase jewelry and pay for child support. Naturally, the Department of Justice did not consider those purchases authorized uses of the loan funds.

In Texas alone, we have already seen several PPP fraud investigations lead to criminal charges. In June, a Texas resident was charged with submitting over $3 million in fraudulent PPP loan applications – stating they had over 120 employees. It turns out, they actually spent the money on a new Tesla, personal investments, and home mortgage payments. Another (more brazen) Texas employer was arrested after using his PPP loan on strip clubs, a Lamborghini, Rolex watches, parties and a long list of luxury items.

As you might imagine, the list of those charged with PPP fraud is only getting longer by the day. Many unethical individuals lied on their loan applications and/or misused funds that were meant to keep workers employed during a pandemic. Apparently, they did not think the government would take a close look at how they were using the funds.

It is shameful that employers abused a system that was intended to help American workers – but there is a proverbial light at the end of the tunnel: the government is willing to hold these employers accountable for fraud.

What to Do if You Suspect Fraud

The Department of Justice allocated at least $850 million to investigate and prosecute PPP fraud. They are taking any suspected fraud very seriously and have even created a fraud hotline to report suspected fraud.

If you suspect that your employer has abused their PPP loan, you will want to document any suspicious activity in a file that you keep at home. For instance, if your employer notified everyone that they took out a PPP loan and you have noticed them making several large purchases while also laying off employees – chances are they may be misusing the PPP funds. You don’t need to worry about conducting a thorough investigation (that’s the government’s job); just jot down any facts that you think may be important. The federal government has appointed investigators in each state who will be able to look into the matter.

Once you have collected any relevant information, you should contact the U.S. Attorney’s Office fraud hotline (that link goes to the Northern District of Texas, which covers much of North Texas. If you live elsewhere, you will need to call the fraud hotline for your area). You may also be interested in consulting with an attorney, particularly if you have been laid off from a company that received PPP funds. It may be possible that your former employer is both committing fraud and violating your rights as an employee.

Our Office Stands with Employees

At Jackson Spencer, we focus specifically on employees’ rights. Anytime we see employers abusing their power or breaking the law, we are ready to stand up and fight! When record numbers of employees are without work or experiencing pay cuts, we are more vigilant than ever.

If you have any questions about how your employment has been (and may continue to be) affected by the coronavirus pandemic, please don’t hesitate to contact our office. We can help you determine if your rights have been violated or if your employer is breaking the law.