DENVER (CN) – A Colorado law firm sued the U.S. Small Business Administration in federal court Friday for a last-minute rule cutting off aid provided in the coronavirus stimulus package for independent contractors.
“The fate of the most powerful economy on this planet balances on the edge of a knife—and an unelected bureaucrat has decided to torpedo a central plank of Congress’ plan to keep it from falling into the abyss,” business law firm Godfrey Johnson says in a 28-page emergency request to restrain the federal agency from enforcing a last-minute rule change.
President Donald Trump signed the Coronavirus Aid Relief and Economic Security (CARES) Act into law March 27 to provide financial aid to American citizens and businesses suffering from the adverse symptoms of the novel coronavirus on the economy.
Stay-at-home orders enacted to slow the spread of the virus which has infected over 230,000 Americans and killed nearly 5,500 has led many businesses to make tough cuts to jobs and productivity.
The $2.2 trillion federal aid package allocates $350 billion to the Paycheck Protection Program for loans backed by the federal government to ensure workers receive steady paychecks. According to the complaint filed by Godfrey Johnson, the U.S. Small Business Administration enacted a last-minute rule—about six hours before the program was to open—preventing businesses from including independent contractors in their payroll calculation.
Paycheck Protection Program loans are divvied out based on the borrower’s average payroll cost from last year. That leaves businesses that pay most of their payroll to independent contracts largely unprotected.
This exclusion, Godfrey Johnson says in its complaint, “will have an immediate and likely catastrophic affect upon the ability of tens of thousands (or more) of America’s small businesses to continue as going concerns due to their inability to operate without Paycheck Protection Program loan funds to pay for the independent contractors that perform services critical to their operations over the next two months.”
The firm estimates with independent contractors cut out of the equation, one of its clients that pays out $50,000 a year will only be eligible for $7,500 in loans. Another client, a professional martial arts organization, “is entirely reliant on independent contractors for every aspect of its operations. Thus, it will be unable to obtain any Paycheck Protection Program loan funding for its operations,” the complaint says.
Instead of allowing businesses to cite all persons paid on their forms, the U.S. Small Business Administration recommends independent contractors apply for the program on their own.
The loans are being given out on a first come, first serve basis. The program started Friday.
The U.S. Small Business Administration did not respond immediately to a request for comment.