What to Do if Your Employer Applied for the Paycheck Protection Program Illegally

What to Do if Your Employer Applied for the Paycheck Protection Program Illegally

The COVID-19 pandemic caused by the novel coronavirus has thrown small businesses across the United States into financial turmoil. Many businesses deemed non-essential have been ordered to close their doors until further notice in an effort to slow the spread of the virus. As such, many businesses, business owners, and workers have been left without a source of income.

The U.S. Small Business Administration (SBA) attempted to remedy the situation by implementing the Paycheck Protection Program (PPP). The funds in the PPP, however, were quickly exhausted and the program stopped accepting new applications from the end of March 2020 until April 27, 2020.

A major reason for the quick depletion of PPP funds was due to fraudulent applications by large corporations that did not need or qualify for the program. In addition to fraudulent applications, some businesses that received funds from the PPP misused the money.

If you work for an employer that you know applied for the PPP illegally or misused the funds received from the PPP, you may receive financial rewards from the federal government for reporting this malfeasance to the authorities.

What is the Paycheck Protection Program?

The PPP is a loan designed to provide an incentive for small businesses to keep their workers on payroll. The SBA incentivizes small businesses to do this by forgiving loans to the extent they are used for payroll, rent, mortgage interest, or utilities.

Entities that may apply for the PPP include the following:

  • Any small business concern that meets SBA’s size standards
  • Any business, 501(c)(3) non-profit organization, 501(c)(19) veterans organization, or Tribal business concern with 500 or more employees
  • Any business with a NAICS Code that begins with 72 (Accommodations and Food Services) that has more than one physical location and employs less than 500 people per location
  • Sole proprietors, independent contractors, and self-employed individuals

The PPP loan will be fully forgiven if the funds are used for the aforementioned purposes. At least 75% of the forgiven amount must have been used for payroll. Additionally, loan forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels. Loan forgiveness will be reduced if full-time employee headcount declines or if salaries or wages decrease.

Essentially, the PPP is meant to keep workers employed and paid, and loan forgiveness for business owners will be lessened when they go against the PPP’s objective by reducing headcount or decreasing workers’ pay.

What’s Prohibited Under the Paycheck Protection Program?

The main forms of fraud under the PPP include the following:

  • Applying for multiple PPP loans
  • Misrepresenting the immediate need for PPP funds
  • Submitting a fraudulent PPP application with falsified business records that understate the company’s true number of employees
  • Using more than 25% of PPP funds for non-payroll expenses, or using the funds to pay for large bonuses or incentive compensation for executives
  • Making layoffs after receiving PPP funds

If you know that your employer has committed one or more of the aforementioned acts of fraud, you may be entitled to significant financial compensation from the federal government for whistleblowing on these crimes.

Whistleblowers May Be Rewarded by the Federal Government

The level of fraud committed will determine to which agency you report the crime. For smaller-scale fraud, you may report the crime to the SBA’s Office of Inspector General. For larger-scale fraud, such as fraud involving millions of dollars, you may file a whistleblower claim under the False Claims Act (FCA).

In order to file an FCA claim, you must supply information that the government doesn’t already know about, and you must not be a participant in the fraud yourself.

Barring those two factors, you may be entitled to up to 30% of any money the federal government recovers as part of the ensuing litigation.

How to Report Paycheck Protection Program Fraud

Many people hesitate to whistleblow on their companies out of fear of retaliation. It’s important to remember that the law is on whistleblowers’ side, particularly in this situation.

The FCA requires that if a whistleblower gets fired for reporting PPP fraud (or suffers any other form of retaliation), the harm must be reversed entirely. Damages that may be recovered in this situation include:

  • The return of the whistleblower’s job
  • Double back-pay
  • Attorney fees
  • Payments for emotional distress

Keep in mind that, as with most legal matters, there exists a statute of limitations to file a claim of PPP fraud under the FCA. Whistleblowers looking to do so must make their report within three years.

Need Help Reporting Your Employer’s PPP Fraud? We’re Here to Help

If you know that your employer committed one or more acts of PPP fraud, our team is ready and able to help you file a claim under the FCA and protect not only your rights, but the rights of your co-workers as well.

Anyone seeking to file a PPP fraud claim under the FCA must do so with the assistance and representation of an attorney. In this situation, it’s vital you choose an attorney with the experience needed to take on your employer and any resources they may have at their disposal.

At Kershaw, Cook & Talley, our Sacramento attorneys can help you file a PPP fraud claim under the FCA and protect your rights as a whistleblower. Contact us today at (916) 520-6639 to schedule a free, confidential consultation.


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