service members – Dickinson Law's Inside Entrepreneurship Law Blog

By: Eric Kocsis

For a small business owner, having an employee called up to active duty military service can cause significant issues for their business. In my last blog post, I discussed the Uniformed Services Employment and Reemployment Rights Act (USERRA), which provides significant employment protections for service members who are called into active service. These protections are important rights for service members, but they undoubtedly can create difficulties for small businesses. A large business may be able to temporarily fill the gap that is missing without much notice, but a small business with only few employees will definitely feel that gap–especially if that employee is an essential employee.

The Military Reservist Economic Injury Disaster Loan (MREIDL) seeks to help with this burden. Unlike most military adjacent small business loans, the borrower does not themselves need to be in the military or a veteran–only to employ a reservist who gets called into active duty.

what is the military reservist emergency injury disaster loan?

The MREIDL is a Small Business Administration emergency injury disaster loan for small businesses who are likely to suffer substantial economic injury as a result of an essential employee being called up to active military duty during a period of conflict. For the purposes of the MREIDL, an employee is essential if they are critical to day-to-day operations of the business based on their managerial or technical expertise.

Losing an employee that is a critical portion of a small business can be devastating and bring uncertainty to the business. Many payment obligations may have been taken on prior to the employee being called up and a small business may be worried about how to pay them. The MREIDL is one way a small business can make sure they stay afloat when faced with an unexpected activation of an essential employee.

The purpose of the MREIDL is to fund ordinary and necessary operating expenses and continue to provide products and services ordinarily produced or provided by the small business. The MREIDL is not for making up lost profits or expanding the business. If a small business is still able to fund their expenses and continue to provide their products or services, then they are not eligible for the MREIDL. The MREIDL is more of a lifeline to keep small businesses afloat, while allowing them to support the rights of their employees.

what are the terms of the loan?

The MREIDL has a cap of two million dollars, but that cap may be waived if the small business is a major source of employment, is in imminent danger of going out of business, and has reasonably used all available funds to alleviate the economic injury. The MREIDL also has a capped interest rate at 4%, but is adjusted regularly by the SBA. At the time of this post, the interest rate is 2.855%. The SBA will also set the repayment terms based on the ability of the borrower to repay–this can be up to 30 years.

are there any limitations to the mreidl?

The biggest limitation on the MREIDL is that the amount of the loan is limited to the actual amount of the substantial economic injury as a result of an essential employee being called up to active duty. The loan can also not be used to refinance debt prior to the essential employee’s absence, pay any government penalties or fines, repair physical damage, or pay dividends. The MREIDL is designed to prevent a business from suffering, because of the loss of an essential employee to military service. It is not designed to compensate for any unrelated shortcomings or issues that the business may be facing.

Also, collateral is required for loans over $50,000. A small business will not be denied a loan solely for the lack of collateral, if the SBA is reasonably sure that the business can repay the loan and that they business agrees to pledge any available collateral. Collateral may be in the form of liens or other security interest on business property or real estate.

A small business may be ineligible for the MREIDL under various circumstances. Some of these circumstances include: certain felony convictions; the business hired the essential employee after they were notified that a call-up was imminent; or the business is in certain industries, such as agriculture, non-profit work, legal gambling, religious instruction, or political activity.

The MREIDL can be a great lifeline for small businesses, but there are many restrictions that may make it difficult for some businesses. This is because the SBA treats the MREIDL like all other Emergency Injury Disaster Loans and is designed only to assist with injury to the business that is caused by the emergency.

how can a business apply for the mreidl?

To apply for the MREIDL, a business can apply through the SBA’s disaster loan assistance website. Along with a completed application, the business must also provide an IRS Form 4506-C, which allows the SBA to access their tax return information from the IRS. A business can apply for a MREIDL from the date an essential employee gets notice of an expected call-up to one year after the essential employee’s discharge from active duty service.

conclusion

Having an employee getting called to active military service is stressful enough for a small business–especially when that employee may be the heart and soul of an operation. Their service and sacrifice are important and that is why they are protected. The SBA understands this and that is why they offer the Military Reservist Emergency Injury Disaster Loan as a way to mitigate some of the problems that losing an essential employee cause.

This post has been reproduced with the author’s permission. It was originally authored on May 1st, 2022, and can be found here.

Eric Kocsis, at the time of this post, is a 3L at Penn State Dickinson Law and is an officer in the Ohio National Guard. Kocsis wrote this blog to blend those parts of his life and to write about issues that matter to service members and their small businesses.

Sources

https://www.sba.gov/funding-programs/disaster-assistance/military-reservist-loan

https://disasterloanassistance.sba.gov/ela/s/article/Military-Reservists-Economic-Injury-Loans

https://disasterloanassistance.sba.gov/ela/s/

https://www.law.cornell.edu/cfr/text/13/123.503

https://www.federalregister.gov/documents/2021/10/07/2021-21968/the-entire-united-states-and-us-territories-military-reservist-economic-injury-disaster-loan-program

Photo Sources

https://www.sba.gov

https://www.startups.com/library/expert-advice/business-loans-for-veterans

By: Eric Kocsis

In 1994, President Clinton signed into law the Uniformed Services Employment and Reemployment Rights Act (USERRA). USERRA is designed to protect the employment rights of military service members, veterans, and members of uniformed services.

Generally, USERRA provides job security for service members who are called into active service—whether voluntary or involuntary—by guaranteeing their reemployment upon return. The most common context in which a small business owner will experience this is when an employee is in the National Guard or a Reserve component of the military. The types of service commonly experienced are active duty training, basic training, deployments, drill weekends, national disaster relief, or annual training.

USERRA also bars discrimination against a service member based on their military service—including during the hiring process.

Unlike other federal labor laws, there is no exception based on the size of the employer. This is important to keep in mind for small businesses, who may need to expend more effort to stay in compliance with USERRA.

who is covered under userra?

Under USERRA, any member of the uniformed services is protected. The uniformed services include, not only the Armed Forces, but also members of the commissioned corps of the Public Health Service, the commissioned officer corps of the National Oceanic and Atmospheric Administration, and System members of the National Urban Search and Rescue Response System.

what are the rights of service members under userra?

Service members have certain employment and reemployment rights under USERRA. First, service members have a right against discrimination in hiring, rehiring, retention, promotion, or any other benefit of employment based on their status in the uniformed service. This includes the decision to enlist. Second, service members have a right against reprisal for exercising their rights under USERRA. Third, service members have a right to reemployment if their absence is caused by their service in the uniformed services.

If a service member leaves employment for a period of service, they are entitled to return to the position they would have been employed in if their employment had not been interrupted. This is known as the escalator principle. If the service member is not qualified to perform the duties of that position—after reasonable efforts to qualify them—the service member will be entitled to the same position they had when they left.

For example, if an employee would be entitled to a time based promotion had they not left for service, then they are still entitled to that promotion.

If a service member leaves employment for more than 90 days and they incurred or aggravated a disability during their service that leaves them unqualified for the position they are entitled to, then they are entitled to another position which is equivalent in seniority, status, and pay.

Any absence for service is deemed as a furlough or leave of absence. Thus, a service member on leave for service is entitled to any benefits afforded to other employees on furlough.

Once a service member returns to employment, there are certain rights that protect them from termination. If their period of service was greater than 180 days, they cannot be terminated—except for cause—for one year. If their service was more than 30 days, but less than 181 days, this protection only extends for 180 days.

The service member also has a right to receive notice of these rights. This can be accomplished by posting a notice where the employer usually posts notices.

If a service member believes their USERRA rights have been violated, they can file a claim with the Department of Labor.

the responsibilities of the service member

USERRA provides broad protections for service members and veterans, especially when mandating reemployment after service. In return, there are a few steps the service member must take. First, they must give verbal or written notice to their employer, unless they are precluded by military necessity. Second, they must timely report or apply for reemployment. Finally, they must—upon request of the employer—provide copies of their orders if the service was more than 30 days.

If a service member fails to timely request reemployment, they do not immediately lose their USERRA rights. Instead, they may be disciplined in a manner that is consistent with an employee would normally be disciplined for being absent from work.

For this purpose, timely manner depends on length of time the service member was on duty. If the time of service was less than 31 days, the service member must report to their next regularly scheduled shift on the first calendar day after allowing for safe travel and eight hours of rest. If their service was greater than 30 days but less than 181, the service member must request reemployment within 14 days. For any service longer than 180 days, the service member is allowed up to 90 days to request reemployment.

are there any exceptions?

Under USERRA, there are a few exceptions in which an employer would not be required to reemploy a service member. A service member is not entitled to reemployment if they received a dishonorable discharge. A service member is also not entitled to reemployment if the employment was temporary with no reasonable expectation that it would continue indefinitely.

An employer is also not required to reemploy a service member if the employer’s circumstances changed to make reemployment impossible or unreasonable. Similarly, if a service member’s injury would create an undue hardship on the employer, the employer is not required to reemploy the service member.

Finally, an employer is not required to reemploy a service member if the cumulative period of service exceeds five years. This five-year rule restarts whenever the service member starts at a new place of employment. It is important to note that the five-year rule is subject to many exceptions and many common types of service do not count toward the five-year rule.

Service members have many rights under USERRA and it is crucial that employers of all sizes protect those rights.

This post has been reproduced with the author’s permission. It was originally authored on February 9th, 2022, and can be found here.

Sources

https://www.justice.gov/crt-military/userra-statute

https://osc.gov/Services/Pages/USERRA.aspx

https://osc.gov/Services/Pages/USERRA-Employer.aspx

https://osc.gov/Services/Pages/USERRA-Employee.aspx

https://osc.gov/Services/Pages/USERRA-FAQ.aspx

Photo Sources

https://www.thebalancecareers.com/what-the-recruiter-never-told-you-3332713

https://strongpointlaw.com/5801/major-change-at-owcp-dfec-and-dlhwc-merged/