Loophole Allowed Airline Firms To Fire Workers And Scam Bailout Funds
Reprinted with permission from ProPublica.
Three airline industry companies slated to receive $338 million in public money designed to preserve jobs in the hard-hit industry have laid off thousands of workers anyway, according to Treasury disclosure filings and public layoff data.
The largest company, Gate Gourmet, is a global preparer of airline meals and part of a Swiss conglomerate owned by the private equity firm of wealthy Malaysian businessman Richard Ong. Gate Gourmet is scheduled to get $171 million from the federal program to bail out the airline industry even after it reported laying off thousands of workers at airports in half a dozen states, including California, Georgia, New York and Illinois, in recent months, according to public filings. The exact number of workers who lost their jobs is not clear.
“These grants are meant to save jobs and only to save jobs," said Rep. Katie Porter, D-CA, who has supported the aid program for aviation workers. Every payment Treasury makes “despite clear indications that the recipient company is firing workers or cutting hours is an abuse of the program and taxpayer money."
While the better-known Paycheck Protection Program was for small businesses, the airline industry provision — known as the Payroll Support Program — allowed large companies to get benefits. It was based on a proposal by airline industry unions and leading Democrats.
The program provided a special deal for the airline industry and its workers: The air carriers and contractors could apply to the Treasury for government aid to pay their workers and, in exchange, agree not to make any layoffs until Sept. 30. The idea was, essentially, for the money to flow through the employers to the workers.
The Payroll Support aid is composed mostly of grants and partly of low-interest loans. The program has allowed many workers to retain their pay and benefits even as demand for air travel cratered. The money is paid out on a rolling basis; the government is disclosing only the total amounts it anticipates giving to each company.
Treasury Secretary Steven Mnuchin has lauded the effort as “an important CARES Act program that will support American workers and help preserve the strategic importance of the airline industry."
The program has largely worked for employees of the major carriers like American and United, which inked their Payroll Support agreements with the Treasury in April. The big airlines have not laid off workers, though many fear they will begin doing so after the deadline passes.
But at least three contractors — Gate Gourmet along with Illinois-based Flying Food Fare and Texas-based G2 Secure Staff — appear to be benefitting from a loophole in the law: They laid workers off and then got the federal money.
The size of the Payroll Support grants is calculated based on a company's payroll costs between April and September of 2019, before the pandemic. The idea was that companies would quickly sign agreements with the Treasury after the CARES Act was passed at the end of March, and then be barred from conducting any layoffs through September since the government was footing the companies' payroll bills.
Gate Gourmet, in contrast to the airlines, didn't sign its agreement with the Treasury until June 19. In the months between the creation of the program and the date of signing, the company reported a series of layoffs in state disclosure filings. The company employs 27,000 people around the world, according to LinkedIn.
But the amount of money the companies received from the government was based on their pre-pandemic, pre-layoffs workforce. In effect, a program meant to save jobs is instead being used to get government money for payroll costs for a shrunken workforce.
A Treasury Department spokeswoman said that the agency's hands are tied. “The CARES Act requires Treasury to provide payroll support to eligible applicants, and it doesn't require that former employees be rehired. Treasury implemented the CARES Act as written."
It's not clear whether the Treasury raised the issue of the layoffs with the company. Mnuchin has wide discretion over many of the CARES Act programs and experts told ProPublica he could have exercised it here.
Adding to the mystery around the Gate Gourmet grant, the Teamsters, which represent some of the company's workers, issued a press release in early April announcing that Gate Gourmet had filed its application for Payroll Support with the Treasury. The Treasury spokeswoman did not respond to questions about why so much time passed between Gate Gourmet's application and the signing of the Payroll Support agreement in mid June.
Porter, the congresswoman, said that “firing thousands of employees in the period of time between submitting a Payroll Support application and finalizing the terms of the agreement with Treasury is a clear violation of Congressional intent in creating the Payroll Support Program."
Gate Gourmet spokesperson Nancy Jewell said in a statement, “To ensure the long-term sustainability of our business in the U.S., layoffs and furloughs were necessary during these unprecedented times." She added, “We are committed to complying with all our obligations and will use all CARES Act funds exclusively for the continuation of payment of employee wages, salaries, and benefits."
Jewell did not respond to questions about the size of the company's workforce, its dealings with the Treasury or the terms of its Payroll Support grant.
On April 1, just a few days after the program was created, Gate Gourmet hired the Washington lobbying firm Hannegan Landau Poersch & Rosenbaum to “provide guidance on the CARES Act funding," according to public filings.
Sara Nelson, president of the Association of Flight Attendants-CWA and a prominent supporter of extending the program, said in a statement that, “The Payroll Support Program has succeeded in protecting the jobs and healthcare of nearly two million aviation workers and integrity in the program is vital. Treasury should investigate this egregious misconduct and recover the funds."
Flying Food Group, another airline catering company, reported laying off more than a thousand workers since the CARES Act passed, including hundreds in Hawaii and California. G2 Secure Staff, which provides a variety of services within airports, reported laying off hundreds of workers the day the bill was signed. Flying Food Group is slated to receive $85 million in government aid and G2 to receive $81 million.
Flying Food Group hired the law firm Greenberg Traurig to lobby on pandemic bailout issues on March 19.
Neither Flying Food Group nor G2 Secure Staff responded to requests for comment.
There is no comprehensive national database of layoffs. When companies conduct certain kinds of layoffs, they are required to file notices with employees, their representatives and state governments. ProPublica reviewed data about those notices provided by dozens of states with large airports across the country. But the data might not capture all of the layoffs.