These employers got $70M in federal coronavirus bailout money and still laid off 4,200 Pa. workers
The PPP loans were intended as a “job-saving program” for small businesses crushed by the pandemic. Thousands of workers lost their jobs anyway.
When COVID-19 mandates shut down Philadelphia last year, Chris Mason got laid off from the Hilton Garden Inn near the Convention Center. It was a place where he had worked for so long — nearly a decade — that he figured he was “pretty much a fixture as far as cooks go.”
Two weeks later, in April, his employer pocketed a $1.1 million forgivable loan from the federal government’s Paycheck Protection Program (PPP), according to federal data.
The PPP loans, part of the first $2.2 trillion federal coronavirus bailout, were touted by former Senate Majority Leader Mitch McConnell (R., Ky.) as a “job-saving program” for small businesses crushed by the pandemic. The money was primarily supposed to help companies pay their employees’ salaries and benefits.
But GF Hotels and Resorts, which at the time operated the Hilton Garden Inn Philadelphia Center City, did not use the money to hire back Mason or about 80 other hourly workers — a requirement for the loans to be forgiven.
The hotel only began recalling hourly workers at the end of December, said Katharine Cristiani, executive vice president for union UNITE HERE, which represents workers at the hotel, and by then the hotel was being operated by a different company. By the end of 2020, four workers had been hired back, the union said.
Mason, a 48-year-old father of six who was getting ready to put a down payment on a house when COVID hit, said the layoff “destroyed” him. That his former employer got a government loan designed to save jobs, but didn’t use it for that, is “totally unfair,” he said.
“Where’s the loyalty to your employees?” he asked.
GF Hotels and Resorts did not respond to a request for comment. Driftwood Hospitality Management’s chief operating officer, Mike Diaz, said in a statement that his company reopened the hotel shortly after it took over operations last November and has been “bringing on new team members” ever since.
GF Hotels and Resorts had lots of company in Pennsylvania during the pandemic that upended the world economy. Dozens of employers that received PPP loans last April and May laid off thousands of workers here during the pandemic, either before or after receiving the loan, according to an Inquirer and Center for Public Integrity analysis of state layoff, or WARN, notices and federal PPP data.
These workers include airport restaurant servers, lawyers, and subcontracted Amazon delivery drivers.
The Inquirer found that more than 40 companies laid off or furloughed at least 4,200 workers in the state despite receiving a total of nearly $70 million in PPP loans. Those numbers are likely an undercount, since employers who did not report layoffs to the state were not included in the analysis.
It’s not clear if these companies broke the rules of the program or if the layoffs make them ineligible for loan forgiveness. Companies that did not rehire all their laid-off workers by the end of 2020 may have to pay back the loan, with 1% interest, unless they can prove their business did not return to pre-pandemic levels because it was following federal COVID-19 safety guidelines. Companies found to have spent the money on expenses other than payroll, utilities, rent, mortgage payments, or PPE could be charged with fraud.
Pennsylvania employers, in this case, are not unique. Hundreds of companies around the country laid off or furloughed at least 90,000 workers despite taking more than $1.8 billion in aid, the Center for Public Integrity found.
Sam Rosen, a professor at Temple University’s Fox School of Business who has written about public firms taking PPP loans, said it’s too soon to pass judgment on the aid program, in part because people have disagreed on its aims.
“Was it to keep firms afloat so they didn’t all go bankrupt at the same time? Or was it to make sure that everyone who was working there kept their jobs?” he asked.
The Small Business Administration is currently accepting applications for a third round of PPP loans, through May 31.
The Inquirer received a $10 million loan in February. Through a spokesperson, the company said the PPP loan will prevent layoffs this year, though it may offer voluntary buyouts.
In Pennsylvania, some employers lost contracts after they received aid, causing them to cut staff, such as Amazon delivery contractors Prime EFS and DeliverOL Global. Prime EFS, owned by Transportation and Logistics Systems Inc., received a $2.9 million loan and DeliverOL Global got $2.5 million. But months afterward, Amazon cut its contracts with the companies and the two laid off a total of about 150 workers in the state.
Transportation and Logistics Systems had not begun to pay back its loan and was aware that reductions in staff could affect the company’s eligibility for loan forgiveness, as of its annual report, dated March 17, 2021.
Neither Transportation and Logistics Systems nor DeliverOL Global responded to requests for comment.
The workers’ compensation law firm Pond Lehocky and restaurateur Stephen Starr’s Starr Restaurant Group were among those that laid off workers either before or after taking PPP money. Law firms and restaurants were among the biggest recipients in Philadelphia in the first round of PPP loans.
Starr Restaurant Group and its subsidiaries received at least $13.7 million in PPP loans last April. It laid off at least 1,694 workers in Philadelphia, in most cases before receiving the loans.
Starr vice president and general counsel Melissa MacLeod said the restaurants used PPP loans when they were allowed to reopen. Employment there is back to 65% of the pre-layoff levels of March 2020, she said, and the company “absolutely used loan proceeds in strict compliance with the parameters of the loan.” Some of Starr’s restaurants, such as Alma de Cuba and Pod, could not reopen within the 24-week period the loan was meant to cover, MacLeod said. In those cases, Starr returned the loans.
Some of Starr’s loans have been forgiven, MacLeod said, while others are awaiting approval from the Small Business Administration. No applications for forgiveness has been denied, she said.
Phelan Hallinan Diamond and Jones, a foreclosure law firm, received three PPP loans totaling nearly $4 million after laying off 48 workers in Pennsylvania and 31 in Florida as eviction moratoriums went into effect in March 2020. It shut down permanently in October. Its former partners, Rosemarie Diamond and Jay Jones, did not respond to a request for comment.
Pond Lehocky laid off 100 employees in May after receiving a $2 million loan. Partner Tom Giordano said the firm spent the money on payroll, rent, and utilities. “Throughout the process, Pond Lehocky complied with the law,” he wrote in an email.
Instead of applying for a loan based on total headcount, which would include furloughed workers, Giordano said Pond Lehocky opted to apply for a smaller loan based on the number of active workers, which he said was “the right thing to do.”
Asked if Pond Lehocky’s loan was forgiven, Giordano did not respond.
Nick Liermann, an attorney with the firm since 2016, was finishing an eight-month military leave in Cuba when he found out he was among those getting laid off because there wasn’t enough work for him. When Liermann learned that Pond Lehocky had gotten a PPP loan, he said, “it made me both confused and skeptical of the motives behind my layoff.”
Some employers said they laid off workers once they ran out of PPP money.
Frank Katz, CEO of manufacturer Cheetah Chassis, based in Berwick, Pa., said he used the $1.4 million PPP loan he received last April to reopen and put people to work.
He laid off nearly 80 employees again in June, when he exhausted the money, but business picked back up not long after. He said he’s since been able to rehire nearly all of his staff. His loan was forgiven.
Katz called the PPP loan “the greatest thing since sliced bread.”
“I don’t know where we’d be without it,” he said.
Mason, the former cook at the Hilton Garden Inn, remains hopeful. After waiting more than a year to get his job back, he heard he’d be called back soon.
But he’s still burned by how his former employer treated him and his coworkers, how it didn’t offer the workers any kind of financial support after laying them off and instead told them to apply for unemployment.
“I understand how business works,” he said, “but, Jesus, don’t leave us all without anything.”