Coronavirus unemployment bump puts struggling restaurants in tough spot

Some employees can make more money if they claim unemployment

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The restaurant industry has been hit hard by lockdown measures that have forced businesses throughout the to close, and they are competing to retain staff against expanded unemployment benefits.

Under the CARES Act, eligible Americans who are out of work entirely or underemployed because of reasons related to coronavirus can receive an additional $600 a week for up to four months.

The maximum amount of unemployment individuals can receive each week varies from state to state. In New York, where the virus has taken a big toll on residents, the maximum benefit is $504, so the max payment is $1,104 under the new program.

In New Jersey, the maximum payment with the extra $600 is $1,313, and it is $1,390 in Washington state.

For many restaurant workers, the federal payment means they could make more not working. The average restaurant worker earns around $500 a week.

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The owner of a Kentucky coffee shop told NPR that when deciding whether to close her business, she was competing with the expanded unemployment offerings to retain staff.

"We basically have this situation where it would be a logical choice for a lot of people to be unemployed," Sky Marietta told the publication.

It’s also a problem for restaurants applying for relief through the Paycheck Protection Program, which broadly requires businesses to retain staffing levels in order to have the loan forgiven.

The National Restaurant Association has asked Congress to extend PPP through December, in order to give the industry more time to rehire employees.

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Employment in leisure and hospitality fell by 459,000 in March, according to data from the Bureau of Labor Statistics, mainly in food services and drinking places. That drop accounted for roughly two-thirds of the 701,000 total decline in jobs.

The industry has warned that 7 million industry jobs could be at stake, and $225 billion in revenue, over the course of three months.

However, not all industry experts believe that expanded unemployment benefits are the only reason why workers are reluctant to come back to work.

“It's not so much that they’re making more [on unemployment] they just don’t believe we're going to be open and [employees] aren’t willing to take that risk,” Tom Colicchio, Gramercy Tavern executive chef and owner, said during a recent industry call with the media.

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The restaurant industry is also threatening legal action against insurers for “wrongfully denying business interruption insurance coverage.” Many companies have been paying for the coverage for years.

Business interruption insurance typically doesn’t cover communicable diseases, pertaining instead to disruptions attributable to physical damage – like a fire, flooding or vandalism.

Oftentimes these policies don’t mention pandemics, though sometimes they include it as an exclusion.

The Business Interruption Group is promising legal action, however, in “every state against insurers who deny funds for civil authority coverage.”

“Immediate payment is due on policies that do not contain a virus exclusion,” John Houghtaling, the group’s general counsel, said in a statement.

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