Business Law 101 / The Business Side of the Shutdown Part 2

By Albert L. Kelley, Esq.

Let me start by saying this is not a political piece. I will not comment on why we have the shutdown- only the business aspects of it.

Last week we talked about the furloughed and non-paid workers. But what about the rest of the country? How does the partial shutdown affect us?

Let’s start with Landlords. Being a landlord is a business. And like any other business, there are expenses. In many cases those expenses come in the shape of mortgages. Landlords often depend on rent income to pay the mortgage. If the landlord required the tenants to pay the last month’s rent in advance, they can evict the unpaid federal worker and apply the last month net to the current month. However, if the landlord did not take a rent deposit, the landlord can find themselves unable to pay the mortgage, subjecting them to foreclosure. Even if the landlord does not have a mortgage, they may still rely on the rent income to pay their normal living expenses, such as credit card bills. Leaving these unpaid can severely damage the LANDLORDs credit rating and subject them to much larger interest payments.

Other businesses can be affected by the shutdown as well. As an example, day care centers that cater to federal employees may find their income stopping. Those employees who are furloughed may choose to watch their kids themselves; those who are working but unpaid will not have the funds to cover childcare which can be several hundred dollars a month and will need to find other options.

Another group hit hard by the shutdown are federal contract workers. Federal contract workers are outside the 800,000 furloughed or nonpaid workers, and unlike the furloughed or nonpaid workers, there is no legislation in place to reimburse those contract workers for their losses after the shutdown ends. Nearly 10,000 companies hold contracts with the federal government. Often these federal contracts are to smaller companies that provide day-to-day service to the government. It has been estimated that contract companies are losing $200 million per day during the shutdown. No one knows the exact number of employees are affected, but it is estimated that 4 million private sector employees will not receive any back pay. If the company cannot absorb the loss, they will have to lay off employees or close down. This will also add to the unemployment levels.

The ripple effect of the shutdown can also affect tourist towns such as Key West. None of the furloughed or nonpaid workers are allowed to take vacation time during the shutdown. Even people not affected directly by the shutdown may find vacations difficult. Due to the effect the shutdown has had on the TSA, many flights have been canceled or drastically delayed. Airlines cannot simply reroute flights as changes to flight patterns must be pre-approved by government agencies which have been shut down. Further, people don’t generally like to make travel plans when things are in a state of flux. They rather put off trips until things return to a state of normalcy. However, even when the shutdown ends, the financial impact to those furloughed and nonpaid employees as well as the private sector employees who are not paid will affect discretionary spending for things such as vacations.

Finally is the cost to start-ups: business that are just beginning operations. Many new businesses will have to postpone their openings until after the shutdown ends. Because certain federal regulatory agencies have been closed, approval of new businesses that require federal approval cannot proceed. There is a delay for the IRS to issue Employer Identification Numbers (EIN) that businesses need to apply for a bank account, sales tax number or an occupational license. Small business loans are not being processed by the SBA. In addition, while the patent and trademark office has maintained operations during the shutdown due to the fees collected, their operational reserves were limited to five weeks. With the operational reserves run out, patent and trademark examinations will cease, delaying protections to new businesses.

Although the media plays on the impact to those workers who are furloughed or unpaid, the impacts go much farther.

Al Kelley is a Florida business law attorney located in Key West and previously taught business law, personnel law and labor law at St. Leo University. He is also the author of four law books: (“Basics of Business Law” “Basics of Florida’s Small Claims Court”, “Basics of Florida’s Landlord/Tenant Law” and “Basics of Starting a Florida Business” (Absolutely Amazing e-Books)). This article is being offered as a public service and is not intended to provide specific legal advice. If you have any questions about legal issues, you should confer with a licensed Florida attorney.

[livemarket market_name="KONK Life LiveMarket" limit=3 category=“” show_signup=0 show_more=0]