Background
Southern Arizona Health Services Phoenix, LLC, a Phoenix-area healthcare staffing agency, sought a $202,925.80 employment-tax refund for the third quarter of 2021 based on the Employee Retention Credit. It staffed nurses and other healthcare professionals at 14 independently owned nursing, skilled-care, post-acute, and similar facilities.
The company relied on OSHA’s June 2021 Healthcare Emergency Temporary Standard, arguing that COVID-19 protocols—including personal protective equipment, screening, distancing, and employee exclusions—partially suspended its business. The government contended that the agency’s operations were not suspended and that it therefore was not an eligible employer. The parties filed cross-motions for summary judgment.
The Court’s Holding
Judge Bonilla denied SAzHS’s motion and granted the government’s cross-motion. SAzHS failed to establish that its operations were fully or partially suspended because of a qualifying government order, as required for ERC eligibility under the suspension-of-business provision.
Even assuming the OSHA standard could qualify as a COVID-19 order limiting commerce, travel, or group meetings, it did not proximately cause a suspension of SAzHS’s operations. The agency continued supplying staff to all of its client facilities, had more demand than it could meet, retained its standard 12-hour shifts, and could bill clients for additional hours. Its asserted disruptions were largely facility-specific protocols or pandemic-related conditions rather than effects caused by the OSHA standard.
The court held that a partial suspension requires cessation of a discrete, more-than-nominal part or portion of a business during the claimed quarter. PPE, testing, temperature checks, and excluding COVID-positive workers did not show that any part of SAzHS’s business ceased. The clerk was directed to enter judgment for the United States.
Key Takeaways
- An ERC claimant invoking the suspension-of-business prong must show a qualifying COVID-19 order, causation, and a full or partial suspension of its operations.
- A qualifying partial suspension requires a discrete, more-than-nominal portion of the business to cease.
- Workplace safety modifications and employee exclusions, without an operational cessation, do not establish ERC eligibility on this record.
Why It Matters
The decision applies a demanding operational test to ERC claims based on COVID-19 workplace rules. Businesses must tie a government order to a meaningful cessation in their own operations, rather than rely on generalized pandemic precautions or downstream protocols imposed by clients or facilities.