April 21, 2020

The CARES Act and Independent Schools: Compliance with Federal Laws After Taking Federal Loans

Holland & Knight Alert
Philip J. Catanzano | Miriam McKendall | Matthew W. Sloane

Highlights

  • The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) allows for independent schools to apply to receive certain federal stimulus benefits in response to the COVID-19 pandemic. Although the U.S. Small Business Administration reportedly stopped taking new applications under the Paycheck Protection Program after exhausting established funds, congressional efforts currently are in progress to provide more relief in some capacity.
  • If your institution received CARES Act assistance or if your institution is considering applying in any future rounds of such funding, this Holland & Knight alert addresses some key anti-discrimination federal statutes that will likely apply.

Following the outbreak of the novel coronavirus (COVID-19), the federal government has provided financial assistance opportunities that may be available to private elementary and secondary independent schools under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). The CARES Act offers some relief through the U.S. Small Business Administration (SBA), such as the Payment Protection Program and Economic Injury Disaster Loans. Although funds for the Payment Protection Program and Economic Injury Disaster Loans were exhausted by the conclusion of the second week of that initiative, Congress is actively exploring additional legislation to provide further funding to the SBA under these programs.

While the availability of these funds is generally a positive development for independent schools, such federal aid comes with some potentially significant requirements. Specifically, the federal government has been clear that recipients of these CARES Act funds will be deemed to be recipients of federal financial assistance, which in turn requires that these institutions comply with additional federal anti-discrimination statutes, such as Title IX of the Education Amendments Act of 1972 (Title IX), Title VI of the Civil Rights Act of 1964 (Title VI), the Age Discrimination Act of 1975 (the Age Discrimination Act) and Section 504 of the Rehabilitation Act of 1973 (Section 504). In addition, there are certain regulations promulgated by the U.S. Department of Education and the SBA for which institutions will have to comply.1 Should Congress replenish the depleted funds, these same statutes and regulations will likely apply to recipients of those funds as well.

At this time, it is not clear how the SBA will oversee these regulations, and whether it will retain oversight of these laws or if it will delegate this authority to another agency such as the U.S. Department of Education, Office for Civil Rights or the Department of Justice. What is clear, however, is that schools must weigh the value of their receipt of federal aid with their obligations to comply with additional federal requirements for the pendency of the time that they are subject to the government loan.

Below is a summary of answers to primary questions that schools have raised as they consider their options in applying for federal loan relief through the SBA.

Will Independent Schools That Receive a Business Loan from the SBA Have to Comply with Title IX and Its Regulations?

Yes. Title IX prohibits discrimination in school programs and activities on the basis of sex and generally applies to those entities that receive federal financial assistance.

Under the U.S. Department of Education's regulations, the phrase "program or activity" is defined broadly and includes "all of the operations" of colleges, universities, and private schools. See 34 C.F.R. § 106.2(h). The three primary ways that this is most likely to impact co-educational independent schools is with regard to their response to sexual misconduct, their provision of single-sex programming or opportunities, and their athletic programs. It is important to note also that Title IX's prohibitions on discrimination also extend to prohibit discrimination in employment as well.

Response to Sexual Misconduct: Under Title IX, educational institutions must take a myriad of steps to respond to sexual misconduct, and there has been extensive debate and litigation at the post-secondary level regarding what these steps entail. At a most basic level, institutions must have a written policy that clearly defines prohibited conduct, must specify how allegations will be investigated and reported, must provide notice to both parties of the specific allegations and must provide details regarding how such cases will be concluded, including the range of sanctions available. Institutions must also assign an individual to coordinate these efforts.

Single Sex Benefits and Opportunities: Title IX also generally prohibits educational benefits and opportunities being provided to one sex only. It is important to note, however, that if an independent school is already a single-sex school, then it may be exempt from many of these prohibitions or they may apply in a much more limited fashion. For coeducational independent schools, for example, Title IX places restrictions on when single sex classes are allowed. However, single-sex classes are not prohibited if required by an important objective as defined by the regulations, if it is voluntary, or it if is in regard to certain defined areas, e.g., contact sports in physical education classes, choruses (with vocal range requirements) or human sexuality programs. This mandate could require co-educational institutions that provide such single-sex opportunities to provide a substantially equal single-sex class or extracurricular activity for students of the excluded sex.

Athletics: Title IX also requires gender equity in athletics. Many independent schools already make significant efforts to achieve and maintain equity in all of their pursuits, including interscholastic athletics. Those efforts, however, may not be sufficient in the context of an athletic review under Title IX, which calls for a comprehensive analysis and generally takes into consideration 13 components. The applicability of these components may differ depending on the school, and some are tailored much more specifically for intercollegiate athletics. However, all reviews would typically address the quality and adequacy of equipment, uniforms, locker rooms, practice and competitive facilities, scheduling, and even the quality and number of coaches assigned to a team. Central to all these reviews is the requirement that schools provide appropriate opportunities for students to participate in the school's athletics programs regardless of gender. Although the analysis can be complex, it boils down to a question of whether the school's athletic program is generally proportionate to its overall population in terms of gender.  If it is not equitable in that regard, then the school may be required to take a number of steps to ensure that it is providing appropriate opportunities to the underrepresented gender.

Finally, Title IX also mandates that schools cannot "perpetuate discrimination against any person by providing significant assistance to any agency, organization, or person [which] discriminates on the basis of sex in providing any aid, benefit or service to students or employees." See 34 C.F.R. § 106.31(b)(6); 13 C.F.R. § 113.400(b)(6). In other words, if the school utilizes a vendor or enters a relationship that discriminates on the basis of sex, that relationship could, in certain instances, create challenges for the school.

Will Independent Schools That Receive a Business Loan from the SBA Have New Obligations Under Title VI?

Yes. Title VI, which prohibits discrimination on the basis of race, color or national origin in the programs or activities receiving federal financial assistance, generally applies to any program or activity receiving federal financial assistance.

Most independent schools already have in place policies prohibiting discrimination on the basis of race, color or national origin. However, Title VI creates a federal non-discrimination obligation and, as with all the statutes listed in this alert, allows the federal government to both investigate and conduct compliance reviews, as appropriate. To that end, the regulatory requirement that schools shall keep such records needed by federal officials to ascertain whether the school is compliant with Title VI and make these records available upon request by the federal government could create additional challenges if a claim of race or national origin discrimination were to arise. In other words, institutions are required to collect and maintain race and/or national origin data so that other activities can be disaggregated by race or national origin if the government so requests. Examples in which the federal government has requested such information in the past includes efforts to determine if discipline, special education services or academic opportunities such as gifted and talented programs are provided fairly and in a non-discriminatory manner. 

Will Independent Schools That Receive a Business Loan from the SBA Have New Obligations Under the Age Discrimination Act?

Yes. The Age Discrimination Act prohibits discrimination on the basis of age in programs or activities receiving federal financial assistance.

The Age Discrimination Act requires schools that are recipients of federal financial assistance to maintain records that federal officials may request in order to ascertain whether the school is compliant with the statute, and must cooperate in agency investigations and enforcement actions. The Department of Education's regulations for the Age Discrimination Act call for the designation of an employee responsible for compliance, specific content of policies and grievance procedures (including investigation procedures), and notifications. Even though the SBA regulations do not contain these specific requirements, receipt of these loans could create an obligation on the part of the school to cooperate in investigations. Accordingly, schools should have mechanisms in place to ensure that they remain compliant with the regulations.

Will Independent Schools That Receive a Business Loan from the SBA Have New Obligations Under Section 504?

Yes. Section 504 prohibits discrimination on the basis of disability in programs or activities at schools that receive federal financial assistance.

As with some of the other areas discussed above, independent schools likely already have some relevant policies in place, given that they already are required to comply with Title III of the Americans with Disabilities Act (ADA), which has many requirements similar to Section 504. For example, under the ADA, schools must be physically accessible, they must ensure digital access to certain materials for individuals with disabilities, and they must make reasonable accommodations for individuals with disabilities in both the admissions and educational context, provided the modifications do not significantly alter the practice in question. That is, independent schools need not lower or alter admission standards, or fundamentally alter a course or education program to accommodate a disability.

However, Section 504's requirements are much more specific than the ADA. Section 504's regulations are largely developed with an application toward public elementary and secondary schools, which also have additional requirements under the Individuals with Disabilities Education Act (IDEA). This results in some uncertainty as to how different provisions of Section 504 will apply in practice to independent schools. For example, the Department of Education's Section 504 regulations make clear that private elementary or secondary education institutions may not exclude a qualified individual with a disability from participating in the program or activity if they can do so with "minor adjustments." However, if the school is deemed to be providing "special education," a term that is not clearly or uniformly defined, then the school may have additional obligations. For example, 34 C.F.R. § 104.39 indicates that if a private school receives federal financial assistance and provides special education, it shall do so in accord with 34 C.F.R. 104.34 through 104.38. These portions of the regulations focus on the educational setting, and require a least restrictive placement and integrated classrooms when appropriate. They also focus on the establishment of procedures to evaluate and place students in various learning environments.

Although many institutions currently have some process for evaluating, placing, educating and/or providing related services to individuals with disabilities, Section 504 could create additional requirements. However, depending on how an institution currently addresses efforts to accommodate individuals with disabilities, and depending on how the government interprets the scope of Section 504 in the new context created by COVID-19, this requirement could create additional obligations.

Will Independent Schools That Receive a Business Loan Be Required to Cooperate in Federal Investigations and Enforcement Actions, Maintain Records and Provide Information to Federal Agencies?

Yes. Under these federal anti-discrimination statutes, schools are required to maintain records relevant to their compliance obligations. If requested, they must provide records or accounts, or access to facilities that the officials deem necessary to determine if the school is compliant with Title VI, and they must cooperate in federal agency investigations and enforcement actions.

Next Steps

The above highlights the primary federal anti-discrimination statutes that schools must address at least for the period of time until the loan is repaid or forgiven. These statutes are not exclusive; additional laws and compliance, auditing and reporting obligations may apply. Before accepting loans from the SBA under the CARES Act, independent schools should carefully consider the extent of federal compliance obligations to which they will be subject as recipients of federal funds. For more information or assistance on this topic, please contact the authors or other members of Holland & Knight's Education Team

DISCLAIMER: Please note that the situation surrounding COVID-19 is evolving and that the subject matter discussed in these publications may change on a daily basis. Please contact your responsible Holland & Knight lawyer or the author of this alert for timely advice. 


Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem. Moreover, the laws of each jurisdiction are different and are constantly changing. If you have specific questions regarding a particular fact situation, we urge you to consult competent legal counsel. 

Notes

1 Title 34 of the Code of Federal Regulations is promulgated by the U.S. Department of Education. Title 13 of the Code of Federal Regulations is promulgated by the SBA. Federal financial assistance includes federal grants and loans for various anti-discrimination statutes. See, as to Title IX, 34 C.F.R. § 106.2(g); 13 C.F.R. § 113.105), as to Title VI, 34 C.F.R. § 100.13(f); 13 C.F.R. § 112.2(b), and as to ADA, 13 C.F.R. § 117.3(h)(1) and 34 C.F.R. § 110.3, et seq. Although not explicitly stated in the regulations in the same manner as for these other non-discrimination statutes, the plain language of the CARES Act and Section 504 (see Pub. L. 116-136, Title I, et seq., and 29 U.S.C. § 794(a)) would result in Section 504 being deemed to apply to loans administered to schools by the SBA.

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