Temporary Workers Count Toward PPP Eligibility in Fraud Case

Construction firm Engineered Structures Inc. has reached a preliminary settlement in a significant False Claims Act lawsuit that centered on alleged fraud related to the Paycheck Protection Program, court documents revealed Monday.

The settlement comes after whistleblower Karen Bloomfield successfully argued in the U.S. District Court for the Eastern District of Virginia that temporary workers should be counted when determining a company’s eligibility for PPP loans. The agreement, still pending approval from the U.S. Attorney’s office, was announced the same day Judge David J. Novak ruled in Bloomfield’s favor on this previously undecided legal question.

Judge Novak’s decision represents an important legal precedent for PPP fraud cases nationwide. The ruling addresses a critical question about how businesses should have calculated their workforce size when applying for the pandemic relief funds, potentially affecting thousands of loan applications submitted during the COVID-19 economic crisis.

The Paycheck Protection Program, established in March 2020 as part of the CARES Act, provided businesses with potentially forgivable loans to maintain their workforce during the pandemic. However, eligibility requirements included specific limitations on company size and employee count, which became the central issue in this case.

According to court documents, Bloomfield alleged that Engineered Structures Inc. misrepresented its employee numbers by not counting temporary workers in its PPP application, thereby qualifying for loans it would otherwise have been ineligible to receive. The construction industry frequently employs temporary or contract workers, making this ruling particularly significant for that sector.

“This case highlights the ongoing efforts to ensure integrity in the distribution of pandemic relief funds,” said a legal expert familiar with PPP litigation but not involved in this case. “The question of who counts as an employee for these programs has been contentious since the beginning.”

The construction industry received billions in PPP funding during the pandemic, with many firms operating in the gray area between permanent employees and temporary workers. Engineered Structures Inc., a significant player in commercial construction projects across several states, was among thousands of construction companies that sought financial assistance during the industry-wide slowdown in 2020.

False Claims Act cases like this one typically involve whistleblowers, known as “relators,” who can receive a portion of any funds recovered by the government. These qui tam provisions encourage individuals with inside knowledge of fraud to come forward. While the specific settlement amount remains undisclosed, False Claims Act settlements often include treble damages plus additional penalties.

The Department of Justice has made investigating PPP fraud a priority since 2020, establishing specialized task forces and dedicating resources to identifying fraudulent applications. To date, the government has charged hundreds of defendants with crimes related to pandemic relief fraud and recovered millions in improperly obtained funds.

This settlement adds to a growing body of PPP-related fraud cases that continue to work through the court system more than three years after the program’s inception. The SBA’s Office of Inspector General estimated in 2022 that potentially billions in PPP loans may have been obtained fraudulently.

The parties are expected to submit final settlement terms for court approval in the coming weeks. Neither attorneys for Bloomfield nor Engineered Structures Inc. have commented publicly on the pending agreement.

The case highlights the ongoing legal consequences of decisions made during the rushed implementation of pandemic relief programs and sets an important precedent for how employee classification affects eligibility for government assistance programs.