Furloughing Versus Terminating Employees During a Downturn
Furloughs can take different shapes and sizes. Some furloughs can be total work-stoppages that last for weeks or months. Other furloughs can be partial-week furloughs or a mere reduction in an employee’s hours.
If the employer believes the disruption will be temporary, furloughing, rather than laying off, employees may be an employer’s best course of action. Furloughing employees could have the potential benefit of enabling the employer to retain its talent once its business rebounds. This is because employees may find a sense of security in knowing that their positions are waiting for them after a certain amount of time has passed or an event occurs. Of course, nothing prevents an employee from seeking alternative employment during a furlough and oftentimes the conditions that necessitate the furlough in the first place are unpredictable in length of time.
FLSA Considerations for Furloughed Employees
Implementing a furlough requires attention to the Fair Labor Standards Act (FLSA) and applicable state law. Employers should clearly instruct furloughed employees that they are forbidden from working during the furlough because employees that perform work must be compensated, thus defeating the purpose of the furlough. While this pertains to both exempt and nonexempt employees, employers most often run into trouble when an exempt employee checks her/his work email or takes work-related telephone calls during a purported furlough. Such activities generally are considered work and are compensable. Also, not only is the time spent performing work during a furlough compensable, but the exempt employee generally must be paid her/his full weekly salary for any week during which the employee does any work or else the employee may lose her/his exempt status. Given this, a partial week furlough may not make sense for an employer, as the employer will have to pay exempt employees their entire weekly salary despite the furlough. Further, if an employer is considering merely cutting hours, the rules are different depending on whether the employees are nonexempt or exempt. For nonexempt employees, employers lawfully may cut hours and pay the employees only for hours worked provided the employer continues to pay them at least the minimum wage for all time worked and overtime, if applicable. Also, employers need not pay non-exempt employees for any time not worked (unless employees are engaged to wait versus waiting to be engaged). Concerning exempt employees, reducing pay and hours of these employees could cause a loss of the exemption. The employee must still meet the salary basis test by being paid at least $684/week. Also, any reduction in salary must be prospective only and should not be adjusted week-by-week to account for lack of work when the employee is ready, willing and able to work.
Furloughs and Federal WARN and Mini-WARN acts
The federal Worker Adjustment and Retraining Notification (WARN) Act requires employers with 100 employees or more to issue notices to employees when a “plant closure” or a “mass lay-off” occurs. Employees who work an average of fewer than 20 hours/week or have been employed for fewer than 6 of the 12 months preceding the date when notice is required (i.e., part time employees under the Act) are not counted when determining if the federal WARN Act applies to a particular employer. While determining whether WARN applies to a particular lay-off or furlough can require a more complex analysis, generally speaking under WARN, a “plant closure” occurs when a facility or operating unit permanently or temporarily closes and results in the employment loss of 50 or more full-time employees during any thirty-day period at a single location. A “mass lay-off” occurs when it results in an employment loss of either 500 or more full-time employees or at least 50 employees constituting at least 33% of the workforce. It is important to understand that a layoff that exceeds six months and a more than 50% reduction in work hours during that six-month period can constitute an employment loss. It is also important to understand that WARN may be triggered even if the above-mentioned thresholds are not met at the time of the furlough or lay-off of employees due to the impact of COVID-19. The WARN Act prohibits rolling layoffs. Accordingly, all terminations in a 90-day lookback period will be aggregated to determine if WARN has been triggered, unless the employer can show that those prior terminations were for separate and distinct reasons. Failure to comply with the federal WARN act could result in penalties including 60 days of wages and benefits, civil penalties of $500/day of violation, and a plaintiff’s attorney’s fees.
Moreover, many states have enacted their own WARN acts, often called “mini-WARN” acts. These acts typically impose stricter notice requirements on even smaller employers. Like the federal WARN act, the mini-WARN acts also carry stiff penalties for non-compliance.
Discrimination Concerns in Furloughing Employees
Implementation of a furlough program (or lay-offs) can raise discrimination concerns. Anytime an employer chooses one employee over another, the employer needs to be concerned about potential claims for discrimination. Discrimination claims can be based on intentional discrimination or disparate impact to a protected class. Employers should take care to ensure that they implement furlough programs in a way that is not and does not appear to be discriminatory to avoid potential discrimination claims.
Moreover, many states and localities are considering and are passing laws and ordinances requiring employers to provide sick-leave for people (or caretakers of people) infected with COVID-19. Furloughing employees with valid sick-leave claims could lead to potential discrimination claims.
Furloughs and Labor Relations Issues for a Unionized Workforce
If an employer has a unionized workforce, the employer must consult the collective bargaining agreement in place to determine how to implement furloughs. Collective bargaining agreements typically contain seniority clauses that dictate the order in which employees may be furloughed. Also, there are other considerations that must be addressed with a unionized workforce when furloughs or layoffs are implemented, including, but not limited to avoiding labor unrest during these trying times.
Benefits During a Furlough
Employers that furlough employees must consider whether to continue health benefits giving due consideration to whether they are permitted to do so under their health plan. Further, if an employer’s plan allows the employer to continue benefits, employers must consider whether they wish to absorb the cost of their employee’s share of their health benefits or if the employer will require the employees to continue to pay that portion of their benefits. There is a dearth of guidance available on these points so employers should consult with their attorneys and health plan documents to determine the requirements of the health plan to guide their decisions in this area.
The Coronavirus Task Force at Klehr Harrison stands ready to assist you in your business and legal needs. We will continue to provide additional information and guidance as the COVID-19 situation develops.
Co-author Lee D. Moylan is a partner in the Litigation Department at Klehr Harrison.
Co-author Gregory R. Sellers is an associate in the Litigation Department at Klehr Harrison.