By Kelsey O’Sullivan
In the wake of COVID-19, employers are experiencing a historical downturn in business, mandatory shutdowns, and cashflow crunches, among a plethora of other complications. With all this pressure, employers are being faced with extremely difficult workforce decisions in a time of great uncertainty. With a number of choices at hand, employers may view work furloughs as a strategic option that benefits both the employer and their valued employees.
The following information is intended to answer some of the most frequently asked questions that have arisen when discussing furloughs. Please be advised that although the information provided is generally explained using the federal government’s legislature, California is used as the example as the state generally has stricter guidelines. Note that while some mandates are directly enforced by the federal and state governments, more specific policies surrounding paid time off, benefits, etc. are subject to individual companies.
What is the difference between a furlough and a layoff?
When an employee is put on a work furlough, it is generally understood that the employee will either return to work, or to a full-time schedule if their hours were reduced, when the employer’s situation changes. This would eliminate the need for a returning employee to go through the hiring process again. Generally, the employee remains on payroll and may remain eligible for benefits, including health insurance coverage, while on furlough, with a mutual expectation of reinstatement. Furloughs are a way for employers to cut payroll costs quickly while retaining their trained staff.
Contrastly, a layoff generally refers to when an employer terminates an employee’s employment without any right to be recalled and reinstated if business conditions improve. An employer may lay off employees when the employer is less certain that business conditions are such that the employer will have the ability to re-employ the employee. The employer also saves the costs of benefits during any layoff period.
Simply put and generally speaking, furloughs are considered temporary and layoffs are considered more permanent.
How much advance notice does an employer need to give?
According to the Federal Worker Adjustment and Retraining Notification Act (WARN Act), any business that employs 100 or more employees must give at least 60 days notice. WARN is triggered when at least 50 full-time employees are affected at a single site of employment during a 90-day period. Part-time workers are excluded in the 50 employee count.
According to the California Employment Development Department (EDD), as of March 17, 2020, California’s Governor Newsom issued Executive Order N-31-20, which temporarily waives the
60-day notice requirement in the California WARN Act for those employers that give written notice to employees and satisfy other conditions. The suspension was intended to permit employers to act quickly in order to mitigate or prevent the spread of coronavirus. The Executive Order does not suspend the California WARN Act in its entirety, nor does it suspend the law for all covered employers. The Executive Order only suspends the California WARN Act’s 60-day notice requirement for those employers that satisfy the Order’s specific conditions.
Does an employer have to pay employees on furlough or temporary layoff? Can furloughed employees work during their leave?
For non-exempt, or hourly, employees who work during a furlough, employers would be required to pay them for the hours worked. Employers should make sure to follow their local jurisdiction’s minimum wage and overtime regulations when non-exempt employees are asked to work during a furlough.
Exempt, or employees on salary should not work at all during a furlough. If an exempt employee checks their email or does any other minimal tasks, then the employer is obligated to pay their full salary. The employer should consider enforcing a no-work rule to prevent employees from doing any work during the furlough if they do not want to pay their exempt employees.
Can an employer force employees to use paid time off (PTO, vacation, personal days, etc.) during a furlough or temporary layoff period?
In short, the answer is yes. This is subject to the terms of the employer’s policy and any contractual limitation. An employer may require its employees to take paid leave during any period of shutdown or furlough, or it may allow its employees to choose whether or not to use their available paid time off. Giving employees the option to choose is generally considered a best practice, recognizing that different employees may have different priorities, and enables employees to maximize their entitlement to unemployment insurance benefits under certain state laws. (For example, in Illinois, receipt of vacation pay will delay the employee’s eligibility to receive unemployment insurance benefits, whereas it will not under California law.) It also conserves cash as some employees will elect to use their paid time later, resulting in the furlough being unpaid, at least in part.
Please note, many employer policies regarding PTO and vacation do not address furlough or temporary layoff scenarios. Employers should review their policies and determine if any revisions need to be made if they are considering requiring employees to use available paid time off during a furlough or temporary layoff.
Do employees keep their benefits when on furlough?
To determine whether or not benefits continue for employees, employers should consult their medical benefits administrator as every administrator has their own rules and plan provisions.
If an employee ceases to meet specified eligibility requirements such as minimum expected hours for a month or week, they may cease to be eligible for group insurance benefits, including health insurance, subject to the plan’s provisions governing continuation of coverage during leaves of absence, furloughs, and temporary layoffs. If an employee ceases to be eligible for health insurance benefits, the employee generally would be entitled to continue that coverage pursuant to COBRA. In the case of life insurance benefits, the employee will have the right to convert that coverage to an individual policy.
Does an employee accrue paid time off benefits (PTO, vacation, sick days, etc.) during a period of furlough?
Generally, there is no legal requirement that paid time off benefits provided under an employer policy continue to accrue during a furlough period. Policies should be reviewed by the employer to ensure that accruals will not be required from a contractual perspective if the employer does not want PTO accruals to continue.
In the case of paid sick leave mandated by state or local law, most laws require accrual only based on hours worked and, therefore, likely do not require additional accruals while an employee is on furlough.
Does a furlough or temporary layoff trigger any final compensation laws which require the payout of unearned vacation or paid leave?
Under California law, a furlough may trigger an obligation to pay earned wages on the last day worked, including a payout of earned but unused vacation or PTO. The California Labor Commissioner Division of Labor Standards Enforcement (DLSE) has taken the position that for any temporary furlough that is planned to last longer than the current payroll period, the last day worked by the employees shall be considered a “termination” of employment under California Labor Code § 201, which will trigger the obligation to pay all wages due on the last day worked. with respect to the payment of accrued vacation pay, there does not appear to be any exception to this rule. Accordingly, even though the employment relationship is not being terminated with furlough, the conservative approach to avoid potential waiting time penalties for the late payment of wages, the employer should pay all wages due on the last day worked, including accrued vacation and PTO. Regularly, if an employer fails to pay out PTO to an employee that has been “terminated,” the DLSE states that the employee is entitled to a waiting time penalty of one day’s pay for each day the employer is late, up to 30 days. An exception would be if the furlough was stated for a specific duration and the employee made a written request to keep the accrued vacation in their leave bank, unless or until actually terminated from employment.