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Planning for furloughs, layoffs in response to COVID-19

Mar 17, 2020

UPDATED: March 26, 2020

As the COVID-19 outbreak spreads and officials recommend or impose increasingly restrictive steps to mitigate the impact to public health, more companies are assessing what impact the outbreak is likely to have on their business and are considering whether that impact may necessitate furloughing workers. Following is a summary of some of the core compliance issues employers should consider as they develop contingency plans that may include furloughs.

READ MORE: Considering layoffs? Congress' CARES Act could offer small business a lifeline

WARN Act

Employers that are covered by the Worker Adjustment and Retraining Notification Act (WARN Act) and need to close a facility or lay off a substantial number of employees as a result of the coronavirus outbreak may be required to give workers advance notice.

Employers with 100 or more full-time employees are covered by the WARN Act. Under the WARN Act, covered employers must generally give at least 60 days of prior notice to employees who will suffer an “employment loss” as a result of a plant closing (50 or more employment losses at a single site of employment from ceasing operations at the site) or mass layoff (50 or more employment losses at a single site of employment that constitutes at least 33 percent of the active workforce at the site).

Although the WARN Act has provisions that address terminations due to natural disasters, those provisions do not appear to cover epidemics such as the current COVID-19 outbreak.

There are, however, some notable exceptions to the WARN Act’s notice requirements that may apply. First, if employees are laid off for less than six months, they do not suffer an “employment loss” and notice may not be required. Relying on the anticipated length of a layoff in determining the applicability of the WARN Act, however, is problematic. The ultimate length of layoffs is likely hard to predict on the front end, and the applicability of the WARN Act depends on actual employment losses, not the employer’s good faith estimation when the layoff is first implemented.

Second, even in cases where its notice requirements would otherwise apply, the WARN Act provides an exception when layoffs occur due to “unforeseeable business circumstances.” This provision may apply to the present COVID-19 outbreak, but because of the fact-specific analysis required for this exception, it is often litigated and far from certain to apply in a particular situation. For example, if the state government has ordered a shutdown of your business in response to the outbreak, you will likely have a strong argument that an unforeseeable business circumstance led to the closure. If on the other hand, you are having to shut down because of reduced consumer demand or supply chain difficulties, the analysis becomes less certain. Moreover, under the unforeseeable business circumstances exception, an employer must still provide “as much notice as is practicable, and at that time shall give a brief statement of the basis for reducing the notification period.” In other words, once you are in a position to evaluate the impact of the outbreak upon your workforce and determine that a closure is necessary, you must then provide specific notice to “affected employees.” You must also provide a statement explaining the failure to provide the notice earlier, which in this case would be the unforeseeable nature of the COVID-19 outbreak and its effects.

The extent to which the Department of Labor  will focus upon enforcement of the WARN Act following this outbreak is unknown, but the law provides employees the ability to bring a private cause of action, so even if the government chooses not to actively enforce the WARN Act following the outbreak, employers may nevertheless have to respond to WARN Act lawsuits filed by former employees regardless of the enforcing agency's official position.

The WARN Act contains very specific provisions concerning the timing and information for notices to employees, unions, and certain government entities. Employers who contemplate potential WARN Act-triggering closures or layoffs should consult with their employment counsel to ensure any notices issued to employees, unions, and government officials are compliant.

Additionally, many states have “mini-WARN” laws, often covering employers with fewer than 100 employees. These state laws have a variety of requirements that may also apply and which are different than the federal law. For example, New York’s mini-WARN law requires only 25 employees to suffer an employment loss rather than the 50 employees required under federal law in order for there to be a “mass layoff” and “plant closing.” Some states, however, including California, have relaxed certain requirements in their mini-WARN laws, and others may be doing so soon. Therefore, employers should work with their employment counsel to ascertain whether the recent outbreak has triggered a WARN Act qualifying event in your organization and ensure compliant notices are provided.

Furloughing Employees

Many companies are facing the economic reality that the business disruption caused by COVID-19 will likely disrupt cash flow, and may ultimately mandate reductions — and potentially substantial reductions — in payroll. Temporary layoffs or “furloughs” may be a necessary component of your company’s overall contingency plan.

Reducing Hours

In general, employers can schedule at-will non-exempt employees for fewer days or hours, including no hours at all, without running afoul of wage and hour laws. Employers do not need to pay these non-exempt employees for time that is not worked. Exempt employees, however, require a more complex analysis when considering furloughs or reduced hours as an alternative to layoffs. Exempt employees must be paid the same minimum salary for each pay period under federal law and most state laws. Further, if an exempt employee performs any work at all during a workweek, that exempt employee must receive his or her entire salary for that week. Failure to pay their full salary risks losing the exempt status. If an employer furloughs an exempt employee for an entire workweek, however, then no salary is owed for that week and the employee’s status is not affected.

When employees are furloughed, employers should expect that they will not work at all, including simply checking email or voicemail. Again, an exempt employee is entitled to pay for any workweek in which they perform any work, and merely checking email may entitle an exempt employee to their entire salary for that week. Accordingly, employers should advise their furloughed employees that work is not authorized during the furlough period without advance written approval. Similarly, non-exempt employees are also generally entitled to compensation for performing work when not in the office, which may include small activities like listening to a voicemail.

Health Benefits

If your employees are no longer working as a result of a furlough, their status may impact their eligibility under your group health plan. Employers in this situation should review their group health plan document (or if your plan is fully insured, the certificate of coverage) to determine how long employees remain covered once they are no longer actively working. After that period expires, active employee coverage must be terminated and a COBRA notice must be sent. However, the insurance carrier (or you if you have a self-funded plan) may agree to temporarily waive applicable eligibility provisions. In the case of a self-funded plan, you should make sure that your stop-loss coverage insurance carrier agrees to cover claims relating to participants who would otherwise be ineligible for coverage before you agree to waive the eligibility provisions.

In the normal course of events, group health plan coverage will also cease when an employee’s share of premiums is not timely paid. Again, however, the insurance carrier providing the health coverage may voluntarily continue the coverage while the fallout from the outbreak is sorted out and the employer reopens. Additionally, the employer may make an arrangement with the insurance carrier providing health coverage to pay the employees’ share of premiums to keep coverage in place during the outbreak.

Whether COVID-19 testing is covered by your group health plan will depend on the specifics of your plan. As of March 16, 2020, insured plans in California, New York, Oregon, and Washington must cover COVID-19 testing at no cost to members, and other states are implementing similar mandates. In addition, several major insurers have stated that doctor-initiated COVID-19 testing (but in most cases not COVID-19 treatment) will be provided at no cost for their insured plans. Self-insured plans are not currently required to provide COVID-19 coverage, but there is increasing pressure on employers to do so.

Additionally, there is some proposed legislation that may alter the present situation. On March 14, the House of Representatives passed the Families First Coronavirus Response Act [s1] (H.R. 6201). Certain provisions in H.R. 6201 include requiring private health plans to cover COVID-19 diagnostic testing and related provider and facility costs at no cost to the consumer. As of March 16, the bill was before the Senate for consideration.

Unemployment Benefits

Unemployment benefits vary by state, and there may be certain waiting periods in place before benefits are provided. Consider reviewing unemployment eligibility in the various states where operations will be impacted and including some sort of statement in the furlough notice regarding those benefits. Some states even permit “partial” unemployment claims where the workweek is changed for non-exempt employees. In such cases, employers may be able to structure furloughs to maximize unemployment benefits to employees. Many states are also passing new bills and issuing executive orders altering the unemployment benefit requirements in their states during the COVID-19 outbreak, so the issue is both fluid and state specific.

Before taking any action to furlough your employees, we recommend you consult with your employment counsel on these and other issues to ensure legal compliance.

More information for employers considering layoffs and furloughs can be found here.

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