News & Insights
March 20, 2020
In the face of the mandatory closings, necessary quarantines, and economic contraction, many companies are being forced to make difficult decisions about what to do with their workforces until the threat of COVID-19 passes. Two commonly considered options are layoff and furlough. This question-and-answer article helps guide employers through the difficult decisions of how to best protect your company, retain your workforce, and get back to work as soon as possible:
Question: What is the difference between a “layoff” and a “furlough”?
Answer: A furlough occurs when a company puts some or all of its employees on a temporary, unpaid leave in response to a business circumstance or economic hardship. Furloughs may be voluntary or mandatory. Employees stay on the payroll, but they do not receive wages and are not permitted to perform any work.
A layoff is a separation of the employee from the payroll. Usually, companies expect to recall and rehire employees from a layoff when economic or other circumstances allow. When possible, companies sometimes give specific recall dates at the time of a layoff, but even if a recall is anticipated, employees who have been laid off are separated from their employer.
Question: If we want to maintain health benefits for our employees, does that impact whether we lay off employees or furlough them?
Answer: Employees who are laid off generally are no longer eligible to participate in their employer’s health benefit plan. Plans differ, with some terminating participation on the date the employee separates and others terminating participation at the end of the month in which the employee was laid off. Employers should review their plan documents and/or consult with their third party administrator to confirm when laid-off employees are no longer eligible to participate in the health benefit plan like active employees.
After layoff, former employees with benefits provided by a COBRA-covered employee are eligible for COBRA continuation coverage. An employer may choose, but is not required, to cover some or all of the cost of COBRA benefits to its laid-off employees. Employers should provide standard COBRA election notices and otherwise follow their standard COBRA procedures for separated employees at the time of the layoff.
In a furlough, the answer depend on the terms of the group plan. Some employer-provided health insurance plans cover only full-time employees; other plans have exceptions for temporary lapses in employment that allow employees to retain group plan benefits during a furlough. If an employer’s regular group plan does not cover furloughed employees, those employees will be eligible for COBRA benefits. Again, an employer may choose, but is not required, to cover some or all of the cost of COBRA benefits to its furloughed employees.
Relatedly, COBRA also applies to employees whose hours have been reduced and who no longer qualify for a group plan that requires full-time status.
More information about how COVID-19-related changes, including furloughs and layoffs, may affect your employee benefits is available here.
Question: How might a furlough impact the status of my employees under the Fair Labor Standards Act?
Answer: The Fair Labor Standards Act (FLSA) is the federal wage and hour statute that governs how employees across the country must be paid. Because furloughed employees remain on the payroll, employers must be careful when furloughing employees classified as exempt (salaried) under the FLSA. Under FLSA rules, salaried employees generally must be paid their full weekly salary for any week in which they perform work. So, if exempt employees perform even a little work during a furlough week, they may be entitled to pay for the full week. Employers should keep this in mind when planning a furlough. More information on FLSA considerations during the COVID-19 pandemic is available here.
Question: Can my furloughed or laid off employees collect unemployment benefits?
Answer: Probably yes. Unemployment benefits vary state-by-state. Generally, both furloughed and laid-off employees are eligible for unemployment benefits. The rationale is that eligibility for unemployment benefits in most states is triggered by an employee’s lack of work through no fault of the employee’s, not an employee’s formal separation of employment. The federal Families First Coronavirus Response Act required states to “ease” eligibility requirements to allow employees who have been affected by COVID-19, including those who have been laid off, furloughed, or had their hours cut, to more easily receive unemployment benefits. Employees who are given a return-to-work date from a furlough or layoff may also be excused from the usual job search requirements for unemployment. Additionally, the federal Coronavirus Aid, Relief, and Economic Security (CARES) Act, which is expected to pass Congress around March 26, contains generous federal unemployment assistance for those affected by COVID-19, including expanding eligibility to workers who generally do not qualify, providing an additional $600/week payment for unemployment recipients, providing an additional 13 weeks of benefits after state unemployment runs out, and helping states fund unemployment benefits for people who have had their hours reduced due to COVID-19 (called “short-time compensation”). You can read more about unemployment benefits under the CARES Act here. Check with your state’s unemployment office for more details on procedures and benefits available for those affected by COVID-19.
Question: We have a unionized workforce subject to a collective bargaining agreement. Does that change anything?
Answer: It might. Collective bargaining agreements often have provisions that cover furloughs, layoffs, and entitlement to employment benefits, including how and when furloughs and layoffs can be implemented. Check your CBA for these provisions before instituting a furlough or layoff. If your CBA does not address either, then your policies and established practices will likely govern these decisions. You will want to address this with counsel as unions will want to negotiate how and when furloughs and layoffs can be implemented.
Question: I understand that the government just enacted the Families First Coronavirus Response Act (FFCRA) that requires paid leave for certain employees. What employers are covered?
Answer: Both the Emergency Family and Medical Leave Expansion Act and the Emergency Paid Sick Leave Act apply to all private employers with fewer than 500 employees and all public employers with more than 1 employee. Employers of healthcare providers and/or emergency responders may elect to exclude such employees. The term healthcare provider has not yet been defined and we are anticipating rules and regulations from the HHS Secretary. More information on the FFCRA can be found here.
Question: If we decide to furlough employees, could our company be responsible for providing paid leave to them under the new FFCRA?
Answer: Perhaps. The FFCRA does not exclude furloughed employees from its definition of “employee,” and furloughed employees are typically still considered employees of the company. If furloughed employees are covered by the FFCRA, then you’re probably wondering how much the company must pay furloughed employees while they’re on leave. The answer to that question is also unclear under the FFCRA. Both the emergency paid sick leave and emergency family and medical leave portions of the FFCRA calculate the amount of compensation owed to an employee on the employee’s regular rate of pay and the “number of hours the employee would otherwise be normally scheduled to work.” It’s unclear whether employers should be looking backwards at an employee’s average work schedule, and if so, how far backwards, or if employers should base the calculation on the number of hours an employee would have been scheduled to work had the employee not requested leave (which could potentially be 0 if the employee is furloughed). It is hoped that the U.S. Department of Labor will address this gap in the guidelines it is set to issue by April 1, 2020. Stay tuned for updates.
Question: If we decide to furlough employees, can those employees still use their paid time off (PTO) to get paid during the furlough?
Answer: Generally, you are free to follow your normal PTO policies, unless some state or local law requires something different. If you do want your employees to use PTO, you may allow it, encourage it, and in most states, even mandate it. If you do not want to pay your employees PTO during the furlough, you can probably deny it, unless you have a policy that says otherwise. The most important thing is to follow policies and apply the same rules across the board.
Question: Now that the Act has become law, is there any risk of exposure for laying off employees instead of furloughing them to avoid a potential future obligation to provide paid leave?
Answer: Yes, but it is difficult now to quantify. The Family and Medical Leave Act (FMLA) already prohibits employers from retaliating against employees who take FMLA leave and from interfering with an employee’s entitlement to FMLA leave, and those protections extend to employees who take emergency family and medical leave. The FFCRA also prohibits employers from discharging an employee who takes or asks for emergency paid sick leave. These prohibitions, however, arguably do not take effect until the law takes effect on April 1, 2020. Also, a reasonable interpretation of these prohibitions would not preclude an employer from making a company-wide layoff decision based on economic reasons. Now, if an employer targeted for layoff only those employees who are eligible for leave under the FFCRA or who have requested leave, then it would probably be facing a much higher risk for liability.
Question: Are there any special requirements I will have to follow to do a layoff?
Answer: Possibly. Under certain circumstances, the federal WARN Act and state laws (usually called “mini-WARN Acts”) dictate the sort of notice you have to give employees before undertaking a layoff or closing. To overgeneralize, the federal WARN Act requires that employers with more than 100 employees give at least 60 days’ notice if 50 or more employees will be laid off for 6 months or more. State mini-WARN Acts often apply to employers with fewer employees. Many of these laws don’t apply to small businesses, temporary layoffs of less than 6 months, or layoffs under unforeseeable or emergency circumstances. You can find more information about layoff notices and other consideration for undertaking a layoff here.
Question: Are there any benefits available to my business to help us avoid a layoff?
Answer: Yes, the CARES Act provides small business loans that are up to 100% forgivable if the business does not lay off employees. The loans are available to small businesses with fewer than 500 employees. The loans may be used to pay for payroll, employee salaries, additional wages for tipped workers, paid sick leave or medical leave, insurance premiums, mortgage, rent, and utilities. These loans are up to 100% forgivable for the amount the employer spends on eligible payroll costs during an 8-week period, if the employer does not lay off employees, or brings back previously laid-off employees before June 30, 2020. The amount of forgiveness goes down as the amount of employees laid off goes up. The unforgiven amount will have a 10-year term at an interest rate not to exceed 4%. The CARES Act is still moving through Congress, so check back regularly for more updates.
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