Bylined Articles

What Employers Need To Know About Furloughs

By Jonathan D. Wetchler
April 7, 2020
Law360

Photo of attorney Jonathan Wetchler

Jonathan D. Wetchler

During the coronavirus pandemic, employers are considering options that will enable them to match the size and structure of their workforce to their current business needs, while also retaining the flexibility to rapidly return the workforce to precrisis levels. One such option is placing employees on unpaid leave; namely, a furlough.

Here are issues for employers to consider when evaluating whether and how to implement a furlough:

What Happens If an Employee Works During the Furlough in Violation of Our Instruction?

If employees who are placed on furlough perform work remotely they are due compensation under applicable law, including the Fair Labor Standards Act. The notice informing employees of their furlough (or a furlough policy) should state that no work is permitted while on furlough.

It should also describe what "work" means, such as monitoring or responding to email, returning calls or doing paperwork. If applicable, the furlough notice or policy should also identify who may authorize work and explain the procedure for doing so.

If exempt employees perform work during a work week while on furlough, it is likely they will need to be paid for the entire week under the FLSA. Nonexempt employees will need to be compensated for the time that they work. While employees must be paid for work that they do without authorization, employers may subject them to disciplinary action for violating the instruction not to work.

Determining how to pay nonexempt employees who perform work while on furlough can be complex. As to nonexempt salaried employees, it may be important to consider how they are paid: (1) if they work less than a regular workweek; (2) if they work overtime; (3) if they miss whole or part days of work after they have used their PTO; and (4) if they perform work while on unpaid leaves. The answers may impact how much they are due (including under state wage payment laws or a contract theory) if they perform work while on an unpaid furlough.

To facilitate wage and hour law compliance and manage the risk of later claims for unpaid compensation, employers may wish to instruct employees to self-report if work is performed while on furlough or take other measures to ensure that time worked is compensated.

Wage Payment Laws

Some states and localities have laws requiring that employees be informed in writing of the manner in which they will be compensated. Some require advance notice of changes in compensation.

If feasible, advance written notice should be provided to furloughed employees and the fact that they will be unpaid.

Can PTO or Vacation Pay Be Used?

Whether paid time off or vacation pay must be provided to employees on furlough will depend upon the terms of the employer’s policy, handbook, and applicable state and local law. If the right to take time off with pay has not been earned under the terms of the policy and any applicable state or local law, in many jurisdictions, the employer may elect not to make payment to employees who have been furloughed.

For example, if a vacation policy provides that the employer must approve the time off before a paid vacation is taken, in most states, the employer should have the discretion not to approve paid vacations for employees who are not at work because they have been furloughed.

Of course, employers may be more generous than what their handbook or policies provide. Employers who are financially able may elect to provide new PTO benefits to employees who are unable to work due to workplace closures.

WARN and State/Local Laws Regarding Furloughs

The federal Worker Adjustment and Retraining Notification, or WARN, Act requires an employer of 100 or more employees to provide at least 60 days’ advance written notice to employees and the government in the event of a mass layoff or plant closing. As much notice as possible must be provided in the event unforeseeable business circumstances prevent providing the full 60 days’ notice. A government order closing a business without prior notice may be an unforeseeable business circumstance.

In order for there to be a mass layoff, among other things, there must be an employment loss at a single site of employment of 50 or more employees constituting 33% of the workforce, or of 500 or more employees, excluding part-time employees.

Furloughs of a month or two, in and of themselves, should not result in any employee experiencing an "employment loss," which is defined as: (1) an employment termination, with certain exceptions; (2) a layoff exceeding six months; or (3) a reduction in work hours of more than 50% during each month of any six-month period. Employers anticipating that furloughs will exceed six months and reach the numerical WARN Act thresholds should provide the required notices.

However, if employers intend to return their employees to work sooner and do not have a reasonable basis for foreseeing that furloughs will exceed six months, notice should not be required under the WARN Act before placing employees on furlough. Such employers may wish to document when they intend to bring back the furloughed employees (which need not be a certain date), and when they intend to reassess whether that date is realistic in light of then current conditions.

However, if notice has not been given, it will be important to monitor carefully if and when circumstances employers didn’t foresee arise in the future that may cause furloughs to exceed six months. If the WARN Act threshold will be met because furloughed employees will not be recalled within six months, employers should document the conditions they did not foresee that changed, when they first learned of them, and provide WARN Act notice as soon as possible.

Assessing WARN Act obligations is complex and employers should consult with their legal advisers in in doing so. All of the factors to be evaluated are not described here. State and local mini-WARN laws and ordinances must also be considered. For example, New York and New Jersey law provide greater employee protections.

What Happens to Employee Insurance Benefits Coverage for Furloughed Employees?

The length of time that coverage will continue under group insurance plans, such as health, disability and life, will be governed by the terms of the applicable insurance plans and/or policies. Even if a benefit is self-insured by the employer, there will typically be a stop-loss insurance policy setting forth coverage terms.

Employers should inform employees of when group coverage ends. There is a risk of self-insurance if employees are not properly notified.

Once health coverage ends due to lack of the requisite hours being worked, employees will be eligible for continuation of coverage under the Consolidated Omnibus Budget Reconciliation Act. It is critical that they be timely and accurately informed of this right. However, in the event that the group plan is terminated, any right to continue coverage under COBRA will end (in the absence of a plan maintained by the control group).

There may be also be conversion rights to individual coverage under other insurance policies such as long-term disability and life. Employers should ensure that this information is properly provided as well.

Employers with the financial resources to do so may wish to consider paying for some or all of the premium for continued health coverage for a period of time in light of the pandemic. It is also possible that some coverages can be continued beyond the current policy terms with the agreement of the carrier.

Unemployment Compensation

Employees should be notified of their right to apply for unemployment compensation. Many states have suspended the waiting period for payments to begin.

Claimants may be eligible for increased benefits and the duration of benefits may also increase in light of the pandemic. It is advisable to provide furloughed employees with a link, to the relevant state websites, which should be checked regularly.

Employee Communications

Employees should be notified of the likely anticipated length of the furlough, and that the employer will reassess its duration as it proceeds. They should be instructed when and how to contact the employer for updates (e.g., online or a call-in number) and to provide information about how they can be reached.

Employers may wish to consider providing instructions for employees to contact the employer in the event of a COVID-19 diagnosis, symptoms or close contact with a person who was diagnosed or symptomatic. Related return-to-work communications should also be considered.

Final Thoughts

In this time of crisis, every effort should be made to demonstrate the care and concern employers have for their employees. Consider making available an employee assistance program and putting in place a telemedicine program for all employees, including those on furlough. A hotline for addressing employee questions including those regarding benefits may also help.

Alternatives to furloughs can include compensation reductions. These may be made for those who continue working while others are on furlough, and may help send a message that the burdens of the crisis are being shared, at least to a degree, by all.

While it is a given that employers will want to treat their employees as well as they reasonably can out of a sense of humanity, it is also good business. The manner in which those on furlough are treated will impact the attitude and engagement of both the furloughed employees when they return to work — and also their fellow employees who are working during this crisis.

Jonathan D. Wetchler is a partner at Duane Morris LLP.

Reprinted with permission of Law360.