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Advance Planning for Furloughs or Layoff

As the consequences of COVID-19 and the economic downturn are being more widely felt, employers are increasingly forced to confront tough choices with respect to reduced schedules, employee furloughs and reductions in force. Employers need to think carefully about implementing those programs, as a misstep in doing so could result in liability that defeats a company’s cost saving objectives.

Reduced Schedules and Furloughs

Before modifying employee schedules, or imposing an involuntary furlough, employers will need to first consider whether there are contracts (including individual employment agreements or collective bargaining agreements) that would otherwise prevent the unilateral implementation of those arrangements. If no such contractual limitations exist, then employers are generally free to terminate or furlough employees, provided they do so in compliance with the Fair Labor Standards Act (“FLSA”) (and any similar state law) and, if the workforce reduction is large enough, the Worker Adjustment and Retraining Act (“WARN”) (and, likewise, local and states analogs).

  • Reductions in Hours

Many employers are curtailing hours rather than taking more aggressive steps such as furloughs and layoffs. This is a straightforward way to reduce payroll associated with non-exempt, hourly employees. Employers can freely reduce those employees’ schedules and pay them only for hours worked. Of course, the same rules continue to apply – employees are entitled to be paid for all work performed, even unauthorized work, absent unusual circumstances. Employers cannot turn a blind eye to this kind of work regardless of the economic exigencies.

Salaried employees, on the other hand, must be paid their salary without regard to hours worked so shortening schedules won’t reduce payroll. Employers can, however, reduce salaries. Absent a contract, there is nothing unlawful about changing a salary provided the change is clearly communicated to the employee and the change is prospective (and still satisfies the minimum weekly salary under the FLSA for exempt employees)

  • Furloughs

Furloughs represent another solution for employers needing to reduce payroll. A furlough, typically, is a short-term unpaid leave of absence that is implemented by reducing the number of days worked by employees. The furloughed workers remain employed, and (subject to applicable plan terms) entitled to medical benefits provided they continue to pay their share of the monthly premium. In addition, furloughed employees may be entitled to unemployment benefits, as many states provide for partial benefits when hours are significantly reduced.

Non-exempt workers may be furloughed for any period of time that meets the employer’s needs. However, employers must be clear that furloughed workers should not work during their leave from work and be clear as to their expectations in this regard.  For example, employer should consider providing the following steps, and clearly communicate their expectations to the furloughed employees:

  • Prohibit employees from performing any work at all during the periods in which they are on furlough;
  • Consider limiting company e-mail access during a furlough;
  • Clearly explain what constitutes work (including answering work-related e-mails and phone calls); and
  • Instruct those employees who are working not to contact furloughed employees with work-related questions.

Exempt workers may also be furloughed, but only for full weeks. If an exempt employee performs any work during a workweek, that employee is entitled to payment of salary consistent with the “salary basis” requirement of most FLSA exemptions. Failure to pay the full salary places the exemption at risk.

Group Layoffs and the WARN Act

Finally, if layoffs become necessary, a threshold question for employers will be whether the advance notice requirements of the federal Worker Adjustment and Retraining Notification Act (the “WARN Act”) or analogous state statutes will apply.

The federal WARN Act requires employers to provide written notice at least 60 calendar days in advance of certain plant closings or “employment losses” involving 50 or more “full-time” employees (as defined by the statute) at a single site of employment.  Employers should become familiar with the statute and its regulations to determine whether, and when, furloughs or reductions in hours will be deemed “employment losses” under the WARN Act. Employment losses at a single site of employment may be aggregated for up to a 90-day period in order to trigger whether the threshold number of WARN-triggering “employment losses” has occurred. So, employers should both look back and look forward 90 days before implementing a group layoff in order to determine whether WARN obligations apply.

WARN makes certain exceptions to (or reduces) its notice requirements when layoffs occur as a result of unforeseeable business circumstances, faltering companies, and natural disasters. Whether those exceptions would apply due to COVID-19 factors, energy market disruptions, or attendant business downturn will require a fact-specific analysis. Employers need to keep in mind that, even where the unforeseeable business exception applies, they are still required to provide affected employees as much notice as the circumstances allow.

Companies will also need to consider whether state-specific “mini-WARN” statutes create greater burdens than the federal law. For example, California and New York have their own statutory requirements and, effective July 19, 2020, the New Jersey WARN Act will make severance pay mandatory for certain mass layoffs and require 90-days’ advance notice prior to those layoffs. In some states, advance notice requirements can be triggered by layoffs involving fewer than 50 employees, and an employer may not have the same defenses available as apply to the federal WARN Act.

Group Layoffs and Severance Regimes

In implementing layoffs, employers will also need to carefully consider their process and be comfortable that decisions have not been made due to any legally impermissible reason, such as an affected employee’s status in a class protected by federal or state law. If an employer will offer severance pay, typically that pay will be subject to a release of claims. But particular disclosure and release requirements will be necessary in order to obtain an effective release of age-related claims, and employers will want to be comfortable that their requested releases sufficiently address potential claims while also satisfying various requirements for enforceability. Those requirements may be state-specific, so an employer shouldn’t assume that a release that has been used in one state, and in one scenario, in the past necessarily would be sufficient for a future layoff.

For any Coronavirus-related legal questions, please contact a member of V&E’s Coronavirus Taskforce or visit our Coronavirus: Preparation & Response site for a list of contacts and additional resources we hope will be helpful.

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.