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Monday, March 16, 2020

Furlough FAQ – What Employers Need to Consider


For a business that is temporarily under pressure, or in a short-term cash flow crunch, a staff furlough might be a more strategic option than a layoff. A furlough makes sense if the business has a reasonable expectation that business operations will continue in the long term.

When staff are “laid off”, the company is signaling to employees and the community that the business has to cut costs, or restructure, permanently. A layoff, also known as a “reduction in force” or RIF, is accompanied by costs. Those costs could include termination procedures to accommodate benefits continuation (COBRA) options, and most notably, PTO payouts and severance pay. A furlough does not necessarily cost as much, and it allows the company the option to recall workers after a temporary shutdown.

What is a furlough?

An employee furlough is a mandatory, temporary, unpaid leave from work. Employees will come back to their jobs when the employer notifies them that the leave has ended.

Employers can use a wide variety of determinants to decide which employees will be required to take a furlough. Some opt for company-wide furloughs, while others select certain departments based on their impact on the company’s business operations or decide that only non-essential employees will be put on furlough. Once employees are identified, employers must apply selection standards uniformly.

If it is not going to be a company-wide furlough, examine your proposal selections before implementing the program to ensure they do not unnecessarily impact a protected class of employees. Do not discriminate against employees when selecting individuals for a furlough.

How much advanced notice do I need to give?

Reasonable advance notice must be given to employees before the furlough begins. Some states have laws regarding the stipulations of the notice, so be sure to research what is required. In addition, furloughs for longer periods of time may be affected by the federal Worker Adjustment and Retraining Notification (WARN) Act and some states’ WARN laws. For example, in California, 50 or more employee furloughs may trigger California WARN Act notice obligations. The California appellate court, in The International Brotherhood of Boilermakers v. NASSCO Holdings Inc., decided that furloughs are layoffs for the purpose of the California WARN Act, so the employees were entitled to 60 days’ notice. Thus, be sure to follow the federal and state WARN Acts that apply to your company.

How long can I furlough an employee without triggering termination?

There is no right or wrong answer to this question because it depends on your business’s current condition, the state it operates in and other multiple factors, such as your industry sector, the type of work, employee status, and personal preferences. A furlough is a short-term solution for your business and not long-term; as a short-term solution, employees expect to come back to their jobs. Do not string along your employees for too long; allow employees to move on with their careers. Employers should consider a furlough to be a solution for a short, defined period of time, therefore, you should initially consider the minimum period of necessity when addressing potential furloughs.

Can I furlough employees who are under collective bargaining agreements?

Employers may need to negotiate terms and conditions with a union about employee furlough, so be sure to reach out to the union and review your collective bargaining agreements.

Can furloughed employees work during their leave?

For non-exempt (hourly) employees who work during a furlough, employers only need 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 (salaried) employees 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. Consider enforcing a no-work rule to prevent employees from doing any work during the furlough.

If a no-work rule will be instituted, consider being consistent with all your employees regardless of whether they are exempt or non-exempt and have the entire group not work at all, as consistency in treatment is appreciated by employees and may be required by non-discrimination regulations.

Can employees use their vacation time to get paid while on furlough?

Some employers may want to require their employees to use their accrued vacation time or PTO during the furlough to reduce the company’s lability. Or employers may give the choice to their employees to use their vacation time to supplement their pay. Certain state laws may restrict use of accrued time off while on furlough, so consider taking the safer route by making the use of accrued time off voluntary.

If your company has an unlimited or self-managed PTO policy, check what your policy says about how long an employee can be on leave and still be paid under the PTO policy. What your policy says is how long you will pay your employees under PTO while on furlough. If your policy does not explicitly state how long an employee can get paid while on PTO, consider establishing these limits via a policy statement and communicating this immediately to your employee population.

Can furloughed employees apply for unemployment benefits?

Yes, employees may be eligible for unemployment benefits, depending on the state. Check with your state agency for specific rules regarding unemployment benefits.

How will benefits be affected?

Your medical insurance carrier will generally follow your policies with regards to how long they can stay on the medical insurance plan before an employee needs to go on to COBRA, however, some carriers or policy contracts may have other stipulations. Thus, your employee while on furlough may be able to stay on your medical insurance plan for the duration of the furlough as long it does not exceed what your policy or insurance carrier contract says. Be sure to check with your benefits team to confirm with the carrier/broker before communicating this information to your employees.

Review individual employment contracts if you have them for your senior management team before implementing the furlough; their employment contracts may spell out contractual rights to compensation or paid leave benefits while on leave. Make sure the terms and conditions are followed as stipulated in the contract.

How will the 401(k) plan be affected?

Furloughs that affect more than a week or two per year and/or affect non-exempt (hourly) employees, may make 401(k) nondiscrimination testing more difficult. Furloughs may also affect pension plan eligibility and matching contributions.

Can an employee scheduled to take Family and Medical Leave Act (FMLA) be furloughed?

Yes, however, no days associated with the furlough should count against the FMLA entitlement. Also, the request for FMLA leave cannot be used as a selection reason to decide who gets selected to be furloughed.

Can furloughed employees take outside employment while on leave?

Furloughed employees have the right to seek new employment, so some may consider taking temporary jobs while on furlough. If you have a company policy in place about outside employment, be sure to let your furloughed employee know if you will enforce the policy and if yes, explain the policy to them.

Are there tips for how to communicate to employees who will be furloughed?

To be as successful and trouble-free as possible, it requires a lot of preparation, so start preparing now.

Once you have selected who will be furloughed, have furlough letters written and reviewed prior to presenting it to the employee. In addition, be ready with a list of frequently asked questions that may come up regarding the furlough. The letter should contain an estimated (but not concrete, as the situation will continue to evolve) return-to-work date.

Be clear in your communication, maintain a clear and supportive voice and be patient, as you may need to react to a range of emotions from the furloughed employee, such as anger, shock and denial. Deal with the responses accordingly. Be considerate and show empathy, as they will be coming back to your company.

What supportive services should I consider offering furloughed employees?

If your benefits plan has an Employee Assistance Program (EAP), be sure to remind your employees of this resource. Through EAP, they will be able access support services to help them cope with the stresses of being furloughed.

These days, many state unemployment agencies strongly direct workers to apply for unemployment benefits online. For some employee populations, there may not be easy access to technology, employees may not feel comfortable using the internet, or there may be potential barriers to reading due to literacy levels or English is not their first language. If you have these concerns, you may want to designate a person in your company, such as the Human Resources representative or Employee Relations representative, to provide extra assistance to these employees so they can apply for unemployment benefits in a timely manner. In the absence of this role, try to publish information in several languages, and direct them to get help at the local state offices.

Keep in mind, your employees will eventually return to the workplace, so you want them to return as stress free and as committed to returning to work for you as possible.

Be unambiguous about the furlough. If you set certain expectations with your furloughed employees, meet those expectations.

Are there any government agencies offering special consideration for leave triggered by COVID-19?

Certain states, such as California and Washington, have already started issuing special rules and guidance on how they will treat workers affected by COVID-19. These special rules augment the state’s unemployment benefits and disability wage replacement regulations if the claim is triggered by the virus.

Employees can be affected by the virus if they are unable to work due to contracting the virus, if they need to take leave to take care of a family member who has contracted the virus, if the employee is working reduced hours, or if the employee was either furloughed or laid off. All of these circumstances carry the potential to be very disruptive to employees and their livelihood.

Employers should check with their state agencies that govern labor and unemployment to see if they have released special guidance for employers and employees.

Labor & Workforce Development Agency – California State: Coronavirus 2019 (COVID-19) Resources for Employers and Workers

Employment Security Department – Washington State: For workers and businesses affected by COVID-19 (coronavirus)

Many states are currently requiring medical certification from a medical professional to validate disability claims. If your employee has contracted the virus, it may be a good option for your employee to consult with their doctor or nurse practitioner virtually. Be sure to let your employees know how they can access the medical insurance carrier’s TelaDocservice.

Summary

Be clear, think through all the possibilities, and be as transparent as possible with your staff. This is a case where you’ll want your staff to come back to work. They need to believe that this short-term solution will ensure a long-term, mutually beneficial relationship. They will need to believe that you are making a good decision and taking the best care of them possible, while ensuring business continuation for the organization.

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