Furloughs and the Coronavirus Pandemic

Many U.S. employers have considered implementing furloughs in an attempt to weather the COVID-19 storm. While a furlough is, for all intents and purposes, an indefinite layoff, furloughs are appealing from an employee relations standpoint because they sound less harsh and permanent than layoffs.

But while “furlough” has no formal definition under federal labor and employment laws like the Fair Labor Standards Act (FLSA), that has not stopped the Department of Labor (DOL) from issuing informal guidance and opinion letters, or federal court judges from weighing in on what furloughs are and the negative consequences employers can suffer when furloughs are implemented “incorrectly.”

Employers weighing the pros and cons of instituting partial or organization-wide furloughs should consider the following three issues:

1. Because furloughs have no precise legal definition, employers must explain the impact of a furlough to affected staff in clear, unmistakable terms.

When employers institute furloughs, they usually place affected employees on an unpaid leave of absence that management hopes will be temporary. But when employees hear the word “furlough” without further explanation, they could walk away with any number of conclusions.

The Hon. Edward J. Davila, a United States District Court Judge in the Northern District of California, considered five dictionary definitions in an FLSA proceeding where salaried, exempt public sector employees sought unpaid overtime wages because they were furloughed in the middle of the workweek, including:

  1. “A leave of absence from military or other employment duty.”
  2. “A leave of absence from duty granted especially to a soldier; also a document authorizing such a leave of absence.”
  3. “A leave of absence granted to a governmental or institutional employee.”
  4. “A leave of absence granted by an employer to an employee; [especially] a leave of absence granted at the employee’s request.”
  5. “A temporary lack of employment due to economic conditions.”[1]

If employers let the word furlough to “speak for itself,” employees could leave with any number of beliefs as to what it means for their situation. Employees may think they are entitled to accrued and unused paid time off (PTO) until their leave allowance runs out, that management will continue to cover the employer portion of group health care benefits premiums, or that they may continue to work remotely on a limited, as-needed basis and can expect payment for this work.

If employees are mistaken, and employers have not properly notified affected staff of the meaning and impact of furloughs in accordance with the employer’s policies and federal, state, and local laws, the employer could suffer significant legal consequences as explained in more detail below.

2. Notwithstanding Issue (1), furloughs can implicate employee rights and employer obligations under labor and employment laws like the FLSA, the WARN Act and COBRA.

Although furloughs have no definite legal meaning, they can be rife with consequences for employers who do not carefully implement and communicate the meaning of a furlough for their affected staff and unaffected employees who may have incorrect expectations about the continued role of their furloughed coworkers in the organization.

If an employee performs any amount of work during a furlough, they are entitled to be paid for it. It does not matter if the employee does this at the direction of a manager or supervisor or without permission (though employers may discipline and even terminate employees for performing unauthorized work under the FLSA). For a nonexempt administrative assistant, this may mean an hour’s pay for responding to emails. Salaried, exempt employees who perform any amount of work during a workweek while on furlough will usually be entitled to a full week’s pay under the FLSA.

If a company will not continue paying for group health care coverage premiums, employees must be notified of their right to pay full premiums to remain in the plans under the Consolidated Omnibus Budget Reconciliation Act (COBRA), as if the employee were terminated or laid off under normal circumstances. If state or local laws or the employer’s own policies entitle an employee to be paid out accrued, unused PTO during a furlough, the employer must do so.

Depending on state and local wage and hour laws, furloughs may trigger requirements that employees receive advance written notice of changes in compensation. Employees should also be informed of their right to apply for unemployment compensation benefits. As we previously reported at Stevens & Lee, mass layoffs (which large-scale furloughs effectively are), can have legal consequences under the federal WARN Act, which generally requires most employers with 100 or more employees to typically give at least 60 days’ advance notice for reasons that include mass layoffs and plant closings affecting 50 or more employees that exceed six months.

There are special twists under the federal WARN Act which may apply during the COVID-19 pandemic, like the “unforeseeable business circumstances” exception which dispenses with the typical 60-day notice requirement and allows employers to notify employees of mass layoffs “as soon as practicable.” If layoffs are temporary and do not exceed six months, notice requirements under the federal WARN Act do not apply at all. Employers should be mindful that if they later decide to extend brief temporary layoffs beyond the six-month period for reasons that were “reasonably foreseeable” when the layoff was originally announced, they may be found in violation of the Act. These carve-outs and exemptions may not be applicable under state and local “Mini-WARN” acts, however, which can heighten employers’ obligations above requirements set under federal law.

3. Based on Issues (1) and (2), reductions in employee hours and compensation and/or definitive layoffs may better suit employers’ needs.

After examining Issues (1) and (2), employers should consider whether different approaches, like reducing employee hours and compensation, or placing employees on definitive layoffs, may be better-aligned with the company’s business needs than placing staff on furloughs. Regardless, employers should consult with counsel experienced in matters of traditional labor and employment law before deciding which course of action works best for their organization.

Stay tuned to Stevens & Lee’s Alerts and Newsletters and COVID-19 Resource Center for further updates as coronavirus-related developments impacting employee rights and employer obligations continue to develop under federal, state, and local labor and employment laws. In the meantime, if you have any questions about how this, or any other, labor and employment law development may affect your business, please contact Daniel J. Sobol, Alexander V. Batoff or the Stevens & Lee attorney with whom you regularly work.

This News Alert has been prepared for informational purposes only and should not be construed as, and does not constitute, legal advice on any specific matter. For more information, please see the disclaimer.