What Should Employers Know About Furloughs During COVID-19?

The economic uncertainty due to the COVID-19 pandemic is forcing many employers to furlough employees in order to save costs. However, employers risk litigation if they do not comply with labor laws. Employers should ensure that they are in compliance with local and national labor laws when furloughing employees. Those who do not follow regulations properly can face penalties and lawsuits. To begin, it is important to be cognizant of the distinction between a furlough, leave of absence, and lay-off of an employee:

Furlough. A furlough is usually a temporary unpaid leave from work. The understanding is that after a certain time period, the employee will return to work. During the pandemic, employers may ask employees to be on furlough until the state lifts the stay-at-home order for non-essential employees. Usually an employer will furlough an entire department because of lack of work or because the business has been forced to close for a certain amount of time.

Leave of Absence. A leave of absence is also a leave from work, which is usually unpaid unless the employee is using their paid vacation time. However, a leave of absence can also occur when an employee requests leave for personal reasons. During the pandemic, an employee who is uncomfortable coming to work when the employer has decided to stay open may request a leave of absence if the employer has a Collective Bargaining Agreement or policy that the covers the leave circumstance requested.  Employers should review their leave policies and Collective Bargaining Agreements so they are familiar with these provisions.  employee is obligated to notify their employer of their request for a leave of absence.

Lay-Off. Employers lay off employees to permanently reduce their workforce. In this instance, the employee has no expectation of returning to work. Employers need to provide notice and comply with requirements that trigger COBRA coverage for health insurance benefits.

Legal Considerations When Issuing Furloughs During COVID-19

Employers should be aware that furloughs may affect employees’ benefit plans. Employers should check with their health insurance providers to ascertain whether the type of furlough designed affects an employee’s ability to maintain their benefits. Also, employers should check with retirement plan administrators regarding the management of monthly contributions. In the event that the employee may risk losing their health insurance, employers should ensure that their obligations under COBRA are met.

Labor Laws

Employers should also be aware of regulations under the Fair Labor Standards Act (FLSA) and the Worker Adjustment and Retraining Notification (WARN) Act. Under the FLSA, employers are not obligated to pay non-exempt employees while they are furloughed. Employers are only obligated to pay for work performed by the non-exempt employee. Exempt employees do not need to be paid if they have not performed work for the full work week. If, however, the employee provided any amount of work, the employer is obligated to pay for the entire work week. Employers may be able to reduce pay and schedules of exempt employees.

Under the federal WARN Act, there is a 60-day notice requirement for furloughs. The WARN Act does not apply if the employer notified the employee that their furlough was temporary, and that they could return to work in six months. If the employer needs to lay-off the employees after the six-month period, the employer will be obligated to pay 60 days of pay and benefits for each employee. Typically, small business employers with less than 100 full-time employees are not subject to WARN Act requirements and not all employees may be included in the count of employees depending on when they were hired and in what capacity.

The WARN Act also provides an exception for unforeseeable business circumstances, but it is unclear if it will cover the COVID-19 pandemic. Therefore, employers should carefully evaluate the application of state and national laws to the specific policies, benefit plans, and needs of their business before taking action.

The legal team at MacMain Leinhauser offers experienced counsel to businesses as to how the state and federal labor laws affect your work force reduction plans during this pandemic. Contact us online or call us at 484-318-7106 for an initial consultation today. Located in West Chester, Pennsylvania, we serve clients throughout Philadelphia, Chester County, and New Jersey.