As employers struggle to cope with the impact of coronavirus 2019 (COVID-19), we have encountered a surprising number of employers who have been led to believe that a “furlough” is an employer option that can be implemented without regard for various laws that might otherwise apply. It is not. To be blunt, while the term “furlough” seems to be a more employee-friendly word for what many employers are doing, there is no magic to it. Indeed, until the California Legislature or Congress pass more comprehensive COVID-19 relief legislation, employers must still comply with all applicable laws in a given situation.
Thus, an employer contemplating a temporary shutdown or layoff needs to ask itself a few important questions:
1. Will the layoff or shutdown last longer than a pay period? The California Division of Labor Standards Enforcement maintains that for final pay purposes, a temporary layoff must be treated as a termination unless the employee is given a return to work date within the same pay period—in those cases, normal payroll schedules can be followed. Put differently, if an employee is temporarily laid off without a specified return date within the same pay period, all wages owed to the employee, including accrued but unused vacation pay, should be paid on the day of the layoff. If the employee will return to work for the employer within the same pay period, wages may be paid on the next regular pay day. As with any termination or reduction in hours, the employee would have the right to apply for unemployment benefits during the period of the layoff. In addition, since a layoff or shutdown lasting longer than a pay period is effectively a termination (although not communicated as such), COBRA or Cal-COBRA rights would also apply for the employee to continue healthcare benefits.
2. How long will the layoff or shutdown last? Longer layoffs in California will trigger Cal-WARN Act rules. Unlike its federal counterpart, California’s WARN Act has no exception for unforeseen business circumstances and requires every facility that employs or employed 75 or more persons within the last 12 months to give 60 days of written notice to the employees and certain government officials before any mass layoff that will result in a loss of employment for 50 or more people in any 30 day period. Importantly, Cal-WARN also applies to the closing of a facility, which is defined as the “cessation or substantial cessation of industrial or commercial operations” in a covered facility. Thus, where a covered facility will be shutdown, it is not necessary that 50 or more people be impacted for 30 days. Violations require back pay, the value of benefits, penalties of $500 per day and attorneys’ fees. The federal government has a similar law that applies to employers with 100 or more full-time employees who worked for at least 6 of the last 12 months, but the law does not encompass layoffs that are less than 6 months in length and, when applicable, has an exception for unforeseen business circumstances that permits as much notice as is practicable under the circumstances. Employer’s should also be aware that many other states and territories, including New York, Connecticut, Hawaii, Illinois, Kansas, Maine, Massachusetts, Michigan, Minnesota, New Hampshire, New Jersey, Oregon, Rhode Island, South Carolina, Tennessee, Wisconsin, Puerto Rico and the U.S. Virgin Islands, have mini-WARN Act laws that should be examined before undertaking any shutdown or layoff in these areas.
3. Could the situation be managed with a reduced work schedule? A reduced work schedule provides workers the opportunity to continue to earn some wages while keeping health insurance benefits in place. Wages lost as a result of reduced hours can be partially replaced through unemployment insurance. In fact, the Employment Development Department offers a work share program that allows employers to coordinate unemployment insurance with losses of wages or hours that range between 10 and 60 percent. Employers should keep in mind that, for workers that will be sent home without pay for short periods of time, exempt workers must generally be paid for any workweek in which they perform services. More specifically, the Department of Labor has stated that, while an exempt employees do not need to be paid for any workweek in which they do not perform work, an exempt employee must receive the full salary for any week in which the employee performs any work, regardless of the number of days or hours worked. Further, an employer is prohibited from making any deductions from an exempt employee’s predetermined salary because of operating requirements; if the employee is able to work, no deductions can be made for time when no work is available. Failure to pay the exempt employee properly can void the exemption to overtime.
Employers should also be clear about whether this is a leave of absence situation or an employer shutdown or layoff due to a lack of work. A leave of absence requested by an employee can trigger different rights and obligations depending on the nature of the request. Where an employee needs to care for a sick family member, the employee could apply for Paid Family Leave from the state, which pays from $50 to $1,300 a week for up to six weeks and is scheduled to increase to eight weeks effective July 1, 2020. Alternatively, if an employee has been quarantined or is sick, State Disability Insurance can apply. State disability will provide from $50 to $1,300 a week to eligible employees for up to 52 weeks. A leave of absence with a specified return date can allow employer-sponsored health insurance to remain in place and be subject to the same terms and conditions, i.e., with the same employee and employer contributions, as would be in place if the employee continued to work. Persons on these types of leaves may also use any available paid sick leave and vacation pay during their absence. A leave under the Family Medical Leave Act or California Rights Act would also be triggered by these circumstances.
As stated above, if the employer is shutting down or conducting a layoff due to reduced work, then the employee may apply for unemployment benefits. Unemployment insurance provides partial wage replacement from $40 to $450 a week for up to 26 weeks. For both unemployment benefits and disability insurance, Governor Newsom’s Executive Order waives the one-week unpaid waiting period, so that benefits can be collected the first week the person is out of work, and claims should be processed and payment sent within a few weeks of a claim. The Employment Development Department has stated that a temporary reduction or layoff due to coronavirus is exempt from the usual unemployment insurance requirement that the person seek employment elsewhere. The EDD has posted a useful page on the benefits options here.
The bottom line here is that employers should proceed with caution. Labelling a layoff, closure or reduction in hours as a “furlough” will not shield an employer from liability down the road, when hungry plaintiff lawyers are back at work and looking to make up for revenue lost during this difficult period.
