What is the difference between a furlough and a layoff and how do we know which term to use?
COVID-19 is impacting businesses across the country, and employers are being forced to reduce employee costs. Each day, more and more employers are announcing furloughs and layoffs.
Although the terms “furlough” and “layoff” are often used interchangeably, an employer should clearly communicate the meaning of the applicable term when notifying employees of a change in employment status.
A “furlough” or “temporary layoff” typically means an unpaid leave of absence during which the employee remains on the payroll, although the employee is not paid because no work is performed. However, the employment relationship has not been terminated, and the employee can be called back to work at any time. By contrast, a “permanent layoff” means the employee has been terminated from employment. Because the word “layoff” could mean either a furlough or termination of employment, it is important to specifically define that term for affected employees.
It is important to note that the terms “furlough” and “layoff” may have different consequences under state and federal laws such as the Fair Labor Standards Act (FLSA), the Families First Coronavirus Recovery Act (FFCRA), and the Worker Adjustment and Retraining Notification Act (WARN), as well as triggering obligations and consequences under benefit plans and policies. The terms may have different consequences under an employment agreement as well.
In deciding whether to “furlough” or “lay off” employees, prior to taking action, an employer should review all applicable laws, as well as all relevant documents which might create legal obligations including offer letters, employment agreements, collective bargaining agreements, the employee handbook and employment policies, and benefit plans.
Below is a chart providing a high level comparison of a furlough/temporary layoff with a permanent layoff/termination and identifies some of the important consequences and considerations underlying each.
[table id=10 /]
If you have questions, contact your Fredrikson and Byron Employment & Labor attorney.