Employment Question of the Day: April 2, 2020

April 2, 2020

By Kristin LeBre, Debra J. Linder and Edgar R. Ocampo

Question

What is the difference between a furlough and a layoff and how do we know which term to use?

Answer

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.

ImplicationsFurlough/Temporary LayoffPermanent Layoff/Termination
Employment StatusEmployee remains on payroll but does not work at all or works reduced hours.

Notification to employee should state that employment remains at will and that employee may be called back to work at any time during the furlough.
Employment is terminated, and employee is removed from payroll.
FLSAIf employee does not perform work while on furlough, he/she will not be paid.

If non-exempt employee performs work during furlough, he/she must be paid hourly for time worked.

If exempt employee performs any work, he/she must be paid for the full week at regular rate of pay.
At time of termination, employee should be paid for all hours worked or at a later date in compliance with federal and state law.
Federal and State WARN

Note: Employers should be aware that WARN may be triggered when furloughs and/or permanent layoffs at different facilities and at different times are aggregated as required by WARN.
WARN notice obligation could be triggered if:
Employer is covered under WARN, at least 50 employees are placed on temporary furlough/layoff with hours reduced below 50 percent each month and the furlough/layoff extends past six months.

Consult with legal counsel for additional details.

Check state law requirements also.
WARN notice obligation will be triggered if:
Employer is covered under WARN and 50 or more employees are terminated.

Consult with legal counsel for additional details.

Check state law requirements also.
FFCRA

Note: Since the FFCRA was passed, the Department of Labor has issued guidelines and regulations to assist in interpreting the law. It is recommended that employers consult with legal counsel or actively monitor the DOL website when interpreting the FFCRA.
FFCRA paid sick leave is unavailable if employees are furloughed or they are unable to work due to the shutdown of their worksite or the unavailability of work. Once employment is terminated, employee will not qualify for FFCRA paid sick leave or emergency FMLA.
Final Pay ObligationsIf employee is not terminated, employer should pay for hours worked per normal payroll schedule unless state law requires issuance of final paycheck sooner.Employer should timely pay terminated employees in accordance with applicable state law requirements. Best practice is to pay final wages at the time of termination or within 24 hours.
Paid Time Off/VacationCheck state law and employer policy. Payout of accrued PTO during a furlough may be discretionary, however, all employees should be treated the same. State law and/or employer policy may require payout of PTO or vacation at time of termination.
Health and Other BenefitsGenerally, loss of coverage due to reduction in hours will trigger continuation of coverage rights under federal and/or state law for all group health plans. In Minnesota, the reduction in hours will trigger continuation of coverage for group-term life insurance. No continuation of coverage is available for short-term or long-term disability plans.

Employer should consult with insurance carriers and legal counsel to extend coverage during the layoff or furlough.
Generally, loss of coverage due to termination of employment will trigger the same continuation of coverage rights noted in the prior column.

Employer should consult with insurance carriers and legal counsel to extend coverage following termination of employment.
UnemploymentWhile there may be some variation from state to state, furloughed employees or employees working reduced hours will likely qualify for unemployment benefits. Employees will not be eligible to receive unemployment for weeks in which they are receiving a payout of paid time off.Employee will likely qualify for unemployment compensation. Employer should specify that the layoff is due to COVID-19 which will facilitate the administration of the claim and potentially prevent consequences to an employer’s UI tax rate.

If you have questions, contact your Fredrikson and Byron Employment & Labor attorney.


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