As covid-19 continues is devastating spread across the U.S., most states have issued mandatory stay-at-home orders resulting in businesses shutting down and millions of employees being unable to go to work. Many businesses are faced with difficult decisions about how to reduce expenses in an effort to maintain economic viability. Payroll is obviously one of the biggest expenses for companies, and, therefore, companies are weighing their options and considering layoffs, furloughs and reductions-in-force. Here is a brief explanation of each employment action and some compliance considerations. This information constitutes a general overview of various laws and does not replace the advice of counsel.
What is a Layoff?
When there is not enough work for employees to perform, and a company needs to downsize, restructure or even close the business, layoffs can occur. In some cases, a layoff may be temporary and, if conditions improve, the company may rehire the employee. Employee performance is typically not a reason to lay off an employee, and the employment action is usually out of the employee’s control.
What is a RIF?
The end result of a layoff and RIF is the same, an employee loses his/her job. However, when laid off, there is usually an understanding the employee maybe be rehired should economic conditions improve. In a RIF, a position, or even a whole class of positions, is eliminated with no intention of that position or class of positions returning should economic conditions improve. Companies may consider voluntary RIFs, sometimes in the form of an early retirement incentive (ERI). ERIs can be especially helpful for cost-savings since employees nearing retirement age are often among the most highly paid and more likely to be ready to quit working, and for salvaging morale since the action is voluntary.
What is a Furlough?
A furlough is a forced, unpaid leave of absence from a company. The difference between a furlough and a layoff/RIF is in terms of the employment relationship. A furloughed employee is still an employee. An employee who has been laid off or is part of a RIF is no longer an employee. Benefits often remain in place during a furlough, whereas they are terminated as a result of a layoff or RIF.
What are Common Compliance Issues with these Employment Actions?
Whether considering furloughs, layoffs or a RIF, employers must act without regard to any legally-protected characteristic such as race, ethnicity, national origin, age, religion, sex, gender, or disability. An adverse impact analysis can help employers avoid discrimination charges. The EEOC recommends employers review the planned employment action and:
- List the employees who would be laid off or terminated based on the layoff/RIF criteria.
- Determine whether certain groups of employees are affected more than other groups. For example, are female employees more affected than male employees? Are employees over 40 years of age more affected than others?
- If certain groups of employees are affected more than other groups, determine if the layoff/RIF selection criteria can be adjusted to limit the impact on those groups, while still meeting business needs.
Employers should make sure they have treated all similarly-situated employees the same or have a legitimate business reason for treating employees differently (i.e., performance criteria, last hired, first to go).
Worker Adjustment and Retraining Notification Act (WARN)
Employers must determine if the WARN Act applies to the layoff or RIF. The WARN Act requires covered employers provide written notice at least 60 calendar days in advance of covered plant closings and mass layoffs. A WARN notice is required when a business with 100 or more full-time workers (exempting employees who have been with the employer less than six months and those who work less than 20 hours per week) is laying off at least 50 people at a single site of employment or employs 100 or more workers who work at least a combined 4,000 hours per week. There are exceptions to the mandatory 60-day notice that may apply to the current covid-19 situation including unforeseeable business circumstances and natural disaster.
In addition to the federal WARN Act, several states have their own mini-WARN acts with similar requirements, including California, Hawaii, Illinois, Iowa, Maine, New Hampshire, New Jersey, New York, Tennessee, Vermont and Wisconsin.
Older Workers Benefit Protection Act (OWBPA)
If an employer uses releases from age discrimination in exchange for severance pay in a RIF or layoff, the employer must comply with OWBPA to effectively release claims under the Age Discrimination in Employment Act (ADEA). Generally, the OWBPA requires covered employers to give employees up to 21 days to consider the severance offer, or 45 days in the case of a layoff of more than one employee, and a seven-day period after signing to revoke the release of the ADEA/OWBPA claims. Also, employers have a duty to disclose the age and title of the workers who are chosen for layoff and the selection criteria. Because of the specific language required in the release, it is strongly recommended employers consult with counsel when drafting the releases.
Wage and Hours Issues
When furloughing employees, wage and hour issues may come into play. The FLSA has no provision for deductions from salary due to lack of work. Therefore, an employer cannot furlough an exempt employee for a part of a week and make a deduction from that employee’s salary. If an exempt employee works any portion of a week, he/she must be paid his/her full salary for that week. It is permissible, however, to furlough an exempt employee for an entire week and not pay the employee for that week. Employers should make sure exempt employees perform no work while on furlough, not even respond to emails or answer work calls.
If salary cuts are being considered, employers should ensure they do not cut exempt salaries below the $684/week threshold to be considered exempt.
Smart HR is Your Trusted Advisor
Making employment decisions that negatively impact your workforce is extremely difficult. Care should be given to researching alternative options, crafting communications in the most thoughtful manner and providing resources to the affected employees such as COBRA and unemployment insurance guidance. Every situation and company is different, and Smart HR can provide you with customized solutions helping you every step of the way. Lean on Smart HR and call today.