Considerations for Employers When Contemplating Employee Furloughs or Reductions in Force in the COVID-19 Environment

Many employers are rightfully concerned with how best to manage the business and financial impact and implications of the COVID-19 outbreak and resulting closures and dislocations. Some are considering temporary furloughs of workers as an alternative to terminations or reductions in force (“RIFs”). Below, we provide a general overview of these employer options and laws that are implicated as a helpful tool in decision-making.

This communication is intended as a general discussion of these matters only and is not to be considered legal advice or relied upon without direct attorney guidance concerning any particular situation. This memorandum focuses on federal and New York law, which are both evolving on a frequent if not daily basis. For more specific information or legal advice concerning your company’s particular situation, please contact us directly.

1. Furlough vs. RIF – The Basics 

A furlough is a temporary, unpaid leave of absence, with an expectation that an employee will return to his or her job at a specific time. A furlough may also include reduced work hours or days of work, or reduced work weeks. By contrast, an employee who is laid off may be recalled but has no expectation of future employment by the employer.

a. Health Coverage Benefits: Many employers electing to furlough their employees may choose to continue employee health benefits during the furlough period. Whether this is possible depends on the company’s benefit plans, so you should consult your company’s plan documents and plan administrator concerning coverage options prior to triggering a furlough. By contrast, employees who are laid off will generally have their benefits terminated and be eligible for COBRA insurance continuation coverage.

b. Check Your Company’s Plans and Policies: It is important to make sure your employees understand the impact of a furlough or lay-off on their health insurance coverage under the employer’s benefit plans or COBRA. Your company’s particular health plans and other benefit plan terms, as well as your company’s employment policies, may address when such coverage ends and the extent to which reducing an employee’s hours or pay—or a temporary lay-off—may be considered a triggering event for COBRA coverage.

c. COBRA: COBRA (which stands for the Consolidated Omnibus Budget Reconciliation Act) is the federal health insurance continuation statute which imposes a legal obligation on the part of the employer to notify its plan administrator within 30 days of a qualifying event (such as a lay-off or termination) that ends employee insurance coverage, so that the affected employees can receive COBRA notices, which will then allow them to continue the same coverage at their own expense (plus a small administrative fee) for the legally mandated period. If your company is considering reducing employees’ hours, it would be wise also to consider whether such reduction will also change them to part-time status and render them ineligible for some benefits, which may in turn render them eligible for insurance continuation under COBRA.

d. Determining Who to Furlough: It is important that the furlough does not disproportionately affect employees in legally protected classes—e.g., race, color, alienage or citizenship status, national origin, pregnancy, sex, age, disability, sexual orientation, gender identity, religion, or veteran/active military status, or employees who have complained about working, health or safety conditions. (The range of “protected classes” varies based on the federal, state, city and local laws that apply.) Be careful to consider especially the correlation between higher levels of pay/seniority and age when determining who is to be included in the furlough or lay-off. For instance, choosing to furlough or lay off only workers with higher pay or greater seniority may make your company vulnerable to a disparate impact claim for age discrimination. Employers should make sure the choice of which workers to furlough or lay off and the reason for the action generally is made for a sound business reason, is applied to workers consistently, and is well-documented and communicated to staff.

2. Termination and Severance 

Lay-offs may also trigger an employer’s severance pay plan or policy. Employers are not generally required to pay for the terminated employee’s insurance continuation, and that is often a negotiated term. If offering severance pay, employers generally should obtain a release of claims in a separation agreement in exchange for severance. While the conventional wisdom is that it is preferable to condition severance payments on obtaining a release of claims, as a practical matter, especially in these times, employers should consider whether this is warranted in all cases. Releases are usually lengthy legal agreements, and for workers who are age 40 or older, require that the employee be given 21 days to consider the agreement and 7 days to revoke it after signing. As such, requiring a separation agreement with a release of claims as a condition for providing severance pay may complicate terminations by delaying receipt of severance benefits, imply the existence of potential legal claims, and/or generate unwarranted antagonism between the employer and the employee.

3. Unemployment Insurance

Whether employees are entitled or able to collect unemployment insurance during a furlough or following a lay-off will depend on their particular state’s unemployment insurance laws and standards.

a. New York Unemployment Insurance Requirements: In New York, unemployment insurance is available to employees who earn a minimum amount of wages during their “base period” of employment; lose their jobs through no fault of their own; are ready, willing and able to work; and are actively looking for work during each week in which they are claiming benefits. For purposes of the “actively looking for work” or “work search” requirement, workers should be exempt if their return-to-work date is in 4 weeks or less, according to the New York State Department of Labor’s regulations. Some states, such as Connecticut, have eliminated the “work search” requirement during this public health emergency. New York has not yet done so as of the date of this memorandum. (We are monitoring the situation closely as these particular matters are evolving rapidly, if not daily, and are available to discuss particular situations before company action is taken.)

b. Waiting Period – Waived in Some States like New York: Many states require a “waiting period” before unemployment benefits commence. New York, for example has required a one-week waiting period before unemployment benefits are received. However, unemployment insurance requirements are evolving given the current public health crisis, and in order to accelerate the receipt of funds, New York has now waived its one-week “waiting period” for unemployment benefits.

c. Employer-provided Record of Employment: Some states, such as New York, also require companies to provide each employee whose employment is ending with a formal notice to facilitate an application for unemployment insurance. A copy of New York’s Record of Employment form is attached via this link here.

4. Vacation Pay/Paid Time Off (“PTO”)

Employers may want to permit or require employees to use their accrued but unused vacation time and accrued vacation pay during a furlough. Employees using accrued but unused vacation pay would postpone the commencement of unemployment benefits, rendering an additional benefit to the employer.

a. New York: Under New York State law, employers are not required to provide their employees with paid time off for vacation at all, paid or unpaid, or personal days at all, paid or unpaid. In New York City and Westchester County, however, sick days are required to be provided, and New York State recently passed a law requiring quarantine-related sick leave in connection with the coronavirus, as discussed further below.

i. Policies: Even though vacation time or other PTO is not required to be provided to private employees under New York State law, a company is bound by the terms of its own policy; so New York employers should consult their company’s policies to determine what is and is not articulated and permitted under them. Because vacation is discretionary with private employers, employers have latitude in what they can require. For example, an employer may cap the amount of vacation leave which an employee may accrue over time, so long as employees are given prior notice of the policy. However, an employer is required to pay out accrued but unused vacation time upon the employee’s separation from employment, if the employer’s established policy or employment contract is silent on the matter.

ii. Advancing Vacation – Caution: Additionally, employers should be careful if considering advancing vacation time that has not yet accrued to their employees. While this is permissible, if the employee then leaves the company or is terminated before the time accrues, thus resulting in a negative accrual, the company would need to receive advance authorization from the employee to deduct the advanced PTO from a final paycheck, and would also need to institute procedures by which the employee could dispute the deduction.

iii. Note re Exempt Employees: Employers should also note, if an exempt employee (meaning, an employee exempt from overtime) works any amount of time during a given week, he or she must be paid for the entire week.

iv. Other States: Employers with offices or workers in other states should consult those states’ laws regarding accrual and use of PTO to ensure compliance, particularly in the current legislative environment.

5. Lay-Off Notice Requirements

“Mass lay-offs” may trigger a 60-day or longer notice requirement under federal and/or state worker notice laws, known as WARN (Worker Adjustment and Retraining Notification) Acts. Whether such requirements are triggered and whether your situation is exempted from such requirements will depend on several factors, including the number of employees laid off, employer size, the states where the employees work, and the conditions triggering the lay-off. Regardless of your obligation to provide notice under the applicable WARN laws, it is good company practice to provide employees with sufficient advance notice in order to allow them to ask questions, get answers, and prepare.

a. Worker Adjustment and Retraining Notification Act(s) (“WARN”) (under federal and state laws): As the acronym suggests, WARN provides for workers to receive advance notice of group employment reductions. If the lay-off or a furlough lasts longer than six months and affects 25 or more workers, a WARN notice may be required either 60 or 90 days prior to the effective date of the lay-off or furlough (depending on whether New York or the federal laws apply), because it may qualify as a “mass layoff.” Failure to provide WARN notices can result in liability for back pay and/or additional penalties. Other states have WARN laws as well, so for workers outside of New York, an employer with offices or workers outside New York should consult those states’ laws.

b. Caveats: If there is a furlough or temporary lay-off of less than six months that extends to more than six months, and if the extension was not reasonably foreseeable, there may not be a penalty for failing to give the notice. Both the federal and New York WARN Acts have exceptions to their notice requirements, if the closure or lay-off was due to “unforeseeable business circumstances” or “natural disaster.” Currently, the New York Department of Labor has posted a notice stating that, “If your business is forced to close, you should provide required notices as soon as possible and identify the circumstances that required the closure.”

c. Other States: Other states’ WARN Acts may have similar exceptions, and the precise application of these exceptions to closures resulting from the current public health crisis is evolving. California, for example, has modified its WARN notice requirements for business closures related to the coronavirus as of the date of this memo. The requirements of WARN are complex and should be consulted carefully before any group or mass lay-off in order to ensure compliance.

6. Notices of Termination 

Some states, such as New York, also specify requirements for written notices of termination.

a. New York: In New York, employers must notify any employee terminated from employment, in writing, of the exact date of such termination as well as the exact date of cancellation of employee benefits connected with such termination. This written notice of termination must be provided within no more than five working days after the date of the termination. In addition, as discussed above, New York requires employers to provide any employee terminated from employment with a Record of Employment form, a copy of which is available at this link here.

7. Employees on Leave 

Employers should also consider whether a planned furlough or RIF would affect any employees already on leave from the company. Beware of selecting employees for furlough or lay-off in any way that could be deemed discriminatory based on, for example, their pregnancy, caregiver status, health issues or injuries, or other protected categories, or that could be deemed as retaliation for taking job-protected leave, such as Family and Medical Leave Act (“FMLA”) leave or leave pursuant to state or local law. Decisions regarding whether to furlough employees on leave or following return from leave are nuanced and should be made with legal guidance to limit the possibility of employer liability or the appearance of bias.

a. New Employee Rights under the Families First Coronavirus Response Act (effective April 1, 2020): This new federal law has two components, the Emergency Family and Medical Leave Expansion Act and the Emergency Paid Sick Leave Act. Covered employers will be able to use payroll tax credits to cover the cost of wages paid to employees under these new programs.

i. Emergency Family and Medical Leave Expansion Act:

1. Benefit: Up to 12 weeks of “public health emergency” FMLA leave if the employee is unable to work (or telework) due to a need for leave to care for their son or daughter under 18 years of age if the child’s school or place of care has been closed, or the child’s child care provider is unavailable, due to a public health emergency with respect to COVID-19 declared by a federal, state, or local authority. Public health emergency leave is a new category of leave added to the already existing categories of leave under the FMLA.

2. Eligibility: The employee must be employed by the employer for at least 30 calendar days to take public health emergency leave.

3. Paid and Unpaid Leave: The first 10 days of public health emergency FMLA leave may be unpaid, but employees may elect to substitute accrued paid leave during this time, including paid sick leave pursuant to the Emergency Paid Sick Leave Act (discussed below). Following the first 10 days, employers will be required to provide paid leave of at least two-thirds of an employee’s regular rate of pay (as defined under the Fair Labor Standards Act (“FLSA”)) for the remainder of the period of public health emergency FMLA leave, up to 12 weeks (as needed). The total available amount of time for all FMLA reasons combined remains 12 weeks over a 12-month period (although employees eligible for public health emergency leave may not meet the eligibility criteria for other bases for FMLA leave).

4. Caps: The two-thirds payment benefit is capped at $200 per day and $10,000 in the aggregate.

5. Job Protection: Employees are entitled to be restored to their same or an equivalent position upon their timely return to work from leave.

6. Exceptions:

a. Employers with 500+ employees are not covered;

b. The Secretary of Labor can issue regulations excluding certain health care providers and emergency responders from coverage, as well as exempting certain employers with fewer than 50 employees from coverage if imposing such requirements would jeopardize the viability of such employers’ businesses;

c. Employers with fewer than 25 employees would not be required to comply with these job restoration requirements in connection with public health emergency FMLA leave, if the employee’s position when they began leave does not then exist due to economic conditions or other changes in the employer’s operating conditions that (1) affect employment and (2) are caused by a public health emergency during the leave period; and the employer makes reasonable efforts to restore the employee to a position equivalent to one they held when leave began (i.e., equivalent benefits, pay, terms and conditions of employment). If reinstatement is not required because the above conditions are met, an employer would be required to make reasonable efforts to contact the employee if an equivalent position becomes available during the one year period beginning on the earlier of: (i) the date on which the qualifying need related to public health emergency concludes, or (ii) the date that is 12 weeks after the date on which the employee’s public health emergency FMLA leave commences.

ii. Emergency Paid Sick Leave Act: 

1. Benefit: Full-time employees get up to 80 hours of paid leave and part-time employees get a number of hours of paid leave that would equal the hours that the employee works, on average, over a two-week period. The law is unclear as to whether the employer must provide sick leave that it already provided on top of the sick leave mandated by the new law, but it provides that “[a]n employer may not require an employee to use other paid leave provided by the employer to the employee before the employee uses the paid sick time under [the Act].”

2. Eligibility: Employees of employers with fewer than 500 employees are eligible regardless of how long they have been employed by the employer.

3. Covered Reasons: Employees may use this emergency paid sick leave for the following reasons, to the extent they are unable to work or telework:

a. if they are subject to a federal, state, or local quarantine or isolation order related to the Coronavirus (at employee’s regular rate of pay as defined under the FLSA, up to a maximum of $511 per day and $5,110 in the aggregate);

b. if they have been advised by a heath care provider to self-quarantine due to concerns related to the Coronavirus (at employee’s regular rate of pay as defined under the FLSA, up to a maximum of $511 per day and $5,110 in the aggregate);

c. if they are experiencing symptoms of the Coronavirus and are seeking a medical diagnosis (at employee’s regular rate of pay as defined under the FLSA, up to a maximum of $511 per day and $5,110 in the aggregate);

d. if they are caring for an individual who is subject to a federal, state, or local quarantine or isolation order related to the Coronavirus, or who has been advised by a heath care provider to self-quarantine due to concerns related to the Coronavirus (at two-thirds of the employee’s regular rate of pay, up to a maximum of $200 per day and $2,000 in the aggregate);

e. if the employee is caring for their son or daughter if the school or place of care of the son or daughter has been closed, or their child care provider is unavailable, due to Coronavirus precautions (at two-thirds of the employee’s regular rate of pay, up to a maximum of $200 per day and $2,000 in the aggregate); and/or

f. if they are experiencing any other substantially similar condition specified by the Secretary of Health and Human Services in consultation with the Secretary of the Treasury and the Secretary of Labor (at two-thirds of the employee’s regular rate of pay, up to a maximum of $200 per day and $2,000 in the aggregate).

4. Exceptions: The Secretary of Labor may also issue regulations exempting employers with fewer than 50 employees from the need to provide emergency paid sick leave for an employee to care for a child if the child’s school or child care provider is closed, where the imposition of such requirements would jeopardize the viability of the business.

5. Notice Requirements: Employers will be required to post a notice regarding employee rights under the law. The United States Department of Labor is to provide a model notice by no later than March 25, 2020.

b. New Rights under New York Law — Quarantine-Related Sick Leave: New York employers must provide job-protected sick leave to employees who are subject to a mandatory or precautionary order of quarantine or isolation issued by the State of New York, state or local health department, or any other governmental entity due to COVID-19, as follows:

i. Employers with 10 or fewer employees and a net income less than $1 million in the previous tax year are required to provide unpaid, job-protected sick leave to each employee who is subject to such an order through the termination date of the order. Employees are also eligible for New York Paid Family Leave benefits and New York statutory disability during the quarantine period as discussed further below.

ii. Employers with 10 or fewer employees and a net income greater than $1 million dollars in the previous tax year, as well as employers with 11-99 employees, are required to provide at least 5 days of job-protected paid sick leave, followed by unpaid leave until the termination of the quarantine order. After these five days of paid sick leave, employees are eligible for Paid Family Leave benefits and New York statutory disability for the remainder of the quarantine period as discussed below.

iii. Employers with 100 or more employees as of January 1, 2020, as well as certain public employers regardless of size, are required to provide at least 14 days of job-protected paid sick leave during the period of the order.

iv. This leave is in addition to any sick leave an employee has already accrued.

v. This does not apply to employees who are asymptomatic or not diagnosed with any medical condition while in quarantine and who are physically capable of working while under the quarantine order, whether remotely or through other means.

vi. This does not apply to employees under a mandatory or precautionary quarantine order due to returning to the US after non-business travel to a country which the CDC has issued a level two or three Coronavirus-related travel advisory, so long as the employee is provided notice of the travel advisory and these limitations on benefits prior to such travel. Employees returning from such travel are able to use any accrued employer-provided leave during their quarantine period, or if no such leave is available to them, unpaid sick leave for the duration of the quarantine period.

vii. Paid Family Leave and Disability Benefits During the Quarantine Period: For employers with fewer than 100 employees, New York Paid Family Leave and New York State disability benefits will be concurrently available to employees during an otherwise unpaid period of leave taken by an employee due to a covered mandatory or precautionary order of quarantine or isolation, or to provide care for a minor dependent child of the employee who is subject to such an order (following the use of any paid sick leave benefits).

viii. Interaction with Federal Law: Employees in New York are eligible to receive the difference between what the federal legislation provides and what is available under the state law.

8. Other Options

Before a furlough or RIF, employers may also want to consider less drastic measures like a hiring or promotion freeze, or work sharing, if financially feasible.

9. Contracts, Collective Bargaining Agreements and Employee Handbooks

Consult any employment contracts and review your company’s Employee Handbook to understand whether there are any obligations or stated policies that would be triggered by a furlough.  If there are unionized employees, consult collective bargaining agreements.

10. Fair Labor Standards Act (“FLSA”) and New York Labor Law (“NYLL”)

The FLSA and NYLL require that workers be paid at least minimum wage for all hours worked, and overtime for hours worked over 40 hours in a workweek, unless exempt from overtime requirements. (Other states may have additional wage and hour requirements.) Employers should keep the following wage and hour considerations in mind when conducting furloughs:

a. For Hourly Workers: Employers should make sure there is no off-the-clock work during the furlough period. They should also ensure that workers are instructed not to perform any work at all during the furlough period, and that if a supervisor nonetheless instructs them to work, they must record that time and notify HR promptly to ensure they are paid for time worked.

b. For Salaried, Exempt Workers: Many employees are exempt from overtime under the so-called “white collar” exemptions. For these to apply, the employee must be compensated on a salary basis of at least $684 per week. New York has a higher salary basis requirement for certain exempt workers, which depends upon the size of the employer and location in the state. (Other states may have their own salary thresholds that are higher than the federal threshold as well.) This means that if certain salaried, exempt employees perform any work in a workweek, the employer must pay their full weekly salary.  As a result, it is advisable to furlough exempt employees for full workweeks. If considering requiring reduced hours at lower salaries, such a change should be prospective only and should be on a long-term basis, rather than fluctuating based on the employer’s business needs, and the salary cannot go below $684/week (or the New York or other relevant state law’s salary basis threshold) or you will risk losing the exemption.

c. Technology: Consider disabling access to work email on electronic devices during the furlough period for those impacted, or instructing employees they are not to work unless a supervisor calls them (and if so, to record their time). If any employees work during furlough, make sure they are paid for their time and reiterate the company’s instruction not to work.

11. Policies and Agreements Still in Effect

Review any non-competition, non-solicitation, or confidentiality agreements that may be in effect, and advise employees bound by such agreements as to whether their terms remain in effect during the furlough. Any employment or other relevant agreement should be consulted prior to any furlough or lay-off, to avoid any possible breach.

12. Foreign Workers or Students

Your company may have an obligation to notify USCIS, other federal agencies, or your state’s Department of Labor, of the change in the terms and conditions of employment for workers whose visas you sponsor or foreign students whom you are employing. Strict visa regulations and the current no-travel restrictions in effect may have a direct and possibly unique impact on the workers you seek to transition to furlough or termination. Hence it would be prudent as well as humane to explore the potential immigration impact of any adverse employment action on workers who may be in a protected class or more vulnerable category (such as unable to travel home to a country where such travel is restricted). It is not only good business practice, but humane at a time when humanity is being tested, to consider the practical impact on the individuals whom your company is considering including in a furlough or lay-off, and seek legal guidance before such decisions are made.

We hope this discussion has been useful and welcome the opportunity to discuss any particular situation in light of this evolving COVID-19 landscape.  Please note, this memorandum is intended as a general discussion of these matters and legal issues only, and is not considered to be legal advice or relied upon in connection with any particular situation. Please feel free to contact us if you have questions or need further guidance. The attorneys of our Employment practice group would be happy to assist.

We wish you all continued success, safety and well-being in these challenging times, and are here to help.

This article is intended as a general discussion of these issues only and is not to be considered legal advice or relied upon. RPJ Partner Deena R. Merlen and Associate Liz Stork counsel both companies and individuals on employment and labor matters, and are available to consult on specific matters. They are admitted to practice in New York and Connecticut, as well as the U.S. District Courts for the Southern, Eastern, and Western Districts of New York, the U.S. District Court for the District of Colorado and the U.S. Courts of Appeals for the Second and Tenth Circuits. Attorney Advertising.