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Furloughs and Layoffs in the Time of COVID-19: An Overview of What Employers Need to Consider

Posted by Sean Cork | Apr 02, 2020 | 0 Comments

The mandatory shelter-in-place order issued by Governor Newsom in March 2020 has presented many businesses with a dilemma regarding employee treatment.  Does the business maintain its workforce at present levels (assuming revenue justifies such an option, of course), or should the business consider furloughs or layoffs?  Does the law impose different obligations on employers that layoff or furlough employees?  These are just some of the many questions employers face in these difficult times.  While it is impossible to address all of these issues in detail, the following overview will be helpful to any business or business owner.

  1. Unionized Workforces. Before exploring the differences between furloughs and layoffs, it is important to note that employers with unionized workforces will likely face additional challenges.  The National Labor Relations Act and the terms of the collective bargaining agreement may impose additional obligations on an employer when it comes to furlough and layoff decisions.  Employers are required to engage in good faith bargaining with the union about such matters unless there are compelling economic exigencies or the terms of the collective bargaining agreement provide otherwise.  Employers with unionized workforces should consult with their labor counsel as soon as possible to determine what additional obligations, if any, with which the employer must comply.
  2. Layoffs. Under California's labor laws, a layoff is a separation of the employer-employee relationship.  Once the separation takes effect, all compensation and benefits for the laid-off employee are terminated.  When an employee is laid off, he or she must go through the rehire process in order to rejoin the employer's workforce.

Employers that employ large workforces may also be subject to the provisions of the state and federal WARN Acts (which stand for Worker Adjustment Retraining Notification Act).  The provisions of the federal WARN Act are triggered if an employer lays off 50 or more employees in a 90-day period and the layoff will last longer than 6 months (which is obviously met if the layoffs are permanent).  If the WARN Act applies, the employer is required to provide at least 60 calendar days' written notice to employees affected by the layoff.  Failure to provide this notice may result in the employer being liable for up to 60 days of back pay and benefits as well as civil fines of $500 per day.

  1. Furlough. A furlough involves an employer suspending its employees work schedule.  Furloughed employees remain employed by the business but are barred from work during the duration of the furlough.  Employees are not paid during this period but do retain their benefits.  In the event that an employee performs any work during a furlough, that employee must be paid for the work performed.  Hourly employees are to be paid at their hourly rate, while non-exempt employees are entitled to an entire week's pay for any time worked during that week.  Employers must be aware that any task performed for the employer constitutes “work” and thus includes what may seem to be minor tasks like making phone calls or checking work emails. 
  2. Paycheck Protection Program. As I wrote yesterday, the CARES Act authorizes the Small Small Business Administration to implement the Paycheck Protection Program.  Under this program, the SBA will provide loans to small businesses to assist in keeping workers on their payroll.  These loans will be forgiven if the proceeds are used to pay payroll, rent, utilities, and interest on mortgages, so long as at least 75% of the loan amount is used to meet payroll.  Loan forgiveness will be reduced if full-time headcount declines, or if salaries and wages decrease.  Businesses that borrow money under the Paycheck Protection Plan must be cognizant of these provisions if they want to ensure that any loans are forgiven.

The COVID-19 crisis remains fluid and no one knows that the future holds.  If you own a small business it is imperative that you take steps now to protect your livelihood.  It is also imperative that you reach out to qualified attorneys to assist you in these efforts.

About the Author

Sean Cork

Sean Cork, Attorney Recognized as one of the Best Lawyers in America® on numerous occasions since 2013. Sean Comes to the table with Over 18 years experience advising Fortune 500 companies and hedge funds in bankruptcy, restructuring, and insolvency, including leading complex federal litigatio...

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