In these tough economic times, mandatory furloughs may be an attractive alternative for many employers. However, while furloughs don’t create many of the risks of termination, there are legal pitfalls to avoid.
Law firm Littler Mendelson P.C.’s blog Insight offers advice for employers contemplating furloughs. Littler attorneys Alison S. Hightower, Eric C. Bellafronto, Barry Y. Freeman, and Bryan N. Smith contributed to the blog.
Mandatory Furloughs’ Effect on Status of Exempt Employees
Exempt employees under federal law and most state laws must be paid the same minimum salary for each pay period. Moreover, if an exempt employee performs any work during a workweek, that exempt employee must receive his or her entire salary for that week.
Stated another way, the employer may not make deductions from an exempt employee’s predetermined salary for absences “occasioned by the employer” or caused by “the operating requirements of the business.”
Full Workweek Furloughs
However, if an employer furloughs an exempt employee for an entire workweek, no salary is owed for that full week, and the employee’s exempt status is not affected.
In addition, if an employer mandates furloughs, but requires exempt employees to use accrued vacation or “paid time off” for those furloughed days, the DOL says the employer does not jeopardize their exempt status. That’s because the exempt employees still receive their full salaries for the workweek, even if they only worked a small portion of that workweek.
Of course, most employers considering furloughs are doing so to cut their cash outlays, and using accrued time off doesn’t accomplish that.
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Partial-Week Furloughs
One common approach to furloughs is to reduce salaries by 20% and then reduce workweeks by one day a week. It seems fair and provides employees with 3-day weekends as compensation for the pay cut. The question is, can an employer mandate this approach for exempt employees without jeopardizing their exempt status?
The DOL has recently stated that, in general, reducing exempt employees’ work schedules with a corresponding reduction in salary because of lack of work violates the salary basis test.
Absolutely No Work Permitted
With the advent of the Blackberry®, the ease of remote connections, and the use of voicemail, it is likely that at least some exempt employees will—with the best intentions—check their voicemail, send an e-mail, or otherwise conduct “work” while on furlough.
Since, as mentioned above, an exempt employee is entitled to pay for any workweek in which he or she performs any work, employers should inform employees that work is not authorized during the furlough period without advance written approval.
Fixed Changes
There is one ray of hope, however. The DOL further clarified that an employer may make a “fixed” and “permanent” decision to reduce the hours and corresponding pay for exempt employees. For instance, an employer could reduce the work schedule for the year from 52 five-day workweeks to 47 five-day workweeks and 5 four-day workweeks, and also reduce the pay of exempt employees as a result of the shortened workweeks.
The linchpin of the distinction between this permitted approach and the impermissible hours reduction is the permanence of the schedule reduction as contrasted to a temporary reduction in the normal scheduled workweek to address a short-term work slowdown or temporary economic conditions.
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‘Voluntary’ Furloughs
Unpaid furloughs may appeal to employees, if that option is viewed as avoiding layoffs. The DOL agreed that an employer can treat such “voluntary time off” as unpaid time off for personal reasons, other than sickness or disability, for one or more full workdays. The DOL warned, however, that the employee’s willingness to take this “voluntary time off” must be “completely voluntary.”
Again, a tip of the hat to Littler Mendelson’s Insight blog. In tomorrow’s Advisor, we’ll get another perspective on furloughs and take a look at a website that answers furlough questions, and hundreds of others.
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