Coronavirus (COVID-19), HR Management & Compliance

Continuing Pandemic Blurring the Line Between Furloughs, Layoffs

Back in the spring when businesses across the country first fell victim to COVID-19, many employers chose to furlough workers temporarily rather than lay them off permanently. But now, with the pandemic dragging on, some furloughs are extending much longer than originally expected, triggering employer obligations under federal and state laws.

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In many cases, both employees and employers braced themselves for furloughs lasting just a few weeks or even a few months. Now, though, attorneys who advise employers are fielding questions about how to proceed. It starts with an understanding of how temporary furloughs can become permanent layoffs in the eyes of the law.

Brigette N. Eagan and John Vreeland, both attorneys with Genova Burns LLC in Newark, New Jersey, explain that a furlough is an unpaid leave of absence where employees maintain their employed status even though they aren’t working. A layoff is an involuntary separation of the employment relationship. Under both scenarios, workers are likely to qualify for unemployment benefits.

WARN Act Responsibilities

Furloughs were appealing options for many employers early in the pandemic since furloughed employees can be recalled quickly. Another upside to furloughs over layoffs: Job actions deemed mass layoffs are regulated by the federal Worker Adjustment and Retraining Notification (WARN) Act and various state “mini-WARN” laws.

Eagan and Vreeland remind employers that the federal WARN Act mandates strict deadlines for employers to notify both employees and local governments, and failure to comply can result in stiff penalties. Also, employers operating in states with mini-WARNs must comply with state laws, too.

Under the federal WARN Act, a furlough lasting longer than 6 months is treated as an “employment loss” from the date the layoff started, according to information from the U.S. Department of Labor (DOL). Employers not supplying the proper notices may violate the federal WARN Act unless:

  • The extension beyond 6 months is caused by business circumstances not reasonably foreseeable at the time of the initial layoff; and
  • Notice is given at the time it becomes reasonably foreseeable that the extension beyond 6 months will be required.

Does COVID constitute the kind of unforeseeable business circumstances that allow employers to avoid WARN Act penalties? Possibly. The DOL says it depends on the specific circumstances.

Discrimination Concerns

Regardless of whether an employment action is temporary or permanent, Eagan and Vreeland say employers must be on guard against discrimination claims as they make employment decisions.

If only some employees are affected by a job action, employers must analyze demographic information to ensure that factors such as race, age, gender, religion, national origin, disability, and other protected characteristics aren’t used.

“If one protected group is hit harder by the furlough or layoff, the employer should explore the reason why or risk claims of discrimination,” Eagan and Vreeland wrote in a response to questions on furloughs and layoffs. “Conducting this analysis will help employers defend against such post-employment litigation claims.”

If just some employees are affected, the selection criteria must be carefully developed, Eagan and Vreeland say. It’s one thing to base criteria on objective factors, such as economic conditions or a state-required shutdown of certain portions of a business, but it’s another to use subjective factors like performance review scores. For example, employees may claim low scores are the result of discrimination on the part of a supervisor.

Andrew W. McLaughlin, an attorney with Stearns Weaver Miller Weissler Alhadeff & Sitterson, P.A. in Tampa, Florida, points out that using performance evaluation scores also can be problematic if criteria are set and then the employer makes exceptions for certain employees.

Reemployment concerns also are an issue, McLaughlin says. If a furlough extends past a certain point before workers are called back, employers need to consider whether new-hire paperwork or new background checks are needed and whether new onboarding is appropriate, etc.

Advice for Employers

Employers have much to consider, the attorneys say. WARN Act requirements top the list.

“Employers that initially furloughed workers and now see the furloughs as permanent should evaluate their WARN notice requirements, both federal and state, to ensure that all proper notice has been given,” Taylor L. Haran, an attorney with Faegre Drinker in Chicago, says, adding employers also must consider whether employees are owed additional pay, such as accrued vacation, when a temporary furlough becomes an official employment separation.

Eagan and Vreeland also urge employers to consider their own employment policies. For example, does the employer’s handbook require payment of paid time off (PTO) upon separation? Does the handbook allow employees to use PTO while on an unpaid leave of absence, and, if so, is a furlough considered a leave of absence?

“PTO equates with money,” Eagan and Vreeland wrote in their response. “So, obviously, employers must analyze their financial obligations to employees while planning out furloughs and layoffs.” Also, some states have imposed obligations in connection with PTO because of the pandemic, so employers need to check for any of those new COVID-19-triggered requirements.

Employers also need to consider questions related to health insurance benefits. For example, does the plan require employees’ coverage to terminate, triggering COBRA?

“In most cases, a permanent furlough means that the employer has shut down and shuttered its doors,” Eagan and Vreeland wrote. “In such cases, these employers should be thinking about WARN, COBRA, and any obligations to pay PTO.”

Tammy Binford writes and edits news alerts and newsletter articles on labor and employment law topics for BLR web and print publications.