6. Cost-Reduction Strategies
To what extent can employers implement the following cost-reduction strategies as a result of COVID, and what are the primary limitations on each?
- Furloughs
Under many employment statutes, “furlough” is not defined. Webster’s Dictionary defines a furlough as “a temporary leave from work that is not paid and is often for a set period of time.” Many employers are using the term “furlough” to inform employees of temporary layoffs with set return dates. Even if the time the employee will not be working, and will not be paid, is brief, furloughs can also involve significant issues.
Under the Fair Labor Standards Act (FLSA), employers do not have to pay non-exempt employees who are furloughed. Additionally, employers do not have to pay exempt employees who are furloughed for a full workweek if the employee does not perform any work during that week (including responding to emails or calls). Any required payments must be provided to furloughed employees on the next regular payday, even if there is a gap in working days. Temporary furloughs also may be a qualifying event for medical plans, triggering the Consolidated Omnibus Budget Reconciliation Act (COBRA). COBRA is a health insurance program that allows eligible employees and their dependents continued benefits of health insurance coverage during job loss or a reduction of work hours. Therefore, an employer considering a furlough should check its plan document or consult with its insurance broker and issue COBRA notices if necessary. Implementing furloughs may trigger the requirement to issue advance written notice to employees and certain government agencies under the federal Worker Adjustment and Retraining Notification Act (WARN Act). The WARN Act applies to employers with at least 100 employees (excluding part-time employees) who work an aggregate of at least 4,000 hours a week. It requires 60 days’ advance written notice of a plant closing or mass layoff at a single site of employment to affected non-union employees, union representatives, and certain government officials if at least 50 full-time employees comprising at least one-third of the workforce at the site suffer an employment loss as defined by the WARN Act. An exception to the notice requirement, under which an employer bears the burden of proof, is available for “unforeseeable business circumstances.” For many businesses, the COVID-19 crisis may qualify as an unforeseeable business circumstance. Under this exception, notice is still required, but employers are only required to provide “as much notice as is practicable” (i.e., employers are allowed to provide fewer than 60 days’ notice). Employers may be liable for damages under the WARN Act for any period of unjustifiable delay in issuing the notices.
Additional resources for navigating furloughs during COVID-19 available on the Jackson Lewis website:
- What Employers Should Know About Furloughs, Layoffs, and WARN Act Obligations in Light of COVID-19
- Unforeseeable Business Circumstances Excused Employer’s WARN Act 60-Day Layoff-Notice Requirement
- Salary reductions.
Salary reductions are a possibility. Despite the unprecedented nature of the pandemic, federal and state employment laws still apply.
- Non-exempt employees (e. hourly employees entitled to overtime under the FLSA and similar state law): Wages cannot drop below minimum wage ($7.25 per hour at the federal level (higher levels apply in some states); Must still be paid overtime.
- Exempt employees (e. salaried (not hourly) employees not entitled to overtime pay under the FLSA and similar state law – such employees generally perform one of the following activities: executive, administrative, professional, computer or outside sales duties): Threshold minimums must still be met ($684 per week at the federal level; higher thresholds apply in some states); Failure to meet the thresholds risks compromising the exempt status and triggering requirement to pay overtime; Wage and salary changes should be made one-time and be prospective, not retroactive or manipulative to avoid loss of exempt status; We recommend that all employers communicate wage and salary reductions in writing, even though all states do not require itl; Employees are not required to accept reductions in pay, so employers need to be prepared for how they will respond in this eventuality.
Many states have workshare programs that allow employees with reduced wages or salaries to receive partial unemployment. For non-exempt employees, the reduction is straightforward, as they are only paid for hours worked. For exempt employees, employers need to be aware that partial workweeks must still be paid in full, so reductions need to be made in full-week increments. Employees may need to be notified in advance – it is important to check state requirements.
It is important for employers to be aware of how their policies and state law impact the use and accrual of PTO or vacation. In addition, depending on the size and scope, reductions can trigger WARN/mini-WARN (state WARN laws – more on the WARN Act under section 11a. “Furloughs”).
- Redundancy.
There are no restrictions on an employer’s ability to collectively dismiss its employees. However, the WARN Act requires covered employers to provide 60 days’ notice in advance of covered plant closings and mass layoffs to: 1) the affected workers or their representatives (e.g., a labor union); 2) the dislocated worker unit in the state where the layoff or plant closing will occur; and 3) to the local government. For further information on navigating redundancy and the WARN Act, check out. Jackson Lewis’s special report on The Federal WARN Act and Related COVID-19 Issues.
- Facility closure.
See redundancy discussion above.
