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Preparing Your Business and Employees for Furlough

Tuesday, March 24, 2020
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Authored by Robert Bernstein and Elizabeth Rice, Laner Muchin

You may experience a slowdown in business due to the COVID-19 pandemic, but still wish to keep your employees working in some capacity. 

If that is the case, your best option may be to furlough your employees, by reducing their work hours or days.  A furlough can be temporary or permanent.

Employer Intent: Furlough is a good option for employers who wish to keep their employees after returning to normal business operations, but who do not have the ability or means to keep their employees working normal hours.
 
Notice to Employees:  The federal WARN Act (covering employers with 100 or more full-time employees) creates an obligation in certain circumstances to give notice when employees are laid off or face a reduction in hours.  However, the Act includes an exception from the notice requirement for unforeseen business circumstances, which most likely would include circumstances like COVID-19.  While the Illinois state WARN Act does not contain this exception, many state Departments of Labor have stated, informally, that COVID-19 will except employers from the notice requirement.  Due to the uncertainty here, provided that your personnel action is governed by the federal WARN or the Illinois state WARN Act (or a different state’s WARN Act), we recommend giving as much notice to employees as possible under the business circumstances.  Employees should receive written notice, identifying the date on which the furlough expires (where applicable and if known at the time) and explaining the reason why less than 60 days’ notice was given.  It is very important in this furlough (or any of the other scenarios below) that you consult with your labor and employment counsel to evaluate whether a WARN statute applies to the personnel actions you are thinking about taking.
 
Benefits:  Consult your group health insurance plan documents to determine if there is a minimum hours requirement for coverage or an option for continued coverage when the requirement is not met.  Also consult your insurance broker/consultant for more details, as many carriers have relaxed their contract provisions.  Depending on the answer here, you may need to inform employees of the availability of COBRA benefits to maintain insurance coverage while on furlough. For employers who use a “look back” measurement method for purposes of the Affordable Care Act’s employer mandate rules, eligibility and coverage may need to be maintained until the end of the then-current “stability period.”  If you wish to change your plan to provide benefits to employees during a furlough, you should consult your insurance carrier and/or stop-loss coverage provider first so as to avoid the possibility of the carrier later denying the claims. Additionally, employees may be eligible for partial unemployment insurance benefits to make up for the reduction in work hours.  In Illinois, the one-week waiting period for unemployment benefits has been waived given the COVID-19 pandemic.  Employers should notify their employees that they can apply for these unemployment benefits at the time they communicate the furlough decision.  Finally, under the FFCRA, an employer with fewer than 500 employees may have to provide employees with paid sick leave benefits of up to 14 days and paid leave under the FMLA for qualifying COVID-19 reasons.
 
Pay:  As a general rule, salaried exempt employees must continue to receive their normal weekly salary, so long as they perform any work within that workweek.  However, one option is for an employer to reduce the salaried exempt employee’s salary in a manner that is proportionate with the reduction in the employee’s days worked.  For example, an employer can reduce a salaried exempt employee’s work days from 5 days to 3 days (40% work reduction) and the employee’s salary by 40% as well, so long as the employer provides advance written notice to the employee and the change is made on a going forward basis only.  Another option is for the employer to pay salaried exempt employees on an hourly basis during a furlough.  Employers can do so provided that they once again give the employee advance notice and that the change is applied on a going forward basis only.  In paying the employee on an hourly basis, the employee would be entitled to overtime in accordance with the law, and the employee must record all of his/her hours worked.  In either of these scenarios, it is most advisable for an employer not to go back and forth in a frequent manner between paying the salaried exempt employee their normal full salary and some lesser salary or hourly amount, as doing so may be more likely to destroy the exemption.  A further option for employers as it relates to exempt employees who work less than an entire workweek because of a furlough, is to require that the exempt employee use vacation/PTO on days when the employee does not work.  For example, if an exempt employee works Monday and Tuesday, but not Wednesday through Friday, an employer would still comply with the salary requirement by paying the exempt employee for Monday and Tuesday and “docking” the employee’s vacation/PTO bank to pay them their salary for Wednesday through Friday.
 Disclaimer: This article is intended to provide helpful information and should not be considered legal advice.  Please consult your labor and employment attorney or your immigration attorney, depending on the issues involved, to discuss advice as to the individualized circumstances pertaining your issues or situations.
Hourly non-exempt employees can still be paid by the hour based on the number of hours they work.  
 
Employees may use any sick time accrued pursuant to the City of Chicago and Cook County Sick Leave Ordinances (or other state or local paid sick leave ordinances) (up to 5 sick days in Chicago and Cook County) to receive compensation for hours they do not work while on furlough if they choose to do so, so long as they have qualifying reasons under a paid sick leave ordinance (depending on the ordinance, qualifying reasons can include employee or family illness or injury, seeking medical or mental health treatment, caring for a sick family member, etc.).  Additionally, you may allow your employees to use any additional accrued sick, vacation or PTO time that is part of your company policies to make up for lost work hours. Also, keep in mind that, depending on what your policies say and/or what the law is in a particular state or municipality, you may have to allow employees to use accrued sick, vacation or PTO time during the furlough.
 
Employee Work Visa Status:  Likely not impacted, however the Department of Homeland Security (DHS) has yet to publish specific guidance.  Note that employees with H-1B visas must be paid their full salary even if they work reduced hours.
 
Additional Considerations:  You must be careful about which employees you choose to furlough.  Make sure you are choosing employees in a nondiscriminatory manner to avoid potential liability.  Also, determine whether the federal and/or state WARN Act applies, depending on the facts pertaining to your furlough.
 

Material posted on this website is for informational purposes only and does not constitute a legal opinion or medical advice. Contact your legal representative or medical professional for information specific to your legal or medical needs.

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