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Preparing Your Business and Employees for Permanent Layoffs

Tuesday, March 24, 2020

A permanent layoff is akin to termination or separation. 

It is the permanent letting go of an employee without cause and with no expectation that you are bringing the employee back to work.  As the COVID-19 pandemic is likely a temporary occurrence, we do not recommend this option unless as a last resort in situations of extreme financial hardship.
Employer Intent: This option should only be used in situations where an employer does not care if they are able to rehire the laid-off employees.  Permanent layoffs can ruin an employment relationship, such that the employee seeks other employment, even after this crisis has passed.
Notice to Employees: In certain circumstances, the federal and Illinois WARN Acts include an obligation to provide notice when employees are permanently laid off.  However, the federal WARN Act includes an exception from the notice requirement for unforeseen business circumstances, which would most likely include circumstances like the COVID-19 pandemic.  While the Illinois 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 covered under a WARN statute, we recommend giving as much notice to employees as possible, especially with permanent layoffs.
Benefits:  Employees are typically entitled to unemployment benefits after being permanently laid off and should be notified that they can apply for unemployment benefits at the time they are laid off.  In Illinois, the one-week waiting period for unemployment benefits has been waived due to the COVID-19 pandemic.  Consult your health insurance plan documents and insurance broker/consultant to determine how long your employees who are not working may remain covered by your group health plan.  In most cases, this will be through the end of the month in which the termination occurred.  Employees covered by the plan will be eligible for COBRA benefits to continue their health insurance coverage.  Employers should notify their employees of these benefits and the opportunity to elect COBRA.  Finally, bear in mind that employees permanently laid off after April 2, 2020 may be eligible for benefits under the FFCRA during the timeframe that they are still actively employed.
Pay: In Illinois, at the time of the permanent layoff (or no later than the employee’s next regularly scheduled payroll period), you will be required to pay out the employee’s final paycheck as if the employee was terminated under normal circumstances.  On the same timeframe, in Illinois, you will also need to pay out all unused earned vacation and PTO time as required by law.  These employees will be immediately eligible for unemployment insurance in Illinois, due to waiver of the normal one-week waiting period.  At the time of the permanent layoff, you should inform these employees that they can apply for unemployment benefits.
Employee Work Visa Status:  Permanently laid off employees will lose their visa status, so you should consider giving these employees as much notice as possible of the layoff to enable them to secure alternate visa status.
Additional Considerations:  You must be careful about the way you choose employees to permanently lay off.  Make sure you are choosing employees in a nondiscriminatory manner to avoid potential liability.  Additionally, keep in mind that in a scenario where there is a permanent reduction in force of two or more employees and severance is being offered to employees who are 40 years of age or more in exchange for their waiving their claims against the employer in a release agreement, additional requirements may need to be followed to comply with the Older Workers’ Benefit Protection Act (OWBPA).  We, again, stress that a permanent layoff is a last resort and should not be your first choice if you would like to increase the chances of retaining your employees after this crisis is over.

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.