Employment Law Alert: Legal Requirements for Furloughs (Temporary Layoffs)
March 25, 2020
The COVID-19 crisis (and related shelter at home orders) are making it necessary for many employers to implement furloughs (temporary layoffs), especially for employees who cannot perform their jobs remotely. As discussed below, furloughs often trigger a variety of the same legal requirements that would apply to a termination of employment, and require attention to other employment law complexities.
The California Labor Commissioner’s Enforcement Policies & Interpretations Manual states that “[i]f an employee is laid off without a specific return date within the normal pay period, the wages earned up to and including the lay off date are due and payable in accordance with Section [requiring immediate payment of all earned wages upon discharge from employment]. If there is a return date within the pay period and the employee is scheduled to return to work, the wages may be paid at the next regular pay day.”
As a result, when a California employer furloughs an employee indefinitely (or with a return date outside of the normal pay period) based upon the California (or a local) shelter at home Order, all earned wages must be paid immediately (including, but not limited to, earned base pay, vacation/PTO, calculable bonuses/commissions, etc.) Willful failure to do so exposes the employer to waiting time penalties of up to 30 working days wages.
An indefinite furlough also generally triggers most termination notice requirements. In particular, with respect to unemployment compensation, it triggers a California employer’s obligation immediately to provide a Notice to Employee as to Change in Relationship, and the brochure For Your Benefit: California’s Programs for the Unemployed. COBRA notice must also be provided if the furlough is an event that triggers loss of active employee health insurance coverage. Employers should review their benefits plans to determine what other benefits-related notices may be required.
With respect to furloughs affecting 50 or more employees, employers should consult with their legal counsel regarding federal and state WARN Act requirements (generally requiring 60 days advance notice, subject to possible exceptions that may reduce the duration of the advance notice period). California Governor Gavin Newsom issued Executive Order N-31-20, temporarily suspending provisions of the California WARN Act in light of the COVID-19 crisis, subject to specific conditions being satisfied by the employer.
Exempt Employee Weekly Salary
Overtime exemption requirements generally require that exempt employees be paid their full weekly salary if they perform any work in the workweek. Because this rule comes from both California and federal laws, it applies to employees inside and outside of California. Exempt employees should be instructed (in writing) not to perform any work during unpaid furlough workweeks (including the weekdays and weekend days in the workweek) unless requested to do so in writing. In contrast, as to non-exempt employees, the law permits partial week furlough (because the “salary” requirement does not apply to them), as long as they are paid for all actual working hours.
Reasonable Advance Notice for Mandatory Vacation/PTO Use
A written memorandum issued (years ago) by the California Labor Commissioner states that employers must provide reasonable notice as far in advance as possible before requiring any employees (whether exempt or non-exempt) to use accrued vacation (or paid time off) on particular dates. The Labor Commissioner’s memorandum states that this notice generally must be the greater of either 90 days or one full fiscal quarter. Employers unable to provide such advance notice for mandatory usage can instead provide employees with the option to either use accrued vacation/PTO during the furlough, or to take the furlough as unpaid leave (with the exception of exempt employee partial-week work, as discussed above).
Federal Emergency Paid Sick Leave
The recently enacted Federal Emergency Paid Sick Leave Act (“EPSLA”) contains an unfortunate ambiguity as to whether an employee’s inability to work due to a shelter at home order qualifies for the emergency paid sick leave. The key language in the law is the provision that entitles employees to sick leave if they are “unable to work (or telework) due to a need for leave because . . . [t]he employee is subject to a Federal, State, or local quarantine or isolation order related to COVID-19.” While at first blush many have assumed that a shelter at home order would be considered a “quarantine or isolation order,” there are traditional technical definitions of these terms that make it unclear as to whether shelter at home orders are covered. We are hopeful that the federal Department of Labor will soon issue clarifying guidance. In the meantime, employers should consult with their legal counsel about questions on this important subject.