The Coronavirus, or COVID-19, combined with the “shelter in place” orders have made a disaster of our economy. Many companies are faced with the unpleasant prospect of reducing the workforce. Of course, these same companies shutter to even think about using the “f-word” meaning “fired.”[1] There is, however, a nasty f-word I advise you not to use and that term is “furlough.”
I will explain the ambiguity of the term “furlough” and how it gives employers and employees an inaccurate understanding of a termination of employment. This inaccurate perception can cause an employer to make poor choices leading to potential legal liability.
Furlough. What is a “furlough”? It has been used to describe a leave of absence of civil servants every time Democrats and Republicans can’t agree on a federal budget. It has also been used for the military.
In the private sector, the term furlough is used when an employer lacks the ability to continue employing all its workers due to the lack of funds or of work. It furloughs some, or all, for a period of time, or for an indefinite period of time, until revenues have improved. Perhaps our use of this term with respect to collective bargaining agreements with unions has caused us to use the term more frequently in non-governmental, non-union, workplaces.
What is the difference between firing, laying off and furloughing employees? It will depend on who you ask. There is no legal definition of furlough. Layoff is defined by the California WARN Act as “a separation from a position for lack of funds or a lack of work.” (Cal. Labor Code § 1400(c).) Hey, wait a minute, isn’t that a furlough? Yes, it is. And if a layoff is a separation, isn’t that also a firing? Yes, it is.
Then why are we using the term furlough? Because it sounds nice and we are unable to describe the actual event that is taking place. We don’t want to harm the employee more than necessary. We want to end the uncomfortable meeting as soon as possible.
What Harm Does It Cause? Why does it matter if I want to use the term furlough instead of fire? I think it causes harm because neither you nor the employee understand the meaning of the term or the impact of misunderstanding the term.
Let’s start with the obligation under California law to immediately pay an employee all wages due at the time of discharge, including accrued but unused vacation benefits. Under California law, a discharge occurs when an employer involuntarily terminates an ongoing employment relationship, such as a firing or layoff, or when an employer releases an employee after the completion of a specific job assignment.
If you furlough an employee, you might have the incorrect assumption that you are not required to immediately pay all wages due, including unused vacation. Failure to timely pay an employee final wages will subject the employer to up to 30 days of waiting time penalties. These penalties are calculated at the employee’s daily rate. An employee earning $20 per hour for an 8-hour work day could be entitled to $4,800 ($20 x 8 hrs = $160 x 30 days). On top of that, this action could result in a civil penalty under the California Private Attorney General Act (“PAGA”).
Consider as well health care benefits. These benefits are subject to COBRA or Cal-COBRA. When a triggering event occurs, an employer must provide a notice to employees giving them the option of continuing health care premiums at the employee’s expense. A triggering event is the reduction of hours whether or not an employee is fired.
Does a furlough mean the employer will pick up the cost? What happens if an employer fails to provide a COBRA notice? An employee with medical expenses but no coverage may claim the employer’s failure to provide the COBRA notice resulted in a lack of insurance and therefore it should be held liable for the medical expenses. That’s just one of the problems with not following COBRA notice rules when a triggering event occurs.
If you are large enough, and you “furlough” enough employees, you will be subject to the California and possibly the federal WARN Acts. This requires the employer to provide notice to affected employees and government officials. Even though the justification for a mass layoff or plant closing have been relaxed, the employer must still provide notice as soon as practicable.
In summary, you could incur legal liability for wage and hour violations, COBRA violations and WARN Act violations just by incorrectly assuming that a furloughed employee is still employed, waiting to return to the workforce.
What should you do instead of furlough? Tell employees that you value their contribution to the company but due to circumstances beyond your control you need to terminate the employment relationship. Sure, tell them that as soon as the economy returns or when the Governor allows you to open your doors again, you will call them back to work. But let them know this is a break in service. They will be paid all wages immediately (today). They will receive a COBRA notice. And hopefully, if the company is large enough, the employee will have already received a WARN Act notice.
Let’s consider an additional issue given COVID-19 and the Families First Coronavirus Response Act which will go into effect on April 1st.[2] You can assist an employee by not taking action until after April 1st. However, this does not come without conditions.
How can you assist? By delaying any action to terminate the employment relationship.
If an employee is unable to work due to a need for a leave due to a “quarantine or isolation order” or to care for someone under such an order, or to care for a son or daughter whose school or daycare has closed, the employee is entitled to Emergency Paid Sick Leave (“EPSL”). EPSL is paid at the employee’s regular rate of pay for up to 80 hours. The amount of money the employee can receive is dependent on why the employee took EPSL. This is initially paid by the employer. However, the employer can recover these costs immediately.
In addition, if the employee cannot work because a child’s school or daycare is closed, the employee can receive 10 more weeks of benefits under FMLA Expansion leave. This is where the condition comes in. You must return the employee to his/her position, or an equivalent position. If one is not available, you are obligated to offer an equivalent position to the former employee for the next year.
What does this tell me? If you are considering whether or not to keep an employee, and do not want to be obligated to provide a position for the next year, cut ties before April 1st. Avoid that rehire obligation.
Doug Larsen, [email protected]