By Chris Avcollie
“To be, or not to be, that is the question: Whether ‘tis nobler in the mind to suffer The slings and arrows of outrageous fortune, Or to take Arms against a sea of troubles, And by opposing end them…”
From Hamlet by William Shakespeare Act 3, Sc.1 (Spoken by Hamlet)
“Employed or Not Employed…That Is The Question!” During the recent economic “sea of troubles” which followed in the wake of the Coronavirus pandemic, American workers became all too familiar with an employment term which had been rarely used in the past: the employee “furlough.” Companies have furloughed thousands of workers during the past year. With the nation and its workforce now facing a second wave of viral infections, this term is likely to remain in our lexicon during the foreseeable future. So what exactly is a “furlough” and how does it differ from a “layoff” or a “reduction in force?” More importantly, what should employees do when they find themselves “furloughed”? This article attempts to answer some of the more common questions workers have regarding this newly fashionable employment status.
What exactly is a “furlough”? In the employment context a “furlough” (from the Dutch term for “leave of absence”) is an involuntary suspension of employment by an employer. This form of suspension is often undertaken when an employer cannot afford to continue paying some or all of its workers but has reason to expect that circumstance to change in the near future. This form of suspension is almost always without pay and may last as long as the employer’s economic circumstances dictate.
Why do employers use the “furlough” instead of simple “layoffs”? A furlough is a useful cost-saving measure because it allows employers to temporarily cut payroll costs in response to unforeseen economic conditions (think global pandemic) without risking the total loss of its workforce and without incurring the expense of mass terminations and re-hiring. While some industries were able to keep workers employed during the pandemic by allowing them work from home options, others simply had no way to operate other than in person. When those industries were forced to shut down temporarily, the “furlough” allowed employers to cut payroll costs while keeping their workforce on board and ready to resume work upon re-opening.
How exactly does the “furlough” differ from a “layoff” or a “reduction in force?” First, the “furlough” is a temporary suspension in work activity and pay not a permanent change in the employee’s status. The furloughed employees remain “employed” in the sense that they remain in a legal relationship with their employer. Both a “layoff” and a “reduction in force” are generally permanent separations from the employer. A “layoff” is a permanent or semi-permanent separation of employment, usually for economic reasons rather than for cause. A “reduction in force” is a permanent separation of some number of employees as part of an effort to re-structure or to “downsize” the employer’s permanent workforce. While an employer may always re-hire a laid-off or downsized worker, these terms denote a permanent or semi-permanent change in the employee’s status.
So is a furloughed employee guaranteed a right to resume work when the company re-opens? Not exactly. Typically, an employer will give furloughed employees either a specific date of return or set out specific conditions under which their jobs would resume. While furloughed employees have an expectation that they will return to work, there is no guarantee. The employees retain the same right to their positions that they had while actively working. For public sector employees this expectation of return means, for example, that the employee may not be laid-off or otherwise terminated without due process because that right existed during employment. A private sector employee who is an at-will employee has no such right to due process. In other words, a furlough could become a layoff in the private sector with the stroke of a pen.
Do furloughed workers keep their benefits? Usually to some extent. Another unique feature of the “furlough” status is that while wages are suspended along with the employee’s obligation to work, employee benefits are often continued during the furlough period. Employees often retain their health insurance, for example. There are a number of ways this may be handled by employers. Some employers will treat furloughed employees as if they were on unpaid leave and maintain health insurance benefits coverage while continuing to make the employer contributions and requiring the employee to continue premium payments.
Some employers will continue employee benefits through COBRA. COBRA is a federal law that allows employees to continue health insurance after separation from employment. If no continuing health insurance is provided, the employer must provide a COBRA notice in writing to its workers upon being furloughed. Employers could choose to fully or partially subsidize COBRA premium payments or require the employees to pay the premiums themselves. Further, under the Affordable Care Act (“ACA”), covered employers need to be aware of the potential ACA penalties when furloughing their employees. By offering health insurance to furloughed employees, employers may be able to avoid ACA penalties. Furloughed employees should discuss the options for benefit continuation as soon as possible with their managers or HR department.
Can a furloughed worker look for another job? Yes. One of the primary risks of the furlough status for the employer is that top talent might get jobs elsewhere. However, workers who are thinking of taking a temporary position just until they are recalled should consult their primary employer’s policies regarding outside employment or second jobs. An employer is still able to enforce these rules during a furlough because the employee remains, technically, “employed.” Public sector employees, for example, or employees under contract or part of a collective bargaining unit often have strict outside employment prohibitions which must be addressed before working during the furlough.
Can a furloughed worker perform some minor tasks voluntarily during the furlough just to address urgent matters or to keep the in box from overflowing? Absolutely not. Furloughs include a strict no work policy. Under the Fair Labor Standards Act (“FLSA”), employers who allow even minimal work during a furlough incur significant liability. If a salaried employee performs even a few minutes of work during furlough, the employer must pay them the equivalent of their salary for the entire week in which work is performed. If an hourly employee works while on furlough the employer must pay them for the time worked. For this reason, furloughed employees often have access to work accounts and devices revoked to prevent accidental or occasional work during the furlough.
Are furloughed workers eligible to collect unemployment benefits? Usually. A furloughed employee may receive unemployment benefits for their time without pay. Unemployment compensation rules are set by the state not the federal government so rules vary from state to state. Some states impose waiting periods or require the employee to conduct job searches in order to collect. If a furloughed worker receives back pay from the employer for the furlough period, he or she might be required to pay back the unemployment benefits received.
When the company resumes operations do they have to bring back all of the furloughed workers? No. Based on the economic circumstances, the employer may return some or all of its workforce following a furlough. What employers cannot do is select those workers they want to return based on age, race, gender, sexual orientation or other protected class. For example, an employer cannot return the youngest and least experienced and therefore least expensive workers and layoff the older and more experienced workers. Employees should be aware of whether more men are rehired than women, or more white employees are rehired than Asian or African American employees.
When I am on furlough can I use my accrued paid vacation or Paid Time Off (PTO)? Yes. While employers do not have to pay out an employee’s vacation or PTO in a lump sum as if it were a layoff, employees are generally eligible to use their accrued vacation or PTO during the furlough. In fact, if an employer has a written policy in effect at the time of the furlough, it can require workers to use PTO during furloughs. Usually however, these policies are voluntary and not compulsory.
If my furlough becomes a layoff, am I entitled to some type of severance pay? Not usually. Employees are generally entitled to the same severance benefits after a furlough that they otherwise would have been if they had been laid off initially. In most cases employees are not entitled to any severance. If however, an employer offers severance benefits under an ERISA based severance plan, workers will be entitled to that severance if they are laid off following a furlough. Again, employers may not select which employees are laid off based on protected classes or illegal retaliation. Like all adverse employment actions, laying off employees after a furlough must be done without regard to race, gender, age, disability, or other protected characteristics.
Conclusion: While the employee furlough provides a seamless and cost-effective way for organizations to reduce payroll expenses while maintaining a ready and engaged workforce during uncertain economic times, this arrangement creates an ambiguous status for the employee. While it may be better to be furloughed than laid off, employees need to be certain they understand the parameters of this unusual employment status in order to protect their rights. If the Coronavirus economy is going to subject you to the “…slings and arrows of outrageous fortune,” be sure to arm yourself with information before you wade into the “sea of troubles…”
As always, the employment attorneys at Carey & Associates, P.C. are ready to help. Please call (203) 255-4150.