Unemployment claims have skyrocketed because of the nationwide lockdown due to the Coronavirus. The blow to the economy and lives of tens of millions of people will leave lasting scars, but there are steps employers can take to lessen that burden in certain situations.
“Employers across the country are seeking to implement cost-cutting measures which avoid full-blown reductions in force (RIFs),” say attorneys David J.B. Froiland and Keith E. Kopplin of the law firm of Ogletree Deakins. “Many employers are opting instead for cost-saving measures that are designed to be temporary and reversible placeholders in the event the economy snaps back sooner rather than later.”
Federal and state laws and regulations governing employee employment remain in force in spite of other regulatory changes made to deal with the pandemic. These render some approaches to workforce reduction problematic for employers, especially when they involve reductions in pay.
Generally, exempt employees must be paid a full week’s pay for any week in which work is performed. Employers also may not dock the pay for any time the employee did not work during the week except for certain recognized exceptions for any absence caused by the employer or if ordered by the state.
For example, if an employer sends all exempt employees home on Tuesday, the exempt employees must be paid their full salary for the full week, Froiland and Kopplin point out. “However, the terms and conditions of an exempt employee’s employment are not fixed forever. In the same way that employment is at will, the terms of employment are also at will, and can be changed in advance for exempt and non-exempt employees alike.”
With that in mind, here are some alternatives to wholesale firings.
Mandatory Furloughs
Because employers do not have to pay exempt employees for any week in which they don’t work, employers can require them to take a full workweek off.
To distinguish this from a position elimination or termination, it can be referred to as “furlough.” It also can minimize unintended consequences associated with terminations, such as needing to pay out accrued but unused paid time off. To the contrary, employees can also be required to use vacation pay during furloughs, which can provide much needed pay to workers without the employer taking an immediate financial hit, according to Froiland and Kopplin.
Exempt employees may not work while they are on furlough, and most employers choose to shut off their access to the computer systems. The U.S. Department of Labor (DOL) has warned that frequent furloughs (on-again and off-again) could jeopardize employees’ exempt status, so the attorneys stress that this option should be implemented one time only, or sparingly.
Can employees be offered continuation of benefits under their plans? The answer depends on the plan language. “If the plan does allow for continuation, who will pay for the benefits? If the employee pays a portion of them, how does the employer collect their contributions? The answer may be different for each type of benefit as each has a different plan,” Froiland and Kopplin say.
Other questions that need answering about an employer’s plan are, is the COBRA health insurance alternative triggered if the job loss is a furlough rather than a layoff, and are penalties triggered under the Affordable Care Act?
Different state and localities’ laws also govern whether the employee can take paid time off (PTO), and whether employers can require them to take it. Employers also need to determine whether workers can continue to accrue PTO and retirement benefits while on furlough.
Reduced Job Hours and Pay
Employers may reduce an exempt employee’s work assignments and compensation on a prospective, forward-looking basis, as long as the exempt employee’s guaranteed salary remains more than $684 a week, which is the demarcation between being exempt and non-exempt.
As an example, Froiland and Kopplin say an employer may notify an employee as follows: “Starting in the next pay period, your job is going to change temporarily in light of coronavirus. You will work a reduced schedule and your pay will be 75% of your prior salary.”
The reduction should not be for a single week or two on grounds that this looks more like docking pay and less like a reduced-schedule arrangement, the attorneys warn.
“There is no bright-line rule on how long a reduced schedule needs to continue. Further, a reduced arrangement must not be intermittent (i.e., employers may not switch back and forth between reduced and unreduced jobs). Again, importantly, state law may require prior notice before making this change.”
Employers may reduce an exempt employee’s PTO hours if the employee works shortened days or weeks, provided they still receive the same full weekly salary. No true deduction from pay occurs here—only a reduction in the exempt employee’s PTO bank.
Reduced Pay, But Duties Aren’t Reduced
Because the terms and conditions of employment are all “at will,” pay rates may be changed on a prospective basis including for exempt employees, even for a workload and schedule that remains unchanged.
One caveat, of course, is that pay must not be reduced beneath the minimum salary requirement of $684 per week, which constitutes a hard floor and limit when using this approach, the lawyers emphasize. In addition, the states of California and New York have higher minimum wage salary requirements, for example, and employers must take those laws into account.
Unpaid Personal Days
Employers may reduce weekly pay if the exempt employee takes entire days off in a way that is completely voluntary. Under federal regulations salary deductions may be made when exempt employees take voluntary time off (VTO) for personal reasons, other than sickness or disability, for one or more full days.
Froiland and Kopplin cite the example of an exempt employee paid $500 per week on a salary basis who may take VTO for personal reasons for four days in a workweek and receive one fifth of the salary. The employee’s decision to take VTO, however, must be completely voluntary and not occasioned by the employer or by the operating requirements of the business. This only applies to full-day absences caused by the employee, not the employer.
Employers may reduce an exempt employee’s PTO hours if the employee works shortened days or weeks, provided that they still receive the same full weekly salary. No true deduction from pay occurs here—only a reduction in the exempt employee’s PTO bank.
Employers should also consider employees’ eligibility for leave under the Family and Medical Leave Act (FMLA) mandatory paid sick leave laws or policies, other leaves of absence allotments, unemployment compensation benefits, and child support and other garnishments.
Voluntary Separations
Employers may offer consideration for employees to separate their employment altogether. Even though some amount of consideration is needed to support this approach (monies that many struggling employers do not have at this time), there are many advantages to developing a voluntary separation program. Because the program is voluntary, this approach is unlikely to damage employee morale, Froiland and Kopplin observe.
“Additionally, it allows those employees considering retirement or early separation an opportunity to move forward with their plans at a faster pace,” they say. “Using this approach, employers should decide which employees will receive the offer.”
Because the program is voluntary, employers may choose to be selective about which employees will be invited to apply and which employees are approved for the voluntary separation package. Employers also may reserve the right to reject a volunteer based on business necessity or otherwise.
Watch Out for WARN
It is important for employers to take into account certain notice requirements that may apply under federal and state wage and hour laws.
Under the federal Worker Adjustment and Retraining Notification (WARN) Act, most employers with 100 or more employees must provide notification 60 days in advance of plant closings and mass layoffs resulting in employment loss. Under the law, an “employment loss” is defined as a termination, a layoff exceeding six months, or a reduction in hours of work of more than 50% during each month of any six-month period.
In this uncertain COVID-19 landscape, an employer may believe that a layoff will be for less than six months, in which case federal WARN will not be triggered, the lawyers say, although at this point no one can really be sure how long the layoffs will last.
Given this dilemma, employers who are facing the least amount of certainty regarding their business forecast should strongly consider issuing a WARN Act notice, Froiland and Kopplin recommend, although they admit that this is not an easy choice for employers to make.
“Of course, sometimes the analysis is guided not by the foregoing legal considerations, but by a more practical consideration: whether the employer is willing to tell employees what the WARN Act requires, namely, that the employment relationship is terminated. For many employers, this is not a possibility they are willing to entertain and not a communication they are willing to convey.”
Employers in California have been granted some relief in regard to that state’s notice requirements. On March 17, California Governor Gavin Newsom issued an Executive Order suspending some Cal-WARN Act obligations in order to ease struggling employers’ obligations in the face of COVID-19.
