Layoff, Furlough or Other Employee Cut Backs

By Robert Adelson on 1 April 20   Massachusetts Employment Law

This article was originally published on March 30, 2020 in The Legal Refresher

Please note updated information here: https://www.refresher.com/new-developments-for-employee-furloughs-in-massachusetts/

Some Legal Issues as your Company Responds to Dramatic Loss of Business

The response to the COVID-19/Coronavirus pandemic crisis has forced the closure of most US sports, restaurants and entertainment venues and dramatically reduced operations of numerous other related and unrelated businesses, and now, with lock-downs and shelter in place orders, has effectively closed still more businesses. 

With the total loss or substantial reduction of business, companies must determine how to deal with a work force whose services are either no longer needed or are needed considerably less than before the pandemic and its resulting closures and cutbacks.

This article discusses current employment law in Massachusetts and other states as well as legal issues regarding layoffs, furloughs, change in employees from full-time to part-time, and change of employees from salaried to hourly. 

Layoff

Under this approach, the company or employer would provide notice of layoff and employment termination to all or some segments of staff.  In planning this notice, the employer should be careful that the layoff is focused on company business needs. The employer wants to avoid any potential claim of age, gender or other discrimination by terminated employees. 

In connection with the layoff notice, the employer needs to plan the payout of all accrued vacation/PTO time and last paycheck on last day of employment. The employer does not need to pay accrued sick pay unless that is previously provided in an employee manual or other contract with the employees.

Once laid off, employment is considered terminated. The employee is now considered unemployed under state law and can begin to collect unemployment from the State. Pay to laid off employees from State unemployment is 50% of salary. A DUA form must be provided to the employee at layoff. Massachusetts has waived the normal one week waiting period for unemployment benefits.

COBRA would be offered in connection with a layoff.  It is unlikely that company benefits would continue but is dependent on medical plan restrictions.  The Company could also offer some severance if it desires and to contribute to COBRA, which could be consideration for a signed release of claims by the employee.  So long as release is obtained, the added severance and COBRA pay is not deducted from unemployment benefits.

Furlough

A furlough is a notice of a pause in or unpaid leave from work.  The employee is not to report to work but has not yet been terminated.  The furlough approach requires very clear communication for duration of leave. This is tricky for salaried employees as they cannot work at all. Even one hour of work would force full salary to be paid. 

In Massachusetts, special legislation in January 2019 allowed State unemployment benefits to be paid for furloughed Federal employees.  Later, in March 2019, further legislation provided that  for the furloughed, then reinstated Federal employees, to pay the money back to the State when they receive back pay from the Federal government.  There is no such Massachusetts legislation for private employers.  So, it does not appear State unemployment pay would be offered for non-Federal furloughed employees who have not been terminated, and thus would not be considered unemployed under State law.  The expectation is that this would also be true in other states.

Because the furloughed employees have not been terminated, the Company may continue to provide company benefits.

Conversion from Full-Time to Part-Time 

While layoff or furlough is the likely choice for a business that is totally shut down, other options merit consideration for a business that is still in operation but has experienced or expect a significant loss of business revenues.  For those businesses, there are several other choices to consider – the first is a conversion of some or all of the employees from full-time to part-time.

This reduction from full-time to part-time can be done with both hourly and salaried employees.

However, then this reduction occurs, the employer may want to consider the effect of State unemployment benefits. Under current Massachusetts rules, the employer may reduce the employee’s salary or wages by 67% or more (so the employee is working and being paid 33% or less than what he or she was working and being paid before he or she went part-time), with no effect on the employee’s unemployment benefits. Thus, this reduction would allow the employee to apply for State unemployment pay with no offset in unemployment pay.

If you are eligible to receive unemployment benefits, you will receive a weekly benefit amount of approximately 50% of your average weekly wage, up to the maximum set by law. As of October 2019, the maximum weekly benefit amount is $823 per week.  Thus, in the case of a Massachusetts employee earning less than $85,000 per year, if done to the maximum, the combination of 50% from State unemployment, $42,750 and 33% pay from part-time work, $28,050, would get the employee to $70,800 – 83% of his or her prior full-time pay.

Because the part-time employees have not been terminated, the Company may continue to provide company benefits. However, some plans may provide for reduced benefits as result of reduced work hours.

Massachusetts WorkShare Program

There is an additional Massachusetts alternative to layoff or furlough, and also an alternative for the company, if the company desires to reduce hours but not by as much as 67% or more. Under the State’s WorkShare program, the employer can reduce hours of salary or hourly employees by 10% to as much as 60%, and State unemployment insurance will be available to fill in for the loss to the employee up to 50% of employee’s salary. 

The draw back here is that both the company and employee must make special Workshare filings with the State and the State must approve the plan. The length of time for approval is unknown.

Because the part-time employees have not been terminated, the Company may continue to provide company benefits. However, some plans may provide for reduced benefits as result of reduced work hours.

Conversion from Salary to Hourly

Another choice for a business that is not totally shut down is to convert salary workers to hourly workers. Once this conversion were made, the Company could just reduce the hours of the employees. 

However, if this were done, it would have a number of undesirable and disruptive effects within the Company.  For example, the Company would in all likelihood need to institute a check in, check out system and other record keeping of hours.  Also, equally important, the Company would then be subject to special rights of hourly employees for overtime pay. 

Finally, there may be psychological issues of changing employees who are used to having the status of the more white-collar salary workers to the more blue-collar hourly workers.  Unlike the first four choices, if business improves, the employees can have an increase in hours or be brought back to full time, with no disruption.  If the company switches back to salary from hourly, that could be potentially quite disruptive.

If the change were made to hourly and the hours reduced, the availability of state unemployment pay under the State DUA and the company’s ability to provide medical insurance benefits would be the same as in the discussions of Part-time employment which apply to both salary and hourly employees.

Conversion to Part-Time in Illinois and Other States

The conversion of full-time to part-time employees discussed above for Massachusetts employees also applies to employees of companies in Illinois.

Here is some information on how that is done, written as advice to the Illinois employee, with links to Illinois state sources for further follow-up on your part, if you desire.

You must either be entirely out of work or be working less than full-time because full time work is not available. Your earnings must fall below a certain threshold determined at the time you file your claim.

http://www.ides.illinois.gov/IDES%20Forms%20and%20Publications/CLI111L.pdf

Partial Benefits–Part-Time Work You may claim some benefits for a week if you work less than full-time because of lack of work. Your earnings for the week must be less than the weekly benefit amount (this amount does not include a dependent allowance) you would receive if you were totally unemployed for the week. You must report all of your earnings from part-time work.

Figuring Partial Benefits Partial benefits equal the difference between the part of your earnings that exceed 50 percent of your weekly benefit amount and your weekly benefit amount for total unemployment. If the partial benefit amount does not come to an even dollar, it is raised to the next higher dollar, provided it does not exceed your weekly benefit amount.

Note: The full amount of holiday or vacation pay will be deducted from your weekly benefit amount. Also, remember that any spouse or dependent child allowance will be added to your WBA.

http://www.ides.illinois.gov/IDES%20Forms%20and%20Publications/CLI105L.pdf

Though this article only addresses Massachusetts and Illinois, the author believes that these same approaches would be taken in other states.

Federal Laws to respond to the Pandemic and Economic Crisis

In March 2018, three Federal laws were enacted to respond to the COVID19/Coronavirus pandemic crisis and impact on the U.S. economy.  First, the Coronavirus Preparedness and Response Act (became law on March 6, 2020), appropriated $8.3 billion to spur coronavirus vaccine research and development.  Second, the Families First Coronavirus Response Act (became law on March 18, 2020) (“FFCR”), was an approximately $104 billion package largely focused on paid sick leave and unemployment benefits for workers and families. Third, The Coronavirus Aid, Relief, and Economic Security Act (became law on March 27, 2020) (the “CARES Act”), is a $2.2 trillion coronavirus stimulus package to address the economic fallout from the pandemic.

The Emergency Paid Sick Leave Act, which is part of FFCRA, requires private sector employers with fewer than 500 employees to provide employees two weeks of paid sick leave. Full-time employees are entitled to two weeks (80 hours) and part-time employees are entitled to the typical number of hours that they work in a typical two-week period. The Emergency Paid Sick Leave Act does not preempt existing “state or private paid leave,” but excludes any day in which the employee receives compensation from his/her employer or unemployment insurance benefits.

The Emergency Family and Medical Leave Expansion Act, which is also part of the FFCRA, amends the federal Family and Medical Leave Act. Private sector employers with fewer than 500 employees are required to provide employees who have been on the job for at least 30 days with up to 12 weeks of job-protected leave for an employee who is unable to work due to a bona fide need for leave to care for a child whose school or child care provider is closed or unavailable for reasons related to COVID-19.

Small businesses with fewer than 50 employees may qualify for an exemption from the FFCRA requirement to provide leave due to school closings or if child care is unavailable if the leave requirements would jeopardize the viability of the business as a going concern.  The Department is expected to issue FFCRA regulations in April 2020.

Covered employers qualify for dollar-for-dollar reimbursement through tax credits for all qualifying wages paid under the FFCRA. Qualifying wages are those paid to an employee who takes leave under the FFCRA for a qualifying reason, up to the applicable per diem (and aggregate) payment caps.

The CARES Act provides stimulus to individuals, businesses, non-profits and hospitals in response to the economic crisis caused by the COVID-19 pandemic.  Included in the stimulus package, are the following:

  • $1,200 to Americans making $75,000 or less ($150,000 in the case of joint returns) and $500 for each child, to be paid “as rapidly as possible.”
  • $349 billion loan program for small businesses and non-profits. These loans can be forgiven through a process that incentivizes companies to retain employees.
  • $500 billion to aid larger businesses, states, and municipalities, with no more than $46 billion to support passenger air carriers, air cargo carriers, and businesses important to maintaining national security.
  • $130 billion in relief to the medical and hospital industries, including for medical supplies and drug and device shortages.

In addition to providing direct payment to individuals, the CARES Act also aids individuals with the allocation of around $250 billion in added unemployment benefits. Under the CARES Act, the federal government will provide $600 a week to individuals who are eligible for unemployment insurance. The federal assistance will complement existing state unemployment benefits, which typically cover a percentage of an unemployed individual’s previous salary.  The federal government’s $600 weekly payout to unemployed workers will last for a period of up to four months through July 31. Additionally, the CARES Act will extend state-level unemployment insurance by an additional 13 weeks. For instance, whereas most state unemployment benefits last 26 weeks, the bill extends benefits in those states to 39 weeks. The extended benefits will last through Dec. 31, 2020.

This article is not legal advice but is intended to offer information on existing and new laws that the author hopes will be of some help to both employers and employees in these difficult times.

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