Los Angeles, Calif (March 25, 2020) - Part II: Leave Management, Furlough, and Lay-Off Considerations

The evolving response to COVID-19 brings daily legal and public health developments. Businesses, already struggling under immense economic pressures, now face new and unprecedented questions regarding how Shelter-in-Place (or Stay-at-Home) and Non-Essential Business Closure Orders (Orders) will impact their operations and workforces. To assist employers in their critical decision-making process, Part I of this alert reviewed the general framework of the Orders and how to determine whether your organization is exempt from the restrictions on non-essential businesses. Part II will review the leave management, furlough, and lay-off considerations facing employers, particularly in light of new federal leave requirements under the federal Families First Coronavirus Response Act (FFCRA).

Although the Department of Labor (DOL) issued FAQs on March 24, 2020, DOL has yet to issue implementing regulations. Accordingly, this discussion is based on the information and guidance which has been published to date. Employers should continue consulting legal counsel for the latest legal developments and updated guidance.

What is the Families First Coronavirus Response Act (FFCRA)?

FFCRA was signed into law on March 18, 2020 and becomes effective "no later than April 2, 2020." On March 24, 2020, the DOL issued FAQs (DOL FAQs) which confirmed the effective date of FFCRA will be April 1, 2020.

In addition to providing other benefits, FFCRA requires employers with fewer than 500 employees to provide certain eligible employees with:

  • Up to 80 hours of Emergency Paid Sick Leave (EPSL) where the employee is unable to work (or telework) for certain qualifying reasons; and
  • Up to 10 additional weeks of Public Health Emergency Leave (PHEL) to care for a child whose school or child care provider is closed or unavailable for reasons related to COVID-19 (provided only to employees who have been employed for at least 30 days).

Please note, special rules apply for Health Care Providers and Emergency Responders. Additionally, certain provisions may not apply to employers with fewer than 50 employees. The DOL is expected to release regulations in April 2020 that will clarify these issues.

The DOL recently issued a summary of the FFCRA's provisions which can be accessed here.

In accordance with the DOL FAQs, whether an employer has fewer than 500 employees will be determined if, at the time your employee's leave is to be taken, you employ fewer than 500 full-time and part-time employees within the United States (including employees on leave, temporary employees who are jointly employed by a business and another employer, and day laborers supplied by a temporary agency).

If Our Employees Are Subject to an Order, Will They Be Eligible for Paid Leave Under FFCRA?

For purposes of this discussion, we will be focusing on Section 5102(a)(1) of FFCRA which provides Emergency Paid Sick Leave (EPSL) because the employee is "subject to a Federal, State, or local quarantine or isolation order." Many have asked whether the recent Orders constitute quarantine or isolations orders which will effectively require employers, who are already struggling, to provide paid leave to all or a portion of their workforce who are unable to work or telework by virtue of the Orders.

The FFCRA currently does not define quarantine or isolation orders. The CDC generally defines isolation as the separation of a person or group of people known or reasonably believed to be infected with a communicable disease, whereas a quarantine generally refers to the separation of a person or group of people reasonably believed to have been exposed to a communicable disease from others who have not been so exposed to prevent the possible spread of the disease (e.g., 14-day quarantine period). In both cases, isolation or quarantine orders remove individuals that have either tested positive for, or are suspected of having, a contagious disease from the rest of society to prevent or reduce the spread of a contagious disease.

Although the recent Orders restrict the movements of a large segment of our population, they are designed to reduce density and enforce social distancing recommendations, not isolate or quarantine someone who has tested positive for, or been potentially exposed to, COVID-19. Even under the more restrictive Shelter-in-Place Orders, essential business remain open and individuals are free to engage in certain essential tasks like going to the grocery store, physical exercise with social distancing, or seeking medical care. As FFCRA was drafted and enacted prior to local and state governments issuing such expansive Orders, it does not appear paid sick leave under FFCRA is intended to apply to the recently-issued Orders. But since we are in uncharted waters, the answer remains somewhat murky and clarifying regulations or FAQs may well provide much needed guidance.

On March 23, 2020, the DOL announced it is hosting a national online dialogue where interested parties can submit ideas and comments that DOL will review when preparing its compliance assistance. Whether the DOL will address application of the FFCRA to the Orders remains to be determined, but we certainly hope so. Unless and until the DOL clarifies its position, the conservative approach would be to apply the requirements of FFCRA to an employee subject to an Order. Stay tuned.

What Does This Mean for Employees Subject to Orders?

  • If your employee can't work remotely, the employee may qualify for up to 80 hours of emergency paid sick leave (unless laid off or furloughed).
  • If your employee can work remotely, but only on a reduced schedule, a portion of the reduced schedule may be subject to the EPSL requirements.
  • Employees who are currently home and unable to telework due to school closures may become eligible for emergency paid sick leave as well as emergency public health leave once the FFCRA becomes effective on April 1, 2020.

Although the FFCRA provides employers with tax credits for this paid leave, business interruptions related the Orders are forcing more employers to consider how fronting the cost of this additional paid leave, even in the short-term, will impact payroll and cash flow pressures. The Departments of the Treasury, IRS, and DOL recently announced efforts to allow business to swiftly recover the costs of providing FFCRA leave which can be accessed here.

Will FFCRA Paid Leave Run Concurrently With Other Paid Leave?

Paid sick leave is in addition to, and does not run concurrently with, other paid leave available to the employee (including paid leave provided by an employer prior to April 1, 2020). Employers also cannot require employees to exhaust accrued leave before using paid leave available under the FFCRA. As more states are enacting expanded paid leave, family leave, and disability benefits, employers should consult with counsel to determine the various federal, state, and local leave and disability benefits which may apply.

Will Furloughed Employees Be Eligible for Leave under the FFCRA?

For employees who are currently on a furlough, many employers have asked whether they will now become eligible for paid leave once FFCRA becomes effective.

Furloughs typically fall into two categories:

  • Partial-week furloughs where the employee only works certain days or a reduced number of hours each day; and
  • Full-week furloughs where the employee performs no work for at least an entire workweek.

Both exempt and non-exempt employees are eligible for partial or full-week furloughs, but administering partial-week furloughs for exempt employees poses more complex wage/hour compliance issues and the structure should be reviewed with counsel. Additionally, in some states, minimum salary requirements may make partial-week and full-week furloughs impracticable.

In general, a furloughed employee is placed on inactive service or has a reduction of hours because business and operational requirements necessitated a reduction of labor for a short to medium duration. If a furloughed employee is unable to work because of these economic conditions, the leave is being necessitated by the furlough and not the Stay-at-Home Order. Accordingly, FFCRA likely is not applicable. The underpinning of leave under FFCRA is that the employee has a job to perform, but is unable to do so because of some qualifying condition like testing positive for COVID-19, a public health emergency school closure, or being subject to an Order and being unable to work remotely. In the case of a furlough, the employer, not the government, has determined that there is no work to perform – whether the employee is subject to an Order or not. Arguably, this position is not without risk as an argument can be made that there is no job to perform solely due to the Stay-at-Home Order (and the inability to work remotely). This, however, does not appear to be the intent of Congress, but further clarification is needed.

How Does a Furlough Impact Accrued Vacation?

Generally, an employer may be able to force an employee to use accrued vacation, but check for any inconsistent terms in your vacation policy or, where applicable, any Collective Bargaining Agreement (CBA), and whether there is any reasonable notice requirement under state or local law. If an employer has a PTO policy that combines vacation and sick leave, certain restrictions may apply under federal, state, and local paid sick leave laws which prohibit employers from requiring an employee to use such paid leave. Conversely, many employers prefer, where permitted under the vacation policy or state law, to restrict use of vacation during furloughs to help them manage cash flow during an economic downturn. But once again, state law restrictions, if any, must be reviewed. For example, California may require payment of vacation if the furlough does not have a fixed time period or extends beyond a pay period (but this is based on older, non-mandatory, agency opinion letter guidance from 1993 and 1996).

Do the Orders Effectively Provide Job-Protected Leave?

With schools closing due to the public health emergency, many employees are being required to work from home, take paid sick leave under state or local law, or other paid or unpaid leave provided by their employer. As economic conditions continue to change, including with more jurisdictions enacting Orders, many employers are moving from leave management considerations to separation of employment decisions. Typically, job-protected leave does not insulate an employee from a legitimate business decision to implement a furlough or eliminate a position. This analysis appears to apply to the Orders and the FFCRA. The DOL may issue guidance clarifying this issue further, particularly with the national online dialogue now underway. As with any separation decision, it is wise to consult with counsel, particularly if your workforce is subject to a CBA, or only certain segments of your workforce are impacted by the economic conditions, as these factors may increase risks associated with retaliation and interference claims.

Furlough Considerations

As noted above, employers are facing unprecedented times, particularly in light of the number and scale of the Orders being implemented. Although employers are generally familiar with the issues presented with a lay-off, including benefit administration and notice requirements (e.g., COBRA, WARN Act and state equivalents, if any, and any state required notices), many employers have been, or are considering, partial or full-week furloughs in response to the economic impact of COVID-19. To help employers identify issues which may impact their implementation and administration of a furlough, we review some general advantages and disadvantages related to furloughs below. Please note that this list is not meant to be exhaustive and reflects general principles. It goes without saying that we are in unprecedented times and the items listed below are fact and state-specific and may need to be reevaluated in light of ongoing developments, including economic stimulus packages or paid leave programs being enacted or considered by federal, state, or local governments.

Advantages of a Furlough

  • Reduction of payroll costs.
  • Possibly avoids or delays payout of earned but unused vacation during a crisis period. Generally, employers retain the discretion to approve the use of vacation, and may be able to deny such use during a furlough. Absent a separation from employment, earned but unused vacation generally is not payable to the employee. This, of course, is subject to limitations or restrictions set forth in the vacation policy, state law, or the terms of the CBA (if applicable) and should be reviewed with counsel.
  • Employees may be eligible for unemployment benefits, including when there is only a partial reduction in hours or loss of pay. Unemployment benefits vary by state (and are being expanded during this crisis), so employers should review state requirements when considering and structuring the furlough to maximize an employee's eligibility for unemployment benefits.
  • Without a separation from employment, employees may remain eligible for health coverage under the terms of the employer's group health plan. In addition to federal or state law requirements and stability period rules, some plans provide for continuation of coverage even if there has been a reduction of hours or other period of inactive service (i.e., furlough or unpaid leave of absence). Employers should review the terms of their benefit plans to understand the impact of a partial or full-week furlough. If benefits don't continue, consider plan amendments, if such discretion is permitted, with appropriate resolutions and approval from carriers for fully-insured plans or stop-loss approval for self-insured plans.
  • Employee relations. Employers should, however, carefully craft any employee communications to disclaim any guarantee of continued employment or a specific return to work date, and communicate the impact of the furlough on benefits, as well as the website where employee can obtain information about and file for unemployment insurance benefits.
  • By retaining the employment relationship, employers can quickly adjust their workforce to changing (and hopefully improving) economic conditions.
  • As noted above, employers should review their policies, plan documents, and state law to determine whether these advantages apply, and if so, how to structure the furlough program.

Disadvantages of Furloughs

  • For non-exempt employees, issues include, without limitation, recording time (particularly if working remotely), meal and rest break compliance, and possible reporting pay compliance.
  • For exempt employees, a partial furlough may be permissible, but the structure must satisfy certain requirements including, without limitation, being prospective, based on medium to long-term economic forecasts, and not fall below minimum salary thresholds under federal or state law. This may be impracticable in certain jurisdictions as noted above. Additionally, the furlough should start at the beginning of the next workweek, pay period, or in accordance with state advance notice requirements. To address some of these issues, exempt employees may be moved to non-exempt status, but the partial furlough or classification change should be reviewed with counsel to ensure compliance with federal and state wage hours laws. This bears repeating. Consult counsel to ensure the specific furlough structure satisfies federal and state requirements.
  • Employees must not be permitted to perform work while on full furloughs and only as scheduled for partial furloughs.
  • Some states also may require advance notice of compensation changes.
  • Wage/Hour compliance - particularly for partial or reduced schedule furloughs.
    • Which furloughed employees remain eligible for group health coverage?
    • What about FSA, HSA, life, disability, and other benefits?
    • How do we get and/or recover employee portion of premiums?
    • How does vacation accrue for partial week furloughs?
    • How will this impact ACA compliance?
    • What about retirement plans?
  • Benefit administration can become complicated.
  • Ongoing applicability of federal, state, and local paid leave laws. As noted above, if changing business and operational needs necessitates a multi-week furlough, EPSL likely would not apply because the leave is necessitated by a lack of work, not a Stay-at-Home Order. For employees subject to a partial-week furlough, paid leave may become available under federal or state law for the reduced work being performed. Best practice would be to clearly define and maintain a set schedule so any paid leave requirements can be clearly determined.
  • Compliance with terms of executive contracts/severance provisions.
  • Depending on length of furlough, compliance with WARN Act, as well any more stringent state Mini-WARN Act requirements, if any).

As noted above, there are still many unknowns and we expect additional regulations and guidance from DOL in the next few days. Accordingly, employers should consult with counsel for the latest developments and updated guidance on this topic.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.