A furlough is a mandatory temporary unpaid leave of absence from which the employee is expected to return to work or to be restored from a reduced work schedule.
Furloughs are often used to reduce costs when the employer does not have enough cash for payroll (for example, a federal government shutdown due to lack of budget approval, or due to Covid-19) or when there is not enough work for all employees during a certain period and, by reducing employee schedules, the employer can avoid terminating employees.
A furlough reduces hours, days, or weeks employees may work and usually has a finite length. A company can furlough employees for specified amounts of time and set the conditions of the furlough. They can require employees to use accumulated paid time off during the furlough, and for cost-saving measures, many employers notify employees the furlough will consist of unpaid time.
California employers must be careful when furloughing exempt employees so that they continue to pay them on a salary basis and do not jeopardize their exempt status under the federal Fair Labor Standards Act (FLSA) or corresponding California employment law.
A furlough that encompasses a full workweek is one way to accomplish this, since the FLSA states that no employers pay the exempt employee's salary for any week in which they perform no work.
Furloughed employees cannot perform job duties in any capacity during the furlough period. These zero tolerance rules include everything from simply checking email to performing any type of work on behalf of their employer.
Even a 5-minute phone call will violate the terms of the furlough. A salaried exempt employee performing their job duties could require their full weekly salary, and for hourly employees, it could require pay for the time worked.
Under California law, an exempt employee must be paid their full salary for any week in which they perform work, regardless of the actual hours. This means that they can only be furloughed in weekly increments at minimum, during which time they are forbidden from engaging in any of their usual job responsibilities. Their access to work-related programs may even be restricted or their employer-issued devices confiscated to ensure compliance.
Unlike a salaried employee, an hourly employee who is furloughed may continue to work in some circumstances. Their employer may simply reduce their total hours per day or their total days per week. A company also has the option of furloughing employees for weeks or months at a time – a situation commonly referred to as zero hour schedules.
The Federal Worker Adjustment and Retraining Notification Act (WARN Act) requires companies to give employees advance notice if they are closing a plant or conducting a mass layoff. The Federal WARN Act only covers employers with 100 or more employees. Federal regulations require employers to give employees at least 60 days’ notice before taking either of these actions.
A temporary or permanent plant closure is the shutdown of a single site of employment or one of one or more facilities or units within a single site of employment, if the shutdown results in an employment loss for 50 or more employees during any 30-day period.
A mass layoff is a reduction in force that is not a plant closure but results in loss of employment at any single site during any 30-day period of: (1) at least 33% of full-time employees and at least 50 or more full-time employees; or (2) at least 500 full-time employees.
The Cal WARN Act is the California equivalent of the WARN Act.
Under California WARN, an employer is required to provide advance written notice when it lays off 50 or more employees within 30 calendar days. California courts have ruled that even if the employer characterizes a "mass layoff" as a "temporary furlough," it still triggers WARN's notice obligations.
Under California law, a mass layoff is a layoff during any 30-day period of 50 or more full or part-time employees at a facility or part thereof that employs or has employed 75 persons within the preceding 12 months. A relocation is the removal of all or substantially all industrial or commercial operations to a location that is 100 miles or more away. Termination means ending or substantially ending industrial or commercial operations.
Failure to provide the required notice subjects the employer to legal liability in a civil action for (1) a daily civil penalty of up to $500; (2) each employee's lost wages, lost value of benefits, and any medical expenses incurred due to the loss of medical insurance; and (3) the employee's attorneys' fees. Liability is calculated up to a maximum of 60 days, or one-half the number of days that the employee was employed by the employer, whichever period is smaller.
The California Division of Labor Standards Enforcement (DLSE) found that if a furlough extends beyond the employee's normal pay period in which the furlough begins, the employer is required to pay final wages as set forth in the Labor Code. Furthermore, the DLSE stated that a furlough with a definite return-to-work date that does not exceed 10 days, does not result in a termination.
According to the DSLE, a "furlough" that does not have a definite return-to-work date within 10 days or less, or within the employee's normal pay period, should be treated as a termination for final pay purposes.
Small businesses can implement furloughs with greater ease than large employers. Another option for employers other than a full furlough is to reduce the employee hours (by no less than 10% and no more than 60%) and apply to the California Employment Development Department (EDD) Work Sharing Program, which provide employees reduced hours and supplemental pay for such employees during the furlough.
Employers may also be considering reducing employee hours for a relatively short two to three week period of time. A short term reduction in hours does not trigger any notice requirements under the federal WARN Act. Cal-WARN also does not specifically require notice for a reduction in employee hours. A reduction in hours may, however, make employees eligible to collect unemployment insurance benefits.
Generally, displaced employees are legally required to actively look for work in order to be eligible for unemployment insurance benefits. But most furloughed employees, because they still have a job, do not fulfill this requirement.
Regardless of that fact, some states will extend unemployment benefits to them, such as allowing them to collect unemployment insurance benefits and health benefits. Laid-off employees, conversely, usually qualify for unemployment insurance as long as they’ve earned the minimum amount of income in the past year to be eligible.
If there has been a change to your employment relationship or your weekly salary reduced where your employer failed to notify you, seeking legal counsel may be the best option. Contact the employment lawyers at Freeburg & Granieri today!
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