The Difference between a Furlough and a Layoff: Why It Matters

If you had to furlough or lay off employees this year due to COVID-19, you are not alone. As of August 2020, California's unemployment rate was 11.4%. Although in everyday conversation the terms "furlough" and "layoff" are used interchangeably, there is a difference with legal implications. If your furloughs really amount to terminations or if you placed employees on leave indefinitely, you may have legal compliance obligations, including final pay requirements, WARN Act notifications, and COBRA implications. If you believe that you improperly classified an employee's termination as a "furlough," consult legal counsel. Below are some considerations:  

Final Pay Requirements

In California, when you terminate an employee, they are entitled to their final paycheck, including all earned wages, bonuses, and accrued but unused vacation. You must be prepared to deliver the final paycheck "immediately," which means at the time of termination. If the final paycheck is untimely or does not include all wages and vacation owed, the employee is entitled to waiting time penalties. These penalties are calculated based on the employee's average daily wage for each day the employer is late, up to a maximum of 30 days. As such, if you characterize a termination as a "furlough" and fail to provide a timely, final paycheck, you may be on the hook for waiting time penalties.

When does a "furlough" become a termination for final pay requirements?  

In an opinion letter, 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. In another opinion letter, 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. Under these opinion letters, 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. While the DLSE opinion letters are not binding authority on California courts, they are persuasive authority.

Bottom line: If your furlough extends beyond 10 days or the next pay period, you should treat it as a termination for final pay requirements.

California WARN Act Notification

California's "mini" WARN Act (which covers employers with at least 75 employees) requires employers to provide at least 60 calendar days' advance written notice for certain worksite closures, furloughs, and mass layoffs.

When does a "furlough" trigger California's WARN Act Requirements?

Under California WARN, an employer is required to provide advance written notice when it lays off 50 or more employees within 30 calendar days (and in other circumstances, such as plant closures). California courts have decided that even if the employer characterizes a "mass layoff" as a "temporary furlough," it still triggers WARN's notice obligations. 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 good news is that Governor Newsom issued Executive Order N-31-20, which temporarily suspends the 60-day notice requirement in the California WARN Act for employers who lay off or furlough employees due to COVID-19. However, employers must still satisfy the following conditions:

• The employer's mass layoff, relocation, or termination must be caused by COVID-19-related "business circumstances that were not reasonably foreseeable at the time that notice would have been required."
• The employer must provide written notices as soon as practicable to:
  • Employees affected by the mass layoff, relocation, or termination;
  • The EDD; the Local Workforce Development Board; and the chief elected official of each city and county government within which the termination, relocation, or mass layoff occurs.
• The notices must provide a brief statement as to why the 60-day notification period could not be met, as well as additional details, including the following statement: "If you have lost your job or been laid off temporarily, you may be eligible for Unemployment Insurance (UI). More information on UI and other resources available for workers is available at labor.ca.gov/coronavirus2019."

You can access more information about the Executive Order's requirements on the EDD's website here.

COBRA/Cal-COBRA

Many employers who furlough employees choose to continue group health benefits under the same plan and same employee rate. If your employees are on a temporary layoff but you have continued their benefits coverage, then you do not need to provide COBRA notices. This is true even if you reduced the employees' hours or temporarily closed your business because there was no loss of coverage.

However, if you end benefits coverage or convert a furlough into a termination, be sure to provide COBRA notices to your employees. Note that many benefits providers will handle this for you, so long as you notify them of the triggering event. 

Need additional guidance handling employee terminations? Check out CEA's Termination Tool Kit!