When there is a slowdown in your business or you are mandated to cease or significantly limit operations, what options do you have to reduce your overhead? Keep in mind, a combination of the options below may be necessary depending on the needs of your business.
It is important to ensure any decisions relating to reduction in hours or pay are based on objective business reasons and are non-discriminatory.
Furlough/Reduction in Hours
A furlough is considered to be an alternative to layoff. An employer may require all employees to go on furlough, or it may exclude some employees who provide essential services. Generally, the theory is to have the majority of employees share some hardship as opposed to a few employees losing their jobs completely. A furlough is distinguishable from a layoff or termination in that it is temporary and the employer expects to have a continuing working relationship with its employees.
When an employer furloughs its employees, it requires them to work fewer hours or to take a certain amount of unpaid time off. For example, an employer may furlough its nonexempt employees one day a week for the remainder of the year and pay them for only 32 hours instead of their normal 40 hours each week.
Another method of furlough is to require all employees to a specified amount of unpaid time off. 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 California Wage Orders or the Fair Labor Standards Act (FLSA). A furlough that encompasses a full workweek is one way to accomplish this, since the both the California Labor Commissioner and FLSA state that exempt employees do not have to be paid for any week in which they perform no work.
Employees will typically be eligible for Unemployment Insurance benefits through the California Employment Development Department (EDD) when furloughed or when their hours are reduced. There is also the EDD’s Work Sharing Program managed by the EDD.
A layoff is a temporary separation from payroll. An employee is laid off because there is not enough work for him or her to perform. The employer, however, believes that this condition will change and intends to recall the person when work again becomes available. Employees are typically able to collect unemployment benefits while on an unpaid layoff, and frequently an employer will allow employees to maintain benefit coverage for a defined period of time as an incentive to remain available for recall.
Layoffs may include plant closings and mass layoffs of a certain percentage of the work force.
The State of California, as well as a number of cities or counties, have issued shelter-in place-notices in relation to the COVID-19 pandemic. These employers may be confronted with the need to immediately close business. For information on essential businesses or positions, see the California Stay-Home requirements.
Normally, CalWARN notice requirements (75+ employees) are triggered by even temporary layoffs, while federal WARN (100+ employees) is triggered generally by layoffs that are more than six months.
However, while CalWARN still applies, Governor Newsom has issued an executive order stating that notice requirements have been relaxed to be “as soon as practicable” (instead of 60 days). More on the suspension can be found here.
The notices must include all of the normal WARN Act information plus:
A reduction in force (RIF) occurs when a position is eliminated without the intention of replacing it and involves a permanent cut in headcount. A layoff may turn into a RIF or the employer may choose to immediately reduce their workforce. A RIF can be accomplished by terminating employees or by means of attrition.
When an employee is terminated pursuant to a reduction in force, it is sometimes referred to as being "riffed." However, some employers use layoff as a synonym for what is actually a permanent separation. This may be confusing to the affected employee because it implies that recall is a possibility which may prevent the employee from actively seeking a new job. Communication on return rights is imperative in these situations.
CalWARN may apply.
If you are planning a closure or major layoffs as a result of the coronavirus, you can get help through the Rapid Response program. Rapid Response teams will meet with you to discuss your needs, help avert potential layoffs, and provide immediate on-site services to assist workers facing job losses. For more information, refer to the Rapid Response Services for Businesses Fact Sheet (DE 87144RRB) (PDF) or contact your local America’s Job Center of CaliforniaSM.
To learn more about Furlough Procedures and the full fact sheet, click here.