Considerations for Businesses Contemplating Temporary Furloughs
Widespread shelter at home orders have caused many businesses to close and/or limit their services dramatically. They have also caused less availability of employees. These conditions are causing many businesses to consider temporary closures of their stores or locations altogether for several weeks or reductions in employee hours. It is important for employers to understand that in some instances these actions may trigger the federal WARN Act or the California equivalent known as CalWARN. Complying with these laws can be onerous and violating them can result in substantial liability.
WARN and CalWARN
The federal Worker Adjustment and Retraining Notification Act (WARN) requires companies to give employees advance notice if they are closing a plant or conducting a mass layoff. The WARN Act only covers employers with 100 or more employees. Employers typically must 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.
CalWARN is California’s version of the WARN Act. There are more actions that trigger notice under CalWARN. California law requires employers to give employees advance notice of any mass layoff, relocation, or termination. Under state 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.
Many employers are considering a two or three week furlough as a way to reduce costs while keeping employees ready to return to work when the shelter at home orders expire. Furloughs, or temporary layoffs, are essentially unpaid leaves of absence in which employers, depending on the length of the furlough, continue to provide benefits and allow employees to use paid leave available to them.
Short furloughs will not trigger notice under the federal WARN Act. The federal WARN Act only requires notice when a furlough is more than six months.
However, many furloughs may trigger a notice requirement under CalWARN because short term layoffs have been interpreted to count as a layoff for the purposes of determining if there is a “mass layoff” under CalWARN. See Internat. Brotherhood of Boilermakers, etc. v. NASSCO Holdings, Inc. (2017) 17 Cal.App.5th 1105, 1118. In that case, a California company temporarily laid off 90 employees for four to five weeks without providing Cal-WARN notice. The court held the company violated the Cal-WARN Act by not providing advance notice of the furlough. In effect, the court held that Cal-WARN notice is required for temporary layoffs (even though notice is not required under the federal WARN Act, unless the layoff is for 6 months or more). The Court reasoned that even though the furlough was temporary, the employees were still separated from their positions and CalWARN notice serves to alert government officials to an unemployment situation.
In addition, California’s Governor recently issued an Executive Order regarding CalWARN requirements during the Covid-19 crisis, and that order also seems to suggest that temporary layoffs trigger the obligation to provide advance notice under Cal-WARN. (The order explains that the notice to employees must inform them whether the layoff is expected to be temporary or permanent). Unfortunately, there is no bright line rule for how long a layoff/furlough must be in order to trigger the obligation to give Cal-WARN notice. The Governor’s order does not address this, nor does the CalWARN statute. In the International Brotherhood of Teamsters case, the court explained that layoffs lasting at least three weeks trigger CalWARN notice.
Thankfully, the Governor’s recent order at least relieves employers of the requirement to provide a full 60 days’ advance notice of a furlough or layoff (the amount of notice typically required under WARN and CalWARN). Given the unusual circumstances surrounding the public health emergency, the Governor has instructed that employers simply must give as much notice as is practicable. Nonetheless, the notice requirements are still burdensome for employers and include many technical requirements in terms of content and the list of state and local officials who must be given notice. These requirements are set forth in the Governor’s Order here, in DLSE guidance here, and in the federal WARN Act at 29 U.S.C.A. section 2102 and 20 C.F.R. section 639.7, whose notice provision California adopts.
Employers also need to be aware of a related issue regarding temporary furloughs/layoffs. California’s Department of Labor Standards Enforcement has opined that any furlough that exceeds 10 days or the end of the pay period may be considered a termination, which triggers final pay obligations (requiring all wages for work performed, plus all accrued, unused vacation/PTO to be paid out) at the time of the furlough. See DLSE Opinion Letters 1993.05.04 & 1996.05.30. It is questionable whether courts will agree with this DLSE interpretation, particularly in circumstances where the employer is continuing an employee’s group health benefits during the temporary furlough (and, thus, still treating them as employee). If treating employees as “terminated” at the time of a temporary furlough and issuing them “final pay,” it would be at odds to simultaneously continue their health benefits during the same time period as though they are still employed. Terminating health benefits during this health emergency (and leaving the employee without any accrued paid time off to use if when returned to work) is perhaps riskier. While there is some risk in not treating furloughs as terminations for final pay purposes, if employers are continuing to provide benefits for employees, allowing them access to their paid leave options, and have been clear with employees that they are still employed (particularly with communication of an estimated return to work date), there are good arguments that relatively short furloughs should not be viewed as terminations for final pay purposes.
Finally, employers should treat analyze whether a short term site closure has caused a layoff, temporary or permanent, that triggers the Cal-WARN notice requirements as discussed above. Although a site closure by itself does not trigger Cal-WARN notice requirements, it may result in layoffs that require notice. In addition, if employers are also covered by the federal WARN Act, site closures may also trigger notice under that statute, if the shutdown results in an employment loss for 50 or more employees during any 30-day period.
Reduction in Hours
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. CalWARN 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.
There is nothing unlawful about reducing pay. Hourly, non-exempt employees need only be paid for actual hours worked. However, where exempt, salaried employees are involved, employers need to be aware that salary reductions that are tied to hours worked may destroy the employee’s exempt salary. Exempt employees generally must be paid their full salary for a workweek in which they perform any work. Exempt employees do not need to be paid for a week in which they perform no work.
If you are considering a limited furlough you should work with your attorney to ensure compliance with WARN and Cal-WARN and structure the furlough to reduce related risk as much as possible in this uncertain time.