A Guide to the Meaning and Impact of Furloughs
A furlough, as defined by the U.S. Department of Labor, is "a temporary unpaid leave from work." Furloughs are undoubtedly unpopular with everyone involved, but both for-profit and not-for-profit employers may be required to use them during difficult financial times in order to avoid permanent termination of the employee. Although furloughs are often viewed by employees as punishment for bad corporate decisions or as government overreach, furloughs are a governmental tool used to protect overall employment levels. However, the applicable law differs depending on where the business is located. The various furlough laws are covered below.
Crucially , states have different laws on employee furloughs. California, for example, has a production day for this technique. Moreover, herein the article, although the use of furloughs that are unpaid are the focus, it is important to use the term broadly to cover a series of options that might serve the same purpose. In some instances, the employer will not desire to terminate an employee but might want to delay their pay. In that instance, it might engage in a voluntary benefits program under which the employee buys additional vacation or pays a portion of their paycheck through raises. This is to say, that furloughs are employed in a variety of ways and they can be done in different manners by the employer.
Evaluating Federal Furlough Laws
When it comes to the federal government, furloughs are actually guided by some very specific guidelines. These guidelines have been divided into two categories, both of which will be addressed in this section.
In general, federal non-exempt employees that are furloughed for a partial day will need to be paid a minimum of minimum wages for the time they work. This is considered a "partial day deduction." However, there are four exceptions where partial day deductions may not be taken into consideration. These four exceptions include:
- Employees who had lost exempt status because they did not make the minimum pay cut off ($23K).
- Employees have a written agreement stipulating otherwise.
- Employees are exempt under the FLSA.
- Partially paid employees (like exempt new hires or those who worked exempt and non-exempt).
Any employee that meets the criteria for a partial day deduction will have their pay deducted by the hours missed. This includes employees who miss sixty or more minutes of work due to voluntary absences. During their furlough days, non-exempt employees should be allowed to run errands, stay at home, or manage personal tasks. Making the times of these absences clear is best practice, as well as being prudent management.
There are very few restrictions on federal exempt employees when it comes to unpaid furloughs. In fact, a wide range of employees can be furloughed without worrying about making the salary threshold, provided that the absence of work is unpaid (employee can be restored to their original position as soon as the furlough period is over). Employees who are exempt may also sometimes be asked to take furloughs without pay, provided it’s agreed upon in advance (usually in writing).
The Department of Labor divides federal exempt employees into five categories:
- Executive exemption: Employees whose primary job is directed and manage to the basic operations of a company or subsidiary.
- Administrative exemption: Employees whose primary job is to handle certain business functions.
- Professional exemption: Employees whose primary function is to perform specialized work related to their field.
- Learn professional exemption: This exemption covers workers who are eligible for professional exemption but are delayed in their professional duties until they have completed a certain level of training.
- Highly compensated employee exemption. Highly compensated employees are employees whose duties satisfy Part 541 in 29 CFR of the DOL rules and regulations.
Even when it comes to federal employees, the state could still have regulations regarding how employees are paid. Many states will require compensation for a minimum time period, even if the worker doesn’t return for that time period.
Digging Deeper into the Different State Furlough Laws
State-specific furlough laws can vary greatly. For example, California law differs from federal law in several respects. When an employer lays off or otherwise separates an employee, whether voluntarily or involuntarily, it is required to pay all wages earned to that employee on the next available payday. However, an employer may lay off or furlough its employees as long as it continues to provide compensation to those individuals for the duration of the furlough period. Further, unlike the federal requirement of a two-week notice period (under the WARN Act), the California only requires employers to give its employees 60 days’ advance notice of the layoff or furlough. Further, California law requires certain employers with more than 75 full- and part-time employees to pay employees for the duration of the furlough at a minimum of $200 per week.
In Hawaii, specific industries may be temporarily closed and for that reason, forced to furlough or discharge its employees. For example, to conserve energy Hawaii completely closed its commercial activity in Pearl Harbor between September 2 and November 10, 1945. Yet furloughs are still governed by the provisions of each employer’s respective labor agreement. If there is no labor agreement in place, the employer may simply close its business temporarily and consider that a furlough. However, if two or more employers engage in the same industry and agree to confer together, giving notice of the furlough to their employees is not necessary.
In Maine, state law specifically prohibits employers from terminating an employee for being called into service by a civil authority, including during a subpoena as a juror or for serving in the military.
Minnesota law requires an annual employee furlough policy to be in writing. Employers must include the dates of the furlough, names of affected employees, reasons for the furlough and the furlough duration. Furloughs cannot exceeding 30 days within a 12 month period. Employers can also have a vacation pay payout policy in place but it must comply with the state’s wage payment law.
Furloughs and the Legal Rights of Employees
The economic situation of a company and the consequent necessity to implement a furlough can have different implications for an employer depending on the state in which the employee works. It is important to know which state has jurisdiction over any furlough before beginning implementation. Under California law, if an employer must furlough employees, it must be evaluated on a case-by-case basis so as to determine whether the layoff would be an unpaid vacation under California law. Under California law, if it is determined that the furlough constitutes an unpaid vacation, some protections under the law are available. For example, if the employee is required to take a furlough day and the employer does not provide any work and withholds pay, the employee may have protected time off on those furlough days, which protects the employee from deductions to accrued vacation equal to the value of the furloughed day or days (assuming the employee is not paid for the furlough day). Under California law, an employee who is forced to take a furlough day may also assert that his or her federal and state disability benefits are available. It is important to keep in mind, however that under California law, the Furlough Policy itself must include the scheduled furlough period, the reason for the furlough, an explanation of policy, and an explanation of how it affects the calculation of the employee’s pay. Further, under California law, prior to a scheduled furlough, an employer must inform its employees of the specific date and time at which the furlough will commence, as well as the specific date and time at which the furlough will end. Special protections exist for employees who work more than one job, but those protections can be waived. While the law does not require that the employer and the employees sign an agreement to implement the furlough, the employer must communicate the details of the Furlough Policy and how it is implemented in writing. In addition to the protections afforded in the Furlough Policy, California law specifically exempts an employer from paying wages for furlough days during a furlough period. As mentioned above, however, the employer cannot make any deduction to the employees’ accrued vacation days based on the furlough day or days. Further, the employer may not implement a furlough if the result would be that the employee would not earn minimum wage, or overtime wage, for that week. If any of these requirements are violated, the employer may face liability.
Requirements Employers Must Be Aware of When Enforcing Furloughs
When an employer finds itself in the difficult position of choosing between laying off employees or instituting furloughs, it will need to carefully consider the safest and most prudent strategy for its business and its employees. Like other seemingly unpalatable options, however, furloughs impose obligations on the employer to pay employees and comply with the requirements (both state and federal) for the payment and notification of the furlough itself. For example, California’s Department of Industrial Relations has validated a non-binding FAQ which provides that employers must notify affected employees of any plan to implement a furlough, and they must notify the state Employment Development Department. The notice to employees is to include the starting date of the furlough, "expected return to work date," and such other information as may be necessary to "avoid misunderstandings as to the employer’s reason for, and requirement to furlough the employee." The notice must be provided before the furlough, and it appears that the state interprets this as justification for requiring it at least 48 hours before a furlough, although they will not overrule employers who provide notice at the last possible minute. Employers are also required to submit an unemployment insurance notice to the Employment Development Department. Notice is to be provided when employees are not receiving wages for a regular work shift, but are still employed. Whereas employees temporarily laid off without pay each week are eligible for unemployment insurance, employees who are furloughed and then laid off in the same week are not. In essence, therefore, employers can avoid additional expense by processing an unemployment insurance claim from employees on furlough quickly, so as to not pay both their furlough wages and unemployment insurance for the same period of time . California’s federal WARN law requires the issuance of a WARN notice to the affected employees and the EDD at least 60 days before a plant closing or mass layoff, and 60 days before temporary layoffs of 50 or more employees lasting for at least six months. The notice must include a statement of at least six specified matters, including the expected date of furlough, number of affected employees, and whether or not bumping will be allowed. However, the law does not distinguish between temporary layoffs and furloughs. Most of these intricate requirements are absent from the federal WARN Act, which only applies to larger layoffs resulting in the termination of at least 50 employees, regardless of whether they are temporary or permanent.
While states like California have developed detailed policies and requirements regarding furloughs, others have not even issued general guidelines, such as New York. However, providers nonetheless have an affirmative duty to pay employees for hours worked. The Department of Labor for the state of New York has stated, in its set of Frequently Asked Questions, that according to the New York Labor Department’s interpretation of the Exempt Employee Laws, an exempt employee who has worked in a week must be paid the full salary, even if they have not performed work for the whole week. The FAQs state that, for a non-exempt employee, the employer will only need to pay a prorated salary. If the employer temporarily reduces the employees workweek, then it may deduct wages for full-day absences due to personal reasons, but not for absences due to sickness or injury. While lawsuits over the legality of furloughs have been few and far between, the penalties for improperly furloughing employees could be significant. Employers should keep well apprised of their obligations under state and federal law prior to seeking to implement a furlough program, and ensure that in addition to their HR and finance teams, they consult with their employment attorneys in following the proper steps to execute the program.
Examining How Furloughs Work in Different States
Furlough laws vary from state to state and pose a variety of legal challenges to employers.
The Furlough State-by-State "Must Knows"
Employers must understand that the law in California for furloughs is more restrictive than surrounding states. Employers based in California should be diligent in reviewing these laws before imposing furloughs as the law can be unforgiving.
California
California’s law does not allow for the exemption of employees during a furlough because of the salary basis requirement. If a non-exempt employee works during a particular week, he/she must be paid for all hours worked, even if at straight time wages. Thus, the 20% rule becomes inapplicable because a non-exempt employee cannot lose pay attributable to an exempt classification. Under California law, if an employer wants to implement a furlough with exempt status, it must be implemented in increments of a work week.
Arizona
Arizona follows federal guidelines.
Nevada
Nevada has a 10-day take away over a 30-day period for unpaid furloughs.
New Mexico
In New Mexico, an employer may not furlough an employee and give the employee a day off without pay when the employee has already worked for the week.
Texas
Texas follows federal law.
Useful Resources for Learning About Furlough Laws
To ensure compliance with ever-evolving furlough laws, employers in the United States must commit to regularly updating themselves on relevant state-specific information. Two reliable sources of up-to-date information are state departments of labor and private law firms. The web pages for state departments of labor regularly publish new information on applicable laws and regulations. The private law firm Baker & McKenzie offers a continuously updating , state-by-state guide to exemptions as well as a more comprehensive overview of state and federal wage-hour regulation. In addition, government websites and publications often provide up-to-date information.