Coronavirus and Beyond: The Legal and Compliance Considerations of Furloughs, Layoffs, and Reduction in Force

April 9, 2020

In response to the COVID-19 pandemic, many businesses have been lucky enough to find ways for employees to work from home, but not all jobs are compatible via telecommuting. As the economic downturn takes its toll, a loss of revenue can make difficult choices necessary. Depending on your circumstances and the outlook for your industry, cost-saving options might include furloughs, layoffs, and a permanent reduction in force (RIF).  With these decisions, you must keep in mind the legal and compliance considerations that come along with them.

While the global pandemic has made economic predictions difficult, it’s also impossible to know what new legislation and policy changes might affect the options available to your business. While some legislation has already passed to provide some relief (including the CARES Act), it may not be enough to save you from having to make these difficult decisions about your workforce.

If those decisions become inevitable, it is crucial for you to fully understand the differences between furloughs, layoffs, and a permanent reduction in force (RIF), as well as any compliance issues that may come up as a result. 

Furlough

On teams where it would be difficult to fire any one employee, your business may choose a furlough to spread the burden across the workforce. Furloughed employees are required to take off a certain amount of time (unpaid) or required to work fewer hours. You could have nonexempt employees work 32 hours instead of 40 per week, or 4 days instead of 5. Alternatively, you could force employees to take one or two full weeks of unpaid leave. If salaried employees have exempt status under the Fair Labor Standards Act (FLSA), they’ll need to be furloughed in a way that doesn’t change their exempt status. Exempt employees need to be paid for weeks when they perform any amount of work, so you can remain compliant with FLSA by timing the furlough of exempt employees to begin and end with the workweek.

Layoffs

Although the term is used incorrectly in casual conversation, a layoff is a temporary suspension of employment. There’s an expectation that employees will return to work after circumstances (particularly economic ones) change. During an unpaid layoff, employees are typically eligible to collect unemployment insurance, though some employers continue to provide benefits coverage. There are complications that come with continuing to provide benefits, but employees who retain coverage are less motivated to seek new employers during the downtime. 

Reduction in Force

If the response to COVID-19 is causing structural changes in your company, then some positions may no longer be necessary. If a position is permanently eliminated, the correct term is a “reduction in force,” or RIF. When “layoff” is used as a polite euphemism for permanent separations, employees may justifiably expect to be rehired in a matter of weeks or months. To avoid miscommunication with employees, it’s helpful to communicate when positions are being permanently closed. 

Legal Considerations

The Family Medical Leave Act (FMLA) sets certain legal requirements for benefits, but it’s less likely to apply when furlough or layoffs are initiated by the employer. If your employees are already on leave to care for family members or self-quarantining themselves, then EFMLEA might cause complications. You’ll want to keep up to date with legislation passed in response to COVID-19, including the CARES Act, which provides incentives for businesses on the condition that they retain and rehire 90% of their former staff. 

WARN Act Notifications

The Worker Adjustment and Retraining Notification (WARN) Act requires employers to give employees advanced notification of large-scale layoffs. If your layoffs will affect more than 50 employees for a six-month period, and their hours will be reduced by 50% or more, then you may be required to give employees 60 days notice. Exceptions exist for natural disasters, faltering companies, and unforeseeable business circumstances, but there hasn’t yet been a ruling with respect to COVID-19-related layoffs. In addition to the federal requirements of the WARN Act, your state may have similar legislation with different cutoff points. 

At the start of the COVID-19 crisis, very few business owners could have predicted the scale of the pandemic’s impact. While the future is still unpredictable, the WARN Act is a useful reminder to develop a business continuity plan and communicate large-scale layoffs in advance.

COBRA Coverage

Depending on your current plan and policies, your business may provide benefit coverage for furloughed employees for a set period, similar to when they take non-FMLA leave. If you expect to return to normal operations fairly soon, then you may extend benefit coverage or subsidize the COBRA coverage of employees. The Consolidated Omnibus Budget Reconciliation Act (COBRA) protects employees while they look for new employment, helping them avoid a lapse in coverage, but out-of-pocket premiums are expensive. If your business wants to subsidize COBRA to help retain employees, then you may need to revise COBRA paperwork.

How Netchex Can Help

With the COVID-19 Response Portal, Netchex recently introduced an easy way for employers to institute, track, and remain compliant with all the new emergency/paid sick leave laws all within our system. In just a few steps, the portal allows employers to track, calculate, and pay emergency leave wages and do all they can to avoid having to take more drastic workforce measures. 

If you are still forced to furlough, layoff, or reduce staff, Netchex’s HR Support Center provides you with direct access to experienced HR experts and labor lawyers to guide you through the regulations and best practices associated with these actions. Additionally, you can find templates for notification letters, guidebooks, forms, and various policies.

Making and executing these decisions is never easy and the offboarding process can often make things all the more difficult, especially with your workforce largely remote. With NetGuide, you can manage all aspects of the employee lifecycle from a single-source platform, including providing automated communication to all of your employees. By setting up tasks for specific team members to complete, NetGuide can also ensure access to company and third-party systems are turned off for former employees, plus you can recover company property and assets, including computers, keycards, etc.

Netchex also provides comprehensive COBRA administration so that employees won’t have to worry about a loss of benefits while in between jobs and your company remains in compliance. We provide an affordable COBRA outsourcing program with complete integration, payment & reporting transparency, HIPAA Certificates, and full compliance reporting & tracking.

 

Netchex remains fully operational through this unprecedented time. Our staff is hard at work for businesses like yours that are working diligently to remain in operation, adapt their policies, and ensure the safety of their employees. Netchex is here to help you accomplish all of this and more. Please visit our continually updating library of coronavirus resources.


Netchex is the leading HCM partner helping you improve workforce management and optimizing benefits for your employees. Our powerful, yet user-friendly technology simplifies the business of HR and bring self-service features to your company to provide more independence for your team.

Talk to us to find out how to put Netchex to work for your company. Take a look at our full suite of HCM solutions that grow with your business, including payroll, compliance, HR, benefits administration, and time & attendance, backed by experts and the best technology in the industry.