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Furlough vs. Layoff: How Do They Differ and How Will Employees be Affected? 

by Kevin L. Carr, Eric E. Kinder

Published: April, 2020

Submission: April, 2020

 



As a result of the COVID-19, employers are being forced to reduce the size of their workforces in order to keep costs down for the duration of the pandemic and perhaps beyond. Employers can choose to either furlough employees or lay them off; however, deciding which route is best requires an analysis of the employer’s situation, as well as the needs of the employees. The terms "layoffs," and "furloughs" are not specifically defined terms of art, but they do have generally recognized characteristics. It is important to consider those characteristics when determining how best to respond to the current pandemic.
 

Furloughs and Layoffs, the Basics.


A furlough is generally a mandatory, temporary, unpaid leave of absence. Furloughs reduce costs without adding additional costs of severance packages, recruiting and rehiring new employees, etc., because there is an expectation that furloughed employees will return to work at some point in the future. Furloughed employees can be allowed, but do not have to be allowed, to use any vacation/paid time off balance available to the employee.
 
In contrast, a layoff in non-unionized workforces normally entails a full separation that severs the employment relationship. In this case, it is unlikely that the employee will return to work.
 
Both furloughed and laid off employees qualify for unemployment benefits. Although unemployment insurance typically is managed by each state, Congress’s coronavirus stimulus package recently extended the applicability of benefits to workers who otherwise would not have been eligible, including employees who are furloughed due to COVID-19.
 

Furloughed employees are usually given a day when they should expect to return to work, or a condition that must occur before the employee may return.


Because employees who are furloughed are expected to eventually return to work, employers usually provide an estimated date when the employee likely will be able to return, or a condition that must occur before they may return. For example, a business may indicate to a furloughed employee that the furlough will last until a statewide Stay-at-Home Order is lifted and the business can reopen.  
 
Employees who are laid off may be brought back to work (though not normally), but generally are given no expectation of doing so, and are often encouraged to seek permanent employment elsewhere.
 

Furloughed employees are generally able to keep their employment benefits, subject to restrictions in underlying plan documents.


One of the biggest advantages for furloughed employees is the continuation of benefits; however, this is not always the case. Whether these employees can keep their health and life insurance throughout the duration of the furlough depends on how eligibility is defined in the operative plan documents.
 
For example, some plans determine eligibility by looking back to the average number of hours throughout a defined period of time. Employees receiving benefits under a plan that uses this “look back” measurement can continue to receive benefits as a full-time employee, even though they are currently on furlough, under what is called a “stability period.” Furloughed employees in a stability period are still responsible for paying their share of premiums, but must be offered affordable coverage. An employer also can choose to pay a greater portion of the employee’s premium, though it is not required to do so.
 
In some cases, unless the plan specifically contemplates a furlough or reduction in hours and provides for continuation of benefits, employees will no longer be eligible. In these situations, employers will be required to provide information on COBRA benefits in the same way they would for terminated employees. Employers also may choose to pay furloughed employees’ COBRA premiums, but do not have to.  
 
Employers also should be mindful that certain retirement benefits, such as a 401k plan, may be affected differently, and should make sure to plan accordingly. 
 

Furloughed employees may return to work without going through the rehiring process.


Because the COVID-19 pandemic is expected to be temporary, employers should assess whether they foresee they ability to retain its furloughed workforce when life returns to normal. Employers who will be financially able to return its employees to work may benefit from a furlough rather than a layoff because they will avoid recruiting and rehiring processes, and will be able to “hit the ground running” when employees return to work.
 
If an employer wishes to bring back employees who have been laid off, it will have to rehire those employees through the same process as it would a new hire. This, of course, will add additional time and expense. Similarly, recruiting and hiring new employees to replace those who have been laid off will result in increased costs to employers.
 
Some employers are utilizing layoffs for certain groups of employees and furloughs for others.  This combination certainly is viable but heightens the importance of the employer making certain that its decisions on which employees are selected for each vehicle are based on nondiscriminatory business reasons.
 

Additional considerations for employers:


  • When communicating with employees who are furloughed, employers should make clear that the intention is to bring them back, but that it cannot make that promise. Because furlough does not sever the employment relationship, it is important for employers to maintain the right to employment at-will to help avoid any potential claims that might arise in the case that furloughed employees cannot return due to financial or other reasons.
  • For furloughed employees, it is important to evaluate plan documents for every benefit (including voluntary benefits) to make certain that you clearly communicate benefit eligibility or ineligibility to furloughed employees.
  • For employees subject to a layoff, consider providing a severance payment in exchange for a release of claims. Employers must be aware of the requirements of the Older Workers' Benefit Protection Act provisions and any applicable state law provisions regarding the components of a valid release.Employers should consult with their counsel in connection with the preparation of a severance agreement and release.
  • Employers must be very careful in constructing the layoff and furlough notifications for employees as choice of language could become important in a myriad of unintended situations.
  • In West Virginia, if an employee is performing accommodated work and then is laid off due to economic effects of COVID-19, the employee is not entitled to workers’ compensation benefits, depending on the factual situation. When an employee is receiving temporary partial rehabilitation benefits because the light duty job pays less than the pre-injury job, the employee's temporary partial rehabilitation benefits do not continue and temporary total disability benefits are not reopened because the employee was laid off as part of a COVID-19 full workforce layoff and not due to the compensable injury.

 
Employers who need to reduce the size of their workforce should consult with legal counsel to fully explore the available options and implement the most appropriate and effective reduction in force.  If you need any assistance, feel free to contact Kevin Carr or Eric Kinder.
 
 
 

 



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