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Temporary Leave, Layoff or Pay Cuts: How to Handle Your Workforce Now That Your Business is Closed

Many states have instituted a mandatory “Stay Home” Order closing all but essential life-sustaining business. If your doors are closed, you may be making some tough decisions, and we’re here to help. Some options are outlined below. 

Closed sign

Pay Cuts:
The least drastic measure is instituting pay cuts. This will allow an employer to maintain the highest number of employees on the payroll and eligible for benefits while disrupting business the least. Some rules to remember are:
  1. (1) employees must be given notice prior to the reduction in wages;
  1. (2) an hourly employee’s wage rate cannot fall below federal or state minimum wage requirements and you must still pay overtime appropriately;
  1. (3) a salaried employee’s wage must not be reduced past the minimum threshold to keep their exemption.
If the cut in pay is accompanied with a cut in hours, your employees may also be eligible for unemployment insurance to defray the lost income. Additionally, your employees can likely avail themselves of all other federal programs such as the Families First Coronavirus Response Act, which offers reimbursable paid sick leave.

Furlough or Temporary Leave: 
Another alternative to a layoff is implementing a mandatory furlough or temporary leave.  Employees are placed on unpaid leave for a definite or indefinite amount of time with the expectation that they will return as soon as the work returns. Generally, employees retain their benefits, including health insurance. However, your benefits provider should be consulted prior to implementing this option. If coverage eligibility is lost as a result of furlough, he/she may be eligible for COBRA and should be provided the applicable notices.

Furloughed employees are generally eligible for full or partial unemployment. Many states allow furloughed employees with a definite return date to forgo seeking a replacement job. Additionally, your employee can avail themselves of some federal programs.

Employers should take care when furloughing salaried (exempt) employees. The furlough must occur at the end of the work week or before the next work week begins, as salaried employees are entitled to pay for any week in which they work, even in a partial week.

Layoffs:
Finally, the last option is layoffs. Although this decision is never easy, there are times when it is necessary to ensure that at least some of the laid off employees have something to return to. 

Most businesses with over 100 employees are required to provide 60 calendar days advance notice of layoffs, referred to as the WARN notice.  Some states also maintain a mini-WARN Act which covers smaller businesses. The pandemic may provide an exception to these notice requirements, but any decision to layoff should consider applicability of all notice requirements. Some guidance for what to do before and during a layoff is below.

Before a layoff:
  • Reach out to the unemployment commission and inquire as to whether you can file a mass claim on behalf of the employee. In Kentucky, this is available for employers with at least 50 employees who are laying off at least 15 employees. This helps your employees receive expedited benefits and may prevent your employer account from being negatively affected.
    • Employers should reach out to their benefit providers to ensure they understand when benefits expire. 
    • Employers should confer with their IT department to set a plan regarding when to eliminate access to technology. 
    • Employers should consider how to reclaim company property that is at the employee’s home due to the shelter-in-place orders. One option is to send them a return-addressed pre-paid courier box.
    • For an extra layer of protection, employers could consider offering a severance in exchange for a release. Prepare all necessary documentation prior to the layoff.
During the layoff:
  • It is better to tell employees about the layoff in person (or whatever substitute is available in a situation where many employees are working from home). Create a script in advance and stick to it.
    • Let them know the layoff does not have anything to do with their individual performance.
    • Offer to provide letters of recommendation.
    • Don’t promise that they will be reinstated.
    • If you filed a mass claim, let your employees know so that they don’t file duplicate claims.
    • Ask if they have any questions.
    • Follow up in writing and give information about continuation of COBRA.  
Making the Decision
With each of these options, the first step is selecting the employees that will be affected; this decision can be tricky. Anyone can sue their former employer, and folks who experience an adverse employment action may be looking for a reason to find the process unfair. Accordingly, employers should base their decision upon demonstrably neutral business-motivated classifications. Clear documentation should also be maintained.

Claire Vujanovic

Claire M. Vujanovic, member with McBrayer, is located in the firm's Louisville office.  Ms. Vujanovic's practice is concentrated in the areas of labor and employment law and includes NLRA compliance, drafting and reviewing employment manuals and policies, drafting severance, non-compete and employment agreements, and counseling clients related to overtime and wage and hour regulations, laws and claims and workplace discrimination.  Ms. Vujanovic can be reached at cvujanovic@mcbrayerfirm.com or (502) 327-5400, ext. 2322.  

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This article does not constitute legal advice.

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