• Justin Hein

What Does Being Furloughed Mean?

Learn the difference in rights and benefits associated with being furloughed versus laid-off or terminated.

In the wake of shelter-in-place, a number of employers are being forced to shut down or significantly reduce their operations. This has resulted in massive reduction of employees--in either hours scheduled or employment in general.

Employers have options in the wake of these unprecedented times. They are not required to terminate their employees--even if they have not been designated as an "essential service." In fact, many employers have found that the transition to the telecommuting and working from home has been easier than expected.

But even if the employer must reduce their roster of employees, again, they are not required to terminate those employees. Some employers may elect to place an employee into a furloughed status.

What is furlough status?

A furloughed employee remains an employee but with reduced or eliminated work hours. This is akin to an unpaid leave of absence. You retain your job and benefits associated with it (other than salary), but you stop working for a period of time.

Does it impact unemployment?

No. Employees are eligible for unemployment insurance benefits (UI) when they are laid off, furloughed, or have hours or compensation reduced.

Please note - Unemployment insurance benefits are administered by the California Employment Development Department (EDD). It considers a person "unemployed" during any week in which regular wages (minus the greater of $25 or 25 percent of those wages) is less than they would earn as a weekly unemployment benefit. If the person is otherwise eligible, they would receive UI benefits for the difference, up to a cap. The EDD uses a complex calculation method for benefits based on the past 4 quarters worked as a base to calculate benefits. Employees are typically be eligible for up to 26 weeks of California state UI.

Recent federal legislation provided for several upgrades for those claiming UI. Specifically, under the federal CARES Act:

  • The Pandemic Unemployment Assistance program casts a broader net to provide unemployment insurance benefits to people who would not traditionally receive any unemployment insurance benefits.

  • The Pandemic Emergency Unemployment Compensation program provides employees with an additional 13 weeks to regular state UI claims.

  • The Emergency Increase in Unemployment Compensation Benefits added $600 per week to all unemployment insurance claims through July 31, 2020, including Pandemic Unemployment Assistance claims, and to the 13 extended weeks under the Pandemic Emergency Unemployment Compensation program.

Is there really a difference though?

The California Labor Commissioner does not think so. It does not see a real difference between a temporarily furloughed employee without any work hours and a completely laid-off or terminated employee.

In a pair of opinion letters, the Labor Commissioner stated that if an employer reduces an employee’s scheduled work hours to zero — and does not reschedule that employee within the same pay period — the employer has effectively laid off the employee. Even if the employer is keeping the employee on the roster for benefit purposes, the employer is still required to meet the final pay requirements associated with termination under Labor Code section 201.

Furthermore, the employer should still provide the required documents for employees to seek unemployment insurance, including the Notice of Change in Relationship, found here, and the Unemployment Insurance Guide, found here.

Remember the Unintended Consequences

In addition to Labor Code section 201 concerns, an employer must be mindful of other considerations when deciding when and who to furlough or reduce pay. Specifically:

  • WARN Act - Employers with 75 or more employees ends up “laying off” 50 or more employees, it may trigger California Worker Adjustment and Retraining Notification Act (Cal WARN Act) requirements, which Governor Newsom temporarily modified last week. A furlough lasting longer than 30 days likely trigger the obligation to provide a 60-day notice of layoff pursuant to Cal-WARN. While the federal WARN Act requires notification only when a layoff is to exceed more than six months, Cal-WARN does not specify how long a mass layoff must last to qualify for protections.

  • Discrimination - The decision to layoff, furlough, or reduce compensation may constitute an "adverse employment action," meaning employees may claim discrimination. Even though the motive for the action is obvious – the pandemic and economic impact – the reason forwho is selected is not always as clear. Employers should rely on legitimate, non-discriminatory and well-documented business reasons for selecting the employees subject to layoff, furlough or compensation reductions. Reasons like job classification and tenure are facially neutral and easier to defend versus performance or other subjective reasons.

  • Misclassification - Employers must be mindful not to reduce the compensation for any exempt (salaried) employee below the minimum salary level threshold for their exemption.

  • PPP Loan Forgiveness - Any employer qualifying for a Paycheck Protection Program (PPP) loan under the Coronavirus Aid, Relief, and Economic Security (CARES) Act has to be mindful that the "forgive-ability" of their loan is dependent upon several facts including if there is a reduction in the number of employees or a reduction of greater than 25% in wages paid to employees

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