Alternatives to Layoffs Leila Narvid, Esq. Payne & Fears LLP
In these tough economic times, many employers need to cut costs but are looking for alternatives to layoffs.
Employers do have some other options:
Benefits of Layoff Alternatives
Avoid the decrease in morale that inevitably comes with layoffs
Avoid the legal fees of potential wrongful termination lawsuits
Avoid having to pay severance benefits
Avoid disrupting the company’s production schedules
Lower the probability of unionization or strikes
Avoid having to pay for outplacement services
Avoid the “ramp up” period when redistributing work to remaining employees
Retain valued employees
Watch Out for Legal Landmines
Unless carefully planned and regulated, legal landmines can expose employers to liability for wage and hour violations.
A period of unpaid time off, used by an employer to reduce costs.
California Governor Schwarzenegger’s one-day-a-month furlough for California state workers spread over 18 months.
This amounts to a 5% pay cut to state workers.
Work Furloughs: Exempt Employees
Furloughs can be difficult to implement for exempt employees.
Exempt employees are free from from the wage and hour regulations covered by the Fair Labor Standards Act and other state laws.
Exempt employees, under federal law and many state laws, must be paid the same minimum salary for each pay period.
Work Furloughs: Exempt Employees (Continued)
If any exempt employee performs any work during a workweek, that person must receive his or her entire salary for that week.
Failure to pay an exempt employee for a week where any work is performed -- even very minimal work -- can jeopardize that employee's exempt status.
Employers should inform exempt employees that NO work is authorized during the furlough period with advance permission
Even checking Blackberry emails or catching up on paperwork is not permitted.
Work Furloughs: Non-Exempt Employees
Furloughs are a bit easier to implement with non-exempt employees.
Under federal and most state wage and hour laws, non-exempt employees must be paid only for actual hours worked.
Consequently, an employer may send them home for lack of work or to otherwise save payroll costs, and need not pay them for their regularly scheduled hours if they are not actually worked.
Watch Out for Regulations Regarding Vacation & PTO
Employers need to be careful about making its employees use vacation or PTO during a furlough.
Mandatory use of vacation or PTO has the advantage of saving the employer's resources; however, not all states allow the employer the discretion to mandate use of vacation or PTO during a work furlough.
For example, in California, "use it or lose it" vacation policies are illegal, and employers must give its workers reasonable notice before it can deprive them of accrued vacation or PTO.
A reduced work week can be more difficult to implement than furloughs.
For example, if an employer wants to implement a 4-day work week with a 20% pay cut.
This pay reduction could threaten the exempt status if the 20% pay cut brings the employee's salary below the required threshold amount, which is $455 per week under federal law, and higher in some states.
An employer also may not deduct 20% of pay from an exempt employee's paycheck during a current pay period based on a reduction in work time.
Implement Reduced Work-Week with Least Risk
The least risk is taken by reducing the pay of exempt employees without dictating the hours they work.
In fact, this option has been followed by a good number of law firms that don't want to lay off associate attorneys, but need to reduce costs.
Steps to Take
(1) Early Notification is Key If an employer decides to impose a furlough or reduced work week, it should notify its employees well in advance. In addition, employers should look at their employment contracts and employee handbooks to make sure that no protocol prevents the employer from unilaterally changing the terms of its workers' employment.
Steps to Take
(2) Review Applicable Law & Employment Agreements In addition, employers must consider whether any employment agreement or applicable law requires modification to the terms of employment. Some states do not permit those modifications without employees' express knowledge and consent.
Steps to Take
(2) Review Applicable Law & Employment Agreements (Continued) This can apply even where employees are governed only by employment policies in which the employer reserves the right to terminate or modify. Most states, however, (including California) permit an employer to modify a unilateral employment contract. Continued employment constitutes acceptance of the modification without additional consideration.
Steps to Take
(3) Beware of the WARN Act Furloughs for extended periods of time or significant cuts in work hours may trigger federal Worker Adjustment and Retraining Notification (WARN) Act and some states “baby” WARN laws. The cut in hours would likely have to be 50% or more over a relatively lengthy period for such laws to apply, but employers who consider making significant cuts should speak to counsel.
Steps to Take
(4) If Applicable, Review Any Collective Bargaining Agreements Employers who consider mandatory furloughs should weigh the impact of any collective bargaining agreements on these policies. Existing provisions of CBAs may restrict an employer's ability to furlough employees. In the absence of provisions on furloughs, employers may be required to bargain before implementing a furlough or requiring the use of vacation or PTO during the furlough.
These best practices will ensure a smooth transition to layoff alternatives with a lower risk of legal problems.