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Furlough: Friend or Foe? Top 5 Considerations before Furlough


The COVID-19 pandemic is forcing employers of all sizes to reduce their largest expense - payroll. A suddenly popular option is an employee “furlough,” which is an unpaid leave of absence, as opposed to layoffs. Employers choosing to furlough employees typically do so with the hope that economic conditions will improve so that employees can return to work, to maintain goodwill and, if possible, continue certain employer-sponsored benefits such as health insurance. However, employers must take care to understand how furloughs work, what their legal obligations are and decide whether it is advantageous or not.

1. As an initial matter, in these uncertain times, it is difficult to predict when economic conditions will improve, or when employees will be permitted (or able) to return to the workplace. Similarly, employers emerging from this economic crisis may have to re-assess their needs and may not be able to return to their entire pre-furlough workforce, or at the same level of compensation. Therefore, employers must be careful not to make promises of return to work. Additionally, some employees may no longer be available at the time of recall.

2. Employers should also determine whether employee benefits can continue during a furlough, and for how long. Benefit plan documents may not permit employees who are on leave to continue receiving benefits. If so, because furloughed employees will not receive pay, employers must determine how employee-covered portions of health insurance policies will be treated. If employers wish to recoup these payments from future pay, they must make sure they do so in compliance with applicable wage laws.

3. Additionally, employers should confirm their state law obligations, including, but not limited to, WARN notices, notices of pay, and triggering obligations to pay accrued paid time off. Employers also must know that furloughed employees who perform any work at all during the furlough must be paid.

4. If it turns out that employment cannot be restored, companies may be on the hook for severance payments in addition to any benefits conferred during the furlough (depending on their policy or practice). Depending on state law, severance payments may affect an employee’s eligibility for unemployment benefits, even the newly expanded benefits under the CARES Act.

5. Moreover, a furlough may be considered an adverse employment action. If only a portion of employees are put on furlough, or if not all furloughed employees can return to work, employers should undertake a disparate impact analysis to avoid future claims of employment discrimination.

With several new laws enacted in the last month, and additional guidance being issued by relevant agencies nearly every day, Hoguet Newman Regal & Kenney is here to help.

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