A Legal Guide on Shifting from Furloughs to Layoffs

By Jonathan A. Segal April 22, 2020
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laid-off worker carrying box of personal belongings out of office

​In recent weeks, as a result of business disruptions caused by the COVID-19 pandemic, many employers have furloughed large groups of employees as a way to cut costs without ending the employment relationship. Included in this group of employers are such brand names as Disney, Best Buy and CarMax, as well as many smaller organizations.

Unfortunately, some of those employers will soon realize—if they haven't already—that even when they begin to resume in-person operations, the number of employees needed to operate the business will be substantially fewer than before.

Consequently, an increasing number of employers are creating plans to lay off furloughed employees, formally ending those employment relationships. If you are in that situation, here are some of the more salient issues to consider.

Who Will Be Laid Off?

The same legal and human considerations that apply to a reduction in force of active employees also apply to a reduction in force of furloughed employees. For example, assume that an employer needs to lay off a certain number of employees who hold the same position. The employer will need to determine and document the criteria for deciding which employees will be let go, and then must apply the criteria and document the application of the selected criteria.

Some employers may balk at the idea of spending the time necessary to implement a thoughtful layoff. While the time pressure on leaders, including HR, is enormous, it's critical that employers minimize the risk that bias will infect the process. Legal experts agree that this is a moral imperative as well as a legal one.

[SHRM members-only toolkit: Managing Downsizing by Means of Layoffs]

WARN Issues

Many employers did not have to provide notice under the Worker Adjustment and Retraining Notification (WARN) Act when they furloughed employees because they reasonably believed that the furloughs would last for only for a few months and not six months, which is the key trigger under the WARN Act.

Employers that are considering permanent layoffs now need to consider whether these "employment losses" will trigger any obligations under WARN. Generally speaking, an employer may have a duty to provide advance notice under WARN if 50 or more full-time employees will be laid off at a single site of employment in a 90-day rolling period.

Don't forget to consider state law as well. Even if employers do not have to provide notice under federal WARN, a number of states have lower thresholds in terms of the number of employment losses necessary to trigger notice and other requirements.

Insured Benefits

While on furlough, many employees continue to participate in the employer's group health and other insured benefits plans. In some cases, the plan document specifically allows for this. In other cases, insurance companies agree to modify the definition of "eligible employee" to allow coverage to continue for employees on furlough.

With the cessation of employment resulting from a layoff, the ability of an employee to participate in the employer's insured benefits plans generally will cease. Employers will need to be provided COBRA notices with regard to participation in any group health plan as well as notices of the termination of coverage and conversion rights, if any, with regard to other insured benefits.

PTO Benefits

If employers did not require employees to use paid-time-off (PTO) benefits while they were on furlough, those employees may be entitled to some PTO benefits upon termination. This ordinarily routine process may be complicated by the current circumstances presented by the pandemic.

For example, there may be some disputes as to whether and when employees have used PTO benefits while on furlough. To minimize the potential for such disputes, employers may wish to include in the notice of termination, discussed below, the number of PTO hours paid and invite employees to bring to the attention of HR any concerns they may have about the accuracy of the employer's number.

Severance Pay

Employers will need to determine whether they have an obligation to pay severance under an existing severance plan or policy. But what if the employer cannot afford the potential severance obligations and/or would need to lay off additional employees to fund it?

Depending on the circumstances, an employer may have the right to modify—or even terminate—its severance plan or policy to take into account current circumstances. Employers that do not have a formal plan or policy may wish to consider adopting one to minimize the risk that ambiguity will serve as fodder for litigation.

Agreements

In the case of union employees, employers will need to find out what the collective bargaining agreement says about the layoff process and pay or benefits an employee may be owed upon layoff.

Employers also will need to check employment agreements they may have with individual employees. These agreements may provide for severance in the event of a termination without cause. For these purposes, do not forget to check offer letters that may include negotiated severance with or without a release.

Notice of Termination

Ideally, an employer should speak personally with each employee who is being laid off. However, depending on the size of the layoff and the employer's resources, this may not be possible.

Some states require that employees receive some form of written notice of termination. Even if not required by state law, employers are well-advised to send a letter or e-mail spelling out the terms and conditions of the layoff that addresses, among other issues, benefits and severance pay, if any.

If the written notification is the first notification, the employer may wish to acknowledge that it would have preferred to have had a personal call first but that this was not possible. These employers may want to consider having a conference call as a follow-up to the written notification to provide more details and to clarify how employees can obtain additional information and get answers to their questions.

Even in a pandemic, maintaining the human face of HR is critical. So it is important for HR professionals to provide the empathy and support required to ease the layoff situation for all impacted employees.

Jonathan A. Segal is a partner at Duane Morris in Philadelphia and a SHRM columnist. Follow him on Twitter @Jonathan_HR_Law.

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