Due to the COVID-19 pandemic, many businesses find themselves with limited resources, and many questions over how to allocate them. No employer wants to punish employees who have been loyal to the company, and in which the employer has invested significant resources from hiring to training, but what are the options when an employer is stretched past its financial limit, and what is the difference between the various terms for the separation between an employer and employee?
Termination: While a layoff does “terminate” the relationship between an employee and employer, termination is often used in a different context. A termination generally involves one employee at a time, and is conduct or performance based. An employer should not tell an employee that they are being “laid off” to soften the blow when they are actually being terminated for an offense against the employer. An employee who is terminated may be eligible for unemployment benefits when the termination is due to something that was not a deliberate disregard of the employer’s interests, like poor performance or absence due to illness, or they may be ineligible if the termination was due to intentional misconduct, like purposeful violation of a policy.
Layoff: Like a termination, a layoff is a permanent separation between employee and employer. A layoff often involves more than one employee, and is usually motivated by financial conditions, rather than conduct or performance. A layoff is a qualifying event under COBRA, and laid off employees may not remain on the employer’s benefit plan, as they are no longer employees. (A word of caution: if all employees are laid off, COBRA may not be available, as the policy will be cancelled with no one left on it. Check with your insurer.) Although employers may have enjoyed a good relationship with a laid off employee and hope to work with them again should business conditions improve, an employer should not promise a laid off employee with a guaranteed return date or an available position in the future. Laid off employees are entitled to their final paychecks, the timing of which is governed by state law, and their accrued vacation, PTO, or sick pay, as dictated by state law and/or the employer’s policy.
Furlough: Unlike a termination or a layoff, a furlough is intended to be temporary. Some furloughs are expected or planned, like the temporary cessation of work between seasons for seasonal workers such as construction or landscape workers. A government shutdown is a type of furlough, when funds to pay the workers are temporarily on hold by extenuating circumstances, but it is understood that all employees will return to their positions once the situation is resolved, and the employees then receive back pay after the funds are released.
Furloughs are often used by employers who do not want to lay off staff, but temporarily cannot afford to pay them. One advantage of a furlough is that by keeping your employees employed, you are spared the expense of hiring, onboarding, and training when business conditions improve. Because furloughed employees remain employed by the employer, and no separation occurs, like with a termination or a layoff, employees remain eligible for benefits under the employer’s group health plan. (Employers should check with their insurers to determine how long furloughed employees can remain on the plan, and whether they must continue to work a reduced number of hours.) A furlough can be a reduction in hours, or the days of the week worked by the employee. This raises issues with exempt employees, and a reduced work plan should be reviewed by counsel.
Employees and employers with employment contracts will need to renegotiate their contracts to provide for a furlough, and employers of employees under a collective bargaining agreement must follow the furlough provisions in the CBA, or potentially go back to the table if a furlough is not expressly provided for.
The small business relief in the stimulus package that is currently working its way through Congress may allow many more employers to furlough their employees instead of laying them off.
For questions on terminations, layoffs, and furloughs, consult the experienced employment law attorneys at myHRcounsel, whose expertise can find the best solution for your workforce during the COVID-19 pandemic.