A furlough is a temporary leave of absence for specified employees due to special needs of an employer, which may be due to economic conditions at the specific employer or in the economy as a whole.
While employee furloughs were a necessary and valuable way of helping businesses get through the pandemic that swept the world in 2020, they are not a new concept and have been a tool utilized by businesses who wish to maintain a trained workforce, but which are undergoing remarkable temporary stress. The pandemic has made such tools increasingly common and we may assume that pandemics will continue to trouble the world. But other disasters, from flood to fire, can make this a vital tool for a business to consider. In most businesses, employee overhead is the largest overhead item on a company’s books. It is at times a matter of survival for the business to furlough the workers.
Workers furloughed face challenges that are unprecedented, but most would rather be furloughed, with the chance to return to the employment, than simply be terminated. The employer, anxious to maintain a loyal and trained workforce, also may wish to keep the same core of workers available.
This article shall provide the basic law on employee furloughs in California.
Truly small businesses can implement furloughs easier than those with more employees. While this article is not a comprehensive guide on the WARN Act (Federal or California), the first issue to be aware of as an employer is where that Act applies and when it does, 60 days advance notice is required when implementing a furlough on 50 or more employees. Violations there are costly– pay for the whole employment period that notice should have been provided, for starters. If one has less than one hundred employees, of course, the law need not apply and the WARN Act is discussed in another article on this site. Note that the WARN Act may excuse even large employers from the sixty day requirement if there is a "natural disaster." Further, rather than the one hundred employee requirement for the Federal WARN Act, California has a seventy five employee requirement for its application. See the article on this website.
Presuming the WARN Act does not apply under Federal or California law, the employer is required to provide “reasonable notice” of implementing a furlough. There is no law defining what is reasonable, but more is better, and at least two weeks whenever possible. The notice should be in writing and clearly state the start date, that the furlough is indefinite but indicate there is an intended end date if it can be estimated, subject to change according to the company’s ability to lift the furlough at that time. It should also clearly state that no work is to be performed, and access to company email, phone etc. will be cut off (see below), that no pay whatsoever will be earned, and no paid time off (PTO) or other benefits will accrue (excepting health care, if applicable).
The company should also give the employee a California notice in change of relationship form. It is advisable if at all possible, to keep the employee’s health care benefits continuing during the furlough as though the employee were still working their usual hours and duties.
The employer should accommodate PTO if already earned and requested, whether vacation or sick time. It will take the time off the books of the company and help the employee through the period of not receiving pay. It is “owned” by the employee if accrued.
A major issue to be aware of with respect to furlough of employees is they cannot work at all for the company during the period or they are entitled by law to corresponding pay. Even checking emails is working under the law. Exempt employees are all the more dangerous for the employer as they cannot work for even a minute or the employer has to pay them potentially for a full pay period. This typically means that all means of performing any work must be cut off so an employee cannot violate this rule and demand payment. Again, this includes even reading an email … so email access is cut off, any phone access, online messaging tools the company uses, etc. This can be problematic for a business which has ongoing communications with vendors or customers and good employees do not want to alienate key third parties and will be tempted to respond to communications during furloughs. This cannot be allowed.
An alternative approach if such communication is truly critical and the employer wants the employee checking emails or performing limited services, such as potential new client inquiries, reduced work from home hours should be considered. One may utilize that approach to certain employees and furlough others.
Another option for employers other than a full furlough is to reduce the employee hours (by no less than 10% and no more than 60%) and apply to the California Employment Development Department Work Sharing Program, which provides for reduced hours for the employee, and supplemental pay for such employees during the furlough. Requirements for the program can be found on the following link: https://www.edd.ca.gov/Unemployment/Work_Sharing_Program.htm.
It should be noted that there are also Federal programs available to assist employers in getting through the current pandemic and possibly future disasters in order to keep employees employed and paid.
It is vital to understand that the full panoply of employee rights continue to apply to employees during times of crisis and a furlough has to be truly a complete break with the company with nonbinding promise to rehire if events turn out right or the employer may face significant liability, especially with exempt workers. The wise employer will carefully structure the furlough plan with outside advice and be sure not to make promises unless they will be kept.
And remember that the laws against discrimination apply equally to decisions to furlough. If only minorities or people over forty are furloughed, expect a claim to be eventually made. The employment laws apply and if adhered to, this is a tool that can be vital in difficult times.