FURLOUGH VS. TERMINATION: EMPLOYER OBLIGATIONS REGARDING WAGES, BENEFITS, AND OTHER ISSUES

The coronavirus pandemic is creating quite a lot of chaos within the labor and employment world. Employees are wondering how they are going to get paid and employers are wondering how they are going to pay their employees. Money is tight and everyone is worried. But these moments of high stress are the ones that matter most. It can be easy to make mistakes and run afoul of the law or sound business practices when you feel rushed to take action, especially when it seems like there is a new federal law or municipal order being released every day. One of the biggest points of confusion for many employers is whether they should terminate or furlough their employees, and what the implications are with each regarding payroll and benefits.

What is a Furlough?

A furlough is simply a suspension from work without pay. The United States Treasury and other government agencies define furlough as the “placing of an employee in a temporary non-duty, non-pay status because of lack of work or funds, or other non-disciplinary reasons.” While it is a term of art there is no hard and fast rule on its duration. It can be for as long or as short of a period as the employer requires.

While furloughs can and often are used in the private sector context, they are most commonly seen in the public sector when government shutdowns occur. The longest government shutdown in American history was just over a year ago, and resulted in 34 days of inactivity from the end of December through the middle of January. Estimates differ, but news sources largely reported that hundreds of thousands of government employees were furloughed during this period.

Private sector furloughs often spike during times when the economy is taking a nosedive. However, there are some industries that see them regularly, such as construction companies that furlough their employees during the winter when conditions are harsh or a snow shoveling business that furloughs employees spring through fall but reopens each year during winter.

The key here is that it is not considered a termination of employment, merely a suspension from work. It is a temporary period wherein an employer suspends work and pay of its employees with a plan (though not a commitment or guarantee) to start the work back up at a later period when the company can afford the payroll costs. Employers usually communicate a specific end date to the furlough, or conditions that must be met before it ends.

In short, furloughs are for when employers can’t afford employees, but don’t want to lay them off.

Do Employers Have to Pay Out Vacations or Provide Benefits During a Furlough?

While other states may vary, Illinois requires that employers pay out any accrued but unused vacation time or PTO once an employee is terminated. However, there is no such requirement in Illinois for employees who have been furloughed. So no, if you need to furlough some of your employees, there is a good argument to be made that you are not required to pay out their vacation or PTO. But if you later realize you cannot afford to end the furlough and decide to terminate them, that time must be paid out.

It is also important to note that, because a furlough is not a termination, employees are entitled to use their company-provided vacation, PTO, and sick leave as they normally would.

As for benefits, their continuation largely depends upon what the plan terms are – minimum hours worked, paid vs. unpaid, and short-term or long-term are all considerations taken into account. You want to make sure you speak with your providers for clarification.

Furloughed employees may also be eligible for unemployment benefits and COBRA coverage, even though they have not been terminated.

Do Not Allow Your Employees to Work During a Furlough!

And on the subject of payments, you should definitely consider instituting a “no-work rule” during a furlough. While non-exempt employees only have to be paid for their hours worked, exempt employees are entitled to a full week’s worth of pay, even if they engage in only a single hour’s worth of work during that week.

Answering an email or taking a work-related call can result in you being obligated to pay a week of salary to your exempt employees. So, if you want to institute a proper furlough, make sure you communicate to your employees that absolutely no work is to be done during its duration.

What About Payment of Sick Leave?

In normal circumstances, this would be the end of the conversation regarding employee benefits. However, the coronavirus outbreak has sparked new federal legislation that mandates paid sick leave under certain circumstances and expands FMLA coverage. On March 18, 2020, Congress passed the Families First Coronavirus Response Act (FFCRA), which contains the Paid Sick Leave Act and the Emergency Family and Medical Leave Expansion Act.

The short of it is that employers of a certain size have to provide paid sick leave (around 2 weeks’ worth, but potentially less for part-time workers) to employees who satisfy one of several specific conditions, such as falling ill from the coronavirus, being subject to mandatory quarantine, etc. And under the FMLA, employees who are caring for a child whose school has closed are eligible for paid and unpaid leave.

So, this leaves us with the question of whether employers have to pay out such sick leave for their furloughed employees? And the answer is likely yes. The FFCRA makes absolutely no mention of furloughs. Further, nothing in Illinois employment law addresses furloughs in the context of sick leave, either. The FFCRA doesn’t worry about whether your employees are getting paid – only whether they are considered an employee. So, it could be argued that even furloughed individuals are arguably entitled to paid sick and FMLA leave

Absent guidance on the matter, the soundest business practice is to pay the sick leave to your furloughed employees if they are eligible. If you don’t, you run the risk of violating several wage and hour laws. Those violations could result in an even greater financial burden on your company during an already precarious time. If you want to avoid falling under the FFCRA and having to pay out such sick leave, it is important to let your employees know that their employment is being terminated. The use of the term “layoff” is also acceptable, as it is commonly understood to mean termination of employment that is not due to any performance-related issue.

How Long Can I Furlough My Employees?

As mentioned above, there is no hard and fast rule on the duration of a furlough. However, while there are no set legal restrictions attached to how long you can furlough, there are several matters of best practices that you should keep in mind when asking this question.

You can’t string people along forever – understandably, your employees would be upset if you institute a 2-year long furlough. Your company reputation is important, so saving face and only using furloughs for reasonable periods of time can go a long way in allaying employee fears, staving off anger, and maintaining your reputation.

Also remember that your employees are free to find employment elsewhere during a furlough period (employees under contract might present a different matter). If your furlough period is too long and your employees cannot survive without their paychecks, they can move on to the next company. You may run the risk of losing competent, hard-working individuals who you expended time and resources to train.

Should you have any questions about business law or any other laws that may affect your business, or would like to schedule a free initial consultation, please contact Waltz, Palmer & Dawson, LLC at (847)253-8800 or contact us online.

Waltz, Palmer & Dawson, LLC is a full-service law firm with various areas of service to assist your business, including: Employment Law, Intellectual Property, Commercial Real Estate, Litigation and general Business Law services. Individual services include Estate Planning, Wills and Trusts, Probate, Guardianship, Divorce and Family Law, Collaborative Divorce & Mediation.

This article constitutes attorney advertising. The material is for informational purposes only and does not constitute legal advice.

Waltz, Palmer & Dawson, LLC
3701 Algonquin Rd. Suite 300, Rolling Meadows, Illinois 60008
Phone: (847) 253-8800
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