The only constant we have experienced during this pandemic is uncertainty. An unfortunate reality for any employer is there may come a time when you may need to let some workers go to accommodate business needs. When you reach this decision, should you refer to employees’ change in employment status as a furlough or a layoff? Can you use these words interchangeably?
Is it a Furlough or a Layoff?
The answer to whether these words may be used interchangeably depends on your plans for the employee post-COVID-19 pandemic.
However, the distinction may not have much real effect. By definition, a furlough is an unpaid break from work, while a layoff is a termination from employment with a possibility of being recalled to work. Whether you refer to the change as furlough or layoff will not affect the individual’s eligibility for unemployment insurance.
Furloughed workers remain on payroll, which eases the administrative burden if the employee returns to active status. A furlough can mean reducing an employee’s hours to reflect a temporary decrease in workload or providing a specified (or indefinite) number of weeks completely off from work. Typically, furloughed employees return to their regular work schedule at the end of the employer’s slow period.
In contrast, laid-off employees are not kept on payroll and must be rehired if they are brought back to work. A layoff can be a reduction in force (RIF), which means that the position is eliminated with no plans to rehire or replace the role but most employers use the term “layoff” when there is some expectation (or at least hope) that the employees may one day be recalled to work.
What About Health Benefits?
Here is where terminology may matter. Typically, furloughed employees keep their health benefits with the employer, while laid-off employees are instructed to apply for COBRA benefits since they have technically been terminated from employment.
You should check with your insurance plan administrator regarding whether health benefits continue for furloughed and laid off employees under your current policy. In particular, while short furloughs are usually covered, you should confirm that furloughed employees continue to meet the definition of eligible employee for your plan.
Is the WARN Act Affected by the Distinction?
If you are subject to the federal Worker Adjustment and Retraining Notification (WARN) Act, keep in mind that the notice obligation for a mass layoff or plant closing is not implicated if employees will be laid off for less than six months.
The Department of Labor has not yet provided guidance about how employers should comply with the Act during the COVID-19 pandemic, but existing regulations do require that notice be provided if the layoff is subsequently extended beyond six months.
Employers should provide the required notice under these circumstances regardless of whether the employee status is a furlough or a layoff. In addition, while Virginia does not have a mini-WARN law, if you operate in other states such as in New York, you may be required to provide notification for pandemic-related layoffs under state law. WARN and some state laws have provisions for shortening the notice period due to unforeseen business circumstances.
How Should Employees Be Notified?
Should you decide it is necessary to let an employee go under a furlough or layoff, always communicate the change in writing so the employee can use it as evidence for the local unemployment office.
Since it remains uncertain when locales will lift shelter in place orders and return to regular economic activity, it is important to avoid language in your letter that could be misconstrued as guaranteeing re-employment with the company.
If you include a tentative return to work date for furloughed employees, respect the uncertainty of the current times by stating this date is only speculative and their employment continues to be at-will. Express your intention to keep the lines of communication open by informing them of changes in circumstances. In return for your transparency, encourage employees to keep you informed of an intention to voluntarily resign if they obtain other employment during the separation.
Finally, employers should remember that your decision could affect your employee benefits plans. See Employee Benefits Considerations for Employers During the COVID-19 Pandemic for further explanation.
If you’re faced with furloughing or laying off employees, please contact the Labor & Employment team for guidance.