Part I: Changes in the Landscape of Unemployment Benefits
The Massachusetts Department of Unemployment Assistance (“DUA”) has adopted emergency regulations (430 CMR 22:00) to address the COVID-19 pandemic and the hardship it may cause to businesses and employees.
An employee in “standby” who is temporarily unemployed because of the lack of work due to COVID-19 with an expected return-to-work date may apply for unemployment benefits. The one-week waiting period that is normally applicable to unemployment claims has been waived, along with the requirement that an employee receiving unemployment benefits actively search for work.
The employee must:
- take reasonable measures to maintain contact with the employer; and
- be available for all hours of suitable work offered by the employer.
Employers will need to verify the employee’s “standby” status, including the return-to-work date. The following criteria also come into play:
- if the employer doesn’t respond to an inquiry from the DUA to verify the employee’s standby status, the employee will be deemed on standby for 4 weeks
- if the employer responds and confirms the employee’s standby status, the employee will be on standby status until the return-to-work date, which is maxed at 8 weeks
- if the employer responds to the DUA, noting that the employee is not on standby or doesn’t have a return-to-work date within 8 weeks, then the usual unemployment benefits criteria (outside the COVID-19 context) apply
In the event of a COVID-19 infection in the workplace, the DUA has discretion to extend the employee’s standby status beyond the maximum 8-week period. The COVID-19 infection would need to either “close or severely curtail” business operations for more than 8 weeks.
So long as a written and timely request is made, employers have the option of requesting a 60-day extension for the time within which to file reports, pay contributions or make payments in lieu of contributions without penalty or interest.
These regulations are effective now and will be effective for 90 days.
Part II: Reduction of Exempt Employee’s Pay During Business or Economic Slowdown
Faced with economic uncertainty and a slowdown in business operations, can an employer reduce an exempt employee’s weekly salary by reducing the employee’s hours? Generally, no. But let’s discuss.
In a nutshell, a properly exempt (salaried) employee who meets the salary basis and primary duty tests, must be paid a full week’s pay for any workweek in which the employee performs any work regardless of how many hours or days the employee works. Deductions in an exempt employee’s pay are not allowed for absences occasioned by the employer or by the operating requirements of the business. If work is not available and the employee is ready, willing, and able to work, deductions may not be made.
With very limited exceptions, a deduction in the predetermined salary of an exempt employee will, generally, result in the loss of the exemption and require that the employee be paid at least minimum wage and overtime.
An exempt employee need not, however, be paid for a workweek in which no work is performed.
An employer may, in certain circumstances, however, reduce an exempt employee’s pay prospectively during business or economic slowdown. According to the U.S. Department of Labor, an employer may reduce an exempt employee’s weekly pay prospectively “during a business or economic slowdown, provided the change is bona fide and not used as a device to evade the salary basis requirements.”
The reduction in pay must “reflect the long-term business needs[.]” The salary reduction must be unrelated to the quantity or quality of work performed, and the employee may retain the exemption so long as the salary basis (at least $684 per week) and primary duty tests continue being met. The key is that the deduction from an exempt employee’s predetermined pay occasioned by day-to-day or week to-week determinations of the operating requirements of the business are not allowed. A short-term, day-to-day or week-to-week deduction from the fixed salary for absences from scheduled work occasioned by the employer or its business operations is not allowed.
Employers contemplating a reduction in an exempt employee’s pay to deal with a business or economic slowdown should consult with an employment attorney and address each circumstance with care.
Part III: Layoffs v. Furloughs
A furlough entails the reduction of the days or weeks that an employee may work.
A layoff is, generally, treated as a termination and it can be temporary or permanent.
Several factors come into play when making businesses decisions related to a potential furlough versus a layoff. These factors generally relate to how exempt and non-exempt employees are treated under federal and state wage and hour laws.
Exempt Employee: Furlough versus layoff[1]
An exempt employee may be furloughed. However, the parameters outlined above must be followed with care. The employee must be paid a full week’s pay for any work week in which the employee performs any work. To impose cost-cutting measures, a private employer can for example, place an exempt employee on a furlough for a week at a time. So, for example, an employee would work 2 or 3 weeks out of 4. That way, the employee is entitled to a full week’s pay for the weeks worked and can collect unemployment benefits for the weeks the employee does not work.
It is important that during a furlough, the employee be relieved of all job duties and responsibilities because if the employee performs any work during a furlough, then the employee will be entitled to a full week’s pay.
In a layoff scenario, the layoff is treated like a termination and the employee would be entitled to unemployment benefits—but no additional pay from the employer.
Non-Exempt Employee: Furlough versus layoff
Like exempt employees, a non-exempt employee may also be subject to a furlough as a result of reduced hours / schedule. The employer is only required to pay the non-exempt employee for the hours the employee works.
In a layoff scenario, the layoff is treated like a termination and the employee would be entitled to unemployment benefits—but no additional pay from the employer.
Exempt & Non-Exempt Employees: Unused, Earned and Accrued Vacation, PTO, Sick Time and Health Insurance
Unused earned and accrued vacation time:
- Layoff: the time must be paid out. The Office of the Attorney General has issued FAQs stating that it will not take enforcement action for untimely payment of vacation if “an employee voluntarily agrees to save accrued vacation for later use[.]” However, the AGO rightly pointed out that it does not have control over private litigation.
- Furlough: there is no need to pay out the time because the employment relationship will not be altered if the employee’s schedule is being reduced.
Unused earned and accrued sick time:
- Layoff: there is no need to pay out unused earned and accrued sick time, unless the company’s policies and/or practices include paying out unused earned and accrued sick time at the time of termination.
- Furlough: there is no need to pay out the time because the employment relationship will not be altered if the employee’s schedule is being reduced.
Health Insurance
- Layoff: An employer need not pay an employee’s health insurance premiums while an employee is laid off. The employee is given the option to elect COBRA coverage. An employer may, opt to cover the cost of COBRA and/or consult with its health insurance provider to see if there is an option for the employer to continue paying health insurance premiums while an employee is laid off.
- Furlough: employers should keep an eye out to see if their benefit plans require that an employee work a certain number of hours to be covered under the company’s health insurance, but the health insurance coverage should, as a general matter, continue uninterrupted.
Part IV: What are Businesses Obligations under the WARN Act During the COVID-19 Pandemic?
Businesses with at least 100 full-time employees that are contemplating a large-scale layoff or workforce termination due to the COVID-19 pandemic may have notice obligations under the federal Worker Adjustment and Retraining Notification (WARN) Act or state “mini-WARN” Acts. This alert addresses common federal WARN Act questions prompted by the COVID-19 pandemic.[2]The WARN Act requires covered employers to provide at least 60 days’ advance notice of a mass layoff or plant closing. The employer cannot complete the planned layoff until the 60 days have expired. A “mass layoff” is a reduction in force, at a single site of employment, during any 30-day period for (a) at least 33% of the employees and at least 50 employees (excluding part-time employees); or (b) at least 500 full-time employees. A “plant closing” is the permanent or temporary shutdown of a single site of employment, if the shutdown results in an employment loss of 50 or more full-time employees.
An “employment loss” means (a) an employment termination (i.e., the employer does not intend to re-hire the departing employees), (b) a layoff for longer than six months, or (c) a reduction in hours of work of more than 50% during each month of any six-month period. There are exceptions in the regulations for when an employee is relocated or transferred to employer-sponsored programs, such as job training.
These threshold criteria are important to understand, because even if the employer is planning a large layoff, it may not trigger a 60-day WARN notice before it can go into effect. Importantly for the current COVID-19 pandemic situation, if the layoff or reduction in hours lasts six months or less, there is no WARN event. An employer implementing a layoff because of COVID-19 likely thinks it is announcing a short-term layoff. That said, if the pandemic lasts longer than expected, the layoff could end up being more than six months. In those circumstances, an employer that previously enacted what it thought would be a short-term layoff (six months or less) that is extended beyond six months due to business circumstances not reasonably foreseeable at the time of the initial layoff is required to give notice once it becomes reasonably foreseeable that the extension is required.
Many employers facing mandatory shut-downs or unexpected financial crises understandably believe that imposing a 60-day notice requirement would be impracticable because of the quick spread and immense impact of the pandemic. Importantly, under the WARN Act, there are two exceptions that could come into play and protect against a potential employee lawsuit for failure to provide a WARN notice. An employer may order a plant closing or mass layoff before the conclusion of the 60-day period if the plant closing or mass layoff is caused by (a) business circumstances that were not reasonably foreseeable as of the time notice would have been required or (b) a natural disaster. An employer relying on these exceptions must give as much notice as is practicable – even if it is after the layoff has already taken place.
Examples of natural disasters include floods, earthquakes, droughts, storms, tidal waves, tsunamis and similar effects of nature. To qualify for the natural disaster exception, the plant closing or mass layoff must be a direct result of a natural disaster. If the plant closing or mass layoff is an indirect result of a natural disaster, the natural disaster exception does not apply, but the unforeseeable business circumstance exception may apply. An “unforeseeable business circumstance” is caused by some sudden, dramatic and unexpected action or condition outside the employer’s control, which most observers would agree applies to the current pandemic.
We are not aware of any cases addressing whether a virus or pandemic constitutes a natural disaster or unforeseeable business circumstance, since the last pandemic in the United States was in 1918, and the WARN Act was passed in 1988. However, both the natural disaster and unforeseeable business circumstance exceptions seem likely to apply to this unprecedented crisis.
If, however, an employer fails to give the WARN notice when it should have, it may be vulnerable to a lawsuit by a terminated employee. Where the notice period should have been a full 60 days, damages for a WARN violation can be roughly estimated at two months’ pay per employee, plus benefits, as well as attorneys’ fees. While the law requires employers to give advance notice of the plant closure or mass layoff to certain local government units, and there is a fine of $500 per day of the notice period for failure to give this notice, it is extremely rare for the government to seek or collect this fine from a distressed company.
The federal government has not yet issued any guidance on whether the WARN Act will continue to apply to the COVID-19 pandemic. Our employment law group continues to monitor this quickly-changing situation.
Employers are encouraged to seek the advice of counsel to explore options and creative solutions to address the impact COVID-19 is having in the workplace.
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This alert is for informational purposes only and may be considered advertising. It does not constitute the rendering of legal, tax or professional advice or services. You should seek specific detailed legal advice prior to taking any definitive actions.
[1] We limit the discussion here to private employers as different rules apply to public sector employers. Indeed, a public sector exempt employer may place an exempt employee on a budget-required furlough and reduce exempt the employee employee’s hours/pay while holding onto the employee’s exempt status.
[2] There are many state “mini-WARN Acts” that may apply to your business. For example, both New York and New Jersey now require 90 days of notice before a large layoff, with a threshold of only 25 job losses. If you have questions about your obligations under various state laws, please contact Kenney & Sams.