Coronavirus FAQS For Employers: Employee Benefits for Furloughs/Layoffs/Reductions-in-Force


Our employees have been furloughed and are not actively working right now.  Are they still eligible for coverage under our group health plan?

You need to check your group health plan documents to determine how long employees who are not actively working may remain covered by your group health plan.  Once this period expires, active employee coverage must be terminated (unless the insurance carrier or self-funded plan sponsor otherwise agrees to temporarily waive applicable eligibility provisions), and COBRA notices must be sent to furloughed employees.


What is the difference between a furlough, a layoff, and a reduction-in-force?

A furlough is a cost-saving measure that involves a mandatory reduction in employees’ hours and pay for a temporary period.  A layoff is a permanent cost-saving measure that involves a full separation from employment.  A reduction-in-force occurs when a position is eliminated without the intention of replacing it and often involves a permanent cut in the employer’s headcount.

What are some of the benefits of implementing a furlough?

Furloughs allow the employer to retain employees with institutional knowledge and experience while reducing the costly and timely process of rehiring and retraining workers when economic conditions improve.

Can an employer make a prospective reduction in pay for a salaried exempt employee due to the economic downturn?

An employer is not prohibited from prospectively reducing the predetermined salary amount to be paid to an employee classified as “exempt” under the FLSA during a business or economic slowdown; provided, however, that the change is bona fide and not used as a device to evade the salary basis requirements.  Such a predetermined regular salary reduction, not related to the quantity or quality of work performed, will not result in loss of the exemption, as long as the employee still receives on a salary basis at least $684 per week.  On the other hand, deductions from predetermined pay occasioned by day-to-day or week- to-week determinations of the operating requirements of the business constitute impermissible deductions from the predetermined salary and would result in loss of the exemption.  The difference is that the first instance involves a prospective reduction in the predetermined pay to reflect the long-term business needs, rather than 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.

Can employees on furlough apply for unemployment?

Employees who have experienced a mandatory reduction in their hours and pay as part of a furlough may be eligible to receive unemployment benefits.  The amount of partial unemployment benefits received varies from state to state.

How can we minimize employment law risk when implementing a layoff or reduction-in-force?

Employers must carefully consider their layoff criteria to ensure that the layoff does not disproportionately affect employees in a legally protected class (e.g. race, sex, age) or employees who have engaged in legally protected activity (e.g. requesting or taking a job-protected leave under state or federal law).  Selection criteria should be objective, non-discriminatory, and consistently applied.  For example, a layoff based purely on company seniority is likely to withstand legal scrutiny.

Do we have to offer severance to a laid off employee?

An employer is not required to offer a severance package when laying off an employee.  However, a severance payment offered in exchange for a release of claims may help to minimize employment law risk.  Severance agreements must be precisely drafted by an employment law attorney to ensure compliance with numerous state and federal law.

To learn more, contact Jean Harrington.

Or visit Duffy & Sweeney’s COVID-19 Resource Center here.


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