When restaurants were ordered to shutter – and before PPP – Ernest Bux’s sister Cookie Bux who owns Beef O’Bux Restaurants was in a bind. Should she lay off or furlough employees who were showing up for work to her empty restaurant chain? What’s the difference between laying off employees and furloughing them? What are her options?
Layoffs v. Furloughs?
A layoff is if Cookie dismisses the employees – no expectation of resuming work and no continuing benefits. A furlough is an unpaid leave of absence – employees technically retain their jobs, but cease working and do not earn a salary, and often retain certain benefits such as health benefits. Often, whether to lay off or to furlough employees will turn upon the projected length of the business shutdown – weighing the time and expense to re-hire and re-train against projected falling revenues compounded by continuing labor costs. Legally, Cookie should evaluate her workforce and consider several issues.
Cookie must assess whether under the Fair Labor Standards Act her employees are predominantly exempt or nonexempt – holding executive / administrative positions paid on a salaried basis, or hourly (entitled to overtime pay)? While exempt employees may be furloughed, their full salary must be paid in any week in which they perform any work. Hourly (nonexempt) employees – such as cooks and waiters and hostesses – must be paid only for the hours worked.
Contractual limitations can also dictate Cookie’s legal options – whether it be an unlikely individual contract with the employee, or even less likely in a Texas restaurant situation, a collective bargaining agreement subject to the National Labor Relations Act and union contracts. Cookie should be aware that even though she has no employment contracts per se, the terms of any contracts with her employees imposing non-competition or non-solicitation terms – including in an employee handbook – should be carefully reviewed as well.
Furloughed employees receive the same employee benefits as under normal circumstances, generally speaking. Note that employee benefit plans often require employees to work a minimum number of hours to meet eligibility. Benefits might end if the furloughed employee’s work hours fall below the minimum, necessitating COBRA notice.
Furloughed workers may apply with the Texas Workforce Commission (TWC) for unemployment benefits. Unlike previous guidelines prohibiting workers from refusing suitable work, new guidelines allow workers to retain their unemployment benefits if their refusal is for various COVID-19 related reasons; however, employers need not keep those jobs open or reinstate workers when unemployment benefits run out. Because Texans choosing to return to work may be entitled to paid sick or family leave (including job-protected leave) and other workplace benefits/accommodations for COVID-19 reasons without having to risk their jobs, Cookie should proceed cautiously before terminating as being due to job abandonment with respect to those workers who refuse to return.
Selection of furloughed employees should be neutral. Similar to a reduction in force or layoff, compliance with the Equal Employment Opportunity Act demands that the selection of furloughed employees does not target groups based upon race, sex, age, disability, religion, etc.
In addition to being mindful about assessing the cost-benefit of employee layoffs compared to furloughs, Cookie must continue complying with basic employment laws.
Tilting the Scales in Your Favor
If Cookie is furloughing employees, she is making the conscious decision that she wants them to come back. For company morale, she should provide a brief explanation why the furlough is needed and, most probably, basic information on the employee’s health insurance benefits while furloughed. Wanting to be consistent in her treatment of the affected employees, Cookie should also consider whether furloughed employees will be able to or required to use any accrued vacation or paid time off before going on unpaid temporary layoff status. Finally, Cookie should consider sending all furloughed employees a letter outlining these matters, including a suggestion that they may want to file for unemployment compensation during their unpaid temporary layoff – providing information to contact the TWC – and concluding by expressing her gratitude and appreciation to the employee for their service and providing contact information for any questions.
This short hypothet is, intentionally, just the tip of the iceberg and is not intended to provide legal advice – merely issues for the reader’s consideration. For more detailed information about these issues, check out my Labor and Employment partners, Ruth Ann Daniels and Michael Kelsheimer, who recently published a Gray Reed Alert – “An Employer’s Unenviable Decisions – Furloughs and RIFS.” These employment issues are their day-to-day advice and counsel – their bread and butter. Their expertise has been invaluable to me. If you have any questions, I would be honored to have them share their wisdom with you.