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6 Furlough Laws You Need to Follow

5 minute read

Furloughs are generally regarded as a better alternative to layoffs. The reason for this is that they offer a simple solution to avoid layoffs altogether, save money, and retain talent. In fact, when you think about it - what’s not to like about furloughs?

Well, the truth is that, as appealing as employee furloughs may sound, they are not that simple to introduce. There a plenty of furlough laws that regulate how and when companies can implement an employee furlough.

Download our sample furlough notice letter here.

Therefore, to successfully introduce an employee furlough you need to be well-informed about the entire implementation process. And all the legal requirements furloughs entail. This is why having sound knowledge of furlough laws is an absolute must.

But how do you know which furlough laws are relevant to your company and its practices? And how can you navigate through these complex legal issues in your own employee furlough policy?

We can help clear things up for you. Here are six furlough laws you need to follow if you want to avoid legal risks effectively.

Note: Always consult your legal counsel before implementing any reduction event. We are not lawyers. You must ensure that you are following all local, state, and federal laws.

1. Fair Labor Standards Act (FLSA)

Employees are categorized into two groups: exempt and nonexempt employees. Each group is compensated differently for the work they do.

Exempt employees hold an executive, administrative, or professional position within a company and are paid on a salaried basis. Furthermore, exempt employees are exempt (see the connection?) from the rules and regulations set by the FLSA, specifically overtime pay. This means that are not entitled to overtime compensation.

Instead, they must receive a fixed weekly salary if they perform any work during the week. This means replying to even one work-related email is equivalent to working a full 40-hour workweek. If exempt employees are furloughed in less-than-weekly increments - for instance, one day per week - they cannot have their pay docked for the absence. Employers can, however, reduce the salaries of exempt employees but not below $455 per week.

Furlough Laws

Nonexempt employees, on the other hand, are not exempt from FLSA rules and regulations. This means they receive hourly wages, are paid at least minimum wage, and are entitled to overtime pay. If nonexempt employees work while on furlough, employers need to compensate them only for the hours worked.

2. Collective Bargaining

The National Relations Act (NLRA) obliges employers to negotiate the terms and conditions of the employee furlough policy with unions. This negotiation process is formally known as collective bargaining.

Unions can bargain over the spacing of days, whether or not employees can choose when to take furlough days, and the distribution of workload among employees. In fact, all details of the employee furlough policy are negotiable with the affected employees’ best interests at heart.

The employer and union must reach an agreement regarding the employee furlough policy and its pending effects on affected employees. Collective bargaining is a basic right of workers to ensure their fair treatment.

3. Selection of Furloughed Employees

Similar to practices in a reduction in force or layoff, the selection of furloughed employees should be completely neutral. This means the selection process should not target specific groups of people based on race, sex, age, disability, religion, etc. These groups fall into protected classes, which are protected by the Equal Employment Opportunity Commission (EEOC) from workplace discrimination.

Furlough Laws

Another detail to keep in mind about the selection of furloughed employees is work-related injuries. If you furlough an employee that has sustained a work-related injury, then you might be liable to pay additional benefits under the workers’ compensation laws. Also, additional care is necessary when dealing with employees receiving workers’ compensation or Family and Medical Leave Act benefits. Hence, having a neutral selection process will minimize legal issues when implementing employee furloughs.

4. Employee Benefits

In general, furloughed employees are entitled to the same employee benefits as those they would receive under normal circumstances. And since employee furloughs are temporary measures, furloughed employees are not entitled to severance pay, outplacement, and early retirement benefits.

Often, employee benefit plans require employees to work a minimum number of hours in order for them to meet eligibility. In circumstances where the furloughed employee’s hours of work fall below the minimum threshold, then the benefits might cease. Upon termination of group health benefits as a result of a reduction in hours, furloughed employees should be given COBRA notice.

In terms of unemployment benefits, furloughed employees might be eligible depending on the state law and the company’s contribution to the state unemployment fund.

5. Contractual Limitations

It is advisable for employers and their HR team to review individual contracts prior to implementing an employee furlough policy. This will determine whether the terms and conditions found inside individual contracts will limit the implementation of employee furloughs. Contractual limitations can also affect reduced work schedules and pay reductions during furlough leave.

Furthermore, some employees may have contractual rights to certain compensation and paid-leave benefits. In such cases, employers cannot reduce or take away these benefits from employees when on furlough. The only way employees can evade these contractual limitations is with agreement from the furloughed employee – which is highly unlikely.

6. The WARN Act

Employers should take extra caution when implementing an employee furlough policy to avoid activating the WARN Act. The WARN Act obliges employers to notify employees if a plant shutdown or mass layoff will result in employment loss. The typical notice period, as defined in the Act, is 60 calendar days.

Download our WARN Act Checklist here.

Under the WARN Act, employment loss encompasses both a temporary layoff that exceeds six months, as well as a reduction of hours by 50 percent for a period of six months or more. So if an employer reduces the hours of employees by 50 percent and this lasts for over six months, then a WARN notice will be required.

Furlough Laws: Takeaways

It’s safe to say that the implementation of employee furloughs is far from simple – both from a business and legal perspective. You need to be fully aware of all processes connected to issuing a fair and legally compatible employee furlough policy. Acquainting yourself with these six furlough laws is a great place to start.

Moreover, it’s a good idea to consult HR experts who are well-informed about furlough laws before implementing an employee furlough. As the saying goes – better safe than sorry.

Want to learn how to announce, extend, or rescind a furlough? Checkout our samples here:

Download our sample furlough notice letter here.

Download our sample furlough rescinded letter here.

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