What Nonprofit Employers Should Know About Layoffs and Furloughs

CATEGORY: Special Bulletins
CLIENT TYPE: Nonprofit
AUTHOR: Casey Williams
PUBLICATION: LCW Special Bulletin
DATE: Apr 23, 2020

The impact of the coronavirus (COVID-19) pandemic is significant for all of us.  The closure of offices, clinics, centers, and other physical locations where nonprofits operate, are drastically altering how nonprofits operate and, in some cases, forcing nonprofits to close operations altogether.  We are already seeing fundraisers cancelled, declining revenue, and other pressures on budgets as nonprofits try to assist employees with maintaining salary and benefits through this crisis.  As a result of this and the uncertainty surrounding the duration of the pandemic, nonprofits are facing difficult financial decisions, including decisions concerning staffing needs.  To help nonprofits with these difficult and often emotional staffing decisions, we are providing basic information about layoffs and furloughs that nonprofits should know.

The Basics

Layoffs and furloughs are employment actions that are taken due to a lack of work or lack of funds, or for other non-disciplinary reasons.  Generally, a layoff is a permanent termination of employment of an employee or a group of employees, while a furlough is a temporary or partial layoff of an employee or a group of employees.  Furloughs can take the form of a reduced work schedule, such as an employee working three days a week and being on furlough two days week.  The benefit of a furlough as opposed to a layoff, is that it allows employers to retain employees despite being temporarily unable to pay them.

Employees on furlough have the expectation that they will return to their job after the furlough ends.  Employees on furlough are not paid and do not perform work, during the furlough time, but typically keep their employment benefits, as permitted by the carrier, such as health insurance, during the furlough.  Employers may also allow employees to use any accrued sick leave during the furlough, and employees are entitled to use any other accrued, unused leave, such as vacation or personal days during the furlough as well.

However, when considering whether to implement layoffs or furloughs, nonprofits must first consider whether they have any employment contracts with their employees that impose any limitations on the employer’s ability to modify the employment relationship, such as reducing employees’ hours or wages.  Further, if a nonprofit has a policy or procedure for layoffs or furloughs in its Employee Handbook or elsewhere, it should be sure to follow it.

Voluntary Furloughs

Most furloughs are involuntary and are driven by an organization’s need to reduce payroll costs for a specific period of time.  Voluntary furloughs are another option that sometimes achieves the same goal or at least reduces the need for involuntary furloughs.  Voluntary furloughs typically take the form of a reduction in hours over a certain period of time such as taking one or more unpaid days off per week without pay.  They may not trigger all of the same legal requirements as involuntary furloughs and layoffs, however employers must be strategic and careful in considering this option.  For example, an employer should clearly communicate that this option is temporary and does not change the essential functions of the job, including attendance in the workplace.  Key assignments and positions where voluntary furloughs cannot be approved should be identified, and nonprofits should have legitimate non-discriminatory reasons for denying requests for voluntary furloughs. This option can work well, but this option can sometimes create issues when the furlough ends and where full-time employees like, and want to keep, part-time schedules.

Alternatives to Layoffs and Furloughs

Other reduction options that are sometimes considered when layoffs and furloughs are a possibility include hiring freezes, targeted program reductions, and early retirement incentives.  These options also include technical and legal aspects and must be carefully considered.

Selection Criteria

While nonprofit employers generally retain the freedom to effectuate a layoff or furlough as they deem best, having a well-reasoned legal basis for laying off or furloughing a particular employee is strongly recommended both as a best practice and to help defend against a future claim that an employee was selected for lay off or furlough based on an unlawful purpose (i.e., discrimination or retaliation).

Layoffs and furloughs should be properly evaluated and planned to minimize liability exposure.  Nonprofits should create an internal written memorandum that (1) explains the layoff and/or furlough plan and process; (2) provides a written justification for the need to lay off or furlough employees (e.g., lack of work related to COVID-19); and (3) sets forth the legitimate selection criteria the nonprofit will use to select the specific employees to be laid off or furloughed.  Examples of legitimate selection criteria include:

  • Seniority and Experience;
  • Specialized Training or Skills;
  • Ability to Work in Multiple Program Areas or Departments;
  • Retention of Full-Time Employees;
  • Performance Evaluations;
  • Documented Disciplinary Record;
  • Particular Programmatic Needs; and
  • Overall Interests of the Nonprofit.

Once the nonprofit establishes legitimate selection criteria and uses the criteria to identify the employees subject to layoff or furlough, nonprofits should assess the list of selected employees based on the following:

  • Whether any of the selected employees belong to a protected classification and, if so, which classifications (e.g., race, color, ancestry, national origin, religion, creed, age (over 40), mental or physical disability, sex, gender (including pregnancy, childbirth, breastfeeding, or related medical conditions), sexual orientation, gender identity, gender expression, medical condition, genetic information, marital status, or military and veteran status);
  • Whether any of the selected employees have filed any complaints for harassment, discrimination, retaliation, safety issues, or illegal practices;
  • Whether any of the selected employees have filed a workers’ compensation claim; and
  • Whether any of the selected employees have engaged in any other protected activity, such as taking leave under the Family Medical Leave Act (FMLA), California Family Rights Act (CFRA), Pregnancy Disability Leave, or other protected leave.

The analysis will help to identify whether the selection criteria has a disproportionate impact on certain protected categories, and consequently causes the layoff or furlough to appear discriminatory or retaliatory.  If the analysis produces a result that appears to disproportionately affect any protected categories, to the extent possible, while also achieving the legitimate purposes underlying the layoff or furlough, the nonprofit should consider adjusting its selection criteria in order to diminish any disproportionate impact.  It is important to be able to easily articulate the legitimate non-discriminatory reasons for the selection of the individuals who will be furloughed or laid off.

Layoffs are not the right tool for separating poor or marginal performers whose performance deficiencies have not been documented.  Employees who believe they are being targeted in a layoff can often be successful in challenging the legality of the process if the performance history indicates it is being used as a substitute for good documentation of personnel and performance issues.

Notice Requirements

The federal Worker Adjustment and Retraining Notification Act (WARN Act) and the California Worker Adjustment and Retraining Notification Act (Cal-WARN Act) impose notice requirements on employers in the event of a layoff or furlough under certain circumstances.

The WARN Act requires employers with 100 or more full time employees or 100 or more full- and part-time employees who in the aggregate work at least 4,000 hours per week (exclusive of hours of overtime) to provide 60 calendar days’ advance notice to its employees in the event of a mass layoff.  A “part-time employee” means an employee who is employed for an average of fewer than 20 hours per week or who has been employed for fewer than six of the 12 months preceding the date on which notice is required.

A mass layoff is a reduction in force, which results in an employment loss at a single worksite during a 30-day period for (1) at least 33 percent of the employees, excluding part-time employees, and at least 50 employees, excluding any part-time employees; or (2) at least 500 employees (excluding any part-time employees.  Employment loss means (1) an employment termination, other than a discharge for cause, voluntary departure, or retirement; (2) a layoff exceeding six months; or (3) a reduction in hours of work of more than 50 percent during each month of any six-month period.  Accordingly, the WARN Act notice requirements may be triggered by a qualifying layoff, a furlough of more than six months, or a furlough that consists of a reduction in hours of more than 50 percent during each month for six months or more.

The Cal-WARN Act requires covered employers to provide 60 days’ advance written notice to employees affected by mass layoffs. A covered employer is one that has employed 75 or more persons within the preceding 12 months.  Cal-WARN notice requirements are triggered if there is a “mass layoff,” which is defined as a separation of 50 or more employees from a position for lack of funds or lack of work within a 30-day period.  If employees are continuing to work, albeit on a reduced schedule, it does not seem that this would qualify as a “layoff” under the Cal-WARN Act.

In addition to providing 60 days’ advance notice to affected employees, employers must also file a Cal-WARN Act notice with the Employment Development Department (EDD), the local workforce investment board, and the chief elected official of each city and county government within which the layoff occurs.  Further filing information is available on the EDD website here: https://www.edd.ca.gov/Jobs_and_Training/Layoff_Services_WARN.htm

As part of the state of California’s efforts to respond to COVID-19, Governor Newsom issued Executive Order N-31-20 on March 17, 2020, which temporarily modifies the 60-day notice requirement of the Cal-WARN Act and replaces it with the requirement that the employer provide “as much notice as practicable.”  This modification is effective retroactive to March 4, 2020, through the end of the emergency, and is conditioned on the following four requirements:

  1. The employer must still provide written notice;
  2. The employer must provide “as much notice as is practicable and, at the time notice is given, provide a brief statement of the basis for reducing the notification period;”
  3. The mass layoff or closing must be due to the COVID-19 pandemic, which constitutes “business circumstances that were not reasonably foreseeable as of the time that notice would have been required.” (i.e., this exemption will not apply to non-COVID-19-related layoffs); and
  4. For written notices provided on or after March 18, 2020, the notice must include the following language: “If you have lost your job or been laid off temporarily, you may be eligible for Unemployment Insurance (UI). More information on UI and other resources available for workers is available at labor.ca.gov/coronavirus2019.”

Therefore, if a layoff is covered by the Cal-WARN Act, employers should continue to notify employees of the layoff and continue to file Cal-WARN Act notices with the appropriate local and state government agencies and officials even if the 60-day timeframe cannot be met due to COVID-19.

Final Pay Requirements

A layoff triggers the final pay requirements of Labor Code section 201.  Therefore, upon layoff an employer must immediately pay the employee for all earned, unpaid wages and any accrued, unused leave.

Whether a furlough triggers the final pay requirements of Labor Code section 201 depends on whether an employee is scheduled to perform any work within the same pay period.  The California Department of Labor has opined that when an employer reduces the employee’s scheduled work hours to zero and does not reschedule the employee to perform work within the same pay period, the employer has effectively laid off the employee, which triggers the final pay requirements under Labor Code section 201.

Separation Agreements

Providing employees subject to layoff the opportunity to receive an amount of severance in exchange for signing a confidential separation agreement in which an employee releases all claims they may have against the employer relating to or arising out of their employment or layoff, can help reduce the risks associated with layoffs.  Severance that is not otherwise owed to an employee should not be paid without a separation agreement.  We recommend consulting with legal counsel to determine whether this would be appropriate in the nonprofit’s unique circumstances.

Wage & Hour Issues During A Furlough

Nonprofit employers that elect to implement voluntary or involuntary furloughs in the form of a reduction in hours, should be aware that this action may present certain wage and hour issues.  For example, an employer cannot reduce an exempt employee’s pay and have the exempt status be maintained except in limited circumstances.  A 2009 Division of Labor Standards Enforcement (DLSE) opinion letter indicates that during a time of economic difficulty and to avoid a layoff, a reduction in an exempt employee’s salary that corresponds to a reduction in hours does not necessarily affect the employee’s exempt status provided that the employee still satisfies the salary and duties tests for the exemption under California and federal law.  However, this opinion letter is not binding on California courts and it may be risky to rely upon it.  Accordingly, an employer may need to convert an exempt employee to non-exempt status if it wishes to reduce the employee’s hours.  In that case, the nonprofit and the employee will need to track the employee’s hours and the nonprofit would need to make sure that it is complying with the legal requirements for non-exempt employees such as meal and rest breaks, daily overtime, and recordkeeping.  If an employer decides to convert employees from exempt to nonexempt status, certain notice requirements may apply depending on the situation.

Further, if a non-exempt employee performs any work during a furlough or on a furlough day, they will be entitled to receive pay for all hours worked.  If an exempt employee performs any work during a furlough or on a furlough day, they must receive their full salary for any week in which they performs work, regardless of the number of days or hours worked.  Therefore, nonprofits are advised to direct (in writing) that employees on a furlough not work at all and those on a partial furlough not work any hours in excess of their specified schedule.

Families First Coronavirus Response Act

On April 1, 2020, the Paid Emergency Sick Leave (EPSL) and the Emergency Family Medical Leave (EFML) entitlements under the Families First Coronavirus Response Act (the Act) took effect and the Department of Labor issued temporary regulations concerning those leave entitlements.  Under the FFCRA, employees may take EPSL if they are unable to work or telework for one of six qualifying reasons related to COVID-19.  The first qualifying reason occurs where an employee is unable to work or telework because they are subject to a Federal, State, or local quarantine or isolation order related to COVID-19.  The temporary regulations and corresponding comments clarify that a layoff or furlough, even one substantially caused by a COVID-19 related quarantine or isolation order, does not entitle an employee to EPSL for this first qualifying reason.  The temporary regulations and corresponding comments explain that this is because the inability to work is not due to the employee’s need to comply with a quarantine or isolation order, but rather due to a lack of work at the employee’s place of employment.

Unemployment Benefits

Employees who have been laid off or furloughed, including furloughs that take the form of a reduction in hours, may be entitled to state unemployment benefits and/or federal unemployment benefits under the Coronavirus Aid, Relief, and Economic Security (CARES) Act.  Due to the COVID-19 state of emergency, the one-week waiting period for state unemployment benefits has been waived.  A detailed examination of unemployment benefits available under the CARES Act is outlined here in a previous LCW special bulletin.

LCW is continuing to monitor the evolving COVID-19 situation and update our clients frequently.  For additional information, visit: https://www.lcwlegal.com/responding-to-COVID-19/responding-to-the-coronavirus-covid-19-for-non-profit-employers or email us at COVID-response@lcwlegal.com.