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Covid-19 Forces Employers to Weigh Layoffs Versus Furloughs

March 25, 2020, 10:00 AM

Businesses on the verge of cratering during the coronavirus pandemic are faced with the difficult decision to either lay off workers or provide furloughs as they try to manage the uncertainty of the weeks and months to come.

Marriott International, Virgin Atlantic Airways, and Delta Air Lines have all announced plans to furlough tens of thousands of employees—effectively sidelining them with no pay, but keeping them on the payroll. Others are cutting ties with workers altogether, citing uncertainty about if or when they will be able to put employees back on the payroll.

Business attorneys say there’s often little practical distinction between a layoff and a furlough, but the path an employer chooses to shed payroll liability could have financial and legal implications for both company and their employees. That includes notice, pay, and benefits requirements.

Forced business closures and orders for people to stay at home to combat the spread of coronavirus are putting companies in “uncharted territory,” said Sara Kalis, an employment law attorney for Paul Hastings in New York.

“I’ve been encouraging companies to understand the implications in each state, and it really becomes a question of risk tolerance and reasonable judgment,” Kalis said of the choice between layoffs and furloughs.

The federal Worker Adjustment and Retraining Notification Act requires employers to give workers 60 days advance notice of layoffs expected to last at least six months, regardless of whether the move is actually called a “layoff” or instead deemed a “furlough.” New York and other states also have similar laws that in some places lower the bar for required notice and extend the notice period.

Companies that lay off workers may be required under state laws to pay accrued severance, vacation, and other time off. Those that decide to furlough salaried workers who make enough to be exempt from certain federal and state wage requirements also may need to continue to pay them in order to maintain the exemption.

“Whatever an employer does to maintain that employment status is what I’m recommending,” Kalis told Bloomberg Law.

Health Care, Unemployment Benefits

For workers facing uncertain job prospects amid the growing health crisis, some of the biggest questions are how to replace missing paychecks and maintain insurance coverage.

Employers who furlough workers are not obligated to continue paying health care benefits under some health plans, though some may choose to do so. An employer who stops paying for health care coverage for a worker who was laid off or furloughed is obligated to allow the individual to remain on the company’s plan for up to 36 months under federal law.

The requirements vary by state, and some are changing day by day in response to the pandemic. Ohio’s Department of Insurance changed its Affordable Care Act standards to state that insurers must permit employers to continue covering employees under group policies even if they would become ineligible because of decreases in weekly hours.

In Marriott’s case, furloughed workers remain eligible to participate in the company’s health and disability benefits, despite having their hours reduced, a company spokesman told Bloomberg law.

“We are working quickly to mitigate the impact to our business while also focusing on assisting our associates, our guests, and our owners,” said Brendan McManus, a spokesman for Marriott International.

Furloughed and laid off workers can also file for unemployment insurance benefits, as long as they can document that their hours have been reduced, says Lance Compa, a labor law professor at Cornell University. Furloughed workers are treated “the same way that workers’ whose schedule is cut down to half-time can file for unemployment insurance and get partial compensation.”

“Of course, they will still need to show ‘attachment’ to employment by having enough credited work in four of the past five calendar quarters,” he said.

The Labor Department on Thursday will release new data on unemployment insurance claims. Labor and employment attorneys expect the information to show the number of workers seeking jobless benefits has skyrocketed.

Still, Matthew Durham, a management lawyer with Stoel Rives LLP in Utah, said he’s seeing many employers opting for the furlough route. A big difference between the coronavirus pandemic and the recent recession, he said, is that this time many businesses mandated to shutter operations by local and state governments are hoping to be back in operation in a few months.

“Everyone hopes it’s more or less a temporary thing than an economic driver for the foreseeable future,” Durham said.

States also are likely to seek to expand work-share programs, which companies can use to avoid layoffs by instead cutting workers’ wages and using unemployment benefits to make up the difference, Durham added.

How Unions Fare the Virus

Covid-19, the disease caused by the novel coronavirus, has obliterated many service industry, airline, and hotel worker jobs, putting pressure on unions to help their members claim any benefits they may be due.

Megan Cohorst, a spokeswoman for the UNITE HERE labor union, whose members are hotel, laundry, restaurant, and casino workers, said 90 percent of the organization’s membership were either furloughed or laid off in the past week. She said the union is now helping workers who may be eligible for unemployment to navigate the system.

“There are a lot of challenges with the application process, either because the websites are crashing or certain in-person offices are closed because of the virus,” she said. “I don’t think it’s a question of people being denied, so much as navigating the process, and making sure the application is in a language they understand.”

“It’s a lot of bureaucracy that people are learning on the fly how to navigate,” Cohorst added.

Kalis said businesses also are trying to weather the storm.

“Companies’ ultimate intention is to remain open and reemploy employees after all of this,” she said. “It boils down to what the employer can afford to pay.”

To contact the reporter on this story: Fatima Hussein in Washington at fhussein@bloombergenvironment.com

To contact the editors responsible for this story: Chris Opfer at copfer@bloomberglaw.com; John Lauinger at jlauinger@bloomberglaw.com

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