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Virus Paid Leave Law’s April 1 Start Muddles Layoff Decisions

March 31, 2020, 8:13 PM

The thorny process of shedding labor costs to avoid Covid-19 ruin will be further complicated for some companies Wednesday when the Labor Department unveils new paid leave rules taking effect immediately for as many as 89 million workers.

As companies weigh a range of workforce reduction options to remain afloat—such as terminations, furloughs, indefinite layoffs, and hours reductions—the DOL leave mandate will throw a new wrinkle into the equation, possibly pushing some employers into the category of eliminating jobs.

In the two weeks since President Donald Trump signed the Families First Coronavirus Response Act (Public Law 116-127) into law, the DOL Wage and Hour Division has been writing the emergency implementing rules while issuing guidance on a rolling basis to clear up major areas of confusion. Generally, the law gives workers at companies with under 500 employees access to 10 days of paid sick leave if they can’t work due to the new coronavirus and up to 10 weeks of partially paid family leave to care for a child whose school or day care is closed.

Companies that lay off workers as a result of the economic downturn are not required to pay the new leave, provided they can prove the workers would’ve been laid off regardless of them taking leave, the agency said in guidance last week. The department also stated that employers don’t have to provide the leave to workers who are furloughed or whose job sites have closed.

“The guidance helps employers understand how furloughs and how layoffs will intersect with these new paid leave laws,” said Michael Eastman, a senior vice president at the Center for Workplace Compliance. “So I think it is clarifying in that regard and employers will have a better sense of what employees are eligible for if they take those steps. It’s all part of the calculus.”

Other points of ambiguity remain as to which workers will be covered and when. Those questions, including which government stay-at-home orders qualify an employee for leave and who gets to decide when a teleworking employee is eligible, could be addressed in the new regulation or in ensuing guidance. Business attorneys are also asking the department to state that layoffs caused by the virus outbreak are exempted from the Worker Adjustment and Retraining Notification Act.

Management lawyers and industry lobbyists praised the department for quickly putting out question-and-answer guidance on the paid leave requirements. But they said the April 1 effective date is causing businesses anxiety.

“April 1 is a real deadline for employers and that’s part of the reason why there is this sense of urgency,” said James Plunkett, senior government relations counsel at management-side firm Ogletree Deakins. “Employers that we work with want to do the right thing and they want to comply. So just having a new very significant federal legislation going into effect without them knowing every single detail and every single situation that may apply really makes them nervous.”

Small Businesses Struggle

Many companies have the cash reserves to absorb the short-term paid leave costs. They also have the added assurance of full government reimbursement through a new paid leave tax credit.

Small businesses worried about making ends meet will try to take advantage of a carveout in the law for companies with under 50 employees who can demonstrate that providing paid leave would jeopardize their viability. But others in the 50-500 worker range feel resigned that they can’t finance the sick leave and family leave during a severe economic downturn, said small business advocates.

Karen Harned, who heads the legal center at the National Federation of Independent Business, said she spoke with one member who decided he can’t afford the paid leave requirement even though he has a healthy business. That speaks to the fact that small businesses have largely opposed government mandated paid leave for decades, she said.

“The only thing that’s different is you’ve just added kerosene to the fire; it’s all intermingled with the coronavirus itself and what that means for their business,” said Harned, who declined to identify the business.

Tanya Goldman, a senior policy analyst focusing on paid leave at the Center for Law and Social Policy, countered that small businesses should be able to preserve their workers and pay them for virus-induced leave thanks to the availability of billions of dollars in loans in the $2 trillion stimulus law.

“I’m always concerned about unintended consequences of laws, but in this instance, I think that the Families First Coronavirus Response Act—and particularly with the CARES Act provision that allows small businesses to seek an advance credit—is a real benefit to employers who want to retain their valuable workforce,” said Goldman, who was a WHD senior policy adviser under President Barack Obama.

Tax Credit Confusion

Randy Johnson, who represents businesses as a partner at Seyfarth Shaw in Washington, said companies reviewing the paid leave requirements are searching for ways to keep attached to their workforce.

Echoing a refrain from industry representatives in recent weeks, Johnson said employers want to be able to ramp up operations in a few months without needing to recruit and hire new employees.

More DOL guidance would be great, but it’s also incumbent on the Treasury Department to resolve outstanding concerns, he said.

“Once companies have a better understanding and reassurance that the tax credit provisions will allow them to keep the money to offset the costs for the leave, I think there will be a greater reassurance that they can keep these people on the payroll without a financial impact,” said Johnson. “But there’s still people out there with a lot of confusion.”

To contact the reporter on this story: Ben Penn in Washington at bpenn@bloomberglaw.com

To contact the editors responsible for this story: Chris Opfer at copfer@bloomberglaw.com; Karl Hardy at khardy@bloomberglaw.com

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