To weather the current financial storm, some employers are implementing reduced work schedules or unpaid furloughs. Such actions raise several legal issues that should be discussed with employment counsel before implementation.  

WARN Act  

Employers must be careful that furloughs or schedule reductions do not inadvertently trigger WARN Act liability. An “employment loss” under WARN includes both a temporary layoff that exceeds six months and a 50 percent hours reduction that lasts six months. In addition, all related employment losses within 90 days are aggregated to determine whether a covered event has occurred.

Unemployment  

A furlough or schedule reduction may result in claims for unemployment benefits. In Colorado, for example, workers may be considered “partially unemployed” if they work fewer than 32 hours per week for wages less than the weekly unemployment benefit. See C.R.S. 8-70-103(19). In addition, a pay cut might allow the employee to quit and claim full unemployment benefits, if the cut is “unreasonable” or “a substantial change” in light of various factors. See C.R.S. 8-73-108(4)(e); C.R.S. 8-73-108(4)(d).  

Wage and Hour (Exempt Status)  

Two recent opinion letters by the Wage and Hour Division of the U.S. Department of Labor point out how furloughs or schedule reductions for exempt employees can lead to violations of the Fair Labor Standards Act (FLSA) (and comparable state laws). To be “exempt” from the overtime requirements of the FLSA, employees must normally receive their full weekly salary for any week in which they work any hours. Docking an exempt employee’s pay due to lack of work, in increments of less than a full week, risks losing the exemption for that employee and all others in the employee’s classification. See WH Opinion Letters FLSA 2009-14 (1/15/09) (released 3/6/09) and FLSA 2009-18 (1/16/09) (released 3/6/09). However, employers who wish to reduce the hours (and pay) of exempt employees have several options under the FLSA:  

  • Send them home without pay in full-week increments.
  • Send them home without pay in any increments and require them to use available paid leave to make up the lost salary, so long as they ultimately receive a full paycheck for the week.  
  • Allow them to volunteer for unpaid time off for personal reasons, in any increments, so long as the decision is truly voluntary and not “occasioned by the employer or the operating requirements of the business.”  
  • Make a permanent change in their salary, so long as it is genuine and not merely an attempt to pay them like hourly employees.  

Wage and Hour (Work Off-the-Clock)

Finally, furloughs and schedule reductions raise the specter of employees working off-the-clock from home. Non-exempt employees who work from home are entitled to pay for the hours worked, including overtime if weekly hours exceed forty. Exempt employees who work while furloughed or scheduled off may destroy the exemption for themselves and others in that classification. A “de minimis” rule under the FLSA provides some protection from claims based on very small amounts of time that are sporadic, unpredictable, and impractical to record. However, employers should strongly caution all employees not to work while furloughed or scheduled off.