Beyond the Furlough
Throughout this challenging period, the decisions made by leaders and the actions taken by employers had to be quick and reactive. What we are doing now and most importantly, what we do next will leave an indelible fingerprint on the leadership legacy and the employment brand. Treating people, even those that don’t survive the transition, with human kindness, dignity, and respect is essential to maintaining a positive and trusting relationship with those that survive the transition. It will not be long until we are again fighting the “war for talent.” Even in downsizing, our employment brand matters as we try to retain the best.
Many employers have furloughed or temporarily laid-off employees to survive and many small businesses are maintaining payroll for an eight week coverage period under the Payroll Protection Program, hoping for recovery by July. Both options allow the employment relationship to continue temporarily. This historical period has left few, if any businesses, unscathed. I hope with all my heart that businesses open, employees return, and economic activity resumes and that this article is unnecessary. Unfortunately, hope is not a strategy, and denial can lead to a lack of planning and costly errors.
Unfortunately, some employers who took temporary action may soon realize that despite valiant efforts, when operations resume, the number of employees needed to operate the business will be substantially fewer than before.
Employers must prepare for the possibility and create plans to manage separations as furloughs, temporary layoffs, and payroll protection employment become permanent reductions in force or permanent layoffs, ending those employment relationships.
Who Will Be Laid Off?
Whether ending employment with temporarily laid off, furloughed, or active employees, the same legal and human considerations apply. For example, assume that an employer needs to lay off a certain number of employees who hold the same position or work in the same department. The employer will need to determine and document nondiscriminatory selection criteria (can be multiple criteria) for deciding which employees will be let go, apply that criteria consistently to the entire population, and document the outcome of applying the selection criteria in determining who is terminated.
In my experience, employers often resist the idea of this exercise because they just want to pick and choose who they want, regardless of consistently applied selection criteria. Doing a fair and thoughtful reduction in force requires time and safeguards to eliminate implicit bias from infecting the process. Even after applying the criteria, review the demographics of the chosen group (i.e. age, gender, ethnicity, race) to determine if there was an adverse impact on any protected group. If there is, consider applying alternate criteria.
Legal experts agree that this is a moral imperative as well as a legal one.
Many employers with over 100 employees did not have to provide notice under the Worker Adjustment and Retraining Notification (WARN) Act when they first furloughed or temporarily laid off employees because they reasonably believed that the actions would last for only for a few months and not six months or longer. This reasonable belief is key in determining when the WARN Act is triggered. As we confront the possible future, separations extend, and beliefs change, so may our responsibilities under WARN.
Generally speaking, an employer may have a duty to provide 60-day advance notice under WARN if 50 or more full-time employees will be laid off at a single site of employment in a 90-day rolling period. Even if employers do not have to provide notice under federal WARN, a number of states (State Requirements) have lower triggers, have mandated severance requirements, have longer notice periods, or other requirements.
Many employers worked with insurance providers during the temporary chaos to extend eligibility in the group health and other insured benefits plans. However, this extension, while governed by the plan document, generally does not extend more than 30-60 days.
As temporary situations extend or become permanent, the ability of an employer to continue eligibility in the benefits plans will end. Employers with more than 20 employees will need to provide employees with COBRA notices regarding the loss of coverage in any group health plan. COBRA notices or notices of conversion or portability rights may also be required for other insured benefits such as Dental, Vision, Life, or Disability insurance.
Forty states have enacted “Mini-COBRA” laws that apply to employers with fewer than 20 employees.
If employers did not require employees to use paid-time-off (PTO) benefits while they were on furlough, those employees, depending on company policy or state laws, may be entitled to some PTO benefits upon termination. This ordinarily routine process may be complicated by the current circumstances presented by the pandemic.
There may be some disputes as to whether and when employees have used PTO benefits while on furlough or temporary layoff. There may also be questions whether PTO continued to accrue while on furlough or temporary layoff. To minimize the potential for such disputes, employers may wish to communicate, in the notice of termination, the number of hours paid, show the calculation (accrued-taken = balance), and invite employees to share any questions regarding the accuracy of the calculation.
Severance Pay and Benefits
Employers will need to determine whether they have an obligation to pay severance under an existing severance plan or policy. But what if the employer cannot afford the potential severance obligations and/or would need to lay off additional employees to fund it? Depending on the circumstances, an employer may have the right to modify—or even terminate—its severance plan or policy to take into account current circumstances.
Employers that do not have a formal plan or policy and want to extend severance may wish to consider developing and applying fair and consistent guidelines to minimize the risk that ambiguity or inconsistency will expose the employer to litigation.
Severance pay and benefits are often given as consideration in exchange for a separation agreement whereby employees waive certain rights to sue in exchange for the severance benefits. State and Federal law guide what rights can be waived, what information needs to be provided to allow the employee to make an informed decision about their rights, and govern specific language that should be included in a separation agreement. If you wish to offer severance as consideration in a separation agreement, consult legal counsel for a legally compliant severance agreement.
In the case of union employees, employers will need to find out what the collective bargaining agreement says about the layoff process and the pay or benefits that an employee may be owed upon layoff.
Employers also will need to check employment agreements they may have with individual employees. These agreements may provide for severance in the event of a termination without cause. For these purposes, do not forget to check offer letters that may include negotiated severance with or without a release.
Notice of Termination
Ideally, an employer should speak personally and compassionately with each employee who is being terminated. This is where reputations and brand images are won or lost. I recognize that depending on the size of the layoff and the employer’s resources, this may not be entirely possible.
Even if not required by state law, employers are well-advised to send a letter or e-mail documenting the terms and conditions of the separation. The letter should address final check date, PTO payments, 401(k) distributions or loans, health and welfare benefits eligibility and contacts, and any severance pay (see paragraph on severance pay as consideration).
If written notification is the first notification, the employer may wish to acknowledge that it would have preferred to have had a personal call first, explain why this was not possible, and be genuinely apologetic. These employers may want to consider having a conference call as a follow-up to the written notification, providing transitional support (i.e. outplacement), and establish contacts for ongoing support.
Even in a pandemic, acting with fairness and in a manner that maintains respect and human dignity is critical.
For questions or more information pertaining to this article, please contact Scott Smith at firstname.lastname@example.org or email@example.com.