Alternatives to Layoffs

Leila Narvid, Esq.

Payne & Fears LLP

Introduction

In these tough economic times, many employers need to cut costs but are looking for alternatives to layoffs.

Alternative Options

Employers do have some other options: Work furloughs Reduced work-weeks Salary decreases

Benefits of Layoff Alternatives

Avoid the decrease in morale that inevitably comes with layoffs

Avoid the legal fees of potential wrongful termination lawsuits Avoid having to pay severance benefits Avoid disrupting the company’s production schedules Lower the probability of unionization or strikes Avoid having to pay for outplacement services Avoid the “ramp up” period when redistributing work to

remaining employees Retain valued employees

Watch Out for Legal Landmines

Unless carefully planned and regulated, legal landmines can expose employers to liability for wage and hour violations.

Work Furloughs

Definition: A period of unpaid time off, used by an employer

to reduce costs. Example:

California Governor Schwarzenegger’s one-day-a-month furlough for California state workers spread over 18 months.

This amounts to a 5% pay cut to state workers.

Work Furloughs: Exempt Employees

Furloughs can be difficult to implement for exempt employees. Exempt employees are free from from the

wage and hour regulations covered by the Fair Labor Standards Act and other state laws.

Exempt employees, under federal law and many state laws, must be paid the same minimum salary for each pay period.

Work Furloughs: Exempt Employees (Continued)

If any exempt employee performs any work during a workweek, that person must receive his or her entire salary for that week. Failure to pay an exempt employee for a week where

any work is performed -- even very minimal work -- can jeopardize that employee's exempt status.

Employers should inform exempt employees that NO work is authorized during the furlough period with advance permission

Even checking Blackberry emails or catching up on paperwork is not permitted.

Work Furloughs: Non-Exempt Employees

Furloughs are a bit easier to implement with non-exempt employees.

Under federal and most state wage and hour laws, non-exempt employees must be paid only for actual hours worked.

Consequently, an employer may send them home for lack of work or to otherwise save payroll costs, and need not pay them for their regularly scheduled hours if they are not actually worked.

Watch Out for Regulations Regarding Vacation & PTO

Employers need to be careful about making its employees use vacation or PTO during a furlough.

Mandatory use of vacation or PTO has the advantage of saving the employer's resources; however, not all states allow the employer the discretion to mandate use of vacation or PTO during a work furlough. For example, in California, "use it or lose it" vacation

policies are illegal, and employers must give its workers reasonable notice before it can deprive them of accrued vacation or PTO.

Reduced Work-Weeks

A reduced work week can be more difficult to implement than furloughs. For example, if an employer wants to implement a 4-

day work week with a 20% pay cut.  This pay reduction could threaten the exempt status if

the 20% pay cut brings the employee's salary below the required threshold amount, which is $455 per week under federal law, and higher in some states.

An employer also may not deduct 20% of pay from an exempt employee's paycheck during a current pay period based on a reduction in work time.

Reduced Work-Weeks

Reduced Work-Week Salary Change

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Implement Reduced Work-Week with Least Risk

The least risk is taken by reducing the pay of exempt employees without dictating the hours they work. In fact, this option has been followed by a good

number of law firms that don't want to lay off associate attorneys, but need to reduce costs.

Steps to Take

(1) Early Notification is Key

If an employer decides to impose a furlough or reduced work week, it should notify its employees well in advance.

In addition, employers should look at their employment contracts and employee handbooks to make sure that no protocol prevents the employer from unilaterally changing the terms of its workers' employment.

Steps to Take

(2) Review Applicable Law & Employment Agreements

In addition, employers must consider whether any employment agreement or applicable law requires modification to the terms of employment.

Some states do not permit those modifications without employees' express knowledge and consent.

Steps to Take

(2) Review Applicable Law & Employment Agreements (Continued)

This can apply even where employees are governed only by employment policies in which the employer reserves the right to terminate or modify.

Most states, however, (including California) permit an employer to modify a unilateral employment contract.

Continued employment constitutes acceptance of the modification without additional consideration.

Steps to Take

(3) Beware of the WARN Act

Furloughs for extended periods of time or significant cuts in work hours may trigger federal Worker Adjustment and Retraining Notification (WARN) Act and some states “baby” WARN laws.

The cut in hours would likely have to be 50% or more over a relatively lengthy period for such laws to apply, but employers who consider making significant cuts should speak to counsel.

Steps to Take (4) If Applicable, Review Any Collective Bargaining

Agreements

Employers who consider mandatory furloughs should weigh the impact of any collective bargaining agreements on these policies.

Existing provisions of CBAs may restrict an employer's ability to furlough employees.

In the absence of provisions on furloughs, employers may be required to bargain before implementing a furlough or requiring the use of vacation or PTO during the furlough.

Conclusion

These best practices will ensure a smooth transition to layoff alternatives with a lower risk of legal problems.