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Planning and Implementing a Temporary Layoff in the Age of COVID-19

March 27, 2020

During these uncertain times, layoffs, both long term and temporary, are on the rise. Naturally, it is very important for employers to plan layoffs carefully, even when they must be implemented quickly.

1.  Identifying Employees.

The list of employees selected for a temporary layoff should be carefully reviewed to ensure that there is no unnecessary adverse impact on employees in a protected class (e.g., age, race, religion, gender). If one protected class is affected by the layoff more than other classes of employees, this disparity should be reviewed and, if the impact on the protected class cannot be avoided due to business needs, these business needs should be carefully documented.

2.  Determining If Worker Adjustment and Retraining Notification ("WARN") Applies.

Generally speaking, WARN requires employers to provide 60 days' advance notice to affected employees in the event of a plant closing or mass layoff exceeding six months. A mass layoff is one that results in the loss of employment during any 30-day period for 500 or more employees or, for 50 - 499 employees, if they make up at least 33% of the employer's active workforce, and the layoff is part of a plant closing. An employer is not required to give a full 60 days' notice if it could not reasonably foresee the circumstances that led to a layoff or closing at the time that the 60-day notice would have been required. If this exception applies, it should be carefully documented.

Many states have also adopted WARN-type legislation in addition to the federal rules. As a result, employers should check state law to determine if additional requirements apply.

3.  Determining Impact of Temporary Layoff or Furlough on Welfare Plan Benefits.

Laid off employees should be offered COBRA if a qualifying event occurs, such as loss of health care coverage due to a termination of employment or a reduction in hours. The employer may subsidize the COBRA health care premium for all or a portion of the period that the employee is temporarily laid off. COBRA notices should be carefully reviewed to be clear, taking any special circumstances into account, as to how and when the laid off employees must make COBRA elections and start paying COBRA premiums.

In order to avoid potential penalties under the Affordable Care Act ("ACA"), employers must offer affordable health coverage to at least 95% of their full-time employees. As a result, employers may want to keep employees who are placed on unpaid leave or who have a reduction in hours (i.e., employees who are not laid off or terminated) on the group health plan as active employees, and the employer should consider whether to subsidize the coverage. However, depending on the facts and circumstances, an employer may determine that the cost of the subsidy is greater than the potential penalty, and decide to terminate the health coverage for employees who are furloughed or end the employer-provided subsidy. Employers should consult with an attorney regarding the treatment of their group health plans for employees who are on unpaid leave.

Unfortunately, some insurers and stop-loss providers are not allowing employees on unpaid leaves to stay on the group health plan, because they are not "actively employed." Accordingly, some employers have temporarily laid off employees (i.e., terminated the employees) to avoid potential penalties under the ACA. Employers who wish to continue to cover their employees on furloughs and unpaid leaves should pay close attention to the eligibility requirements in their plan documents, and should consult with an attorney regarding their group health plans during the COVID-19 emergency.

Generally, welfare plan benefits (other than health plans) require an employee to be actively employed in order to participate in the plan. Therefore, employees who are temporarily laid off might not be eligible for group term life or disability benefits, in addition to any loss of health care coverage. They may have conversion rights for such coverage, but employees might not be able to continue paying for converted or voluntary coverage.

4.  Determining If the Older Workers Benefit Protection Act ("OWBPA") Applies.

OWBPA protects workers over 40 from age discrimination. As a result, employers that provide severance benefits in exchange for a release under the Age Discrimination in Employment Act ("ADEA") must provide a written release that meets the following requirements:  

  • It must be written in a manner reasonably calculated to be understood by the employee.
  • It must specifically refer to the ADEA.
  • It does not require the employee to waive claims that may arise after the date of execution.
  • It is given in exchange for something of value in addition to whatever the employee is already entitled to receive.
  • It advises the employee to consult an attorney before executing the release.
  • It allows the employee 21 days to consider the offer.
  • It allows the employee 7 days to revoke the agreement after execution.

Additional disclosure requirements apply for employees age 40 and older.

If the employer offers something of value in exchange for a release, the OWBPA requirements must be met.

5.  Drafting Notices for Affected Employees.

Even if WARN does not apply, affected employees should, as a best practice, be informed in writing when the layoff will begin and if it is expected to be permanent or temporary. If it is temporary, the notice should state how long the layoff is expected to last and that employees will be notified if the projected duration of the layoff changes. In no event should any communication state or suggest that returning to work is guaranteed.

In order to ensure effective communications with employees who are temporarily laid off, the notice should ask affected employees to provide contact information (i.e., personal email address or home phone number).

Some states require employers to attach or include unemployment information with the notice given to laid off employees. For example, Massachusetts requires employers to provide an unemployment brochure to employees who are laid off.

Currently, many states are accepting online applications for unemployment. To aid employees who are being laid off, directions for the online applications should be included with the notice.

6.  Drafting Notices for Other Employees.

When possible, a notice should also be sent to employees who are not affected by the temporary layoff so that they have a clear understanding of what is happening to their co-workers. Uncertainty can be very difficult for many employees.

If employees are rehired in stages, a careful review should be conducted to ensure that the rehiring process does not discriminate against any employee in a protected class. Furthermore, any plans regarding the rehiring process should be carefully documented.

Layoffs, even temporary layoffs, should be designed and implemented with care to ensure that they do not run afoul of any federal or state WARN laws or discrimination laws, and each step of the process should be carefully documented.

If you have labor, employment and human resources law questions, please do not hesitate to contact David GaborKatherine Brustowicz of Virginia Peabody.

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