Dear Valued Clients, Colleagues and Supporters: During these unprecedented times, we at Lloyd Patel LLP would like to take a moment to let you know that we are here to help as needed. We are monitoring both federal and state legislative proposals and measures on COVID-19 related responses and will provide updates as they become available. In the meantime, we have been receiving inquiries from employees and employers with regard to their rights and responsibilities in connection to the pandemic. In this newsletter, we address some of the common concerns we are hearing about, related to furlough and contractual obligations.
Furlough/Reduction in Employment
A furlough is a temporary, unpaid leave from employment for a set period of time. Furloughs can be voluntary or mandatory and can be taken in full or partial-week increments. Furloughs are commonly implemented when companies suffer economically to the point where they cannot afford to pay employees for the short-term foreseeable future, something countless businesses are currently experiencing with the outbreak of the COVID-19 virus and government response thereto.
When implementing a furlough, it is essential to be clear as to why it is happening and to ensure temporary leaves or reductions in hours are not being carried out in a discriminatory manner.
A second consideration is whether or not an employee is exempt for overtime purposes. For non-exempt, hourly employees, employers can generally reduce the employee's hours at the employer's discretion, so long as the employee is paid for all hours actually worked. If a non-exempt, hourly employee has her hours completely eliminated for a limited time, they may qualify for and apply for unemployment benefits. If the employee has her hours reduced, she may be eligible for the New York State Shared Work Program, which provides similar benefits to underemployed individuals as it does to the unemployed. Some employers prefer this option as it allows them to keep employees on payroll while significantly reducing costs, however, to participate in the Shared Work Program employers may not reduce employee benefits.
For exempt employees, reducing hours is more complicated as these employees typically receive the same salary no matter how many hours they work. The easiest way to furlough an exempt employee is to have them perform no work at all for week-long increments. As long as no work is performed, an employer need not pay the employee for that week and the employee may apply for unemployment benefits for the periods of time they are not working. Alternatively, an employer can reduce an exempt employee's normal hours in a week and their salary accordingly, so long as the salary does not drop below the legal minimum amount to meet the salary exemption.
One other consideration is whether or not employees who have their hours reduced will lose their benefits. Employers and employees should consider reviewing and potentially revising their benefit plans to allow fringe benefits to continue for employees whose hours may be reduced to less than full time. If employees lose their health insurance, for example, as a result of a furlough or reduction in hours, this counts as a "qualifying event" under the Consolidated Omnibus Budget Reconciliation Act ("COBRA") and employers must give affected employees notice of their right to receive continuation coverage.
Finally, please note that if you are a part of a union, the terms of your collective bargaining agreement ("CBA") will govern in the event of a furlough or reduction in employment. If you have questions about your rights under a CBA, you should consult with your union representatives or an attorney.
WARN/Reduction in Force Considerations
For employers with 25 of more employees, they must also take into consideration the federal and New York State Worker Adjustment Retraining Notification Acts ("WARN" Acts). Under the WARN Acts in New York, where affected employees suffer a reduction in hours of more than 50% or are completely laid off for a period lasting more than six months, employers are generally required to provide at least 90 days' advance notice and also must notify any applicable union representative, the New York Department of Labor, and the Local Workforce Investment Board.
However, where the reduction in force is unexpected and due to an unforeseeable circumstance, the 90-day period does not apply, but employers are still required to provide as much notice as is practicable under the circumstances. Employers with 25 or more employees who are anticipating a mass layoff or furlough are strongly advised to consult with counsel and ensure any applicable notice requirements are met.
Force Majeure in the Time of COVID-19
Force majeure, sometimes also called an "Act of God," refers to an unforeseen event that makes the performance of one's obligations under a contract virtually impossible. It is common for contracts to contain provisions that specifically state what the parties' obligations are in the event of a force majeure and whether or not their duty to perform is excused. However, in the absence of a force majeure clause, parties may be left scrambling to determine what their obligations and liabilities are if they are unable to continue fulfilling their contracts.
While it seems likely that the COVID-19 pandemic would trigger the application of force majeure provisions, it is strongly advised that you review your contracts closely with counsel to fully understand what your obligations may be in these uncertain times. Speaking with counsel is even more essential if you have contracts or ongoing obligations that do not have specific terms regarding what happens in the event of a force majeure, as you may have to consider whether common law doctrines--such as impossibility--would excuse your non-performance. This is a high standard to meet, but for some entities and contracts, a pandemic during which many businesses are being ordered closed could excuse performance even in the absence of an express provision in the agreement.
Overall, if you have contractual obligations that you are struggling to meet, you should speak with your attorney right away. Please also keep in mind that state and federal lawmakers are expected to enact additional, specific legislation to address the impacts of the COVID-19 pandemic that may affect this analysis. In fact, some industries have already seen rules and regulations being adjusted in response to the crisis.
We at Lloyd Patel will continue to stay abreast of ongoing developments that may impact our clients and are doing all we can to meet our clients' needs during this extraordinary time. We hope you are all staying healthy and safe and please know that we are here for any questions you may have.