Issues Employers Should Consider if Faced with Layoffs, RIFs, or Furloughs Due to Coronavirus

March 25, 2020

By: Erica A. Jacobson and Colin A. Walker

Employers facing the unprecedented challenges presented by the Coronavirus pandemic may be forced to consider layoffs (sometimes called Reductions in Force or “RIFs”) to weather the uncertain times ahead. These difficult decisions present the following legal issues an employer must consider to minimize liability.

Layoffs vs RIFs vs Furloughs
These terms are used loosely and their meaning is not always clear.  A “Reduction is Force” (“RIF”) usually refers to the termination of employment without the expectation that the employer will re-hire them employees in the same positions.  A “Layoff” usually refers to a temporary interruption in employment with the expectation that the employees will be re-hired after some period of time.  A “Furlough” is a temporary suspension of employment with the furloughed employees usually returning to work at the conclusion of the furlough. Furloughed employees are usually not paid, but they may retain their benefits and employment rights during the furlough period.

Employers should take care to identify the true nature of situation. If a layoff or furlough operates as a termination in all but name, the employer should treat it as a layoff.  It should not be used to avoid paying final compensation to which employees would otherwise be entitled if terminated, or to avoid other responsibilities of the employer.

Business Reason
The first questions employers must consider is why they are deciding to pursue layoff, RIF or furlough. The most apparent answer in the current climate will likely be related to the Coronavirus. Employers should take care to define a clear, non-discriminatory, and legitimate business reason for their decision and communicate this reason to their employees.  If the business reason is ever challenged by the EEOC, the employer must be prepared to explain the reason, so it is important to identify it before taking any action and to preserve any documents or other evidence that supports the reasoning. 

Selection Criteria
Next, employers must develop legitimate, non-discriminatory selection criteria to identify which employees will be subject to the action. This criteria should be tied to the legitimate business reason for.  Some possibilities include seniority, positions which are no longer needed or are unproductive, and performance.

Throughout the selection and implementation process, employers should pay careful attention to discrimination issues. Obviously, it would be unlawful to intentionally discriminate against employees. However, even well-intentioned employers’ policies and practices during a layoff, RIF or furlough may have unintended disproportionate impacts on certain classes of employees. To avoid this, employers should consider the impact on protected classes of employees, such as race, religion, gender, age, or disability status.

If an employer identifies a potentially disparate impact on a protected class, the employer should reconsider the business reason for the action and whether the impact on the protected class is justified and supportable.

Whistleblowers are employees who complain about unlawful or other wrongful activity of an employer. If an employer retaliates against a whistleblower, it may face a retaliation or whistleblower claim under a number of legal theories. If an employee makes a complaint asserting that an employer’s action is unlawful or identify any wrongful activity connected to the layoff, RIF or furlough, the employer should consider the whistleblower’s layoff with great care to ensure it is clearly non-retaliatory.

Worker Adjustment and Retraining (WARN) Act
The WARN Act is a federal labor law enacted to provide protection to employees, families, and communities in the event of a mass layoff by requiring most employers of over 100 employees to provide notice 60 calendar days prior to the layoff. Notably, a site closure of mass-layoff need not be permanent to trigger WARN.

The following events trigger WARN: the closure of a facility or discontinuation of a distinct function of business operations, and the event affects at least 50 full-time employees; a layoff of 500 or more full-time workers at a single site during a 30-day period; a layoff of 50-499 full-time workers, if the layoffs constitute 33% or more of the employer’s total active full-time workforce at a single site; a temporary layoff of less than six months that meets either of the prior criteria and is extended for more than six months; and a reduction of work hours for 50 or more workers by 50% or more for each month in a 6-month period.

In these uncertain times, it is difficult to forecast conditions, and the outlook changes dramatically from day to day, but employers must still consider whether a layoff, RIF or furlough may be necessary well in advance to ensure adequate time to comply with the WARN Act.

There are three exceptions to the WARN Act: faltering company, unforeseeable business events, and natural disasters.  Circumstances relating to, or resulting from, the Coronavirus may fall within one or more of the exceptions.  If an exception does apply, it will still be necessary to give as much notice as practicable and to explain the reasons that 60 days’ notice could not be provided.

Severance, Outplacement Services, and Continuation of Benefits
If employees are being terminated pursuant to a RIF, an employer may want consider whether to provide pay or other benefits to employees upon termination.  Benefits may include severance pay, outplacement services, and continuation of benefits.  Employers are not required to pay severance unless they have a written contract with the employee regarding severance benefits or, in some cases, if the employer has observed a policy or practice of paying severance. Even though most employers are not required to pay severance, many still elect to provide it to foster goodwill and reduce their litigation exposure. Providing employees access to outplacement services or continuing other benefits, including health benefits, also advances these goals, as employees experience less disruption.

As indicated above, with layoffs and furloughs, employees are usually re-hired after a period of time. As such, severance pay is usually not provided.  However, an employer laying off or furloughing employees may want to consider paying some amount or providing benefits to help ensure the employees will return to work after the period of the layoff or furlough. 

Release/Separation Agreement
Employers providing severance pay should consider whether they will require a separation agreement with a release as a condition of the severance. The advantages of a separation agreement include a release which would prevent employees from suing the employer, ensuring return of company property, and confidentiality and non-disparagement obligations on the employees. Potential downsides include offending or confusing departing employees, delays, and encouraging employees to explore claims, possibly with the assistance of a plaintiff’s attorney.  This is a delicate situation, and each employer must weigh the pros and cons in light of the employer’s goals.

Older Workers Benefit Protection Act (OWBPA)
Employers providing severance and requiring a release/separation agreement must also consider the OWBPA. The OWBPA is part of the Federal Age Discrimination and Employment Act designed to protect older workers. For a release of age discrimination claims to be enforceable, employers must provide employees who are 40 years of age or older 21 days to review the release and the opportunity to revoke the agreement for 7 days after execution. However, if the severance package is offered to a group or class, the 21-day review period is extended to 45 days. 

The OWBPA also requires employers provide certain disclosures if a waiver is requested in connection to a termination program offered to a group or class of employees. The employer must inform the employee, in writing, of (1) any class, unit, or group of individuals covered by the program, any eligibility factors for such program, and any time limits for program, and (2) The job titles and ages of all employees eligible or selected for the program, and the ages of all employees in the same job classification or organizational unit who are not eligible or selected for the program. Without these disclosures, employees cannot knowingly and voluntarily execute a release/separation agreement. 

Regardless of whether an employee signed a release or separation agreement, the Colorado Wage Act requires all employers to pay all earned, vested, and determinable compensation, including accrued unused vacation, immediately upon termination.  It is best to provide a final paycheck at the time of termination. 

COBRA Continuation of Coverage
After separation, employers still have duties to their former employees, including compliance with COBRA. COBRA requires employers to serve certain notices about continuation of health insurance and the employee’s right to continue their insurance if they pay the premiums and comply in all other respects. Generally, an employer’s payroll service will facilitate this process, including sending the notices, but, if not, the employer will be responsible. 

Unemployment Benefits
Employees who are terminated may seek unemployment benefits and in most cases will be entitled to them. Employees who are laid off or furloughed may or may not be entitled to unemployment benefits depending on the circumstances.  A significant reduction of hours worked can, under some circumstances, qualify an employee for benefits.

The process and payments are facilitated by the Colorado Department of Labor and Employment. These benefits are not paid out-of-pocket by the employer. However, additional claims may impact an employer’s experience rating, leading to higher insurance rates.
If an employee files a claim, the Department of Labor and Unemployment will send a request for information to the employer about the circumstances surrounding termination of employment. Employers are required to provide truthful responses to this request and have an opportunity to appeal an unfavorable decision.

Employers should carefully consider all aspects of a layoff and consult with competent counsel to avoid liability for discrimination claims, retaliation claims, wage act claims, and claims under WARN.