What’s the Difference between a Layoff and a Furlough?
BY: Brian Casaceli
Associate
Mirick, O'Connell, DeMallie & Lougee, LLP
As breweries in the Commonwealth contend with employment related issues resulting from the COVID-19 pandemic, one question that consistently comes up is what is the difference between a layoff and a furlough? The below questions and answers provide an overview of that difference as well as several related considerations brewers should be aware of when considering a layoff or furlough.
What is a Layoff?
When a business does not have sufficient work to keep its employees busy, it may decide to conduct a layoff. When a layoff occurs, the employment relationship between the company and the employee is terminated. Generally, when an individual’s employment ends, neither the laid off employee nor the company expect the laid off employee to later return to his/her employment with the company.
What is a Furlough?
A furlough is similar to a layoff in that it is implemented when a business does not have sufficient work for its employees. However, unlike a layoff, when an employee is furloughed, his/her employment with the company is notterminated. Rather, when furloughed, the company places the employee on a temporary leave of absence with the expectation that it will recall the employee at a date in the foreseeable future to resume his/her duties.
It is also important to recognize that the term furlough is sometimes used for two different types of situations. The first is a full-time, temporary leave of absence as discussed above. The second is when employees are relieved of their duties for, for example, a day a week or a week a month. This blog focuses on the first type of situation.
Are Employees Entitled to Receive their Wages/Salaries While on a Furlough?
Under both Massachusetts and federal law, non-exempt employees are entitled to be compensated for all hours worked, and exempt employees are entitled to their full salary for any week in which they perform work (subject to certain exceptions). If an employee is not performing any work during a furlough covering a full pay period, the employee is not entitled to be paid his/her wages/salary. An employer can, of course, decide to voluntarily compensate its employees during a furlough but it is not required.
Are Furloughed Employees Eligible for Unemployment Benefits?
Yes. The Massachusetts Department of Unemployment Assistance (DUA) has issued guidance stating that “workers who are temporarily unemployed due to a lack of work because of COVID-19 will be eligible for unemployment benefits.” The DUA considers employees to be unemployed due to a lack of work regardless of whether an employee is laid off or furloughed. Thus, when an employer lays off or furloughs employees, it should encourage employees to apply for unemployment assistance and provide them with the required brochure on how to file for benefits.
In addition, breweries should be on the lookout for further guidance from the DUA regarding the recently enacted federal CARES Act, which extends the number of available weeks of benefits for all claimants, and supplements all claimants’ weekly benefit amount by $600.
What happens to an Employee’s Accrued, Unused Vacation Time if the Employee is Furloughed?
As many employers are aware, under Massachusetts law, vacation is considered a “wage.” Thus, because an employee whose employment is terminated is entitled to receive all wages earned but not yet paid, the employee must, too, be paid for all accrued, unused vacation.
The Massachusetts Attorney General’s Office recently released guidance making clear that the above rule regarding the payment of vacation time applies when an employer chooses to conduct a furlough. Therefore, employees who are furloughed must receive all wages earned but not yet paid, including all accrued, unused vacation, on the date they are furloughed.
The Attorney General’s Office has, however, advised employers that it will not take enforcement action for not paying out vacation if an employee voluntarily agrees to save his/her accrued vacation for use when the employee later returns to work. In the event an employee agrees not to be paid out for accrued, unused vacation when furloughed, employers are well-advised to memorialize this agreement in writing.
What Happens to an Employee’s Health Benefits When Laid Off or Furloughed?
When an employee is laid off, he/she is no longer eligible to participate in his/her employer sponsored health plan. The layoff constitutes a qualifying event under COBRA (employers with twenty or more employees) or Mini-COBRA (employers fewer than twenty employees) and the employee can elect to continue his/her health insurance coverage under the employer’s group health plan by paying the full amount of the premiums. (As an aside, employers should notify their health insurance brokers in the event of layoff so the broker can issue COBRA or Mini-COBRA notices to the affected employees.)
Unlike a layoff, when an employee is furloughed, the employee may be able to continue his/her coverage under the employer sponsored health plan. To the extent that the brewery wants to continue furloughed employees on its health plan and pay the employer portion of the premium, the brewery should check with its insurance broker to determine whether continuing coverage in that respect is permitted by the plan documents. If the plan documents do not permit an employee’s continued coverage while furloughed, COBRA or Mini-COBRA notices should be sent to affected employees.
This is not an exhaustive list of possible considerations and each particular circumstance may differ depending on the facts involved. For these reasons, it is recommended that breweries consult with counsel if they are unsure about a particular course of action.
As an associate member of the Mass Brewers Guild, Mirick O’Connell is committed to helping brewers in the Commonwealth navigate any legal issues they may be facing during the COVID-19 pandemic. We extend our best wishes to all of you, your families and your breweries during this crisis and look forward to visiting your tap rooms later this summer. Until then, we’ll be enjoying our favorite brews remotely. Stay well.
**UPDATE (April 15, 2020):
The Attorney General’s Office has released updated guidance regarding an employer’s wage payment obligations when an employee is furloughed. Specifically, the Attorney General has stated that if an employee is furloughed and the employee’s health benefits are continued, the employer is not required to payout accrued, unused vacation. When an employee’s health benefits cease, the employee is entitled to be paid his/her accrued, unused vacation unless the employee voluntarily agrees to keep it in his/her “bank” for future use.
However, as noted previously in the article, when an employee is laid off, the employee must be paid final wages, including accrued and unused vacation. The Attorney General’s Guidance can be found here.
