Employee Furloughs: Termination or Layoff?
The COVID-19 pandemic has forced California employers to make a variety of difficult decisions on the whim. Among these decisions is whether to lay off or terminate employees who are furloughed as a result of California’s Stay at Home Order forcing non-essential businesses in California to halt their operations.
Not only is the decision to lay off or terminate employees due to COVID-19 emotionally difficult for employers, but the legal authority in California regarding the issue is sparse. There are no California court decisions analyzing this specific issue.
Therefore, our office recently contacted California’s Division of Labor Standards Enforcement (“DLSE”) for guidance on the issue, including whether the short return to work periods discussed in prior DLSE opinion letters should be evaluated given the out of nowhere, current conditions pertaining to COVID-19.
Recently, the DLSE provided its position on the issue. Specifically, the DLSE explained that its policy is so long as a shutdown does not exceed ten days and there is a definite date given for the return to work, the employee is not considered terminated.
Why Is The Distinction Between A Lay Off And A Termination Important?
If an employee is not terminated, the company does not have an obligation to pay the employee all final wages – i.e. all accrued and unused vacation/paid time off wages – pursuant to the provisions of California Labor Code § 201.
On the other hand, if the employee is terminated, all wages earned and unpaid at the time of discharge must be immediately paid. The wages that must be paid under this scenario include all accrued and unused vacation wages.
Do I Have To Pay Out Accrued Sick Leave?
Sick leave is treated differently than vacation pay. There is no obligation to pay out accrued unused sick leave upon layoff or any other type of discharge from employment. However, it is important to note that Labor Code section 246(g)(2) provides: “If an employee separates from an employer and is rehired by the employer within one year from the date of separation, previously accrued and unused sick days shall be reinstated…. An employer is not required to reinstate accrued paid time off to an employee that was paid out at the time of termination, resignation or separation from employment.”
What If I Continue To Pay For Employees’ Health Insurance?
Employers that continue to pay for health care insurance for employees who have been deemed as laid off – as opposed to terminated – have a valid argument that the employee is still employed by the company. Therefore, we recommend that if your company has already made the decision to lay off employees rather than to terminate them, continue to pay their health insurance while they are laid off and until they return to work. If you wish to take this approach, please ensure your medical benefits plans are approved in writing to avoid any failure to provide COBRA notice claims.
What Approach Should I Take?
The more conservative approach, if the employees will be laid off for more than ten days, is to consider the separation a termination and to pay the employee’s final wages – including vacation/paid time off – pursuant to Labor Code § 201.
The other approach is to lay employees off with a reasonable return to work date and continue to pay their health insurance with carrier approval.
The information provided above is to inform employers about the significant issues relating to COVID-19. This information is not intended, nor should it be used, as a substitute for specific legal advice as legal counsel may only be given in response to inquiries regarding particular situations. For more information on these issues, please contact an attorney at Sagaser, Watkins & Wieland PC at 559-421-7000.