Advice for Employers Contemplating Layoffs, “Furloughs,” or Pay Reductions

With so much focus on new laws for paid sick leave, emergency leave for childcare, etc., it is easy to forget that California’s employee-friendly wage and hour laws are still in effect.  If you are contemplating laying off employees, reducing pay, and/or “furloughing” employees, please remember the following points.

Layoffs & Terminations

Treat It Like a Termination.  California generally considers a layoff a termination.  That means final paycheck rules are still in place (different rules apply to seasonal agricultural employees and other special industries):

  • Final pay checks must be provided on the date of termination, not the next pay day.
  • Final pay checks must include all amounts the employee earned for time worked to date and unused vacation/PTO, as well as reimbursement for expenses.
  • If the employee missed a required duty-free meal break or any rest break required by law, the employee must be paid the 1-hour premium for each day a duty-free meal break was missed and each day a rest break was missed.
  • Exempt employees are normally entitled to be paid for an entire week if they work only part of the week. However, during the termination week, an exempt employee may be paid for the days actually worked if they did not work a full week.
  • Don’t forget notices and documentation regularly needed at termination. For example, COBRA, HIPP, life insurance, supplemental insurance, etc.
  • If possible, communicate with each employee to confirm they have been paid all amounts they believe they are owed and that they received all breaks; ask if there are any unreported workplace injuries; and ask them to let you know about any potential wrongdoing (harassment, discrimination, whistleblowing). Document these conversations.

More than 50 Employees in 30 Days?  Some employers may be subject to state or federal WARN Act requirements; these are laws that require written notices be sent to employees, the EDD and local officials when an employer lays off 50 or more employees in a 30 day period. Failure to properly issue the notices exposes employers to significant penalties payable to employees and the government. These laws are technical and counsel should be consulted. Please see our overview of these notices.

Furloughs

“Furlough” generally means employees are placed on an unpaid leave of absence, but are still employed. Furloughed employees generally maintain health coverage (if your plan allows) and employers do not have to on-board the employees when they are called back. If employees are furloughed or laid off with a definite return-to-work date, the Labor Commissioner has taken the position that such employees are entitled to final pay if (1) their return-to-work date is beyond the end of the current pay period, OR (2) the furlough is for a period of more than 10 days.  If an employee is asked to return to work within the same pay period and the furlough is less than 10 days, then the employee does not need to be paid unused vacation/PTO.  Employees are generally eligible for unemployment benefits while on furlough.

Changed Pay or Hours

If you decide to cut pay or reduce employees’ hours to save costs, remember:

  • Notice of pay reductions generally: There is no specific law in California stating that an employer must provide written notice before reducing pay.  However, the California Wage Theft Protection Act requires that employers give notice within seven days of making a change to a pay date or period.  Some believe that this notice requirement applies to any reduction in pay rates.  Wendel Rosen recommends that employers provide written notice at least seven days before lowering an employee’s rate of pay.
  • Pay reductions with exempt employees: For employees to be exempt from overtime, their job duties and work situation must meet certain criteria and they must receive a minimum salary.  If you cut pay for exempt employees, they still must still receive the minimum salary requirements to continue to be exempt. In 2020, the minimum salary is $54,080 for employers with 26 or more employees and $49,920 if the employer has less than 26 employees. If exempt employees’ hours are reduced, their salary can be prorated, but the prorated amount must still be at least the required minimum.
  • Bonuses for working during the pandemic may affect overtime rates: Some employers are providing employees with bonuses to induce them to stay or enhanced hourly rates for working during the pandemic.  If the employee is not exempt, any enhanced pay must be taken into account for overtime pay.  Bonuses may affect the overtime rate, depending on how and why they are given.