2009 Fall, Pg. 52. Furloughs and RIFs.

AuthorBy Attorneys Debra Weiss Ford and Nancy E. Oliver

New Hampshire Bar Journal

2009.

2009 Fall, Pg. 52.

Furloughs and RIFs

New Hampshire Bar JournalVolume 50, No. 2Fall 2009FURLOUGHS AND RIFsSigns of the Times: Use of Furloughs and Reductions in Force to Cut CostBy Attorneys Debra Weiss Ford and Nancy E. OliverIn these difficult economic times, many employers are searching for ways to reduce costs to stabilize the overall financial health of a company. Employers are routinely exploring cost-cutting measures which may include voluntary attrition programs, furloughs, reducing work hours and or benefits, reducing or freezing wages and reductions in force ("RIFs").

I. FURLOUGHS

Employers who must improve a company's financial status may consider a furlough. A furlough is a temporary leave or temporary layoff which may be voluntary or involuntary. It may be for a few days or weeks, and it is usually unpaid. Typically, employee service time is unaffected, and most benefits can be continued if an employer is proactive in how it structures the furlough. The company benefits by saving payroll dollars in the short term and having employees who are already trained and skilled when the company's health improves and the furlough is discontinued. The employees benefit by maintaining their service time, having a job (some income is better than no income), and having some or all of their benefits continue. Furloughed employees can apply for unemployment benefits if they are otherwise eligible for unemployment compensation pursuant to New Hampshire law.(fn 1 )

For exempt employees, employers must be aware of the salary-basis test. An employer cannot make deductions from an exempt employee's pre-determined compensation for absences "occasioned by the employer or by the operating requirements of the business."(fn 2 )If an exempt employee is required to work during the furlough period (for example, checking e-mail or returning phone calls), the employee must be paid the full salary for that week. The company can require the employee to apply vacation time to that workweek, as long as the employee receives the guaranteed amount of salary. The company does not have to pay the employee for any week in which the employee does not work.(fn 3 ) The company can make a bona fide reduction in the employee's salary indefinitely or for a specified period of time due to economic reasons, such as a decrease in the employee's workload, as long as the reduction is not designed to circumvent the salary-basis test.

Under New Hampshire law, employers considering a furlough for exempt employees must take care to ensure that the furlough period encompasses the entire pay period of the salaried employee. New Hampshire statute requires that a salaried employee receive his or her full salary for any pay period in which the employee performs any work.(fn 4 ) Thus, an employer would violate New Hampshire law with regard to exempt employees if it instituted a furlough of one day a week, for example by closing the company every Friday and only paying those employees for work performed Monday through Thursday. This practice would result in an impermissible deduction from an exempt employee's pay. Likewise, if an employer has a two-week pay period but only wants to have a one-week furlough, this is also impermissible for exempt employees under New Hampshire law. The exempt employee would still be entitled to the salary for the full two-week pay period, even though the employee only worked for one week, since the employee nonetheless performed some work during the pay period. Accordingly, employers planning to utilize a furlough as a cost-cutting measure should ensure that the furlough period complies with both federal and state laws requiring that exempt employees receive their full salary for pay periods in which work is performed.

Employers may also want to explore other cost-saving options such as restructuring benefit offerings to provide those that are most attractive to employees while remaining within the employer's budget. Overall, economies can be achieved while maintaining employee satisfaction with a benefit plan by changing premium contributions, co-pays, deductibles, and out-of-pocket maximums. Employers may also consider increasing deductibles or utilizing health savings plans.

Other potential alternatives to a RIF include:

* hiring freezes; * wage and bonus freezes; * bonus reductions; * postponement of wage increases; * job-sharing; * work furloughs of limited duration; * reducing work hours and proportionate pay cuts; * discontinuance of temporary or part-time workers and redistribution of their work; * reduce or eliminate specific 401 (k) match programs. Employers can still make matching contributions if affordable at year-end; * institute voluntary unpaid sabbatical opportunities; and * employee transfers.

Under federal and New Hampshire law, employers are allowed to reduce an employee's pay as long as the employee is notified of such reduction in writing prior to the change taking place.(fn 5 ) An employer who desires to reduce the work hours of an exempt employee faces the same issues as an employer who wishes to furlough an exempt employee; specifically, an exempt employee who performs any work during a pay period must be paid his or her full salary. Therefore, a reduction in hours of exempt employees is not recommended.

II. FEDERAL AND STATE WARN ACTS

If none of the alternatives to a reduction in force are feasible to achieve the necessary cost-savings, a reduction-in-force may be the only remaining option. Before implementing a RIF, there are certain laws that employers must follow regarding the notification of employees.

1. The Federal WARN Act

The federal Worker Adjustment Retraining and Notification Act ("WARN")(fn 6 ) requires that employers provide 60 days' advance written notice of a plant closing or a mass layoff. The Act applies to employers who employ either: (1) 100 or more employees, excluding part-time employees; or (2) 100 or more employees who in the aggregate work at least 4,000 hours a week, exclusive of overtime.(fn 7 )WARN directs covered employers not to order a "plant closing" or a "mass layoff" until 60 days after notice of the closing or layoff is provided to certain state and local government officials and affected employees or their union representative.(fn 8 )

The Act provides for an exception to the 60-day-notice period if there is a natural disaster, unforeseeable business circumstances, or a faltering company.(fn 9 ) The "faltering company" exception applies only to plant closings, and it covers situations where a company has sought new capital or business in order to stay open and where giving notice would ruin the opportunity to get new capital or business. The employer has the burden of proof to show that one of the exceptions applies.

The Act defines a "plant closing" as a permanent or temporary shutdown of a single site or units within a single site of employment if the shutdown results in an "employment loss" during any 30-day period for 50 or more employees, excluding any part-time employees.(fn 10 ) A "mass layoff" is defined as an "employment loss" (not the result of a plant closing) at a single site of employment during a 30-day period either for 500 employees (excluding part-time employees) or at least 33 percent of the employees at that site, if 33 percent equals or exceeds 50 employees (excluding part-time employees).(fn 11 ) The term "employment loss" means: (1) an employment termination other than a discharge for cause or voluntary departure of...

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