Editor’s Note: Throughout this article the term “furloughed employees” encompasses both furloughed and laid-off workers. While the legal issues related to recalling furloughed and laid off workers are the same, it is important to note that the mechanics of putting these workers back on the payroll is very different. Furloughed employees were placed on temporary, unpaid leave. When ready to call back furloughed employees, employers simply notify the employee to return to work on a certain date. Laid off employees, on the other hand, were terminated. The mechanics of recalling laid-off employees is similar to hiring a new employee.
As the impact of the pandemic subsides, workplaces have begun a phased reopening in compliance with state and local laws. We hope this is a sign of better times ahead.
As employers prepare to return to normal operations, they will likely face a number of practical and legal challenges they have not previously encountered. One such challenge is returning furloughed employees to the workplace.
There is little legal exposure when returning all furloughed employees to the same positions they held prior to the shutdown or cutback. However, given the staged reopening required in most states and economic impact of the pandemic on certain industries, this scenario is unlikely. Under the best circumstances, employers will bring employees back in waves until the business is fully operational again and employees will return to pre-pandemic wages. Where employers do not anticipate reaching pre-pandemic operations, they will have to choose who will return and who will be terminated. Further, those who return to work may experience a cut in pay.
Both scenarios, if not handled properly, expose employers to costly legal risk.
Best Practices for Deciding Whom to Reinstate
The decision to return only some furloughed employees has legal implications. Some employees who are not selected to return to work may assume that the company’s decision was rooted in discrimination based on their membership in a protected category, such as race, gender, disability or age. To minimize legal risk, employers should take the following actions:
Document the business reasons for the cut back on the number of staff members and/or why certain skill sets are no longer needed to resume operations at the outset. Develop and document objective, business-related, skill-based, and non-discriminatory criteria for deciding which workers will return to work. For example:
- Changing business needs require certain skill sets for available jobs
- First furloughed, first reinstated
Although performance is a possible basis for making recall decisions, employers should proceed with caution. Performance appraisals are often based on a manager’s subjective assessment. Accordingly, performance ratings are susceptible to legal challenge. Performance should only be relied upon when the criteria are job-related, and objective and a numerical rating is supported by contemporaneous documentation.
Employers should not base recall decisions on an employee’s former pay. Doing so can expose employers to claims of discrimination based on age, race and gender.
- Review and/or revise furlough and recall policies and written communications provided to employees in connection with their separations. To the extent these documents set out the process for recalling furloughed employees, employers should follow these procedures to the extent possible. If employers must deviate from written guidance, document the legitimate business reasons for going in a different direction.
- Train managers tasked with determining which employees should be recalled on the criteria you have identified, uniform application of the criteria, and required documentation.
- Prior to finalizing selection decisions, employers should conduct a statistical analysis, pursuant to legal privilege, to ensure their decisions do not disproportionately affect a protected group.
- Develop a communication strategy for informing furloughed employees whether they have or have not been selected to return to work. Include the business reasons that made it impossible to bring all employees back at this time; the criteria the company applied to select those furloughed workers who would return to work; and whether it is possible that others may be reinstated in the near future. If the company does not plan to ever recall the remaining furloughed employees, those employees should be informed that their employment is terminated and provided information regarding unemployment, health care and retirement benefits.
Changes to Returning Employees’ Pay and Benefits
In a perfect world, all employers will be able to recall furloughed employees at the same rate of pay, benefits and schedule as prior to the shutdown. Unfortunately, this will not be the case for many employers. If pay cuts are necessary, employers need to be mindful of applicable legal implications, particularly with respect to exempt employees.
- If changes are made to the compensation of exempt employees, employers should review the modified salaries to ensure that they still meet the salary basis threshold to qualify as exempt from the Fair Labor Standards Act (FLSA) and state overtime requirements.
- If changes are made to the job duties of exempt employees, such as adding non-exempt tasks due to reduced workforce, employers should review the duties of those exempt employees to ensure that their primary duties continue to satisfy the duties test for the applicable FLSA or state exemption.
- Employers should review benefits plan documents to determine whether changes in returning employees’ job duties or number of work hours affect their eligibility.
- If applicable, employers should communicate changes to duties, pay and benefits to union representatives prior to implementation.
Restructuring’s Effect on Pay Equity
Workforce reductions, pay cuts, and/or job restructuring are inevitable in most companies dealing with the economic impact of COVID-19.
Shareholders, employees, unions, enforcement agencies and plaintiffs’ attorneys are closely monitoring changes to the terms and conditions of employment in the wake of the pandemic. Employers undergoing such significant workplace changes should consider conducting a pay equity review to identify and remedy unintended pay gaps. The analysis should be done under the protection of legal privilege.
The COVID-19 pandemic has tested employers’ and employees’ resolve in ways few, if any, have ever experienced. Reopening the workplace in the wake of the pandemic raises numerous and varied issues that span the spectrum of workplace laws.
Employers have only one chance to get re-opening right. Attention to detail, comprehensive review of policies and procedures, and informed decision-making are critical to a successful workplace relaunch.
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About the Author
Consuela Pinto is a shareholder and head of the pay equity practice at FortneyScott.