On March 11, 2020, the World Health Organization officially declared the worldwide outbreak of the novel coronavirus, COVID-19, a pandemic. As the ripple effects from COVID-19 continue to grow, employers are increasingly facing difficult questions about how to address temporary workplace closures as well as possible furloughs and reductions in force due to the looming economic impact of the spreading pandemic. When addressing these challenging issues, employers must be mindful not to inadvertently create wage and hour liabilities, fail to provide legally required notices to employees, or unilaterally change working conditions for unionized workers without bargaining with their union reps.
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Wage and Hour Concerns
Must employers continue to pay employees who are not coming to work for COVID-19-related reasons?
If the employee is non-exempt, then the answer is “no.” Non-exempt employees need only be paid for actual hours worked.
If the employee is exempt, then the answer is more complicated. Exempt employees must be paid on a salary basis, which is currently $684 per each seven-day workweek under federal law. With limited exceptions, employees must be paid the full salary for the entire workweek where they perform any work during any portion of that workweek. In other words, if an employee checks emails, participates in work calls, or generally works in any capacity, then he or she must be paid the full salary for that week. There are exceptions for: (i) full-day absences during which the employee is voluntarily absent (such as when the employer is open for business but the employee decides to stay home and performs no work during that day); and (ii) absences covered by a bona fide sick leave policy. If an exempt employee does not perform any work at all during a workweek, regardless of whether the absence is voluntary or involuntary, the employer need not pay the employee his or her salary for the week. Thus, if employees are furloughed for full workweeks, there should be no issue. The problem arises when the furlough starts or stops in the middle of a workweek.
If an employer violates the rules and fails to pay full salary for a workweek during which a non-exempt employee performed work, then the employee’s exempt status may be jeopardized. If the violation is inadvertent and isolated, the exemption will not be lost as long as the employer reimburses the employee for any improper deductions. If the employer exhibits an intent not to pay exempt employees on a salary basis – as evidenced by a pattern of deducting wages from salary for individual days not worked – the employee can lose his or her exempt status for the period during which improper deductions were made. In addition, other employees in the same job classification who work for the same manager who made the improper deduction will also lose their exempt status.
For any period during which an otherwise exempt employee is deemed non-exempt, the employer is liable for overtime pay at the premium rates normally enjoyed by non-exempt employees for all hours worked in excess of 40 in a workweek. The employer could also be liable for civil penalties – including treble damages for willful violations of the FLSA – and could expose itself to class action lawsuits, which remain popular with plaintiffs’ lawyers who may recover statutory attorneys’ fees if successful.
When considering any pay stoppage or forced usage of accrued vacation or PTO, employers should also think about the possible retention, employee morale, or public relations impacts of such actions and weigh those concerns against the economic risks.
May employers reduce employees’ pay or work hours due to economic effects from COVID-19?
Employers may implement prospective wage reductions and work hours for non-exempt employees, as long as those reductions keep employees’ wages above the applicable minimum wage requirements. However, these wage reductions are made across the board for similarly situated employees in the same positions to avoid potential discrimination issues. In addition, certain state and local laws may require some advance notice period.
For exempt employees, reductions to the weekly salary are generally not permissible because they must be paid the same minimum weekly salary for any workweek in which they perform work, regardless of the number of hours worked that workweek. There is a limited exception where employers can prospectively reduce an exempt employee’s future salaries and working hours because of a bona fide reduction in the amount of work. However, this practice must be occasional and related to long-term business needs or economic slowdown. What constitutes “occasional” remains an open question.
Employers must also remain aware of any payment obligations arising under employment contracts or collective bargaining agreements (further discussed below).
Potential WARN Act Implications
Are employers required to comply with the Worker Adjustment and Retraining Notification (“WARN”) Act for temporary furloughs or closures related to COVID-19?
If an employer is covered by WARN and the layoff or closure is one that would qualify for the notices required under WARN, then yes, the employer would need to comply with WARN, regardless of the reason for the layoff or closure. Generally, employers with 100 or more full-time employees who implement a “plant closing” or “mass layoff” must provide at least 60 calendar days’ advance notice to employees affected by those closings or layoffs as well as their union reps (if any) and certain government entities. Violations of the WARN Act can result in harsh consequences, with employers being liable for up to 60 days of back pay and benefits as well as civil penalties of $500 per day.
However, as may be the case for temporary furloughs or closures related to coronavirus, WARN notice is usually not triggered if employees are going to be laid off for less than six months because those employees have not suffered an “employment loss” requiring notice under WARN. It can be hard to know, however, whether a layoff will indeed only last six months or if the employer will become liable for not providing the necessary notices six months down the road.
Employers may also not have to provide WARN notice if they can show that the layoff or closure is due to “unforeseeable business circumstances,” which can include an unforeseen, dramatic major economic downturn. It is possible that the effects of COVID-19 could create such circumstances. Even if the unforeseeable circumstances exception applies to this situation, employers relying on the exception must still provide “as much notice as practicable” as soon as the triggering event is foreseeable and provide a statement explaining the circumstances of why more extensive notice was not provided. Given that application of the exception tends to be highly fact-specific and the situation with coronavirus remains highly fluid, it might be less risky for an employer to simply provide the required notices.
Employers should also be mindful that some states, such as California and New York, have their own mini-WARN laws that have different requirements and circumstances that may trigger or relieve providing advance notices.
Must an employer give notice to the union if it wants to make changes to its unionized employees’ working hours or rate of pay due to the effects of COVID-19?
Employers with unionized workers may have to bargain with the union before making changes to any terms or conditions of employment. The National Labor Relations Act requires employers to bargain in good faith with the union on mandatory subjects of bargaining, such as wages, schedules, temporary closures, and layoffs. Making unilateral changes to those terms without first notifying the union and offering to bargain in good faith could lead to the union filing unfair labor charges. This duty to bargain in good faith can apply even in emergency circumstances, unless there are “compelling economic exigencies” or the parties have agreed to such changes in their collective bargaining agreements. Employers should check their collective bargaining agreements to see if there are any rights reserved in those agreements, such as in the management rights clause or a “force majeure” clause, which may give the employer more flexibility to act unilaterally. Employers should carefully interpret those provisions to see if the current coronavirus situation actually gives them the right to act unilaterally. Whether the coronavirus presents a “compelling economic” circumstance will depend the particular circumstances affecting each employer.
The safest route may be for employers to give the union notice and offer to bargain quickly on such terms.
 A plant closing is a permanent or temporary shutdown, resulting in an employment loss for at least 50 employees during a 30-day period, of either (i) a single site of employment; or (ii) facilities or operating units within a single site of employment. A mass layoff is a reduction in force that must both (i) not be the result of a plant closing; and (ii) result in an employment loss at a single site of employment during any 30-day period for either (a) 50 employees who comprise at least 33% of active employees; or (b) at least 500 employees. An employment loss is a (i) termination of employment that is not (a) discharge for Cause; (b) voluntary departure; (c) retirement; (ii) a layoff exceeding six months; or (c) a reduction in work hours of more than 50% during each month of a six-month period.