{Member Insights} Cost Saving Options for Employers During the COVID-19 Pandemic

The FACC-NY network is composed of a diverse mosaic of talented, experienced and open-hearted professionals united by a desire to share their knowledge, nurture meaningful connections and succeed professionally. In this new Member Insights series, we invite a guest member to contribute timely and relevant tips for adapting your activities to overcome immediate challenges and plan for the long-term. 

Stephanie Messas is the founding member and owner of the Messas Law Practice  PLLC based in New York. The firm services clients internationally in the areas of US corporate, commercial, employment and intellectual property law. Stephanie is a member of the French American Chamber of Commerce and the Small Law Firms Committee at the City Bar. 

COVID-19 has disrupted every facet of our lives.  From our personal daily routines to the greater economy, businesses are faced with attempting to find immediate solutions to deal with the quarantined workforce while also looking to minimize revenue losses long-term.  This article provides a brief overview of options for employers to weather the current pandemic.  Evidently, it is not exhaustive and does not cover all federal and state-specific legislation and/or requirements but, as payroll is one of the biggest expenses for any business, the following offers a summary of the currently most used solutions available to employers for their US employees.  In addition, this article does not discuss companies’ internal policies; however, prior to implementing any of the solutions below, employers should ensure that their policies and handbooks are not only updated to be consistent with public health guidance and existing and recently enacted state and federal workplace laws but also consistently and equally applied to employees. 

Depending on each business’s economic situation but also other advantages afforded by recently enacted laws such as the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), employers have recourse to three options: (i) placing exempt employees on furlough; (ii) reducing salaries and hours for some or all employees; and/or (iii) terminating employees, at least temporarily until the situation improves:

Furlough

While furloughs have seldom been used in the past twenty years in the private sector, they have become an important and frequently used solution during the pandemic.  In fact, articles regarding furloughs have flourished online to explain this employer-mandated cost-saving measure whereby exempt employees must take temporary unpaid leave from work. Although state law affects employee benefits; generally, furloughed workers can apply for unemployment benefits (in addition to enhanced unemployment insurance for eligible employees under the CARES Act).  Furloughed employees are still considered actual employees of a business and thus can continue to receive some benefits such as insurance coverage (if evidently such benefit existed prior to the employee being furloughed).  When a business implements a furlough, it cuts payroll costs as labor is reduced which enables them to also avoid certain payments associated with unemployment and, in some cases, severance.  If the employer opts for this strategy, it must pay attention to implement means to prevent employees from working during the furlough period.  Indeed, as an exempt employee is compensated on a salary basis regardless of the hours performed, should an employee work, even for a few minutes during his, her, or their furlough, employers will be obligated to compensate such employees for the entire workweek as a result.  In addition, businesses should consult their tax advisors to ensure that they do not jeopardize the Fair Labor Standards Act (“FLSA”) exemptions resulting from employees being furloughed over the course of several months.  Finally, it is important to consult an attorney to discuss the use of accrued time off and to ensure that extended furloughs do not amount to constructive terminations pursuant to state law.

Salary and Hour Reduction

This option may be best for employers who have spent time and money in training their employees and would rather not lose such workforce to other employers (although nothing prevents employees from seeking alternate employment if they are at-will).  When reducing wages and/or hours of work, employers should first and foremost consider the status of each employee.  For nonexempt employees, reducing hours to less than 40 hours a week, under the FLSA, poses no problem as long as the employer conforms with all state laws regarding notice. Any reduction in salary or hours of work should be for future pay periods i.e., they cannot be retroactive and must be bona fide, good faith reductions to face the current economic downturn.  For exempt employees, any reduction runs the risk of changing the employee’s status to lose the exemption.  Again, consulting a tax advisor and an attorney to avoid losing employee exemptions is of utmost importance. 

Terminations

Most states are “employment-at-will” states as well as the most well-drafted offer letters. As a result, an employer may generally terminate an employment relationship at any time and for any reason, unless a law or agreement provides otherwise (for instance, discrimination laws and/or an agreement that guarantees employment for a period of time). That being said, employers should always keep in mind that certain federal and state laws may also affect terminations such as the Worker Adjustment and Retraining Notification (WARN) Act which aims at providing advance notice in cases of mass layoffs.  Employers that terminate their employees generally do not intend to rehire them; however, nothing prevents them from doing so and, in light of the current circumstances, businesses can always decide to hire back their previously terminated workforce.  One of the advantages of terminating an employee during this pandemic is that it enables employers to address long-term business needs and, on a short-term basis, to significantly decrease costs.  For employees, many can currently benefit from the CARES Act which expands existing unemployment benefits by providing additional weekly payment to their otherwise unemployment benefits under state law and increases the time period during which an individual may receive benefits.

Benefits

Businesses should also pay close attention to their existing employment policies and benefit plans such as employee handbooks (and/or perhaps implement one if it has yet to exist) as well as federal and state laws regarding sick leaves, family leaves, paid time off and/or short term disability leaves.   Employers may have written policies in place and/or may have to comply with existing and recently enacted laws mandating that they provide employees with paid sick leave or expanded family and medical leave for reasons related to COVID-19.

While the current situation is unfortunate, it forces us to reevaluate our current business practices.  On a global level, the country had to confront its employment laws which were poorly equipped to assist the American workforce during the pandemic. On a micro level, employers also must evaluate their internal policies and financial situations to best address how to reduce costs while protecting their employees and ensuring a legitimate business interest behind each move.  In the end, we hope that this temporary hold on the economy will strengthen our national labor and employment laws and arm businesses with solid human resource tools to protect their employees and finances in the future.

This article is made available for educational purposes only as well as to give you general information and a general understanding of the law, not to provide legal advice.  By reading it, you understand that there is no attorney-client relationship created between you and the Messas Law Practice, PLLC.  You should not act upon this information without seeking advice from a lawyer with knowledge of your particular circumstances. The materials presented herein may not reflect the most current legal developments related to COVID-19 and the law. These materials may be changed, improved, or updated without notice.

 If you want to connect with Stephanie and learn more about her professional background and areas of practice, please visit her website www.messaslaw.com.