October 4, 2013
The Government shutdown is upon us, and it is anyone’s guess when it will end. The shutdown may compel Government Contractors to reduce payroll. As we reported in July during “sequestration,” employers must be aware of the legal consequences of various furlough options, including potential problems under statutes such as the Fair Labor Standards Act (“FLSA”) and the Uniformed Services Employment and Re-employment Rights Act (“USERRA”). Here are the questions we are receiving most frequently, with brief answers.
FAQ #1: What risks does a company face under FLSA if it places exempt employees on furlough?
Answer: A furlough misstep could result in an exempt employee being reclassified as “non-exempt,” which would require the employer to pay the employee overtime wages when the furlough ends.
FAQ #2. What options does the company have to furlough exempt employees without losing their exempt status?
Answer: Potential options include:
- Furloughs in full week increments. With certain exceptions, FLSA requires that an exempt employee be paid a full week’s salary in any week in which she performs work. There is no requirement that an exempt employee’s predetermined salary be paid if the employee has not performed any work for the entire week. However, no work means no work: even checking email could be deemed to constitute work, which would likely entitle the employee to a full week’s pay.
- Mandatory leave bank or paid time off deductions. An employer can require its employees to use accrued leave while on furlough.
- Non-temporary schedule and salary reductions. An employer may reduce an exempt employee’s hours and salary under certain circumstances without converting that employee’s FLSA status to “non-exempt.” The 10th Circuit Court of Appeals has opined that an employer may do so if the reduced hours and pay are for a fixed period of at least two months.1 An employer must also ensure that the salary meets the minimum FLSA salary requirements for exempt status, as well as minimum wage laws.
- Voluntary reduction in hours. An employee may volunteer to reduce her hours and salary. However, her decision must be entirely and completely voluntary.
FAQ #3: What if an employee is already “non-exempt” under FLSA?
Answer: Employers can reduce a non-exempt employee’s hours (including furloughs of less than a full week) and wages without running afoul of FLSA. Minimum wage laws still apply.
FAQ #4: How are other Government Contractors reducing payroll?
Answer: Some government contractors plan to pay employees as usual, unless the shutdown lingers for several weeks. Some are putting exempt employees on full week furlough and requiring them to use accrued leave. In a few instances, employers are converting exempt employees to non-exempt hourly employees.
FAQ #5: What if the company needs to make a mass layoff or hours reduction?
Answer: The Federal WARN Act affects employers with at least 100 employees. If, in a six-month period, a furlough would reduce the hours of at least 50 employees by at least 50%, the employer must first provide at least 60 days’ notice to affected employees. State WARN Act requirements sometimes are more onerous for the employer.
FAQ #6: What if the potential furloughed employee is a returning service member who was recently reinstated to the company, or is seeking reinstatement now?
Answer: A former service member who was reinstated under USERRA may be protected from discharge without cause for up to one year after reinstatement. Thus, to the extent an employer decides to terminate or furlough that employee, the employer should ensure it understands its USERRA obligations before taking action.
A returning service member whose former position was subject to a furlough presents a slightly different issue. In Milhauser v. Minco Prods., Inc., the Eighth Circuit held that termination could be a valid “position of employment” for a returning service member.2
FAQ #7: Are there any State or other laws or contracts that may affect the company’s decision regarding furloughs?
Answer: Yes. For example, any H-1B employee placed on a reduced work schedule must still be paid at the full rate specified in her visa documentation. Minimum wage laws, State WARN acts, employment contracts, collective bargaining agreements, etc. also may limit the company’s options.
The effects of the Government shutdown are only beginning to be felt. MLA’s lawyers, with extensive experience advising government contractors on labor and employment issues, stand ready to help our clients navigate the statutory and regulatory thicket.
1 In re Walmart Stores, Inc., 395 F.3d 1177 (10th Cir. 2005).
2 No. 12-1756 at *3 (8th Cir. Dec. 5, 2012) (the “escalator principle may cause an employee to be reemployed at a higher or lower position, laid off, or even terminated.”)