In the face of the mandatory closings, necessary quarantines, and economic contraction, many companies are being forced to make difficult decisions about what to do with their workforces until the threat of COVID-19 passes. Two commonly considered options are layoff and furlough. This question-and-answer article helps guide employers through the difficult decisions of how to best protect your company, retain your workforce, and get back to work as soon as possible:


Question: What is the difference between a “layoff” and a “furlough”?

Answer: A furlough occurs when a company puts some or all of its employees on a temporary, unpaid leave in response to a business circumstance or economic hardship. Furloughs may be voluntary or mandatory. Employees stay on the payroll, but they do not receive wages and are not permitted to perform any work.

A layoff is a separation of the employee from the payroll. Usually, companies expect to recall and rehire employees from a layoff when economic or other circumstances allow. When possible, companies sometimes give specific recall dates at the time of a layoff, but even if a recall is anticipated, employees who have been laid off are separated from their employer.

Question: If we want to maintain health benefits for our employees, does that impact whether we lay off employees or furlough them?

Answer: Employees who are laid off generally are no longer eligible to participate in their employer’s health benefit plan. Plans differ, with some terminating participation on the date the employee separates and others terminating participation at the end of the month in which the employee was laid off. Employers should review their plan documents and/or consult with their third party administrator to confirm when laid-off employees are no longer eligible to participate in the health benefit plan like active employees.

After a layoff, former employees with benefits provided by a COBRA-covered employee are eligible for COBRA continuation coverage. An employer may choose, but is not required, to cover some or all of the cost of COBRA benefits to its laid-off employees. Employers should provide standard COBRA election notices and otherwise follow their standard COBRA procedures for separated employees at the time of the layoff.

In a furlough, the answer depends on the terms of the group plan. Some employer-provided health insurance plans cover only full-time employees; other plans have exceptions for temporary lapses in employment that allow employees to retain group plan benefits during a furlough. If an employer’s regular group plan does not cover furloughed employees, those employees will be eligible for COBRA benefits. Again, an employer may choose, but is not required, to cover some or all of the cost of COBRA benefits to its furloughed employees.

Relatedly, COBRA also applies to employees whose hours have been reduced and who no longer qualify for a group plan that requires full-time status.

Question: How might a furlough impact the status of my employees under the Fair Labor Standards Act?

Answer: The Fair Labor Standards Act (FLSA) is the federal wage and hour statute that governs how employees across the country must be paid. Because furloughed employees remain on the payroll, employers must be careful when furloughing employees classified as exempt (salaried) under the FLSA. Under FLSA rules, salaried employees generally must be paid their full weekly salary for any week in which they perform work. So, if exempt employees perform even a little work during a furlough week, they may be entitled to pay for the full week. Employers should keep this in mind when planning a furlough. More information on FLSA considerations during the COVID-19 pandemic is .

Question: Can my furloughed or laid off employees collect unemployment benefits?

Answer: Probably yes. Unemployment benefits vary state-by-state. Generally, both furloughed and laid-off employees are eligible for unemployment benefits. The rationale is that eligibility for unemployment benefits in most states is triggered by an employee’s lack of work through no fault of the employee’s, not an employee’s formal separation of employment. The federal Families First Coronavirus Response Act required states to “ease” eligibility requirements to allow employees who have been affected by COVID-19, including those who have been laid off, furloughed or had their hours cut, to more easily receive unemployment benefits. Employees who are given a return-to-work date from a furlough or layoff may also be excused from the usual job search requirements for unemployment. Check with your state’s unemployment office for more details on procedures and benefits available for those affected by COVID-19.

Question: We have a unionized workforce subject to a collective bargaining agreement. Does that change anything?

Answer: It might. Collective bargaining agreements often have provisions that cover furloughs, layoffs, and entitlement to employment benefits, including how and when furloughs and layoffs can be implemented. Check your CBA for these provisions before instituting a furlough or layoff. If your CBA does not address either, then your policies and established practices will likely govern these decisions. You will want to address this with counsel as unions will want to negotiate how and when furloughs and layoffs can be implemented.

Question: I understand that the government just enacted the Families First Coronavirus Response Act (the “Act”) that requires paid leave for certain employees. What employers are covered?

Answer: Both the Emergency Family and Medical Leave Expansion Act and the Emergency Paid Sick Leave Act apply to all private employers with fewer than 500 employees and all public employers with more than 1 employee. Employers of healthcare providers and/or emergency responders may elect to exclude such employees. The term healthcare provider has not yet been defined and we are anticipating rules and regulations from the HHS Secretary. More information on the Act can be found .

Question: If we decide to furlough employees, could our company be responsible for providing paid leave to them under the new Act?

Answer: Perhaps. The Act does not exclude furloughed employees from its definition of “employee,” and furloughed employees are typically still considered employees of the company. If furloughed employees are covered by the Act, then you’re probably wondering how much the company must pay furloughed employees while they’re on leave. The answer to that question is also unclear under the Act. Both the emergency paid sick leave and emergency family and medical leave portions of the Act calculate the amount of compensation owed to an employee on the employee’s regular rate of pay and the “number of hours the employee would otherwise be normally scheduled to work.” It’s unclear whether employers should be looking backward at an employee’s average work schedule, and if so, how far backward or if employers should base the calculation on the number of hours an employee would have been scheduled to work had the employee not requested leave (which could potentially be 0 if the employee is furloughed). It is hoped that the U.S. Department of Labor will address this gap in the guidelines it is set to issue by April 2, 2020. Stay tuned for updates.

Question: Now that the Act has become law, is there any risk of exposure for laying off employees instead of furloughing them to avoid a potential future obligation to provide paid leave?

Answer: Yes, but it is difficult now to quantify. The Family and Medical Leave Act (FMLA) already prohibits employers from retaliating against employees who take FMLA leave and from interfering with an employee’s entitlement to FMLA leave, and those protections extend to employees who take emergency family and medical leave. The Act also prohibits employers from discharging an employee who takes emergency paid sick leave under the Act. These prohibitions, however, arguably do not take effect until the law takes effect on April 2, 2020. Also, a reasonable interpretation of these prohibitions would not preclude an employer from making a company-wide layoff decision based on economic reasons. Now, if an employer targeted for layoff only those employees who are eligible for leave under the Act or who have requested leave, then it would probably be facing a much higher risk for liability. Additionally, terminating a certain number of employees to take the total number of employees below fifty in an effort to exclude the employer from coverage likely will be unavailing because coverage is based upon the total number of employees in the prior twenty calendar work weeks as opposed to a snapshot in time.