Prior to the pandemic, most employers were facing a labor shortage, so employee furloughs or reducing hours were not under consideration in many places. That all changed when New Jersey started closing nonessential businesses in mid-March, and employers had to figure out what to do with their workforce.
One thing that did not change is the state’s wage and hour laws. In a webinar this morning, attorney Marianne Tolomeo of Connell Foley walked through some of the legal pitfalls associated with employee furloughs, reduced hours and remote work that employers would do well to avoid.
New Jersey has one of the strictest wage theft laws in the nation. If you make a mistake, an employee can sue for wage theft for up to six years after the fact and collect up to 200% in liquidated damages.
One option that many employers are choosing during the pandemic is employee furloughs. Unlike termination, furloughs are done with an expectation that the employee will be brought back at some point in the near future. For employers, it helps preserve their experienced workforce and saves the trouble and expense of hiring new workers.
Obviously, furloughed workers do not have to be paid. Tolomeo noted that they are still eligible for unemployment benefits and, because there is a presumption that they will be brought back, they do not have to look for new work to qualify for weekly benefits.
But that also means that exempt employees cannot do any work for the employer. They cannot take phone calls from clients, respond to emails, or have anything but de minimus contact with the business if they are not being paid. If an exempt employee performs any work during a workweek, he or she must be paid for the entire week. If non-exempt employees perform work, in contrast, they must only be paid for the hours worked.
“That’s one thing that could be a real trap for employers when they furlough exempt employees,” Tolomeo warned. “The employee could come back, down the road, and say, ‘I was actually working, look at all my records of my phone calls, my this, my that. I was working and you didn’t pay me.’”
Similarly, be wary of starting a furlough in the middle of a week. Because wage and hour laws require exempt employees to be paid for the full week if they do any work during that week, if a furlough begins on a Wednesday, exempt employees who worked Monday or Tuesday will need to be paid for the full week. The same is true for non-exempt employees who are paid a flat rate for a fluctuating workweek.
Employers are required to notify workers in advance if they plan to reduce their hours and their pay. Notice cannot be retroactive for hours employees have already worked. For non-exempt or hourly workers, this is pretty straightforward.
Generally, employers cannot just reduce the hours/compensation of exempt workers, but the law does make an exception if the employer reduces base hours with a commensurate decrease in salary, and there is a bona fide business need for the change. Employers should be careful, however, not to reduce salaries below the minimum threshold to maintain exempt status.
“I believe that the economic impact cause by the pandemic [will] certainly go a long way to proving a bona fide business need,” Tolomeo said. Making frequent changes could, however, jeopardize exempt status. Some attorneys recommend that employers keep such changes in place for at least a full quarter.
Another consideration when reducing hours is health benefits. Many group plans require employees to work a minimum number of hours (or be “actively at work”) to be eligible.
Finally, in reducing hours, employer should consider the impact on unemployment benefits. New Jersey provides partial benefits, but eligibility depends on a formula. Maintaining the employee’s eligibility to collect some partial unemployment benefits (including through a “Short-Time Compensation” program whereby the employer reduces the hours of a group of employees in lieu of some layoffs) is important because an employee who receives any UI benefits at all qualifies for the federal FPUC benefits of $600 per week under the CARES Act (until July 31, 2020).
The same wage and hour laws apply for remote work as apply to employees in the workplace. Tolomeo stressed that employers must keep detailed records of hours worked by non-exempt employees.
“If you don’t have records and someone sues you three years down the road, the rebuttable presumption will be that the employee did work the hours they claimed to have worked,” Tolomeo said.
A number of software options are available to keep track of hours, and some include geo-fencing applications that will alert the employer when nonexempt employees are not at their computer. At minimum, even if time clock software is not used, employers should make sure employees submit manual time sheets regularly, either by paper or by email. Employer should also make sure that any scheduled breaks are taken so that there is not an unintended accumulation of overtime liability.
Go here for the full webinar.