Source: https://www.nylaborandemploymentlaw.com/
Timestamp: 2020-07-02 14:42:52
Document Index: 634717979

Matched Legal Cases: ['§ 681', '§ 336', '§ 92', '§ 207', '§ 2753', '§ 117']

New York Labor & Employment Law Blog | Jaspan Schlesinger LLP
By Larry Tenenbaum & Louis Calabro on May 11, 2020
Posted in Coronavirus, Employment Contracts
Employers and public agencies utilize contracts in many ways with a variety of parties. In addition to employment contracts and collective bargaining agreements, many employers also enter into contracts with third-party vendors to provide specialized services. Unfortunately, many existing contracts failed to contemplate pandemic events such as COVID-19, which has left many employers with uncertainty regarding payment and performance obligations during state-wide closures. The present situation provides an opportunity to review contracts and to consider incorporating certain protections into future agreements.
The most commonly discussed contract clause during the COVID-19 pandemic has been the force majeure clause. Typically, this clause relieves parties from their contractual obligations if an unforeseeable and uncontrollable event occurs. These events are sometimes referred to as “acts of God.” However, simply inserting a general force majeure clause into a contract will not be enough to protect an employer against a pandemic such as COVID-19. Rather, New York courts have held that a force majeure clause must include the specific event that is claimed to have prevented performance [Phibro Energy, Inc. v. Empresa de Polimeros de Sines Sarl, 720 F. Supp. 312, 318 (S.D.N.Y. 1989)]. In addition, New York courts have limited catchall provisions in force majeure clauses. In a decades-old decision, the Appellate Division, First Department applied the principle of ejusdem generis to catchall language in a force majeure clause, stating that “where certain things are enumerated, and such enumeration is followed or coupled with a general description, such general description is commonly understood to cover only things [of the same kind or nature] with the particular things mentioned” [Krulewitch v. National Importing & Trading Co., 195 A.D. 544, 546 (1st Dep’t 1921)]. Thus, a force majeure clause in New York must specifically list events such as epidemics, pandemics, serious diseases, and quarantines to adequately protect against a situation like COVID-19.
A well-drafted force majeure clause should have language to account for acts of government or measures of governmental authority. This will be particularly relevant where a pandemic event results in a shutdown At the state or local level, or the Governor or a Mayor issues an Executive Order that affects the terms of an agreement.
There are other useful unforeseen events that employers should consider incorporating into a force majeure clause. If an employer has concerns about a potential lack of communication, a force majeure clause can be written to require affected parties to provide notice to one another. Alternatively, an employer may wish to insert language requiring a party to mitigate the effect of a force majeure event to the greatest extent practicable, to limit the potential hardship of a future catastrophe. Employers should be aware that the mere existence of a qualifying event in a force majeure clause will not be enough to relieve the parties of their obligations. The United States Supreme Court has held that the event must not only be specifically listed, but must also be unforeseeable [United States v. Brooks-Callaway Co., 318 U.S. 120, 122-123 (1943)]. In other words, if an event is foreseeable and the parties can adequately prepare themselves in advance, a force majeure clause will not be triggered.
While force majeure clauses are one of the most important protective measures for employers to implement, other protections should also be considered. One of the lessons that COVID-19 has taught us is that there may be unanticipated costs related to the response effort of a pandemic. Additionally, governmental action and Executive Orders may contain language which would require employers to violate the terms of existing agreements. There are creative measures which employers can take to address these issues in future agreements. For instance, compliance clauses may provide that the terms of an agreement will be superseded by conflicting laws, including Executive Orders. Furthermore, contracts may include language that places the burden of paying for any necessary unanticipated equipment (i.e., protective masks or gloves) on the other party.
COVID-19 has been an unprecedented situation to navigate, but by anticipating potential issues and revising agreements accordingly, employers can rest assured they will be better prepared if another pandemic ever arises.
By Jessica Baquet on April 24, 2020
Posted in Coronavirus, New York City Law, Sick Leave
On April 22, 2020, during the first-ever remote hearing of the New York City Council (Council), several bills were introduced relating to employment matters and the COVID-19 pandemic. These bills, which have been referred to as the “Essential Workers Bill of Rights,” were sent to committees for further hearings. It is expected that the Council will vote on them in the coming weeks.
This post contains summarizes the pending legislation in its current form.
Job Protection for Essential Workers
Int. 1923-2020 would prohibit employers from terminating, suspending or reducing the hours of essential employees without just cause.
If passed, the law will be enforced through administrative proceedings before the Office of Labor Standards (OLS) or private lawsuits or arbitrations brought by employees. In all cases, the employer bears the burden of proving “just cause” by a preponderance of the evidence. The employer must show that there was “sufficient cause for discharging an essential employee, such as the employee’s failure to satisfactorily perform job duties or employee misconduct that is demonstrably and materially harmful to the essential employer’s business interests.” In determining whether this standard is met, the fact finder must consider the following, in addition to “any other relevant factors”:
Whether the essential employee knew or should have known of the essential employer’s policy, rule or practice;
Whether the essential employer provided relevant and adequate training to the essential employee;
Whether the essential employer’s policy, rule or practice was reasonable and applied consistently; and
Whether the essential employer undertook a fair and objective investigation.
The bill states that there cannot be just cause for termination unless the employer first resorted to progressive discipline. However, confusingly, the bill’s definition of progressive discipline states that “[n]othing herein shall preclude an essential employer from terminating an essential employee immediately for a failure or misconduct constituting just cause.” We expect that this apparent contradiction will be addressed during the upcoming committee hearings.
Within one week of terminating an essential employee, the employer shall provide him or her with a written explanation of the precise reasons for the termination “including non-hearsay evidence.” According to the bill, the ultimate fact finder may not consider reasons for termination except those stated in the employer’s writing.
If enacted, an employer who violates the law will be liable for the employee’s attorneys’ fees and costs in addition to compensatory damages. The bill also provides for the imposition of civil penalties and an order directing an employer to comply with the law.
Int. 1918-2020 would obligate large employers to pay premiums to certain essential workers that are paid hourly. Specifically, the bill requires essential businesses with 100 or more workers to pay essential workers a premium of $30 for any shift of less than four hours, $60 for any shift of between four and eight hours, inclusive, and $75 for any shift of greater than eight hours.
Businesses covered by this bill include those deemed essential by Governor Cuomo’s Executive Order 202.6, except those that are assigned a NAICS code beginning with 531.
In determining whether a business is large enough to be obligated to pay the required premium, it generally must count all persons performing work for compensation on a full-time, part-time or temporary basis in a given week. Where the number of persons who work for the business fluctuates regularly, the business’ size for 2020 will be equal to the average number of persons who worked per week during 2019.
The bill specifically addresses how a “chain business” must count employees. A chain business is one that is part of a group of establishments that share a common owner or principal who owns at least 30 percent of each establishment where those establishments (i) engage in the same business or (ii) operate pursuant to franchise agreements with the same franchisor as defined in General Business Law § 681. Such a business must count the total number of employees in its group of establishments to determine whether the law applies.
The bill would prohibit anyone from retaliating against an essential employee for exercising his or her right to be paid a premium. It also requires any covered employer, within five days of the law’s enactment, to conspicuously post a notice at any place where essential employees work describing their rights under the law. The notice must be in English and any language spoken as a primary language by at least five percent of the employees at that location.
The bill would also require employers to keep records of their compliance with its provisions for three years.
Expansion of Workers Eligible for Sick and Safe Time
Int. 1926-2020 proposes to amend the New York City Earned Safe and Sick Time Act to extend paid leave to workers that are currently considered ineligible. The bill creates a presumption that a worker is an employee that is entitled to paid leave if he or she provides labor or services within New York City for more than 80 hours in a calendar year, unless the hiring entity can prove that all of these conditions are met:
The person is free from the control and direction of the hiring entity in connection with the performance of labor or services, both under his or her contract and in practice;
The person is customarily engaged in an independently established trade or business of the same type as the labor or services that he or she is performing for the hiring entity.
The bill also states that it will not apply to:
A person who performs work as part of a work experience program pursuant to Social Services Law § 336-c.
A person who is employed by (i) the United States government; (ii) the state of New York, including any office, department, independent agency, authority, institution, association, society or other body of the state including the legislature and the judiciary; or (iii) the city of New York or any local government, municipality or county or any entity governed by General Municipal Law § 92 or County Law § 207.
A person engaged in a work study program under 42 U.S.C. § 2753.
A person compensated by or through a qualified scholarship as defined in 26 U.S.C. § 117.
An independent contractor who does not qualify as an employee under the test described above.
An hourly professional employee.
The bill would require employers to provide employees with a notice of their rights under the updated law within 60 days of its enactment.
Resolution Urging State Action Regarding Independent Contractor Classifications
In addition to considering the bills discussed above during its virtual hearing, the Council passed Resolution 1285-2020, which calls upon the New York Legislature to enact a law addressing the misclassification of workers as independent contractors. This Resolution notes that workers classified as independent contractors often lack access to health insurance, paid leave, overtime and other benefits, and that studies indicate that approximately 850,000 low-paid workers are improperly classified.
To address this issue as it relates to employees in the construction and commercial trucking industries, New York previously enacted the Construction Industry Fair Play Act (Labor Law Article 25-B), and the Commercial Goods Transportation Industry Fair Play Act (Labor Law Article 25-C). These laws create a presumption of employment that places the burden of proof on employers to classify workers as independent contractors. The Resolution urges the New York Legislature to require that the same standards be applied to all workers in this state.
Employers only recently digested their obligations under newly enacted emergency paid leave at the state and federal levels. If the Essential Workers Bill of Rights is passed, employers in New York City will have even more studying to do. We will continue to provide real-time updates on the status of this pending legislation.
Eligibility Under New York Law
In order to receive unemployment insurance benefits in New York, the following requirements must be met:
Employment was terminated or employee’s hours were significantly reduced through no fault of the employee;
Employee can prove sufficient prior earnings to establish a claim;
Employee is ready, willing, able to work;
Employee is actively seeking employment and provides documented proof of such attempts (unless waived by New York State Department Of Labor); and
Employee worked in New York within the last eighteen (18) months.
Generally, an employee is considered to have been terminated through no fault of his or her own if the termination was the result of a lack of work, seasonal employment, corporate restructuring, or any other reason that is out of control of the employee.
The amount an employee is eligible to collect under New York’s unemployment insurance program depends on his or her recent earnings history. At a maximum, an employee may collect $504 per week for 26 weeks under New York’s program. If a person is still unemployed after 26 weeks, he or she may be eligible for continued emergency unemployment compensation.
If a person’s hours are reduced, or they are able to find part-time work after termination, he or she may be eligible for partial unemployment benefits. Partial unemployment is only available to employees working three days per week or less. For each full or partial day of work, the employee’s weekly benefit amount will be reduced by 25%.
Enhanced Unemployment Insurance Benefits Under the CARES Act
The CARES Act provides for expanded unemployment insurance benefits to provide direct relief to those affected by the COVID-19 pandemic.
There is normally a seven (7) day waiting period before an employee can apply for unemployment benefits. The CARES Act eliminates all such eligibility waiting periods if an employee is terminated for a COVID-19 related reason, and provides funding to states to cover the cost of unemployment benefits during that week.
The Pandemic Emergency Unemployment Compensation (PEUC) provision of the CARES Act extends the period for receiving unemployment benefits (26 weeks, in the case of New York) by 13 weeks for individuals who have exhausted their benefits but are able, available, and actively seeking work. The federal government will reimburse states for 13 weeks of PEUC. However, states are required to be flexible in determining whether a person is able to work or is looking for work because they are sick, quarantined or subject to stay-at-home orders.
The CARES Act also creates the Pandemic Unemployment Assistance Program (PUA), which provides unemployment insurance benefits to persons who: (1) would not otherwise qualify for state law unemployment and PEUC benefits; (2) have exhausted their right to state law or PEUC benefits; (3) are self-employed; (4) are seeking part-time employment; or (5) do not have sufficient work history. An individual who meets these criterion is eligible for PUA benefits for up to thirty-nine weeks if he or she is unable to telework, is not receiving other paid leave benefits and:
He/she has, or has symptoms of, COVID-19;
A member of his/her household has COVID-19;
He/she is caring for a family or household member who has COVID-19;
He/she is a primary caregiver for a child or other household member whose school or facility has closed as a result of COVID-19;
He/she cannot go to work because of a COVID-19 related quarantine;
He/she cannot go to work because his/her healthcare provider recommends self-quarantining;
He/she was supposed to start a new job, but has lost that job or cannot go to work as a result of COVID-19;
He/she has become the primary wage earner for a household because the former head of the household died of COVID-19;
He/she had to quit his/her job because of COVID-19; or
His/her workplace closed because of COVID-19.
PUA applies retroactively to January 27, 2020 and extends through December 31, 2020.
The CARES Act also creates Federal Pandemic Unemployment Compensation (PUC), which provides for an additional $600 per week on top of an individual’s state unemployment insurance benefit, PUA benefit or PEUC benefit. This additional benefit begins on April 5, 2020, and sunsets on July 31, 2020. According to NYSDOL’s website, individuals do not need to do anything to claim the PUC benefit; it will automatically be added to benefit payments made after April 5, 2020.
Unemployment insurance benefits that are ordinarily available to New Yorkers will substantially increase in amount and duration as a result of the CARES Act. In some instances, low wage earners may even be eligible to make more through expanded unemployment until July 31, 2020, than the would have if they continued working as a resulted of the additional $600 PUC benefit. Employers and employees will need to factor this into decisions they make in pursuing other forms of government assistance, including forgivable Paycheck Protection Program loans.
We previously blogged about the new paid emergency sick leave and family leave programs under the Families First Coronavirus Response Act (FFCRA). Both programs require employers to provide paid leave to employees under certain circumstances relating to the COVID-19 pandemic. However, employers are entitled to recoup all qualifying paid leave expenses from the U.S. Department of the Treasury through refundable payroll tax credits. Practically speaking, many employers are wondering what that means.
Ordinarily, employers are required to deposit with the IRS all federal income taxes withheld from employees’ pay, as well as both the employer and employee contributions to social security and medicare, on a monthly or semi-weekly basis. Employers also file quarterly payroll tax returns.
The FFCRA allows employers who pay for an employee’s emergency sick or family leave between April 1, 2020 and December 31, 2020 to keep, rather than deposit, a portion of the payroll taxes due for all of its employees that is equal to the allowable cost of that leave. If the total amount of payroll taxes due for all of an employer’s employees is less than the allowable cost of leave, the employer may immediately file an accelerated request for payment of the deficiency with the IRS. In a press release, the IRS has indicated that it will soon issue forms on which such a request can be made.
The IRS’ website provides the following example to explain how these refundable tax credits will work:
“If an eligible employer paid $5,000 in sick leave and is otherwise required to deposit $8,000 in payroll taxes, including taxes withheld from all its employees, the employer could use up to $5,000 of the $8,000 of taxes it was going to deposit for making qualified leave payments. The employer would only be required under the law to deposit the remaining $3,000 on its next regular deposit date. If an eligible employer paid $10,000 in sick leave and was required to deposit $8,000 in taxes, the employer could use the entire $8,000 of taxes in order to make qualified leave payments and file a request for an accelerated credit for the remaining $2,000.”
Although employers are entitled to reimbursement for the costs of maintaining an employee’s health insurance during the period of emergency sick or family leave, it is unclear whether the employer may be reimbursed for those costs in the same manner described above.
Self-employed individuals are also entitled to be reimbursed for qualified emergency family or sick leave payments. These individuals may reduce their estimated tax payments to recoup qualified leave payments, and report the payments on their tax returns.
What kind of paperwork will need to be provided to substantiate an employer’s payment of qualified leave expenses? According to the U.S. Department of Labor’s (USDOL) website, the IRS will soon issue guidance on this point, but employers should assume that they will need sufficient documentation to substantiate the employee’s entitlement to leave. As it relates to paid emergency family leave, USDOL states that “you may also require your employee to provide you with any additional documentation in support of such leave, to the extent permitted under the certification rules for conventional [Family and Medical Leave Act of 1993] leave requests. For example, this could include a notice that has been posted on a government, school, or day care website, or published in a newspaper, or an email from an employee or official of the school, place of care, or child care provider.”
With Governor Cuomo having forced the closure of “non-essential” businesses to combat the spread of COVID-19, many New York business owners are now presented with the difficult task of determining whether, when or how to reduce their workforces. New York’s WARN Act is designed to protect workers and their families, and requires employers to give ninety days’ advance notice of closures, mass layoffs and furloughs. The law is modeled after the federal WARN Act, but is stricter.
Before acting, employers must consider whether the WARN Act applies to them and whether any applicable exceptions are satisfied. The failure to comply with the law carries with it exposure to significant liability and civil penalties.
New York’s WARN Act applies to any private business that employs, within New York state, 50 or more full-time employees or “50 or more employees that work in the aggregate at least two thousand hours per week.”
Covered employers must provide 90 days’ notice to affected employees in the event of:
A “mass layoff,” i.e., an employment loss at a single site of employment during any 30-day period which affects (a) 250 employees or (b) twenty-five employees constituting at least 33% of employees at the site.
A “plant closing” or the “permanent or temporary shutdown of a single site of employment, or one or more facilities or operating units within a single site of employment, that results in an employment loss for 25 or more employees during any 30-day period.”
A relocation of the employer’s operations to a different location at least 50 miles away from the original worksite, causing 25 or more employees to suffer employment loss.
A reduction in work hours by 50% or more for a period of six months or more, if that reduction affects: (a) 250 or more employees; or (b) 25 or more employees constituting at least 33% of the employees at the site.
Some employers incorrectly think they can avoid the WARN Act by implementing “rolling” layoffs, which are separated by a few weeks time and each involve a number of employees below the WARN Act thresholds. The “aggregation rule” prohibits this. It provides that, in determining whether the WARN Act is triggered, an employer must look back 90 days and forward 90 days and assess whether any employment actions taken or planned will, in the aggregate, reach the WARN Act thresholds.
If the WARN Act applies, the next step is to ensure that a proper notice, containing all statutorily required information, is provided to all employees who will experience employment loss at least 90 days before the loss will occur. The employer must also notify the employees’ representatives, if any, the Commissioner of Labor, and the Local Workforce Investment Board.
When writing the notice, the employer must be specific and use language the employees can understand. It must contain, among other things, the following information:
The expected date of the first separation of employees and the date when the individual employee will be separated;
A statement as to whether the planned action is expected to be permanent or temporary, and whether the entire plant is to be closed. If the planned action is expected to affect identifiable units of employees differently, the notice must reflect that;
A statement as to whether bumping rights exist (for those who do not know, bumping rights determine if and when a senior employee displaces another employee during a layoff or other employment loss, and is defined in an employer policy or other agreement);
The name and telephone number of an employer representative to contact for further information; and
Information concerning unemployment insurance, job training, and re-employment services, including the following language:
Section 921-2.3 of the Act contains more information as to the content that must be included in notices sent to employees, the Commission of Labor, the local workforce investment board and the employees’ representatives.
Importantly, the above notice requirements apply even where the employer chooses to pay its employees to stay home.
While there are several possible exceptions to the application of the WARN Act, there are two of particular relevance to the COVID-19 pandemic: (1) natural disaster; and (2) unforeseeable business circumstances.
The statute does not define the term “natural disaster.” However, the federal version of the WARN Act lists a few examples including a flood, earthquake or drought. If the closing or layoff is a direct result of such a natural disaster, this exception may apply. However, where the closing or layoff is an indirect result of some such event, the exception for unforeseeable business circumstances is more appropriate. The Act specifies that such exception applies when “the need for notice was not reasonably foreseeable at the time the notice would have been required.”
While there is no case law addressing whether a virus or pandemic constitutes either an unforeseeable circumstance or natural disaster, the New York State Department of Labor’s website suggests that the current situation fits within the “unforeseeable business circumstances” exception. It states:
The WARN Act requirement to provide 90 days’ advanced notice has not been suspended because the WARN Act already recognizes that businesses cannot predict sudden and unexpected circumstances beyond an employer’s control, such as government-mandated closures, the loss of your workforce due to school closings, or other specific circumstances due to the coronavirus pandemic.
It is important to note that, even if this exception applies, employers must still provide employees (and the other parties entitled to receive notice) with as much notice as is practicable, as well as an explanation was to why the notice period was shortened. Moreover, if the event requiring notice is a closure, the Department of Labor requests that the employer include in the notice as much information as possible to the Commissioner about the circumstances of closure, so the DOL can determine whether any exceptions apply.
While the WARN Act does not apply to every business or every loss of employment, strict notice requirements must be met when the law is applicable. Employers who do not comply may be subject to significant damages equaling up to sixty days’ back pay and benefits, in addition to attorneys’ fees and civil penalties.
Businesses are continuing to grapple with the myriad challenges brought on by the novel coronavirus pandemic. Workforce reductions are an unfortunate but inevitable byproduct of this national crisis. Employers across the country are considering layoffs (ranging from marginal to mass), furloughs and reductions in employees’ hours and wages. However, employers must not make such decisions based strictly on finances, as there are significant legal pitfalls for those who act in haste. Additionally, employers should consider the impact that these decisions may have on employer-sponsored benefit plans.
The terms “layoff” and “furlough” are sometimes used interchangeably, but they are distinct concepts. A furlough is considered a mandatory, temporary and unpaid leave. A layoff is a permanent separation of the employee from the business for a reason unrelated to the employee’s performance. The primary distinction is that, in the case of a furlough, the employer intends to retain the employee and the employee intends to return to work after a certain amount of time passes, whereas a layoff contemplates a complete termination of the employer-employee relationship.
There are significant legal differences between layoffs and furloughs. If an employer lays off a large enough segment of its workforce, it may be obligated to provide advance notice to employees and the Department of Labor under the federal WARN Act and/or the “mini-WARN” acts of some states, including New York. The failure to give the appropriate notice exposes employers to significant monetary damages and potential civil penalties.
While furloughs might also trigger employer obligations under the WARN Act and/or mini-WARN laws, this is not necessarily the case. Even when a large segment of the employer’s workforce is furloughed, advance notice may not be required if the furlough is short term, i.e., less than six months in the case of New York’s mini-WARN law.
One important thing to remember is that compliance with WARN and mini-WARN obligations may not be necessary when sudden and unexpected circumstances cause large-scale workforce reductions. Whether layoffs and furloughs resulting from the COVID-19 pandemic meet that criterion remains to be seen, although the New York State Department of Labor’s website suggests that will be the case.
Reductions in Hours and Compensation
Rather than implementing layoffs or furloughs, some employers are considering reducing the hours and/or compensation of their employees. This strategy also has serious legal implications if not handled correctly. For example, in some cases, the WARN Act and mini-WARN laws may apply if a reduction in hours lasts long enough and/or affects a large enough proportion of an employer’s workforce.
Assuming the WARN Act and/or mini-WARN laws do not apply, employers can ordinarily cancel shifts or reduce hours of non-exempt employees (i.e., those who are entitled to overtime) without notice. Those employees must still continue to be paid at least the minimum wage for all hours actually worked (plus overtime, where applicable). If, however, an employee reports to work and is then sent home, an employer in New York may be responsible to provide “call-in pay” (i.e., pay for four hours at minimum wage or pay for the actual duration of the shift, whichever is less).
Things become more complicated when dealing with exempt employees. Employees who are properly classified as exempt are not compensated based upon hours worked. Rather, they are paid a pre-determined amount on a weekly (or less frequent) basis, which cannot be reduced for variations in the quality or quantity of work performed. An exempt employee who performs any work that is more than de minimus in a given week is entitled to their ordinary weekly compensation. This means that, even if an employee is simply returning calls or sending and receiving e-mails, they are typically entitled to a full week’s pay.
Although there are certain exceptions to these rules, they are fact-specific and must be applied with precision to avoid violating the law. For example, an exempt employee does not need to be compensated for any week in which he or she does not perform any work. Thus, if an employer furloughs an exempt employee for an entire week, rather than reducing hours worked in a given week, it may be able to cut payroll costs safely. The problem is in ensuring that exempt employees perform no work whatsoever during this time. It is recommended that employers disable employees’ phones and e-mail access to ensure that no work is performed, in addition to instructing employees in writing that they must not perform any work during the relevant period.
Reductions in the salary of an exempt employee also pose concerns. Employers are not permitted to reduce the salaries of exempt employees based on day-to-day or week-to-week variations in business operations. An employer can make prospective salary reductions based on legitimate long-term business needs, but must ensure that it does not reduce salaries to the extent that exempt status is lost.
In New York, for example, an employee is usually only properly classified as exempt if he or she makes more than a certain amount (i.e., for the year 2020, $925 per week or more in Nassau, Suffolk and Westchester counties). If an exempt employee’s salary is reduced below that threshold, the employee becomes non-exempt, must be paid hourly and is entitled to overtime. There are some exceptions. Physicians, lawyers, outside salespersons or teachers in bona fide educational institutions are not subject to any salary requirements, and their pay can be reduced (if all other legal requirements are met) below the ordinary thresholds without any resulting loss in exempt status.
Employers also need to ensure that they take appropriate action with respect to employer-sponsored health plans in the event of a layoff, furlough or reduction in hours. In these circumstances, plan language and terminology is key. For example, distinctions are usually drawn for benefits available to employees who are laid off versus those who are furloughed.
In some instances, when an employee is furloughed, they remain eligible for employer-sponsored health benefits. However, depending on the terms of the employer’s plan and its employee eligibility requirements, there are instances where a furlough can trigger a loss in an employee’s health care coverage. If that is what the employer’s plan requires, a furlough may be a COBRA-qualifying event. For example, in a health plan that only provides coverage to regular, active employees who work 30 or more hours per week, a furlough would result in the termination of coverage and the employer would need to give notice as required by COBRA.
Employers may opt to continue coverage for furloughed employees if they would otherwise lose coverage. They may do this by either: (1) amending their plan to extend active employee coverage to a laid-off, furloughed or part-time employee for a pre-determined period of time; or (2) subsidizing employee COBRA premiums, which will generally not treated as taxable wages (unless the subsidy favors highly compensated employees and is the plan is self-funded and not fully insured).
Retirement Plans: Withdrawals and Loans
In the current climate, it should be expected that participants in employer-sponsored 401(k) and 403(b) plans may seek to make withdrawals from and/or borrow from their accounts.
The IRS permits “hardship withdrawals” related to FEMA-declared disasters. However, FEMA has yet to declare the novel coronavirus pandemic as a federal disaster; it has only declared the pandemic as a “national emergency,” which is not grounds for a hardship withdrawal.
At this moment, the Coronavirus Aid, Relief and Security Act (CARES Act) has passed the Senate and is being considered by the House of Representatives. If enacted, the CARES Act would allow employees to make an emergency withdrawal (i.e., a “hardship withdrawal” related to a FEMA-declared disaster) of up to $100,000 from their 401(k) and/or 403(b) account during the COVID-19 pandemic. Under this construct, employees under age 59 1/2 could withdraw funds while avoiding the 10% early withdrawal penalty that would otherwise be assessed. The distributions would still be taxable, however.
Additionally, employer-sponsored retirement plans may entitle participants to take loans, but eligibility may depend on employment status. Therefore, depending on the terms of the relevant plan, a furloughed or laid-off employee may or may not be able to borrow from his or her account.
For employees who have already taken out a loan against their retirement plans, the terms of the plan will determine whether the employees may suspend loan payments during a period of an unpaid leave of absence or furlough. All borrowers (whether furloughed or laid off) should also be aware that, barring a change in the law, any loan default will be reported to the IRS on Form 1099-R and will be treated as a taxable distribution.
Clearly, there are many moving parts involved in any workforce reduction. Consultation with competent counsel can prevent costly, and sometimes devastating, errors.