July 2009
It is no secret that companies have been cutting labor costs through a variety of methods in the past year as a result of an unfavorable economic climate. Given the poor economic circumstances that have been prevalent in the past year or more, there is a likelihood that your company has already taken measures to cut labor costs, or has at least contemplated doing so. While not exhaustive, the following details some pointers and issues that you may want to consider for future labor cuts:
Moving to a four-day workweek. For many companies the slowdown in sales means a corresponding need to produce less of its products and/or services. Accordingly, switching to a four-day workweek might be a prudent move that is justified by the current production needs. While there are few legal issues for hourly (i.e., non-exempt) employees regarding their wages, the same cannot be said for the company's salaried (i.e., exempt) employees. Under federal law, exempt employees are entitled to be paid their full wages for any week in which they work, with few exceptions to this rule. Companies cannot then simply tell their salaried exempt employees not to show up for work on Friday, for example, because there is no work and then correspondingly deduct one day's wages from the employee's salary. Companies can, however, move to a more permanent four-day workweek and make a corresponding wage reduction to an exempt employee's wages. There are several factors that the DOL will consider when examining a reduced work and wages change, such as how long it lasts (the longer the better), the circumstances for bringing about the need for the reduction, and whether it was necessary to avoid layoffs, among other criteria.
A pro-rated reduction in wages could lead to unemployment compensation eligibility. Each state determines the eligibility criteria for unemployment compensation. Several states, however, recognize that even where an employee is not fully terminated (i.e., the employee does not lose all pay) he or she could still be entitled to partial unemployment compensation benefits. In Illinois, for example, the IDES may award unemployment compensation benefits to an employee whenever his or her wages are reduced to the point where his or her remaining compensation from work is below the maximum weekly benefit for a single person. Responding to the recent economic crisis, Minnesota and Iowa, for example, have established programs in which employers can apply for enrollment and, once enrolled, employees who would not otherwise be entitled to partial unemployment compensation benefits for a minor reduction in wages are entitled under the program. These programs (in Minnesota - Job Works, and in Iowa - Voluntary Work Share) might help offset employees' wage loss with some additional unemployment payments without costing the company much.
Watch out for WARN Act requirements. The federal WARN Act requires that employers who have 100 or more full-time employees must notify certain employees, local government officials, and the state dislocated workers' unit, at least 60 days in advance of the employee's termination. This notice requirement is triggered in either of two scenarios: (1) where the company closes a single site of employment (e.g., plant, division, or unit), or (2) where the company terminates at least 33% of the single site's employees. In both situations at least 50 employees need to be affected over an aggregate period of 90 days.
In addition, there is a provision for larger companies where even if there is no plant closing or the termination does not equal 33%, if 500 employees are terminated, that too triggers the WARN notice requirements. Companies should be aware that if they opted for a layoff, likely hoping that economics would warrant a return-to-work for employees, once the employees have been laid-off for six months they are considered terminated for purposes of WARN. This means that if the company's only reductions in force were a 10-employee layoff in May and then a 45-employee termination in June, there is technically not a WARN-triggering event because less than 50 employees have been affected. If, however, the 10 laid-off employees do not return to work for six months, they will then be considered to have been terminated in May. This means that there was a WARN triggering event and the company will be liable for 60-days' worth of wages to all 55 employees assuming proper advance notice was not provided prior to the layoff in May and termination in June.
Finally, several states including Illinois and Wisconsin have their own WARN-type laws. Each state's laws differ on the subject matter, but certain states have lower threshold criteria for triggering WARN notice obligations meaning that in these states a WARN event (state WARN) could occur when less than 50 employees are terminated.
These are just a few of the issues that employers should consider when effectuating layoffs or terminations. To discuss these and any other layoff or termination issues, please contact WS Shareholder and Senior Attorney Kevin Mosher at (952) 746-1700, or kemosher@wesselssherman.com.
