To avoid layoffs, many companies are forcing employees to take time off. But some may not be prepared for all the legal questions that surround employee furloughs. 

So far this year, 17% of all employers have had mandatory furloughs, according to a recent Watson Wyatt Worldwide survey. Another 4% plan to, and it remains a viable option for companies that need to cut costs.

HR pros at those employers have one big question: What are the legal implications? One of the biggest issues is how mandatory furloughs will affect exempt employees.

Under most exemptions, employees need to be paid on a salary basis — and the company can’t deduct from the weekly salary, except when an employee takes a full day off or more for personal reasons. But what happens when the company shuts down?

In one recent case, an employee sued, claiming he was no longer exempt after being forced to take unpaid days off.

Needing to cut staffing costs, the employer had two options: reduce everyone’s salary or institute mandatory furloughs.

Management chose the latter, and the company shut down operations for six days throughout the rest of the year, before or after paid holidays. Employees received pay for the holidays, but not for the additional days off.

Exempt employees’ salaries for those weeks were reduced accordingly. One of them sued, claiming he was no longer exempt, because his salary fluctuated in certain weeks. He demanded overtime pay for weeks in which he’d worked more than 40 hours.

However, the court ruled in favor of the company. Based on earlier cases and DOL opinion letters, the judge noted the difference between deducting from a salary and making a pre-planned “reduction” to employees’ salaries “to address bona fide business needs.”

Policies like this employers’ are OK, according to the court, as long as salaries aren’t reduced often enough that the company is effectively paying an hourly wage. (The judge didn’t say how frequently that would have to be, just that six days in a year wasn’t enough.)

Minimize risk

To cut down on potential legal issues, here are some recommendations experts have for employers considering mandatory furloughs:

• Have furloughs take place over a full workweek when possible.
• Be careful about requiring employees to use paid leave — some states place limits on employers’ ability to do that.
• Make sure furloughed employees aren’t doing any work while home. Exempt employees need to be paid for days in which they do any work at all — even little tasks like checking e-mail or making phone calls.
• Try having employees volunteer for unpaid time off — companies may find sufficient cost savings without making the furloughs mandatory.

Cite: Robinson v. Tellabs, Inc.

Tags: Department of Labor, DOL, exempt, furlough, Robinson v. Tellabs