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Options for Small Business Owners Navigating the COVID-19 Minefield

With reduced demand and new rules to contend with, small business owners are scrambling to stay afloat in the midst of the COVID-19 pandemic. Even in the best of times, employment laws can be confusing and difficult. But now, with the imposition of new regulations, employers must deal with greater complexity than ever before. While no one wants to reduce or modify their workforce, some employers are being forced to do so to mitigate the impact of the pandemic. Some of the available options are furloughs, reduction in pay or hours, telecommuting or, if necessary, terminations. Each presents specific issues that must be carefully considered. In this article, we discuss each of these options and provide an overview of some factors and potential pitfalls to keep in mind when deciding how best to proceed.

Furloughs are a temporary suspension of employment during which the furloughed employee does not receive pay. Unlike a termination, however, the furloughed employee remains “employed” and so retains employee benefits and may be recalled at any time. Additionally, the furloughed employee may use their California Paid Sick Leave and may obtain federal sick pay under the Families First Coronavirus Response Act (“FFCRA”). Finally, the California Worker Adjustment and Retraining Act (“WARN”), which generally requires 60-days prior notice to employee to be affected by a plant closing or mass layoffs, may also require that prior notice be given to employees to be furloughed. (Note: the 60-day notice requirement has been temporarily suspended by Executive Order N-31-20 but employers to whom the act applies are still required to give as much notice as practicable and comply with other requirements as well.) Furloughing employees, if implemented properly, and though it can be more costly than other options in the short term, can enable an employer to retain valuable employees and have much needed flexibility when business improves.

Reduction in pay is another option that enables employers to retain their employees while lowering overhead. While a reduction in pay can apply to both exempt and non-exempt employees, California’s minimum wage laws continue to apply to all hourly employees. With regard to exempt employees, it is important to consider that a reduction in their salary can potentially result in the loss of exempt status. If that happens, then the formerly exempt employee would be entitled to overtime, meal and rest breaks, and may have the right to pursue wage and hour claims.

Similar to reduction in pay, an employer could reduce hours for its non-exempt employees. While many business owners may be familiar with this cost-cutting measure, particularly in the retail and food service sectors, the employer must ensure that any reduction in hours is implemented in a non-discriminatory manner. For example, to help avoid liability for claims, the reduction in hours should be made across the board with careful consideration of the make-up of the employer’s workforce.

Another option for some employers may be to adopt telecommuting policies that permit employees to work from home via a remote connection to their working files. This option, though not necessarily a cost-saving alternative, can enable the employer to continue operations and its revenue stream while lowering its employees’ exposure to COVID-19 through reduced physical contact with coworkers and customers. Should this be the course taken, the employer should understand that it must reimburse its employees for such expenses as home internet, cell phone usage, and supplies used to conduct business. In addition, hourly employees working remotely are still required to take rest breaks and meal periods so the employer should instruct those employees in writing or by email to do so and to maintain a record for later submission to the employer.

Finally, an employer could terminate employees. As with furloughs, California’s WARN Act may require prior notice to the employee depending upon the number or percentage of employees being terminated. Notwithstanding the Covid-19 pandemic, the employer must still follow all rules applicable to terminations made prior to the pandemic. Specifically, (1) final pay is due and payable on the last day the employee worked, including all accrued vacation or paid time off; (2) the employee must be provided their final paystub; and (3) the employee must be provided timely notice regarding COBRA benefits. Notably, sick time need not be paid and the employee will not be eligible for federal sick pay under the FFRCA.

As should be clear from this article, an employer must carefully consider its options when contemplating changes to its workforce while navigating through the COVID-19 pandemic. With unique needs and distinct workforces, one size will definitely not fit all businesses. The attorneys at Huguenin Kahn LLP are experienced in employment law and can provide needed advice and guidance to small business owners as they search for their best path forward in this new and complex business climate.

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