Q: Now that our Paycheck Protection Program funds are exhausted, I face the very unpleasant prospect of having to furlough or lay off most of my employees. I have a few questions: First, what's the difference between a furlough, a layoff and a termination? Second, what do I have to be careful of in this process? Third, some of my employees have employment contracts, but they allow me to terminate them anytime, so do I have to treat them any differently?
A: Layoffs, furloughs and terminations are not legal categories but rather names for customary practices that have developed in the U.S. Typically, an employee who is furloughed stays on payroll but doesn't work or get paid for a fixed period of time and often expects to return. An employee who is laid off is taken off payroll, as is a terminated employee.
Whether the person is entitled to any benefits depends on your employee plans, if you have any, and your personnel policies. A laid-off or terminated employee is generally not entitled to any benefits, except for continuation of health insurance under Cobra, if you have a health plan.
The employment contracts you have in place could affect the foregoing advice. For example, they could guarantee a full year's employment, provide for severance pay or continuation of benefits or require you terminate only for the employee's breach.
Aside from honoring your contracts, the most important thing that you need to be careful of is not violating federal, state and local anti-discrimination laws. If an employee belongs to a protected class and believes that you chose them because of their status, they can file a complaint with the Equal Employment Opportunity Commission or the equivalent state or local agency and cause you to expend many thousands of dollars in legal fees to defend yourself.
At the federal level, the anti-discrimination laws apply to employers with 15 or more employees, and they prohibit discrimination based on race, color, religion, sex (including pregnancy, sexual orientation and gender identity), national origin, age (40 or older), disability and genetic information. For age discrimination, you have to have 20 or more employees instead of 15.
Many states have their own anti-discrimination laws, and some states have expanded the protected classes. For example, California, whose law applies when you have five or more employees, includes not only the federal classes but also marital status; gender expression; medical conditions; political activities or affiliations; military or veteran status; and status as a victim of domestic violence, assault or stalking.
I am not advising that you cannot furlough, lay off or terminate employees in the protected classes. Rather, if you do so while keeping employees who are not in a protected class, you should have an objective reason, such as productivity or lack of work for which they are qualified; you must document the reason before taking action; and you must be careful not to use the documented reason as a mere pretext.
If you have any questions about these topics, consult an employment attorney in your state.