While lawmakers try to negotiate an end to the shutdown, impacted federal contractors are faced with managing the challenges and uncertainties that come with the indefinite stoppage of their work.
For federal contractors with employees whose work has been stopped due to the shutdown, the following five employment issues should be top of mind.
1. Compensation for Exempt Employees
To be exempt from overtime under the federal Fair Labor Standards Act (FLSA), an employee must have specific duties and be paid a guaranteed salary regardless of the quality or quantity of their work.
The FLSA sets out a narrow list of circumstances where an employer may deduct from an exempt employee’s pay without jeopardizing the exemption. Any deductions that fall outside the prescribed exceptions could result in a loss of the exemption (meaning the employee will become eligible for overtime).
The critical rule in this area is that if an exempt employee performs any work during a workweek, they are generally entitled to receive their full compensation for that week. On the flip side, the law does provide that exempt employees are not required to be paid their salaries in a workweek in which they perform no work.
Accordingly, federal contractors should be mindful that assigning out-of-work exempt employees to perform other functions for the company, or even asking them to occasionally continue to check email, voicemail, chatrooms, or other tasks to ensure nothing is missed, will mean they will be obligated to pay them their full salaries, even if they only work a few hours a week.
So what can be done here?
First, employers can require exempt employees who are working less than full-time to use available leave to cover the periods that they are not working (subject to the considerations discussed in item #3 below).
Additionally, if the shutdown continues, the Department of Labor has previously taken the position that reducing exempt employees’ salaries in response to operational or economic conditions, like a shutdown, is permissible. In other words, an employer could reduce an employee’s salary provided that the reduction is consistent and the employee gets the same reduced salary from week to week, regardless of how much work they are doing.
Employers who are considering salary reductions should be careful that:
- They are not reducing salaries below the minimum required to qualify as exempt (currently $684 per week).
- The salary reductions are applied uniformly to employees in the same or similar positions (to avoid discrimination concerns).
- The employer has the right to reduce the employee’s salary under any applicable employment or collective bargaining agreement.
2. Off-the-Clock Work
As noted above, employers are not required to pay exempt employees their guaranteed salary if they perform no work in a workweek. Likewise, employers are not required to pay non-exempt employees for time that they do not work.
To avoid potential wage and hour claims, federal contractors that have furloughed employees without pay should be extremely careful to ensure those employees are not performing any work functions during this period.
At a minimum, the directive not to work should be provided to all impacted employees in writing. Where feasible, pausing or limiting employees’ access to company systems and email accounts is a best practice.
However, employers who are turning off employees’ access to company emails or phone systems should ensure they have an alternative way to contact employees outside those systems.
3. Use of Leave
Of course, requiring or simply allowing employees to use accrued paid leave is one way to delay placing employees on furlough without pay.
When it comes to vacation, employers can require employees to use accrued vacation time to cover periods when they are not working because of a shutdown. On the other hand, employers who are not requiring employees to use accrued vacation should still permit employees who want to use their vacation time to do so, as, depending on what jurisdiction they are in, employers could face claims for refusing or preventing employees from using the vacation that they have accrued.
The question of permitting and requiring the use of accrued leave becomes a bit more complicated when it comes to PTO or sick leave in jurisdictions (like Maryland and DC) that require employers to provide paid sick leave. In general, employers in such jurisdictions cannot force employees to use up their accrued sick leave for a purpose other than those covered by the sick leave law.
The same concern would apply to requiring employees to use any portion of PTO that has been provided to satisfy a paid sick leave law. However, most jurisdictions expressly permit employers to adopt policies allowing employees to use mandated sick leave for purposes above and beyond those required by law. Thus, while employers in jurisdictions with paid sick leave laws can’t force employees to use up their sick leave during a shutdown, they can adopt policies to permit them to use the leave instead of being unpaid.
In addition to considering the use of leave, impacted employers should also consider and communicate with employees about whether employees will continue to accrue leave while they are furloughed or on a reduced work schedule.
In most jurisdictions with paid sick leave laws, the accrual of paid sick leave is directly tied to hours worked, so for employees who are not working, the employer’s policy on accrual of the various leave types will control. However, it will be important for employers to take a careful look to ensure that any changes to leave accruals are not going against any legal or contractual obligations they have to the employee.
4. Impact on Benefits
Regardless of whether an employee is being paid during the shutdown, if the employee is not actively working, this could impact their benefits eligibility. In particular, many group health plans condition eligibility on active employment. Federal contractors who have employees who are not working should consult their plan documents and with their brokers and carriers to make sure they understand the potential impact on benefits and when an employee’s lack of work might trigger COBRA eligibility.
Employers with employees who are furloughed without pay, should also give thought to, and plan for, how to deal with covering or collecting any premiums that would normally be collected from employees through payroll deductions.
5. Unemployment
Businesses with employees who have been furloughed without pay should also be aware that those employees may be eligible to apply for unemployment benefits.
Several jurisdictions (Maryland and DC among them) have set up specific webpages to educate employees about their unemployment options during a shutdown. Employees’ eligibility for unemployment benefits and the amount of benefits they would be eligible for versus their regular rates of pay are important factors for employers to consider when assessing options for helping their employees during the shutdown and deciding whether to reduce compensation rates or require the exhaustion of leave.
Looking ahead beyond the immediate concerns above, if the shutdown extends for a longer period of time, employers will also need to be mindful of the federal WARN Act and state equivalents, which govern employee notice in advance of mass layoffs or extended furloughs.
This issue, and others, will be covered in future blogs should the shutdown be prolonged. In the meantime, please do not hesitate to contact our Employment Law group at Lerch Early if we can be helpful to you or your business during this challenging time.
