Question

Our company is facing temporary budget cuts, which will unfortunately cause us to lay off a group of employees.  We are expecting a big contract next quarter and may be able to rehire some, if not all, of these employees.  Is this technically a furlough and not a layoff?  Does it matter? If we expect to rehire some of them, do we still have to pay out their accrued and unused vacation?

Answer

These questions came up in 2020 when the pandemic hit and companies were forced to lay off employees due to closures – some temporary and others permanent.  The separation was generally classified as a furlough when it was intended to be temporary, and the business and employment would resume as soon as the COVID-19 restrictions were lifted.

In March 2020, the state adopted a regulation specifically defining a furlough to mean a 4-to 8- week period of unemployment with the understanding that employees would be recalled within that timeframe. Due to the seriousness of the pandemic, the DUA director waived the timeframe, enabling the regulations to cover employees for months during 2020. The original furlough regulation was extended until November 2020 but has subsequently expired.

A layoff is also intended to be temporary and usually indefinite, but the word is often confused with a “reduction in force,” which is a permanent reduction in headcount.

The importance of these distinctions is that in the case of a furlough, the employee may remain technically employed and eligible for company benefits such as health insurance during the time out of work, if she/he pays his/her share of premiums.  There is every expectation that the employee will return to work. The return date is often predetermined.

It is best to establish whether yours is a furlough, temporary layoff or a permanent reduction in force.  In any case, you will have complied with the Massachusetts Wage Law (Mass. Gen. Laws ch. 149, § 148) if you pay all wages, including any accrued but unused vacation time, on the final day of employment.  Wage Law violations such as the non-payment of earned vacation time can result in an enforcement action by the Massachusetts Attorney General or a private suit brought by the former employee against the employer, and penalties include attorneys’ fees and treble damages.

The  Attorney General addressed the final pay question in FAQs issued early in the COVID-19 pandemic (2020) when employers were faced with temporary closures due to restrictions (linked here):

Q: If an employer temporarily lays off its employees, do employees have a right to be paid in full on the day of layoff?

Yes, when an employee is temporarily laid off, they have a right to be paid all of their earned wages, including all accrued vacation pay, on that same day. If an employee voluntarily agrees to save accrued vacation for later use, the AGO will not take enforcement action for untimely payment of vacation pay, although our office does not have control over private litigation.

If the employer and employee wish to continue the employment relationship by means of a furlough in order to, for example, maintain health insurance, disability insurance, retirement and other benefits, AGO will not consider it to be a discharge from employment for purposes of the Wage Act. Therefore, earned and accrued vacation pay need not be paid out upon the date of furlough. If, however, the employee wishes to separate from employment, all earned wages must be fully paid on the next regular pay day.

The attorney general indicated that her office would be lenient in situations where a furloughed employee has agreed to forego the payment of vacation pay to retain the vacation time for later use, but that forbearance appears to be specific to the pandemic.  Nearly three years later and with a new attorney general about to assume the office, it is not clear which different actions, if any, the office may take. The safe way to proceed is to pay out all vacation on the final day of employment, even if you expect to rehire the employees in the coming months.

AIM HR Solutions recently released a podcast on the subject of layoffs. If you have additional questions about your upcoming layoff, please call the AIM Employer Hotline at 800-470-6277.