Furlough: what’s allowed and when

Annual leave is meant to help employees relax and unwind. The US is among the countries not requiring paid annual leave or vacation time, according to the Fair Labor Standards Act (FLSA). Whether you receive paid annual leave is a matter of negotiation with your employer. It is not surprising then that furlough – or forced annual leave – can be confusing. What exactly is the meaning of furlough? When are employers allowed to furlough their workers, and what rules do they need to adhere to? Find out all you need to know about furloughing in this article.

What is furloughing?

Furlough is defined as a temporary leave of absence from work ordered by an employer. Workers can be put on furlough by a company without an employer requiring their consent or application.

Definition: furlough

People who get furloughed are temporarily laid off from work but are expected to return to work after a set amount of time.

In other words, furlough is a type of leave or absence from work for economic reasons but stands in contrast to annual leave because it does not consider the wishes of an employee. During furlough, an employee remains on payroll and can even continue to accrue annual leave. Some employers will allow their staff to use their paid annual leave instead of being furloughed.

When can an employer furlough a worker?

There is no legally uniform basis for when an employer may furlough staff. Generally, a company will consider previous experiences and current circumstances to make a decision about whom to furlough and when. Furlough may be ordered for any of the following reasons:

  • The business provides seasonal work.
  • Furlough is written into your contract of employment or the official labor agreement.
  • The company is no longer operable because a key person or the owner dropped out. This can occur, for example, in a doctor’s surgery or law firm.
  • The company is facing an unexpected economic crisis.

The main reasons for furlough are usually of economic nature. Employees are furloughed, for example, to save a company from insolvency. However, companies do carry a certain economic risk which means that not every crisis qualifies for furlough. For example, if a company is getting fewer orders, machines are failing, or its production temporarily halts, the legal basis for furlough is weak at best. In these cases, furlough would be an unfair shift of the operational risk upon the employee.

Note

If your company has a workers’ council, they would usually be required to agree to furloughing.

In detail: what are the conditions for furloughing?

There are certain situations nearly every company could face during which furloughing workers is allowed. These include:

  • Closure of the business because of essential maintenance or renovation
  • Closure of the business ordered by the authorities
  • Compulsory holidays such as Christmas, New Year’s Eve, and bridge days

In addition to the reasons stated in the previous section, these three examples fulfill the criteria for furloughing where no othermeaningful jobsare available for a worker. In many cases, workers may only be furloughed for a few days as agreed in advance and written into an employment contract. Often such dates are known as “company holidays.”

Is the coronavirus crisis a reason for furlough?

The coronavirus crisis and its economic impacts are an acceptable reason for furloughing for most employers. For example, many gastronomic businesses had to shut down following an order by the authorities – an urgent economic reason. Entry restrictions to working spaces can be another viable reason, although employers should carefully assess whether it makes more sense to introduce working from home instead.

In the US, employers can furlough their workers for a wide variety of reasons including a slowdown in business contracts or profits. However, in these cases, employers must still meet certain salary regulations set out in the FLSA. Companies may also opt to reduce the working hours of their employees instead of furloughing them.

How long does a furlough last?

The idea behind furloughing is to save a business’ jobs during a period of economic hardship. This means that furloughs are temporary, and employees are expected to return to work once the business recovers. There are no legally defined time limits for a furlough. Businesses that operate seasonally often furlough workers and make their workforce aware that such times are coming. When an unexpected reason forces a company to lay off or furlough staff it will usually be up to the employer to determine how long workers should remain on furlough. Bear in mind that furloughs can be turned into layoffs at a later date.

Are furloughed workers paid?

In the US, furlough is an unpaid leave of absence. However, different rules apply for non-exempt versus exempt workers. A non-exempt employee earns a wage by the hour and is exempt from FLSA regulations. Non-exempt workers may simply have their hours cut and be paid only for hours worked.

Exempt employees are subject to regulation set forth in the FLSA and therefore different rules apply. Exempt employees are those receiving a wage and are entitled to a full week’s pay even if they only work one hour in that week.

During a furlough, many employees seek out other temporary work or apply for unemployment benefits. The Coronavirus Aid, Relief, and Economic Security (CARES) Act passed in early 2020, provides eligible unemployed and furloughed workers earnings-based benefits up to 39 weeks. Where an employee seeks out other work, this may affect their unemployment benefit claims.

What are the alternatives to furloughing?

Furloughing shouldn’t be the first order of business. There are times when it makes more sense to find other solutions during periods of economic strain. Alternatives to furlough include:

  • Application for work-sharing during which a company may reduce working hours for a certain time. The employer will pay part of an employee’s wages based on the agreed hours during this time.
  • Reduction of working hours. This could affect single employees or the entire company. Salaries are adapted accordingly.
  • Reduction in overtime
  • Reduction in contracted staff or freelancers or reallocation of work
  • Adaptation of shift models

Click here for important legal disclaimers.


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