With the novel coronavirus (COVID-19) causing Employers to switch to teleworking or temporarily shuttering their operations, government contractors have special challenges. Some employees of government contractors may not be able to work remotely under the terms of the government contract and others who perform classified work or need access to government networks may not be able to telework. Therefore, due to COVID-19, temporary furloughs of employees working for government contractors are likely. Government contractors should plan now for possible furloughs and consider the following four strategies to ensure that furloughs are fair and do not create potential liability.

1. Selection of Furloughed Employees
   Similar to best practices in a reduction in force or layoff, the selection of employees to be furloughed should be completely neutral and, preferably, justifiable on an objective basis. In order to be fair and to minimize the possibility of legal claims, the selection process should not target, or disproportionately affect, employees based age, race, sex, disability, national origin, religion or any other class protected by federal, state or local law. Employers should also be sensitive to furloughing employees who have sustained a work-related injury, who have absences that may be protected under the Family Medical Leave Act or Americans with Disabilities Act, or who have raised issues of alleged unlawful claims. Finally, it is advisable for employers to review individual contracts prior to implementing a furlough to ensure that the contract does not prohibit changes in compensation or benefits.
2. Consider Requiring Use of PTO and Pay Reductions
   An employer can require its employees to use accrued leave while on furlough. Once the employee has exhausted accrued leave, the remainder of the furloughed employee’s leave may be without pay, so long as an exempt employee is furloughed for a full week and performs no work while on furlough as discussed below. Also, employers can generally reduce an employee's pay on a going-forward basis, which reduction should last at least a few months.
3. Employee Benefits
   Employee benefit plans often require employees to work a minimum number of hours or be actively at work (as defined in the plan) in order for them to be eligible for benefits. Where the furloughed employee’s hours of work fall below the minimum threshold, or where the employee ceases to be actively at work, the employee may no longer be eligible for benefits. In the event that an employee becomes ineligible for health coverage as a result of a reduction in hours, furloughed employees should be given COBRA notices.
4. Furloughs Should Be for Full Weeks and Employees Should Not Work While on Furlough
   Employers should furlough employees in full-week increments and ensure that their furloughed employees are not performing work. Under the Fair Labor Standards Act (FLSA), exempt employees must meet the duties test and receive their fixed salary for each week in which they perform any work. To avoid being liable for a whole week of an exempt employee's pay, it is recommended that employees be furloughed for an entire week and directed not to perform any work while on furlough. Nonexempt employees, by contrast, must be paid hourly wages, at least equal to the applicable minimum wage and are eligible for overtime pay. If nonexempt employees work while on furlough, employers need to compensate them only for the hours worked. If an employee (exempt or nonexempt) works after being directed not to, they should be paid, but disciplinary action can be taken against them, up to and including termination.

While we hope that COVID-19 is soon a distant memory, advance planning for government contractors considering furloughs is essential.

Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided the links referenced above for information purposes only and by doing so, does not adopt or incorporate the contents. Any federal tax advice provided in this communication is not intended or written by the author to be used, and cannot be used by the recipient, for the purpose of avoiding penalties which may be imposed on the recipient by the IRS. Please contact the author if you would like to receive written advice in a format which complies with IRS rules and may be relied upon to avoid penalties.

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