A Comparative Analysis of Regularly Scheduled Shutdowns to Those Caused by the COVID-19 Pandemic
Manufacturers often find it necessary to schedule temporary plant shutdowns during the year for maintenance purposes or new model changeovers, and require employees to use their vacation during this time. Given that many of our manufacturing clients, especially in the automotive sector, operate in the Midwest, we wanted to survey the state laws in a few Midwestern states. While forcing employees to use vacation is generally permitted in several Midwestern states, employers may be surprised to learn that different state laws could determine whether employees are eligible for unemployment benefits during the shutdown period. In some states, employees can obtain unemployment benefits for even scheduled shutdowns, and this can result in an increase to the employer’s tax experience rating.
Further, this article provides a summary of each Midwestern state’s analysis for determining whether an individual is eligible for unemployment benefits during a shutdown caused by the COVID-19 pandemic. Some states have implemented a distinct analysis to determine unemployment eligibility when the shutdown is related to COVID-19 compared to when the shutdown occurs as part of regularly scheduled maintenance or model changeovers.
State Laws Govern Unemployment Eligibility During Shutdowns
The bottom line is that each state’s approach is different, both before and during the pandemic. However, because some states use a fact-specific analysis, it is important to keep the following questions in mind when evaluating whether employees will be eligible for unemployment benefits during a forced vacation unrelated to the COVID-19 pandemic:
- What constitutes vacation pay under your state law;
- Whether the state considers if the vacation is paid versus unpaid;
- Whether the employee handbook or collective bargaining agreement addresses the company’s ability to schedule or determine when a vacation will occur;
- Whether the employer has complied with all notice requirements if forcing employees to use vacation during a specified time period; and
- Assuming the vacation pay constitutes wages/remuneration under state law, whether employees are entitled to a portion of the standard weekly benefit amount if their vacation pay is less than their regular pay rate or the standard weekly benefit amount.
Illinois law specifically permits companies to force employees to use vacation during a scheduled temporary shutdown. However, the Illinois Supreme Court has found that employees are entitled to unemployment benefits during a plant shutdown where the employees do not have sufficient seniority to receive vacation pay under the terms of their employment contract. The employees who were eligible for vacation were ineligible to receive unemployment benefits.
Of note, Illinois law clearly states that any employee who receives vacation pay, deemed to be wages, is ineligible for benefits for any week in which the sum attributed to such normal work days equals or exceeds his or her weekly benefit amount. However, if the employee does not receive any pay, or if the amount paid is less than the employee’s normal wages or weekly benefit amount, the employee is considered unemployed and is eligible for benefits.
Illinois COVID-19 Guidance – An individual laid off because his or her place of work is temporarily closed due to COVID-19 may qualify for benefits if he or she was able, available for and actively seeking work. Under the current emergency rules, the individual would not have to register with the employment service. He or she would be actively seeking work as long as the individual was prepared to return to his or her job as soon [as] the employer reopened. However, money received by the employee for vacation and sick days, as well as FMLA payments, are considered wages, which are taken into account to determine whether the individual is eligible for benefits. Regular state unemployment compensation is still chargeable to the employer, including claims initiated in response to furloughs or layoffs due to COVID-19.
Indiana companies may force employees to take paid or unpaid vacation during a specified time period in some circumstances. In order for the employee to be ineligible for unemployment benefits, the individual must have been provided reasonable assurance that the employment will be available after the vacation ends. The Indiana Department of Workforce Development (DWD), Indiana’s unemployment agency, considers several factors when determining whether an employee is eligible for benefits in circumstances of plant shutdowns. Further, Indiana courts have given great deference to DWD determinations of eligibility. The factors include:
- Whether a written contract between the employer and employee provides notification for the short-term shutdown or unpaid vacation
- Whether the short-term shutdown or unpaid vacation was the result of the employer’s regular policy or practice
- Whether the employee had reasonable assurance of continued employment following the short-term shutdown or unpaid vacation
- Assurance is not required to be directly communicated, but may be inferred by past policies, practices, customs, etc.
- Whether the employer provided DWD with advance notice of the short-term shutdown or unpaid vacation
Indiana courts have found that employers are not required to file notice of claimant’s separation arising from a vacation period for its planned facility shutdown, but the DWD could review the facts to determine whether sufficient notice was provided in order to make an employee ineligible for unemployment benefits.
Indiana COVID-19 Guidance – If an employer must shut down due to COVID-19, employees will be eligible for unemployment insurance benefits if they are not receiving sick pay or other leave pay from their employer. Contributory employers will not be directly charged for separations between March 13, 2020, and the end of the COVID-19-related separations, which is anticipated to be no later than December 31, 2020.
In Michigan, employers may force employees to take vacation during a temporary shutdown. Michigan law provides that individuals will be eligible for unemployment in any week they do not perform work or receive remuneration. An individual will also be eligible for partial unemployment benefits when his or her weekly earnings do not meet or exceed 1.5 times the amount of his or her weekly benefit rate as determined by the Michigan Unemployment Agency. For example, the Michigan Supreme Court has found that an employee was eligible for unemployment benefits when he did not receive vacation pay during the shutdown because he lacked adequate seniority to qualify for paid vacation under the terms of the collective bargaining agreement.
Michigan COVID-19 Guidance – If a business shuts down temporarily because an employee is sick and other employees have been asked to quarantine, the employees may be eligible for unemployment benefits, assuming they are not receiving payment for sick leave or paid time off. An employer that is required to shut down or limit operations due to an executive order will not have a UI tax rate increase if its employees file for benefits.
In Ohio, employers may force vacation pursuant to the terms of an employment or collective bargaining agreement. But under Ohio law, if the employee is forced to take the vacation unpaid, the employee will be eligible for benefits. However, some Ohio courts perform a highly fact-specific analysis as to whether payments deemed “vacation pay” in fact constitute bonuses, which are not allocable to the period of forced vacation, thereby leaving an employee eligible to collect unemployment benefits.
Ohio COVID-19 Guidance – Employees who are laid off due to their employer shutting down as a result of loss of production caused by COVID-19, and who are not receiving vacation or sick pay, will be eligible for unemployment benefits. If an employee receives unemployment benefits as a result of a COVID-19-related business shutdown, the employer’s unemployment tax rate will be affected as follows: (1) for contributory employers, charges during Ohio’s emergency declaration period will be mutualized, whereas (2) reimbursing employers will follow existing charging requirements under Ohio Revised Code Chapter 4141.
Finally, in Wisconsin, vacation pay is a matter of contract. Whether an employer can force employees to use vacation pay during a shutdown will depend on the union or employment contract language. For example, the Wisconsin Supreme Court found that laid off employees were eligible for unemployment benefits where the union contract provided that the company would take the employees’ wishes regarding the scheduling of vacation into consideration. The Court reasoned the company was not permitted to force the employees to use vacation during the shutdown because the contract gave the employees partial discretion regarding when their vacations would be scheduled. Therefore, the employees did not receive wages during the layoff and were eligible for unemployment benefits.
Wisconsin COVID-19 Guidance – Employees who are laid off due to a COVID-19 shutdown will be eligible for unemployment benefits and are not receiving vacation or sick pay. If an employer lays off employees due to the public health emergency declared by Executive Order 72 and files the initial unemployment claims for weeks after May 16, 2020, the employer may qualify for relief of unemployment insurance benefit charging. To request relief of charging, the employer will need to complete a form and submit it to the Wisconsin Department of Workforce Development via encrypted email.
In summary, most Midwestern states generally permit employers to allocate vacation pay during a regularly scheduled temporary shutdown. However, state laws are markedly different as to whether employees are eligible to collect unemployment benefits. It is critical that employers consider whether they have provided adequate notice, whether employees have a “vacation” reserve so they can use their vacation to receive remuneration during the shutdown, and whether the employer must communicate with any state agencies in advance of the shutdown period.
Further, employers should be aware that a different analysis may apply during the COVID-19 pandemic, both in terms of whether an employee will be eligible for benefits during a shutdown, and whether this will cause an increase to the employer’s unemployment tax rate. Again, the analysis varies greatly by state.