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.

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.

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.

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.

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 other mean­ing­ful jobs are 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.”

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.

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.

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.

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

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