Publications
04.08.11
Our nation has experienced 17 federal government shutdowns due to “funding gaps” since 1977. We have had none, however, since late 1995 and early 1996, when the federal government was frozen for 21 days.
Republicans, particularly a huge class of fiscally conservative freshman Members of Congress, have pledged to cut government spending by $100 billion dollars, and, even without a single Democratic vote, the U.S. House of Representatives has passed an appropriations bill with such cut. The Democratically controlled Senate opposed the House bill, and an impasse was born.
While a two-week, stop-gap, spending measure may be in the works, the philosophical divide remains and the specter of a shutdown still looms.
Government shutdowns can hurt businesses in many ways. They can affect not only employers’ revenues, but also cause cash flow problems. Furthermore, any missteps on employee pay during a cash crunch could bring lawsuits, bad morale, and poor public relations. In the past, federal contractors ultimately were paid for the days not worked because of a shutdown. The discussion in the nation’s capital these days, however, is that the next time may be different.
Prepare now for the possibility of a government shutdown.
ISSUES TO CONSIDER
Use of PTO.
The use and limitations on the use of accrued paid time off (PTO) or paid vacation by furloughed employees will be governed largely by state laws. Employers affected by a shutdown may wish to require employees to use their PTO or other paid leave during a furlough or, alternatively, may want to prohibit or limit the use of that paid leave. Also, in the event of a cash flow crisis, companies may find they need to delay payment for an employee’s use of leave. That may prove problematical. In Maryland and Washington, D.C., for example, accrued, unused vacation or PTO is considered “wages” under state wage payment laws. Therefore, a company’s ability to “change the rules” regarding leave after the leave has accrued is restricted. In addition, because it is a “wage,” payment of PTO generally cannot be deferred or postponed in these jurisdictions; it must be paid on time, just like regular wages. Penalties for failure to follow state wage payment laws can include interest, penalties, and attorneys’ fees. In Virginia, by contrast, accrued PTO is not considered a “wage.” Therefore, employers have more flexibility regarding when such time off can or cannot be used (although it is the best practice to follow company policies). Employers should review their PTO policies, paying particular attention to whether they have reserved discretion to require or prohibit the use of leave based on business needs, and make decisions accordingly.
Docking Pay of Exempt Employees.
Under the federal Fair Labor Standards Act, exempt salaried employees generally must be paid their full salaries for any week in which they perform any work. While there are exceptions to this rule, a government shutdown is not one of them. Employers cannot furlough exempt employees for part of a work week and reduce their pay for that week on account of a shutdown. To avoid liability for non-payment of exempt employees’ wages, all furloughs must be for a full FLSA work week. (As explained below, however, “salaries” may be paid to exempt employees through their PTO.)
An important related issue to consider is that exempt employees who are furloughed cannot perform services while they are away from work. That must be made clear to the affected employees. An exempt employee on furlough may be considered to have performed “work” if, for example, he or she checks and responds to business e-mail, corresponds with other employees about work issues, or engages in administrative work. If this were to occur, the employee would have worked during the week and would be entitled to a full week of pay. Therefore, the employer should give clear, written instructions to the employee that he or she may perform no work during the furlough work week. Indeed, it may consider “impounding” work items, such as BlackBerries and laptops for the week, to reduce the risk of violation.
Another related issue is coverage by group health insurance contracts. Coverage requiring a minimum number of hours of work per week should be taken into account in making decisions to reduce work hours.
Reductions in Pay for Exempt Employees.
As a cost-cutting measure, some employers may consider a pay reduction for exempt employees. There are two main concerns in doing this. First, the pro-rated salary following any reduction still needs to equal at least $455 per week to meet FLSA exemption requirement. A higher amount may be required under some states’ laws. The salary threshold applies without regard to whether the employee is full-time or part-time. Second, the employer must address the duration of the reduction in pay. The issue is whether the change is a short-term fix, lasting just one or several weeks, or whether it represents a change lasting at least several months. This matters because exemption requires that at least the salary portion of a worker’s pay be a fixed and recurring amount that does not vary based on the quality or quantity of work performed. Courts have suggested that frequent changes to the amount of salary may render the salary illusory, particularly if the changes appear to correspond to fluctuations in workload, rendering the salary a proxy for hourly wages. On the other hand, courts have approved adjustments to the salary as frequently as once per quarter.
Immigration Issues.
State and federal wage and hour requirements aside, H-1B employees who are placed on a non-productive status or reduced work schedules must nevertheless continue to be paid at the full rate specified on their H-1B documentation. Implementation of salary reduction, reduced work schedules or furloughs likely will trigger the need to file amended Labor Condition Applications and H-1B petitions with the U.S. Department of Labor and the U.S. Citizenship and Immigration Service, respectively.
Jackson Lewis attorneys are available to answer inquiries regarding this and other workplace developments.
Q & A
Both federal workers and employees of contractors may be eligible for unemployment benefits if they are unemployed due to a government shutdown. Here is what the Office of Personnel Management is telling government employees:
Question: Are employees entitled to unemployment compensation while on furlough?
Answer: It is possible that furloughed employees may become eligible for unemployment compensation. State unemployment compensation requirements differ. Some States require a 1-week waiting period before an individual qualifies for payments. Agencies or employees should submit questions to the appropriate State (or District of Columbia) office. In general, the law of the State in which an employee’s last official duty station in Federal civilian service was located will be the State law that determines eligibility for unemployment insurance benefits. (See the Department of Labor website "Unemployment Compensation for Federal Employees" at http://workforcesecurity.doleta.gov/unemploy/unemcomp.asp.)
The rules should be the same for your employees. The DC, MD and VA unemployment agencies (the DC Department of Employment Services; the Maryland Department of Labor, Licensing and Regulation’s Division of Unemployment Insurance; and the Virginia Employment Commission) are gearing up for a massive number of unemployment claims in the event of a shutdown. All are planning to post instructions on their websites regarding how to apply for unemployment in an expedited manner.
Keep in mind that in order to receive unemployment benefits, employees must still meet all of the existing unemployment criteria; able and available to work, unemployed or partially unemployed (although actual termination of employment generally is not required), and often must satisfy a waiting period (for example, their first week of unemployment may not qualify for benefits).
Please contact Maureen Miller, HR Consulting Director, by phone (703.770.6330) or email (mmiller@argy.com) if you would like to discuss the possible HR related implications for your company.
This article was written by Jackson Lewis LLP and Partners (www.jacksonlewis.com) and used with permission.
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