Managing Furloughs and Layoffs: Legal Requirements and Best Practices

Workforce reductions are among the most difficult decisions an employer faces. Whether implementing furloughs, temporary layoffs, or permanent reductions in force, employers must navigate legal requirements carefully while treating affected employees with dignity.

Furloughs vs. Layoffs: Key Differences

Furlough: A temporary, involuntary leave of absence. The employment relationship continues, but the employee does not work or receive pay. Benefits may or may not continue depending on plan terms and employer policy.

Layoff (temporary): Similar to a furlough but often implies a longer or indefinite period. Employees typically retain recall rights for a specified period.

Reduction in force (permanent layoff): The employment relationship is severed. There is no expectation of recall.

The distinction matters for benefits continuation, unemployment insurance, and legal compliance.

WARN Act Requirements

The federal Worker Adjustment and Retraining Notification (WARN) Act requires employers with 100 or more full-time employees to provide 60 days' advance written notice before:

• A plant closing affecting 50 or more employees at a single site
• A mass layoff affecting 500 or more employees, or 50-499 employees if they represent at least 33% of the active workforce at a single site

Exceptions that reduce the notice period:

• Faltering company: The employer was actively seeking capital or business that would have avoided the layoff, and giving notice would have jeopardized that effort
• Unforeseeable business circumstances: The closing or layoff was caused by circumstances not reasonably foreseeable at the time notice would have been required
• Natural disaster: The closing or layoff resulted directly from a natural disaster

Even when exceptions apply, employers must provide as much notice as practicable and explain why the full 60-day period was not met.

State mini-WARN acts: Many states have their own notification requirements with lower thresholds and longer notice periods. California, New York, Illinois, New Jersey, and several other states have laws that may apply to smaller employers or require more than 60 days' notice. Check your state's requirements.

Selection Criteria

When choosing which employees to lay off, use objective, documented criteria to reduce the risk of discrimination claims:

• Seniority: Length of service is objective and easy to verify
• Performance: Based on documented performance reviews and ratings, not subjective manager impressions
• Skills and qualifications: Retain employees whose skills are most critical to ongoing operations
• Business unit or function: Eliminate entire positions or departments rather than selecting individuals

After making tentative selections, conduct an adverse impact analysis to determine whether the selections disproportionately affect employees in protected categories (age, race, gender, disability status). If you find disparate impact, revisit your criteria before finalizing decisions.

Conducting the Notification

• Deliver the news in person (or by video call for remote employees), not by email or letter
• Be direct and clear. State that the employee's position is being eliminated and the effective date
• Explain the reason (business conditions, restructuring) without over-explaining or apologizing excessively
• Provide written details about severance, benefits continuation, final pay, and available resources
• Allow the employee to react and answer their questions with empathy
• Keep conversations brief (15-20 minutes) and have HR present

Severance Considerations

Severance pay is generally not legally required (unless promised in an employment agreement or established by company practice), but offering it provides several benefits:

• Goodwill that protects your employer brand
• A framework for obtaining a release of claims in exchange for payment
• Practical assistance that helps displaced workers during their transition

If offering severance in exchange for a release of claims, be aware of the Older Workers Benefit Protection Act (OWBPA), which requires specific disclosures and a 21-day consideration period (45 days for group layoffs) plus a 7-day revocation period for employees age 40 and older.

Benefits and Final Pay

• Health insurance: Furloughed and laid-off employees are entitled to COBRA continuation coverage. Provide the required notice within 14 days of the qualifying event.
• Final paycheck: Many states require final pay on the employee's last day of work or within a short period thereafter. Know your state's deadline.
• Accrued PTO: Some states require payout of unused vacation or PTO. Check your state law and company policy.
• Unemployment insurance: Provide employees with information about filing for unemployment. Avoid contesting legitimate claims, as this damages your reputation and rarely succeeds for business-driven separations.

Planning for Recovery

If you anticipate recalling furloughed workers or rehiring for eliminated positions:

• Communicate expected timelines honestly, even if uncertain
• Maintain regular contact with furloughed employees
• Document recall procedures and follow them consistently
• Consider offering priority rehire rights to laid-off employees

Handling workforce reductions with transparency, legal compliance, and compassion preserves your reputation as an employer and positions your organization for faster recovery when conditions improve.