Business Reduction Requires Care, Advises Menlo Park Business Attorney

It is never pleasant when a business downturn requires you to lay off employees.  Particularly if you expect a turnaround, you may be thinking that a short-term furlough (working 4 days a week instead of 5) would be a better option for all parties: you get the needed cost reduction, and your employees aren’t completely out of a job.  But will the plan have any unintended consequences?

If your furloughed employees are exempt (meaning that they are not eligible for overtime), you need to plan ahead to ensure that the exempt status is not lost when you implement a furlough.  The California Division of Labor Standards Enforcement (DLSE) is in charge of reviewing such plans if there is a complaint by a furloughed employee.  If you reduce your employees hours and salary by 20%, it certainly seems to indicate that they are actually hourly employees, not exempt employees.  Exempt employees are supposed to work as long as it takes to get the job done.  If they have no limit on the number of hours they are required to work for a set pay, how can you reduce their work days to four?  That is the tricky question.

Changes to an employee’s pay and work schedule which are too much like an hourly employment relationship can cause employees to be treated as non-exempt because it is determined that they are not paid on a “salary basis.”

Whether you are considering a furlough, a layoff, or some other reduction, you need a business reduction plan.  The wrong steps can have significant unintended consequences, such as making you liable for overtime or opening you to lawsuits from your former employees.

If you need assistance with your business reduction plan, please call us for an appointment today – 650-422-3313.