Navigating Furlough Laws in California: An In-Depth Overview

What Constitutes a Furlough?

While the term "furlough" can have different meanings and applications in various contexts, such as a furlough from the military or other governmental agency, the focus of this article is specifically on the furloughs and temporary leaves being adopted by some – and now most – California private sector employers.
A furlough is a temporary, unpaid, non-accumulated leave from work. A furlough can be applied to all employees in a department, it can be applied to some departments of the business, or it can be applied to individual employees. Furloughs can be applied to all employees or only certain categories of exempt and non-exempt employees. Thus, furloughs are a flexible tool and an alternative to laying off a department or business unit, or discontinuing a specific project.
Furloughs are generally intended to accomplish one or more of the following objectives: The above goals can be achieved through various methods, including shutting down the business for a designated period of time, or requiring employees to take periodic breaks from scheduled work time as necessary to meet the goal. For example, if the furlough is to reduce overtime as a temporary substitute for staffing needs , the employer may require some or all workers to take turns with non-work days (of which they may or may not be aware until very shortly before an employee is required not to work). Because both exempt and non-exempt employees may have valid regulatory claims based upon being required not to work for a portion of a workweek, it is important that the implementation of a furlough be carefully evaluated and planned to meet the employer’s objective without creating unintended consequences.
As noted above, furloughs are similar to layoffs, and also to a continuing decision to keep an employee off work for indefinite periods of time with pay differential in the first scenario. Layoffs and furloughs differ in that the latter often implies that the employee has a reasonable expectation of returning to work (however, be aware that in times of economic stress, if the layoff is deemed indefinite, then the Employee may terminate employment without an immediate constructive discharge issue). Furloughs also differ from voluntary unpaid leaves of absence (which may be allowed under certain employer policies and labor agreements) in that they are generally either a complete shut down or an involuntary reduction in hours. Sometimes an employer will combine a furlough with a layoff, i.e., reduce the hours of a certain class of employees (and in some cases layoff a position) or implement salary reductions, while also requiring temporary interdependent reductions in the work hours and pay of other employees.

An Overview of Furlough Laws in the Golden State

California law is clear that an employee’s hours and days of work must be set by the employer. Consequently, the employer also may modify those days or hours, including by imposing furlough on some or all of its employees. However, the employer must maintain compliance with both federal and state wage and hour laws when doing so.
For non-exempt employees, the implementation of a furlough must be done in accordance with both state and federal wage and hour laws. Notably, under California law, if employees are not working or not "performing work" they are not entitled to be paid for that period of time, notwithstanding anything an employer may have told them about "paying" them through the furlough.
Under the Federal Labor Standards Act and California law, the "permissible deductions for [a] workweek do not apply in periods when operations are suspended" (e.g., a "shutdown"), and an employer is "not required to compensate their employees if no work is available." 29 CFR 778.328(b); see also 8 C.C.R. §§ 11010(4)(C)(j), 11040(9)(C)(j) (providing same). Thus, if an employer’s offices were closed all week for a "shutdown," resulting in the employer not providing work for its employees to perform, an employer is not required to pay its employees for that week.
Employers must ensure, however, that they do not violate any applicable employment laws when it engages in an employee furlough. As stated above, applicable federal law does not require employers to pay non-exempt employees during "shutdowns." However, California law may require that a non-exempt employee be paid during "shutdowns" (e.g., for a holiday). As applicable here, California has an unwritten "holiday pay rule" which obligates businesses to pay its employees for workweek holidays provided that the employees met their "regular" days of work within the same workweek. (i.e., if workweek comprises Monday through Friday, then employees must work any one day of the previous week in order to be eligible for a paid holiday that week. If any other workdays were missed during the week due to an unauthorized absence, employees would not be entitled to paid holiday during the current workweek.) The rule does not, however, require employers to pay employees on holidays.
Further, federal law does not require employers to pay exempt employees during a "shutdown." However, certain California law (and departmental definitions) requires that employers pay exempt employees for any day of work which the employer "permitted" the exempt employees to "work." 8 C.C.R. § 11180(1)(C)(5) (defining "hours worked" to mean "the time during which an employee is subject to the control of an employer and is suffered or permitted to work, whether authorized or not, whether or not required to work is performed …") (emphasis added). However, the California Department of Industrial Relations also has defined "permitted to work" to be "an express authorization" of the employer that "that the employee, as a condition of his or her employment, work on that day." -DIR Opinion Letter 2001.05.17 (6/26/2001) (emphasis added). Thus, if express authorization to work was not provided to exempt employees, then technically that exemption would not apply.
Further, under federal law, an employer cannot dock an exempt employee’s pay for any workweek in which the employee performs any work without running the risk of "losing" the exemption. In fact, an employer is not even required to make any deduction for full-day absences for an exempt employee’s "personal reasons" (e.g., such as a holiday). Note, however, that, as applicable here, California law, (but not federal law), requires that an employer only "make deductions for a day" from an exempt employee’s pay for "only that day [absent company policy stating otherwise] of those missed," Pay See DLSE-Dept. of Industrial Relations Opinion Letter, 2002.01.11 (noting "only a half day of sick leave" could be deducted "from the exempt salary person’s sick leave.") (emphasis in original).

Employee Entitlements During a Furlough

Benefits and Rights for Employees
As a California Employment Law attorney, I deal a great many furloughs and other reductions in force. Unfortunately, many employees are unaware of their rights during such a period. For California employees, there are options for workers who are only temporarily out of work. The most common of these options is unemployment benefits. If your hours have been cut, or you are temporarily not working due to reasons beyond your control, you may be eligible for unemployment benefits.
Typically, to be eligible for unemployment benefits, you need to meet the following criteria, regardless of what the Employers policy may be: If you believe you may be eligible for benefits, apply immediately. You can apply online at EDD, or any local Employment Development Department office, or by telephone.
Your employer may offer a continuation of your medical benefits as per the Consolidated Omnibus Budget Reconciliation Act ("COBRA"). Under COBRA, Employers of more than 20 employees are required to maintain and continue medical benefits during Furloughs. Note, however, that COBRA does not require that an employer continue such benefits if the reason for the employee no longer be employed is related to gross misconduct, layoff, or reduction of force, unless it states otherwise in its policy manual. In addition, there will be a cost associated with continued coverage under COBRA. The employee will be responsible for the premiums, but the premiums must be "comparable" to other employees in order to qualify. COBRA also requires that the medical benefits be reinstated if the employee returns to work within 29 weeks. COBRA protects health insurance coverage but does not protect your pension benefits, childcare benefits, or any other benefits offered by an employer. However, if although generally does not cover employers with less than 20 employees, California law does have a state equivalent, Cal-COBRA. Under that program, employers with less than 20 employees must provide health insurance continuation for 18 months after termination of employment or a reduction of hours. COBRA may also apply to certain college students, or military members. Your employer is required to inform you whether these benefits may apply in your case.
Your employer will still be required to provide you with all accrued sick leave, paid time off (PTO), or vacation. If you were terminated during the Furlough period, your Employer is still required to compensate you for all time worked, except where an exemption from Wage Order 4 may apply (if you are an exempt employee). Last, your employer is not required to offer you a similar position when you return to work if the layoff was more than 90 days.
A better strategy is to follow the employer’s reasonable attempt to notify of the affected employees of the exact nature of the layoff; an email, letter, or in person meeting which explains the problem. Such a meeting should explain the reasons for the layoff and the company’s plan for how long the layoff will last. Generally, this communication should be done in a manner where the employees feel like they were a part of the process and that the company was proactive in its decision making.
In addition to communicating the reasons and duration of the Furlough, the employee should be given a contact person in case the situation changes or there are further questions. The meeting should make it clear that the company is which in charge, the termination is temporary, and that the company is ALWAYS available to uphold its end of the bargain.
Under the Americans with Disabilities Act, California Fair Employment & Housing Act, and/or California Workers’ Compensation laws, a furloughed employee may be protected under those laws if a related disability, workplace injury or pregnancy leave has occurred to them. Agrilera v. Mercedes Benz USA, LLC, __ F.Supp.2d __, 2010 WL 3451018 (N.D. Cal. Aug. 30, 2010)(ADA and California disability discrimination claims survive summary judgment where employee proved he had medical certification excusing him from notifying employer of his disability). In those cases, an employee may return to a comparable position upon completion of the statutory leave, and cannot be either laid-off nor furloughed unless it is a company-wide event and all positions become available at the same time.
As an example, a Furlough does not allow for the expansion of the ELCA or FEHA Definition of Disability when it is applied to Corporal Tunnel Syndrome, something which a little 6 hour meeting with the EDD may not be enough to show. Section 12926 (m) defines physical disability as:
"(m) Physical Disability means …any physiological disease, disorder, condition, cosmetic disfigurement, or anatomical loss affecting one or more of the following body systems: neurological, immunological, special sense organs, sleep disorders, clean air or lung disorders, cardiovascular or circulatory, reproductive, blood, blood-pool, genito-urinary, digestive, bowel, bladder, hormonal, musculoskeletal, skin, normal cell mitotic activity, or other functions of the body which if not previously affected would make the achievement of major life activities difficult.
To make the situation even more confusing, an employee who is working 9 hours a day with a properly allotted one hour for lunch, may be considered part-time and thus be eligible for benefits.
Of course, the aforementioned examples are just that examples. When discussing the issues with clients, I have learned to strictly delineate between what my opinions are what my actual legal conclusions are. So my legal conclusion is as follows: Employees who are having their pay reduced or hours reduced may be eligible for EDD benefits if they meet the The ending requirement of the code, regardless of whether it is holiday pay, sick pay, or unfilled time off. Of course, every case is different, and be sure to talk with a qualified employment lawyer if you are in doubt.

Employer Requirements for Complying with Furlough Legislation

Employers must comply with certain requirements under California furlough laws to minimize the risk of liability, including notification requirements and maintaining records.
For general notice requirements, an employer must provide reasonable advanced notice of a layoff at any facility or the "effectuation of mass layoffs at a covered establishment, as defined in subdivision (c) of Section 1400 along with a list of the jobs that will be affected by such action" to: Failure to provide the required notice to employees or proper governmental agencies can be costly. Select government agencies can impose a penalty on the employer for not having provided the required notice: Employers may be legally required to give notice to employees 60 days before the furlough as a "reasonable number of days." But providing only 60 days notice legally can still increase the risks of exposure to claims of constructive termination or wrongful discharge. Employees adversely impacted by the employer’s unilateral decision to change the employee’s work schedule from that which was customarily worked, including shortening the schedule or reducing the number of hours will have a strong constructive termination claim if the employer did not give its employees sufficient advance notice of the furlough. If the employer fails to provide the required notification to the appropriate governmental agencies of a mass layoff, the governmental agency may impose a penalty on the employer in an amount up to $500. For claimants, back pay will be calculated for each day of violation for 60 days. In addition, if the employer is in violation of any provision of the Labor Code, the Labor Commissioner can bring an action to collect uncompensated wages, and statutory penalties to certain employees who were not paid during the furlough. If an employer imposes rolling furloughs, the employer may be required to maintain records of the furlough periods for each employee for whom a furlough is imposed on the rolling furlough plan. Not only should the employer be concerned with complying with the requirements to impose rolling furloughs, employers who choose to do so should maintain records of the starting and ending dates of each furlough period imposed and all work performed by the employee between those dates.

Effects of a Furlough on Employee Benefits

Furloughs can have significant consequences for employee benefits, which may include health insurance, retirement plans and paid time off. When it comes to healthcare, an employer must again look to the employment agreement or written policy that created the benefits in the first place. Some employment agreements or written policies may specifically address whether healthcare benefits will continue during a furlough, or require that the employee meet certain contact hours for benefits to be provided. Without express language in an employment agreement or written policy addressing how healthcare benefits will be handled during a furlough, an employer currently may (as a general rule) discontinue health insurance coverage for employees on furlough who do not meet participation and contribution requirements, as long as the employer maintains a group plan in order to allow the employee to purchase coverage, as described below.
For example, according to the U.S. Department of Labor, if an employee on furlough under the FLSA is covered by group health plan, and fails to make any plan-required contributions due to their furlough, the employer generally must notify the employee that the employee has a COBRA election right with respect to group health plan coverage. The employer is not required to maintain group health plan coverage during the unpaid leave of absence under FMLA, but if the employee chooses at any time to pay the employee’s share of health premiums during the full period of the unpaid leave, that coverage must be continued.
Similarly, in general under California law , an employer is not required to provide continuation of employer-sponsored group health plan coverage during a return-to-work furlough, except to the extent specifically required by the employment agreement or written policy creating the benefit. However, if an employee is receiving pay during the furlough, and that employee’s pay includes health coverage or pays the employer for coverage through a payroll deduction, then, absent other requirements in an employment agreement or policy, the employer is required to continue coverage.
Note: As discussed in our blog entry on reducing employee pay, employers need to comply with all applicable plan provisions. For example, if a furlough results in the employee losing eligibility for a benefit under the plan, such as by falling below the earnings necessary to contribute, the employer generally can discontinue the plan’s group health plan coverage in accordance with its terms.
Finally, retirement plan creditors also should be aware that eligible employees on an unpaid leave of absence under CFRA are still entitled to the same rights and benefits during a return-to-work furlough as they would have had if actively at work, and cannot be treated differently with respect to vesting and benefit accrual in the plan. Under the FLSA, if an employee on unpaid leave accrues vacation leave, sick leave or paid time off during the furlough, the time must be counted for determining whether overtime pay is due to employees, but not for determining whether the employee has met the 1,250 hours of prior service required under CFRA.

How to Prepare for a Potential Furlough

Employers and employees both should incorporate strategies to prepare for the possibility of a furlough. Effective communication will be key. Employers should have a management person at the company who can act as the point person for all questions related to a furlough. Employers should have a plan to disseminate the information to employees well in advance of a foreseeable furlough. A company-wide meeting, e-mail, or memo to each employee may be appropriate. Employees should not be blindsided with a furlough.
Employees should also be encouraged to ask questions about the furlough and express their concerns before it happens. Depending on the business’s priorities, the employer may choose to mitigate concerns by allowing employees to use a combination of paid time off, including accrued vacation days, to avoid a furlough. Employers should consider implementing a system that would allow employees to voluntarily report financial hardships. The company could then work with these employees to help them through the furlough. Employers should also be familiar with the requirements of the California Family Rights Act which provides certain employees with unpaid family leave rights.
During the furlough, employers should ensure employees are aware of their rights under the Unemployment Insurance Code and be ready to address questions about their eligibility for paid unemployment benefits. Employers should also clearly communicate any benefits the company will continue to provide during the furlough. For example, some employee benefits such as health insurance coverage are governed by federal law. Such benefits may continue to be provided regardless of whether the employee is on a furlough. Employers should also keep their employees up-to-date on new information about the furlough. Keeping communication open will help to maintain the flow of business and keep employees happier.

Frequently Asked Questions: Legal Help and Resources

In addition to the federal Department of Labor and California Department of Industrial Relations which we have already mentioned, employees can also turn to the following government entities for assistance:
• The California Employment Dev Dept. is the state agency which handles unemployment insurance for laid-off and terminated employees. They may be contacted at 916-464-3502.
• The United States Department of Labor publishes an information booklet called the Unemployment Insurance Program Letter which an individual facing unemployment can download from their website https://workforcesecurity.doleta.gov/. The booklet is available in both English and Spanish.
• The California unemployment Insurance Code states that the California Employment Development Department must provide any individual who has requested unemployment insurance benefits with a copy of any information that EDD obtains from an employer concerning the reasons for an employee’s separation from employment. Any individual who feels they have been involved in an improper furlough can request an investigation by the California Unemployment Office of Appeals. The form to do so can be found on the DPA website.
• In addition, all furloughed employees should contact their union (if they are part of one) to ensure that their union cannot successfully negotiate on their behalf regarding any furloughs.

2023 Updates and Changes to Furlough Regulations

In the last year, California has seen updates to its furlough laws in two areas: employee benefits and wage orders pertaining to specified industries. In 2023, AB 1747 updated Labor Code Section 227 to authorize the Governor to make available to employees a safe harbor for policy violations committed in the course and scope of implementing the employee furlough program pursuant to an emergency proclamation issued in accordance with Government Code Sections 8625, 8558, or 8567. Previously, Section 227 provided that employers could not assess "1" points toward discipline for one or more furloughs not taken due to the unexpected absence of the employee. Section 227 also noted that a violation of the law may result in the employee being entitled to reinstatement or payment of full wages to the end of the furlough period.
Labor Code Section 1171 pertaining to the garment industry was also amended in 2023 through AB 1303 (a bill sponsored by several labor unions) to include in its list of unlawful acts the requirement for garment manufacturers to "implement and maintain an employee furlough program , including notifying employees of the existence of such a program." This amendment applies to all employers in California covered by this wage order regardless of their sector. The garment industry is governed by Wage Order 72 and extends to those companies that manufacture, distribute, or store garments in California. However, as of January 1, 2023, the California Department of Industrial Relations issued a press release confirming that "[p]revious wage orders dealing with Industries Specific to Private Employers have been repealed and are no longer in effect as of January 1, 2023." As a result, employers previously covered under the repealed Wage Orders 1-15 and 17 cannot rely on their prior wage and hour obligations.
While there are no recent state or local legislative changes related to furloughs up until the date of this article’s publication, we will continue to monitor both state and local legislative developments for any updates regarding furlough practices.