With the United Auto Workers (UAW) beginning its strike against Ford, General Motors and Stellantis yesterday, many automotive suppliers and industry participants are now activating their contingency plans to navigate the downstream impact of this disruption. As the rubber hits the road, one particular management tool that cannot be overlooked is the ability to adjust your own workforce in the face of uncertain demand. In this advisory, Varnum’s labor and employment attorneys address key considerations involving furloughs and layoffs, their impact to employee benefits, unemployment benefits, employee retention and WARN Act compliance.

Furlough vs Layoff

A furlough is temporary mandatory time off for employees, normally without pay. Furlough’s may be utilized for a short block of time or a reduced work week. A layoff is a termination of employment, which may be intended to be temporary as a result of a business disruption or other economic reason. However, a layoff ends the employment relationship with a possible impact on employee benefit eligibility.

From the employee retention and benefits perspectives, the most critical difference is that furloughs depending on the actual plan documents, may permit employees to remain on the Company plan for a greater period of time before being forced to elect COBRA. A key component of employee continuity is ensuring employee benefits continue to the extent possible. Furloughed employees may remain eligible to continue to participate in certain Company benefits, such as health, dental, and vision for a period of 60 or more days depending on the plan language. Contributions to retirement/401k plans generally do not continue during a furlough because the contributions are determined by and derived from the employee’s compensation, but furloughed employees remain active participants, preserving key benefits and features such as vesting. Promptly having your benefits language reviewed is critical to successful continuation of benefits. With a layoff, benefits generally stop immediately or, at the latest, the end of the month.

Unemployment Benefits (for non-striking employees) 

In several states, including Michigan, the unemployment process can be simplified for the Company and employees via a portal that allows the company to register furloughed employees thus reducing processing time. 

WARN Act

The Worker Adjustment and Retraining Notification (WARN) Act requires employers with 100 or more employees to provide 60 days of advance notice to employees and certain administrative Agencies in advance of plant closings and mass layoffs in certain situations impacting 50 or more employees subject to exceptions. WARN Act notice requirements do not apply to Strikers, or workers who have been locked out in a labor dispute.  Additional exceptions to the WARN Act notice requirements include: plant closing or mass layoff resulting is job loss for less than 50 at a single site of employment; A loss of employment for 50 to 499 workers but that number is less than 33% of the employer’s total active workforce at a single site; a layoff for 6 months or less; or a reduction of work hours of not greater than 50% in each month of any 6-month period.  WARN Act requirements are not initiated for a temporary furlough lasting less than six months.  Some states have mini-WARN Acts providing stricter notice requirements than the federal WARN Act.  Applicable state law should be consulted. More detail on the WARN Act to be provided in our next Advisory.

Ashleigh E. Draft and Carolyn M.H. Sullivan, associates, also contributed to this article.