Government Contracts

With the novel coronavirus (COVID-19) causing Employers to switch to teleworking or temporarily shuttering their operations, government contractors have special challenges. Some employees of government contractors may not be able to work remotely under the terms of the government contract and others who perform classified work or need access to government networks may not be able to telework. Therefore, due to COVID-19, temporary furloughs of employees working for government contractors are likely. Government contractors should plan now for possible furloughs and consider the following four strategies to ensure that furloughs are fair and do not create potential liability.

1. Selection of Furloughed Employees
   Similar to best practices in a reduction in force or layoff, the selection of employees to be furloughed should be completely neutral and, preferably, justifiable on an objective basis. In order to be fair and to minimize the possibility of legal claims, the selection process should not target, or disproportionately affect, employees based age, race, sex, disability, national origin, religion or any other class protected by federal, state or local law. Employers should also be sensitive to furloughing employees who have sustained a work-related injury, who have absences that may be protected under the Family Medical Leave Act or Americans with Disabilities Act, or who have raised issues of alleged unlawful claims. Finally, it is advisable for employers to review individual contracts prior to implementing a furlough to ensure that the contract does not prohibit changes in compensation or benefits.
    
2. Consider Requiring Use of PTO and Pay Reductions
   An employer can require its employees to use accrued leave while on furlough. Once the employee has exhausted accrued leave, the remainder of the furloughed employee’s leave may be without pay, so long as an exempt employee is furloughed for a full week and performs no work while on furlough as discussed below. Also, employers can generally reduce an employee's pay on a going-forward basis, which reduction should last at least a few months.
    
3. Employee Benefits
   Employee benefit plans often require employees to work a minimum number of hours or be actively at work (as defined in the plan) in order for them to be eligible for benefits. Where the furloughed employee’s hours of work fall below the minimum threshold, or where the employee ceases to be actively at work, the employee may no longer be eligible for benefits. In the event that an employee becomes ineligible for health coverage as a result of a reduction in hours, furloughed employees should be given COBRA notices.
    
4. Furloughs Should Be for Full Weeks and Employees Should Not Work While on Furlough
   Employers should furlough employees in full-week increments and ensure that their furloughed employees are not performing work. Under the Fair Labor Standards Act (FLSA), exempt employees must meet the duties test and receive their fixed salary for each week in which they perform any work. To avoid being liable for a whole week of an exempt employee's pay, it is recommended that employees be furloughed for an entire week and directed not to perform any work while on furlough. Nonexempt employees, by contrast, must be paid hourly wages, at least equal to the applicable minimum wage and are eligible for overtime pay. If nonexempt employees work while on furlough, employers need to compensate them only for the hours worked. If an employee (exempt or nonexempt) works after being directed not to, they should be paid, but disciplinary action can be taken against them, up to and including termination.

While we hope that COVID-19 is soon a distant memory, advance planning for government contractors considering furloughs is essential.

This alert was written by Merrell Renaud, a lawyer in the Labor, Employment, Benefits & Immigration practice group at Miles & Stockbridge.

Any opinions expressed and any legal positions asserted in the article are those of the author(s) and do not necessarily reflect the opinions or positions of Miles & Stockbridge P.C. or its other lawyers. This article is for general information purposes and is not intended to be and should not be taken as legal advice on any particular matter. It is not intended to and does not create any attorney-client relationship. Because legal advice must vary with individual circumstances, do not act or refrain from acting on the basis of this article without consulting professional legal counsel. If you would like additional information on the subject matter of this article, please feel free to contact any of the lawyers listed above. If you communicate with us, whether through email or other means, your communication does not establish an attorney-client relationship with either Miles & Stockbridge P.C. or any of the firm's lawyers. At Miles & Stockbridge P.C., an attorney-client relationship can be formed only by personal contact with an individual lawyer, not by email, and requires our agreement to act as your legal counsel together with your execution of a written engagement agreement with Miles & Stockbridge P.C.