April 16, 2020

Shared Work Programs as an Option to Furloughs or Layoffs in Response to Economic Impact of COVID-19

During the COVID-19 pandemic, businesses have been forced by economic conditions to balance the long term need of retaining valued employees against the competing need of surviving an unprecedented economic slow-down and paying the bills with reduced income.  Some businesses incorrectly think that the only options are layoffs or furloughs, which are not ideal for ether employers or employees; particularly at a time when having health insurance is so important.   In the long term, layoffs or furloughs creates challenges, including losing key employees, damaged morale, potential discrimination suits and possible labor shortages when business returns to normal.  To deter laying offs and furloughs, many states, including Pennsylvania, New York and New Jersey, have Shared Work Programs, which provide a way for employers to reduce labor costs while at the same time keeping workers, who are paid lower wages for reduced work hours while, at the same time, receiving partial unemployment insurance benefits.

The idea behind Shared Work Programs is that instead of layoffs or furloughs, businesses reduce the hours worked and wages earned for a segment of workers (an “Affected Unit”). In both Pennsylvania and New York, the Affected Unit is defined by the employer but subject to state mandated guidelines, which include a requirement that hours must be reduced by not less than 20% or more than 40% in Pennsylvania and not more than 60% in New York and New Jersey.  Both Pennsylvania and New York allow employers to have multiple Shared Work Programs for each Affected Unit identified by the Employer. 

While the basic principles on which Shared Work Programs are based are the same (i.e. avoiding layoffs), the programs are not uniform with each state adopts its own unique requirements. For example, in New York, unlike Pennsylvania and New Jersey, employers must also apply the reductions in hours and wages equally to all of the employees in the chosen unit or department.  For its part, New Jersey has a unique provision which reduces or, in some cases eliminates the benefits that an employee can receive if, in addition to working in the Shared Work Program, they also have other employment.

Most states follow the basic principle that a worker in a Shared Work Program should receive a percentage of the unemployment benefits that they would been given if they were totally unemployed. For example, if an employer has 10 office workers (i.e. the Affected Unit”) but they are working at only 60% capacity, the business, could instead of laying off four employees, reduce the work and wages of all employees in the Affected Unit by 40%, who each receive reduced wages from the employer and 40% of the unemployment benefits that it would have received from the State if they were fully unemployed. 

Unlike filing for unemployment benefits, which typically are initiated employees, the process of creating Shared Work Programs usually begins with an application filed by the Employer, which, among other things identifies each employee in the Affected Unit.  After submission of the Shared Work Plan application, it is reviewed and approved or rejected by the state Department of Labor, which in Pennsylvania has fifteen (15) days to rule on each application.  In New York, both employers and employees are both required to make weekly filings during the effective period of the Shared Work Program.

In some states, like Pennsylvania and New York, the requirements for maintaining Shared Work Programs contain other provisions that protect workers, such as requiring employers to continue provide the same benefits that their employees previously received.  Pennsylvania also protects workers in its Shared Work Program by making their employers agree not to lay off workers while the Shared Work Program is in effect.  In New York, there is a little less protection for workers because employers are allowed to lay off some workers in Shared Work provisions but only if the Shared Work Program continues to  avoids the mandated amount of layoffs.  However the protection that employees receive under Share Work Programs is not absolute as both Pennsylvania and New Jersey employers have the right to terminate Shared Work Programs, which allows flexibility of business conditions worsen. 

Additional factors may also need to be considered by Employers before pursuing Shared Work Programs.  For unionized businesses, Shared Work Programs must also be approved by any collective bargaining representative if there is an agreement in place.  In addition, employers need to realize and consider that  their contributions to unemployment compensation funds may increase as a result of Shared Work Programs.  Each of these factors, together with state specific eligibility requirements, should be considered when assessing the Shared Work Program option.

Unlike some of the programs that have been created specifically in response to the pandemic, most Shared Work Programs pre-date the pandemic.  New York, (https://labor.ny.gov/formsdocs/ui/sw2.1.pdf) New Jersey (https://www.nj.gov/labor/forms_pdfs/ea/Shared-Work%20Plan%20Application%2004-07-2014.pdf) and Pennsylvania (https://www.uc.pa.gov/employers-uc-services-uc-tax/shared-work/Pages/default.aspx) have pre-existing application processes and forms to allow employers to participate.   Although there could be changes in the administration of these programs due to an increase in applications, these existing structures may be easier for businesses to navigate.

Rawle & Henderson is working with its clients to assist them in evaluating and applying to establish Shared Work Programs as business solutions for enduring economic challenges of the COVID-19 pandemic.  We also have assisted our clients in filing and obtaining waivers to allow continued operations as essential businesses under state mandated stop work orders.  If you have questions about shared work plan programs, requesting essential business waivers, or other legal issues affecting the operation of your business at this difficult time, Rawle & Henderson’s attorneys are prepared to provide remote legal consultation.

David Rosenbaum, Esquire of the Philadelphia office (link to bio: http://www.rawle.com/images/uploads/general/ROSENBAUM_DAVID.pdf) and Laura Bower Brausenberg, Esquire of the Delaware office wrote this article.

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