Employers trying to reduce overheads during tough economic times marked by low demand may shut down a part or all their operations for a period, say one or two weeks around holidays, and force employees into mandatory furloughs. Employment law allows for such furloughs, though not directly.
Furloughs for employees covered under the Fair Labor Standards Act (FLSA) do not pose an issue. The law requires employers to pay employees only for the hours they actually work, so if an employee works for five hours a day, and is paid five hours there is no legal issue.
Federal and state laws, however, requires paying employees exempt from FLSA the same minimum salary for each pay period, and the entire salary due if the employee does any work during the workweek. Employers may not deduct from an exempt employee's salary for absences "occasioned by the employer" or caused by "the operating requirements of the business."
Employers furloughing exempt employees need to ensure that such employees don't perform any work, including checking voicemail or office mail from home, during the period of furlough. Employers need to inform employees in writing they are not authorizing ANY work during the furlough period, and preferably take away their company-issued smartphones and laptops for the period.
Most states, however, permit an employer to modify unilateral employment contracts by reducing compensation and deem that the employees' continued employment constitutes acceptance of the reduced compensation without any additional consideration. Routinely informing exempt staff of the revised work schedule for the following week may count as sham practice.
Employers may make prospective adjustments in working hours and corresponding pay adjustments for exempt employees, on providing adequate notice. The requirement for advance notification varies from state to state. Missouri mandates a 30 days notice, and Maryland requires one pay period. The provisions of any employment agreement may also apply. In cases when the cut in work hours exceeds 50 percent and the duration extends to a long period of a week or more, the provisions of Workers Advanced Notification Act (WARN) would apply.
Collective bargaining agreements (CBA) may act as a spanner in the works of mandatory furloughs. The provisions of CBA may mandate employers to bargain with unions or employee representatives before implementing a furlough or requiring use of vacation time during the furlough.
While furloughs are usually mandatory, some employers offer voluntary furloughs whereby employees may opt for some time off, with loss of pay, akin to unpaid vacations, as an alternative to "harsher" measures.