Work Furloughs Resulting From a Government Shutdown: How Should Employers Pay Employees?

If one believes the media, a federal government shutdown at the end of September is a real possibility. Politics is not my thing, but the impact a shutdown would have on government contractors and grantees and their employees does interest me. In this article, we look at wage-hour and employment law issues that contractors may face in the event of a shutdown. In a companion piece coming soon, we will look at arguments contractors may have to recover costs relating to a shutdown.

Generally speaking, non-exempt employees do not have to be paid when they don't work. But, should exempt employees be paid for days off occasioned by a shutdown? It depends.

Full-Week Furloughs or Absences Do Not Require Pay

Most executive, administrative and professional employees, and some computer employees, need to be paid on a “salary basis” in order to be exempt from the minimum wage and overtime. U.S. Department of Labor (DOL) regulations say that employees are paid on a salary basis if they receive each pay period a predetermined amount constituting all or part of their compensation, which is not subject to reduction because of variations in quality or quantity of work performed. This means that exempt employees must receive their full salary for any week in which they perform any work without regard to the number of days or hours worked.

On the other hand, the regulations make clear that exempt employees need not be paid for any workweek in which they perform no work. As such, when a place of work is closed for a full week, whatever the reason, employees need not be paid for that week. It follows that employees who are furloughed for an entire workweek need not be paid at all for that period.

Partial-Week Furloughs Could Defeat FLSA-Exempt Status

The federal government’s fiscal year begins on Oct. 1. Happily, that date falls on a Sunday this year, so partial-week work interruptions are less likely. But, if a shutdown does occur, and it ends midweek, that could be troublesome for the majority of employers, whose workweek runs Sunday through Saturday. Returning to work midweek would mean that the now-ending furloughs would include a partial workweek. A partial-week furlough also could occur if a contractor has enough prior-year funding to continue working for a few days into the new fiscal year before shutting down.

When exempt employees’ time off is less than a full workweek, furloughs must be handled differently that for a full workweek. DOL’s regulations say that an employee is not paid on a salary basis if deductions from the employee’s predetermined compensation are made for absences occasioned by the employer or by the operating requirements of the business. If an exempt employee is ready, willing, and able to work, deductions may not be made for time when work is not available.

 A furlough imposed by a government contractor or grantee affected by a federal government shutdown is covered by this rule prohibiting deductions for time when work is not available. Thus, if any employer willfully deducts pay for a partial-week furlough, affected employees would lose their exempt status.

This requirement may cause extreme hardship to employers who must pay employees for work that was never performed. One possible solution is to reassign these employees to commercial work, if that is available, or to business development or privately funded research and development projects. Employers also should note that federal law permits them to deduct from exempt employees’ leave banks for full or partial days when those employees are instructed not to report to work because of budgetary constraints or lack of work, so long as employees’ weekly salaries are not reduced. In essence, require exempt employees to use accrued vacation. (But make sure this is legal under your state’s law.)

This discussion addresses an unplanned furlough, such as that caused by an unexpected government shutdown or sudden budget cuts that reduce the funding available for a government contract. In contrast, a company that decides in advance, and with no improper motive, to reduce costs by shortening the workweek may also reduce the salaries of exempt employees by any amount it chooses, so long as those salaries remain above the minimum FLSA thresholds for exempt employees. Thus, if a government contractor or grantee plans on a going forward basis to reduce its workweek because of reduced funding, and if that reduction lasts for an extended period—say, two or three months—then the employer could reduce the pay of exempt employees by a proportional amount. It must be emphasized, however, that this does not permit an employer to call exempt employees in the morning and tell them to take the day off or sends employees home early in the workweek due to what DOL calls “occasional unplanned and transitory periods” of low workload.

Working Time in the “WFH” Age

 As noted above, an exempt employee must be paid for the full workweek if he or she performs any work during the workweek unless the employee’s leave bank is charged for the time not worked. As such, it is important to remember that the definition of work under the FLSA focuses on whether the employee actually worked, not on whether the employee was at work. In this age of working from home, remote email access, prolific cell phone use, Slack, etc., an employer that furloughs its employees (or intends for any legitimate reason not to pay them) must establish a clear policy prohibiting work from home. It might even be prudent for employers to block remote email and network access for such employees if possible.

A Word of Caution

It is important to remember that employees must be paid for their work even if the customer is not paying. Thus, any contractors or grantees that decide to perform “at risk” in the hope of getting paid later, which may not happen, will have to pay their employees anyway. Otherwise, when the government does re-open for business, you may find a DOL investigator at your door.

For more information, please get in touch with your regular Brown Rudnick attorney or with this author.