What is Furlough vs. Layoff?
Furloughs and layoffs differ primarily in their long-term implications. Layoffs are permanent suspensions of employees, generally the result of subpar job performance. In contrast to furloughs, which are often temporary and related to corporate restructuring.
Employees on furlough are eventually anticipated to return to their jobs and would typically retain their benefits. Employees who are laid off forfeit their benefits, and they will receive a termination due date.
Benefits of Furlough:
Furlough allows businesses to temporarily reduce labor costs while retaining their workforce for future projects. This also helps save employers the expense of layoffs and rehiring later. By preserving their skilled workforce, employers can quickly restart operations when conditions improve, avoiding the time and costs of retraining newcomers.
While announcing furlough may cause employees to feel unsure about their jobs, employees often retain their benefits, such as health insurance, which can help foster loyalty and morale. Before announcing furlough, employers must determine how long the business can sustain a furlough and have a contingency plan in place if it needs to be extended.
Reasons for Furlough:
1. Economic downtime: A significant drop in economic demand can lead to businesses scaling back their operations.
2. Financial difficulties: Businesses experiencing cash flow issues or financial instability may implement furloughs to manage expenses.
3. Seasonal downturn: Industries with seasonal demand may furlough employees during off-peak periods.
4. Operational restructuring: Businesses undergoing restructuring or reorganization may furlough employees while adjusting operations.
5. Pandemic or crisis: Unforeseen events like pandemics or natural disasters can disrupt normal operations, leading to temporary furlough.
Things to Consider:
Regulatory Framework:
In Canada, furloughs are often referred to as "temporary lay-offs" and are mainly governed by provincial and territorial labor laws. These laws regulate notice periods, benefits, maximum furlough durations, and the conditions under which furlough is permissible.
Before announcing a furlough, ensuring that the business remains compliant with labor laws, including proper notice periods and treatment of exempt and non-exempt employees, is imperative. Research provincial or territorial-specific laws that may require advanced notice or precise treatment of benefits during the furlough period.
Furlough Durations & Severance Pay:
The duration of furloughs may depend on each province, but they typically range between 13 to 16 weeks within a consecutive 20-week period. Depending on the province and an employee's length of service, if a furlough extends beyond the mandatory period, it is considered a termination, and the employee becomes entitled to severance pay.
Notice Requirements:
Employees must receive a written notice from employers before the furlough period begins. Notice periods may vary according to each province and can range from immediate to several weeks. Provinces that allow immediate notice of "temporary lay-offs" include Ontario, Alberta, Manitoba, British Columbia, Saskatchewan, and Newfoundland and Labrador.
However, it's important to note that unionized workers and employees with written contracts may have different notice requirements, depending on their contract and applicable provincial laws. Additionally, during pandemics or natural disasters, some provinces may waive or modify furlough notice requirements.
Employment Insurance Benefits:
In Canada, employees placed on temporary leave are often eligible for Employment Insurance (EI) benefits, provided they meet certain criteria, such as sufficient insurable hours worked before furlough. Employees on furlough may also retain benefits like health insurance, depending on provincial laws and individual employment contracts.
The Impact of Furlough:
Transparency is key during a furlough period — clearly explaining the reasons behind the decision and sharing a communication plan will help maintain your employees' trust. It's also important to consider how furlough might affect morale and productivity upon their return, so take time to plan how you'll reintroduce the team and rebuild confidence.
