Client Alert - Employment Law Update
Illinois Appellate Court Upholds Right of Employers to Utilize Furlough Programs
In a recent decision, an Illinois Appellate Court held that an employer-instituted furlough program did not run afoul of the Illinois Minimum Wage Law. The decision affords employers an invaluable tool that allows cost-savings, while preventing unwanted layoffs. However, it also provides strict guidance, concerning the implementation of furloughs that all employers should heed.
The case of Theodore Robinson, et al. v. Tellabs, Inc., No. 1-07-2731 (April 27, 2009), involved a class action that arose out of an unpaid, mandatory furlough program that was implemented when Tellabs began experiencing severe financial difficulties. The plaintiffs claimed that the program, which required employees to take mandatory unpaid days off before or after paid holidays, caused Tellabs to violate the Illinois Minimum Wage Law's overtime requirements. Generally, employees that are paid on a salary basis and who perform certain responsibilites are considered exempt under overtime laws. However, being paid on a "salary basis" requires that an employee receive a guaranteed salary each pay period without deductions for the quality or quantity of work performed. The employees argued that by reducing their pay, Tellabs no longer compensated them on a "salary basis," thus making them entitled to overtime, which they did not receive.
Relying on federal regulations, Department of Labor opinion letters, and cases from other states, the Appellate Court affirmed the trial court's decision in favor of Tellabs. Specifically, the court determined that employers are permitted to prospectively reduce salaries to accommodate bona fide business needs unless they do so with such frequency that the purported salary becomes a sham attempt to pay an hourly wage.
What to Do
When designing furlough programs, employers should only impose changes to schedules for bona fide business reasons, only as to future time periods, and not so frequently that the purported salary amounts to an hourly wage. Although this case provides a helpful roadmap for avoiding liability, advance planning and thorough documentation are also essential whenever furlough programs affect exempt employees under state or federal overtime laws.
If you would like more information about how this decision will affect your business, or would like counsel concerning your employment policies and practices in general, please contact Mr. Gonzalez at 312-558-9779 or at egonzalez@elvisgonzalezltd.com
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