By Emery Richards, Mark Blondman and Jason Reisman

Law360 (April 8, 2020, 3:50 PM EDT )

Emery Richards

Mark Blondman

Jason Reisman

As layoffs rock many businesses in the fallout from the coronavirus pandemic, some employers are turning to work sharing programs as an alternative for reducing labor costs, while seeking to sustain future financial health.

Work sharing programs — which allow companies to cut employee wages while simultaneously supplementing lost income with unemployment benefits — provide an attractive option to save money, buoy morale and retain as many workers as possible, particularly at a time when the uncertainty caused by COVID-19 makes business needs and employee availability difficult to predict.

Work sharing programs, also called short-term compensation arrangements, are recognized by unemployment compensation agencies in 29 states. When filing a work sharing plan with the state, the employer indicates the planned reduction in employees' hours, generally involving a cut between 10% and 60%.

The work sharing plan operates as a single application filed by an employer through which the state can approve partial unemployment benefits en masse for all affected employees, proportionate to the shortfall in their wages. Work sharing programs have enjoyed considerable success in Europe, and have been lauded in economic scholarship by Ben Bernanke, former chair of the Federal Reserve, among others.

However, although work sharing programs have long existed in the U.S., states historically have not actively publicized them. As a result, work sharing programs are not well known, and are often confused with job sharing, which allows two part-time employees to share one full-time job.

Still, despite many employers' lack of experience with work sharing, these programs offer a potentially innovative solution that allows an employer to reduce workers' hours, yet avoid cutting jobs, by sharing the burden of reduced labor demands across employees.

How Work Sharing Programs Work

For a practical example of how compensation works for employees in a work sharing program,[1] consider the following example of an employee who typically works a 40-hour week. The employee's work week is reduced by eight hours, or 20%.

If the employee had been laid off and determined eligible for unemployment compensation, let's assume the individual would have received a weekly state unemployment compensation benefit amount of $500. Alternatively, if the employer submits a work sharing plan to reduce the employee's work week by eight hours and the work sharing plan is approved, the employee would receive a reduced benefit calculated pursuant to state law in addition to the 32 hours of wages earned from the employer. The employee remains employed, while the employer nonetheless reduces wages.

In addition, a work sharing plan can provide employers with the flexibility to reduce work hours variably week to week. Through a work sharing plan, an employee can receive unemployment benefits in nonconsecutive weeks.

For example, consider an employee who normally works 40 hours in a week. While on the work sharing plan, the employee's work hours are reduced by 50%, and therefore the employee generally receives a reduced unemployment benefit calculated under state law as a result of the hours shortfall.

The work sharing program may allow the employer over a four-week period to work the employee 0 hours in the first two weeks (while a coronavirus-related shelter-in-place order is in effect, for instance), and 40 hours in each of the remaining two weeks. Or, for example, the plan could provide for an employee to work 0 hours in the first week, 40 hours in the second, 20 hours in the third, or a variety of different hours arrangements. These scheduling options can create considerable flexibility for both companies and their workers.

Another critical advantage of this arrangement is that it can facilitate the approval of partial unemployment benefits, which have become all the more valuable now that nearly any recipient of state paid unemployment benefits (partial or full) qualifies for the $600 weekly federal pandemic unemployment compensation[2] with the Coronavirus Aid, Relief, and Economic Security, or CARES, Act becoming law on March 27.

Work sharing plans ensure that employee applications for unemployment benefits are not bounced, for example, because: the individual remains employed, their hours were not reduced significantly enough to otherwise qualify for unemployment benefits, the individual made an inadvertent error in their application, or the individual is not searching for work.

However, most states are currently relaxing — or have already waived — waiting periods and other requirements for unemployment benefits in the COVID-19 crisis, incentivized, in part, by the recent Families First Coronavirus Response Act, and the CARES Act.[3]

Of course, in most states, employees can individually apply for partial unemployment benefits when their hours are reduced whether or not they are part of a work sharing group, but by administering a work sharing plan, an employer can facilitate approval by the state, which may result in expeditious approval of benefits — because it removes the lag created by the need for employer verification when an individual employment claim is made — and because it is essentially a streamlined process which state agencies appear to be encouraging amid a flood of claims.[4]

A further benefit is that a work sharing plan enables the employer to ensure that it can indicate if the unemployment reason is COVID-19-related, which in an increasing number of states enables the employer to avoid chargebacks or unemployment insurance rate hikes.[5]

In addition, because the work sharing plan option gives employers an opportunity to efficiently prevent the possibility that eligible employees' individual claims are not inadvertently submitted improperly — resulting in delay or denial of benefits — or that they do not suffer similar complications with ongoing requirements to resubmit claims or information periodically (often weekly), employers can ensure that these problems do not create distracting disruptions and financial hardship for their employees.

Work Sharing Maximizes Employer Flexibility

A key value of the work sharing approach is how it mitigates economic pressure for both employers and employees, while maximizing employer flexibility. Employees keep their jobs, while partial unemployment benefits soften the blow of lost income due to reduced hours.

For employers, keeping more employees on the payroll while cutting labor costs facilitates retaining the talent and accumulated expertise that employers have already invested resources, effort and time in cultivating. In addition, the greater the number of employees a company can hold onto, the broader the spectrum of strengths and perspectives it can draw upon in order to confront the dramatic and unprecedented challenges created by COVID-19. 

Preserving maximum employee headcount also ensures that, when business returns to prepandemic levels, an organization will be poised to smoothly scale back up with individuals already experienced in their operations, while simultaneously preserving the diversity of their workforce.

Moreover, while the crisis remains ongoing, as employers contemplate how they will continue to function if the coronavirus debilitates workers or creates unique caregiving obligations, having extra employees available to step in until others can return to work or ramp back up will prevent further business interruption. Without knowing what the future may hold, the flexibility provided by work sharing programs is well-suited to the fluidity of the current situation. 

Even if only an interim measure, implementing a work sharing program also spares employers from needlessly taking on the complications and costs of administering a reduction in their workforce with the necessary care to avoid running afoul of the technicalities and notice periods of the Worker Adjustment and Retraining Notification, or WARN, Act and the Older Workers Benefit Protection Act, as well as to mitigate potential liability under Title VII of the Civil Rights Act and other laws.

Avoiding the complexities of these obstacles posed by layoffs, the simplicity and speed with which a work sharing plan can be implemented presents employers with an attractive alternative. The plan applications request only basic information, often on a form that the state makes available online, which can be submitted online or over email, and state agencies are taking rapid action to approve them swiftly to preserve jobs and ensure ready access for employees to the unemployment compensation benefits they provide.[6]

This approval speed will likely only increase in coming weeks, as state unemployment agencies receive funding allocated by the recently enacted Families First Coronavirus Response Act and the CARES Act, which may result in approvals quicker than the typical 15- to 30-day deadline in which state agencies normally must approve or deny a work sharing plan. 

Importantly, work sharing programs do not preclude employers from later conducting layoffs or furloughs, providing employers with additional flexibility. Further, in adjusting to economic circumstances, an employer can simultaneously create a work sharing plan for the core group of employees it is able to retain, and at the same time lay off or furlough other employees.

Employers also have wide latitude in terms of how they structure the unit to which a plan applies, with options including variable schedule reductions for different units, backloading hours in a given period if work needs are at a standstill but expected to pick up, staggering shifts, and pursuing other permutations of work hours as necessary.[7] These options all give employers flexibility that is often lost with a layoff. 

Employers can preserve even more flexibility by dictating the length — within certain requirements — of their work sharing program. For example, employers may submit a work sharing plan for a limited period of time shorter than the maximum duration, which currently can range between 26 weeks and 53 weeks, depending on the state,[8] or apply for an increment of time that corresponds to the maximum time for application approval (such as two to four weeks), and then resubmit another application, or a modification to the existing plan at a later date.

This flexibility poses little cost to employers, as there are no application fees. If, for example, an employer needs to retain the flexibility to later cut benefits to employees, this preserves the ability to do so after the period for an initial work sharing plan concludes. Most programs require that benefits for employees be maintained for the period of the work sharing plan, once it has started; but work sharing plans do not prevent the termination of benefits before their initiation.

Potential Impact on Liability Implications

Work sharing programs can help curb liability exposure for the simple reason that employed individuals sue their employers far less frequently than terminated employees.

Layoffs, on the other hand, can attract plaintiffs lawyers for a variety of reasons: Even in an ordinary economic environment, job loss can present strain for which litigation appears the only remedy; the possibility of pursuing aggregate damages for a class of terminated employees can incentivize litigation; and the potential for recovering attorney fees in nearly any employment suit gives the plaintiffs bar automatic settlement leverage.

Not only can a work sharing program decrease the likelihood of litigation in the first place, it can also help protect employers from liability in the event of litigation. With hours reductions applied equally to all employees across a particular department, shift or entire company, disparate impact claims are harder to mount.

There is also little downside to work sharing programs, apart from the costs of keeping labor employed, and potential penalties the state can pursue in rare instances when an employer submits false information in a work sharing plan to fraudulently obtain unemployment compensation. These are concerns for employers to weigh against the financial, administrative, human and legal costs of layoffs — both now and later.

Employee Well-Being

By hanging onto employees right now, employers have an opportunity to help carry them financially through the difficult weeks ahead — and if the company has less than 500 employees, render them eligible for the paid leave benefits available under the Families First Coronavirus Response Act.

These benefits effectively cost employers nothing because the federal government will reimburse 100% of the payments through payroll tax credits, or through a refund paid no later than three weeks after requested — as the IRS pledged recently[9] — even though the employer must front the payments.

These potential leave benefits are considerable, as they provide employees who must care for children at home due to school or daycare closures or to care for sick family members with up to 10 weeks of pay at two-thirds their usual rate of pay, up to a maximum of $200 per day, and up to two weeks of leave related to illness, medical treatment or ordered isolation caused by the coronavirus, at their full rate of pay, up to $511 per day.

Under the provisions of recent legislation, employees who were laid off after March 1 after at least 30 days of employment who get rehired within 60 days of termination are also eligible for these paid leave benefits. 

By keeping employees on the payroll, employers may also be able to preserve health insurance for more of their employees (and their families) at a time when they need it most. Laid off employees, by contrast, often cannot afford the steep cost of Consolidated Omnibus Budget Reconciliation Act premiums to continue coverage post-termination.[10]

As with an employer's calculus in evaluating layoff and severance options, it is important to consider the implications for benefits costs and coverage that result from implementing a work sharing plan. Generally, if an employer provides health and retirement benefits under a defined benefit plan or contributions under a defined contribution plan, the employer must continue to maintain these employee benefits for all employees in the shared work plan for its duration, if it did so before implementing the shared work plan — though benefits can be terminated before submitting the plan application, or after the plan concludes.

In addition, apart from requirements by the state, as employers decide how deeply to cut hours, they must also consider the consequences that reduced hours may pose to eligibility under the employer's health insurance plan, because generally employer health plans limit the extent to which an employer can cut hours while preserving employee eligibility for benefits,[11] although this may prove to be an evolving issue. 

Submitting a Work Sharing Plan Application

Although the exact requirements and benefits for work sharing programs vary from state to state, there are common themes. The process to establish a work sharing plan generally involves a simple online application with some basic criteria and steps. These criteria include:

• Be legally registered to conduct business in the state, or be a payor of wages in the state for a set period, and current on unemployment compensation tax obligations.[12]
  
  
• Ensure that the reduction in hours for each employee is both above the minimum hours reduction (which may be as low as 10%, but is 20% in some other states), and below the maximum hours reduction — which may range from 40% (as in Texas and Pennsylvania) to 60% (as in California and New York) — and affects the requisite number of employees.
  
  
• Ensure that the same reduction percentage is applied to each employee in the affected unit. However, employers have wide latitude to determine what constitutes the affected unit, and to apply different reduction percentages (or none at all) to different units, or to use the same reduction percentage companywide.
  
  
• Agree not to reduce hours further, lay off participating employees or cut benefits for the duration of the plan.
  
  
• Set the plan's duration. This is usually done by the employer and is often capped — for example, at 26 weeks in Texas and 53 weeks in New York — though subsequent extension may be possible.
  
  
• Agree not to hire new employees, or transfer employees into an affected unit.
  
  
• Agree that each employee's work hours will not exceed 40 per week, although hours can be adjusted by submitting a plan modification.
  
  
• If workers are unionized, obtain approval from the collective bargaining agent of the employees.
  
  
• Submit the work sharing plan for approval to the designated state agency, with all required information and documentation, which will include, for example, the affected work units to be covered by the work sharing plan, employees' normal and reduced hours, the number of jobs saved, the plan's duration, any anticipated shutdowns during the period, and for each participating employee, their full name and Social Security number. This facilitates approval of unemployment benefits.
  
  
• Notify employees in advance of the intent to participate in the work sharing plan, obtain their consent if required under state provisions, and continue to submit unemployment benefits applications on their behalf at the intervals specified by the state throughout the plan's duration.

The simple and efficient interim measure of obtaining approval for a work sharing plan can broaden an employer's long-term options, provide immediate cost savings, and afford companies vital strategic planning time to monitor the situation and consider what to do next. This flexibility may prove especially valuable in the ever-changing contours of the COVID-19 situation, including its growing impact on business, and the fluidly evolving responses being enacted by Congress and other governmental authorities.

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Emery Gullickson Richards is an associate and Mark Blondman is a partner at Blank Rome LLP.

Jason Reisman is a partner and co-chair of the labor and employment practice group at the firm.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

[1] Work sharing programs are also referred to as "shared work" or "work share" programs.

[2] The weekly $600 federal pandemic unemployment compensation payments are set to expire on July 31,2020, under the CARES Act.

[3] General unemployment eligibility requirements, such as length of service with the employer, may continue to apply to employees seeking to receive benefits through a shared work plan.

[4] These advantages are also present with mass unemployment claim filing options available online to employers in most states. Mass unemployment claims also present a streamlined process for an employer even for small numbers of employees, despite the fact that these are so-called "mass" claims, and their utilization bears special consideration in light of the fact that employer reporting of layoffs and hours reductions is being increasingly encouraged (often by uploading a .csv spreadsheet or using an online form), and even required in one state—Georgia—by state unemployment agencies.

[5] Some states, like Texas, are advising businesses that they can submit a request for unemployment insurance chargeback protection, together with the applicable government shutdown order, if their business is closed as a result of a government order.

[6] Links to the Work Sharing Program websites in participating states can be accessed through the Department of Labor's Fact Sheet on Short Term Compensation, available here: https://oui.doleta.gov/unemploy/docs/stc_fact_sheet.pdf, and through the National Conference of State Legislatures: https://www.ncsl.org/research/labor-and-employment/work-share-programs.aspx.

[7] In addition, employees who already worked part-time can have their hours reduced in a work sharing plan in most states.

[8] Pennsylvania, for example, provides flexibility by enabling an employer to have more than one shared work plan in a 156-week period, even though the employer cannot participate in shared work for more than 104 weeks, and each individual plan can only last 52 consecutive weeks. This length of time exceeds the maximum period in which unemployment benefits are generally available, although with the CARES Act having come into law on March 27, 2020, states are now incentivized to extend the duration of unemployment benefits beyond 26 weeks; under the CARES Act, another 13 weeks of unemployment assistance will be available beyond the usual 26 weeks; and if after those 39 weeks an "extended benefits" program is triggered, that may possibly provide as much as an additional 13 to 20 weeks of compensation, depending on the state.

[9] See IRS and DOL Press Release, https://www.irs.gov/newsroom/treasury-irs-and-labor-announce-plan-to-implement-coronavirus-related-paid-leave-for-workers-and-tax-credits-for-small-and-midsize-businesses-to-swiftly-recover-the-cost-of-providing-coronavirus, https://www.dol.gov/newsroom/releases/osec/osec20200320, and DOL Field Assistance Bulletin, https://www.dol.gov/agencies/whd/field-assistance-bulletins/2020-1.

[10] Termination of employment is also a qualifying event for eligibility for health insurance plans administered under the Affordable Care Act exchange, for individuals who qualify. In addition, some states that administer their own Affordable Care Act exchanges have already reopened open enrollment as a result of the coronavirus—Colorado, Connecticut, Maryland, Massachusetts, Nevada, New York, Rhode Island, and Washington—and the enrollment window is also currently open in California and D.C. for other reasons. In addition, a Centers for Medicare and Medicaid Services spokesperson has announced that the White House is considering making a special open enrollment period available nationwide.

[11] As a result, if the parameters of a state's shared work program allow an employer to reduce hours by 60%, but if the health insurance plan requires that employees work at 50% or more of a 40-hour work week, the employer should determine if the healthcare plan provider would permit continued coverage for those employees at the intended reduced schedule, keeping in mind that if continued coverage is not permitted due to reducing employee's hours below the threshold in the healthcare plan, this may trigger COBRA notice obligations, or the employer may either need to (a) avoid cutting hours to the point that would result in loss of benefits, or (b) cut benefits before instituting a Shared Work Plan, if that is allowed in the state. Plan eligibility requirements are proving to be an emerging issue, as governmental authorities in Washington and Maine recently issued orders removing barriers for employers wishing to continue health insurance coverage for employees on furlough or reduced hours, and other states are considering similar measures.

[12] One state, Washington, however, adopted an emergency rule recently holding that employers that owe unemployment tax are no longer barred from implementing a shared work plan, in an effort to increase their use.

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