Work Sharing Program May Help California Employers Avoid Layoffs

May 21, 2020 | From HRCalifornia Extra

by James W. Ward, J.D.; Employment Law Subject Matter Expert/Legal Writer and Editor, CalChamber

California recently entered Stage 2 of its COVID-19 Resilience Roadmap, the state’s first step toward a gradual reopening — but there’s a long road ahead for many employers.

Businesses continue to struggle with various problems, including reduced business activity, cutting their operating costs, maintaining employees and ensuring safe workplaces. Even as talk has turned to reopening, many employers may have to consider further reductions in business activities and staff if economic activity doesn’t come back fast enough. Plus, public officials have made employers well aware that it may again shut down activity depending on COVID-19’s spread.

“If we pull back and we modify our stay-at-home order too early and we start to see an increase [or] surge in cases, hospitalizations and spread, then we have to have the ability to toggle back,” said Governor Gavin Newsom in an April 28 press conference. “We have to have the ability to adjust. We have to have the ability to fix it.”

The reason, Newsom said, is that if efforts are scaled back too quickly, a second wave of the virus that’s potentially more damaging than the first could strike.

One option employers may want to consider as they navigate these turbulent circumstances is the California Employment Development Department’s (EDD) Unemployment Work Sharing Program.

Unemployment Work Sharing Key Details

The work sharing program may offer employers an alternative to layoffs. It allows employers to reduce employee work schedules rather than laying off workers, while allowing these employees to simultaneously collect partial unemployment benefits for the time reduced.

For example, instead of laying off 20 percent of employees, an employer could reduce employees’ hours by 20 percent and unemployment insurance (UI) would pay part of the difference in wages to employees. The program helps employers keep their workforce intact during a slowdown, enabling them to ramp up business activity more quickly as conditions improve.

The new federal Coronavirus Aid, Relief and Economic Security Act (CARES Act) adds complexity to this issue, as it provides a flat $600 weekly unemployment benefit to laid off workers in addition to what California’s unemployment system provides. This means individuals who qualify may receive more than their working wages while unemployed. This puts employers in the strange position of competing with unemployment for workers. Some employers trying to rehire or recall their employees as they reopen are being met with hostility because employees know that once they’re recalled or offered a job, they’re likely ineligible for continued UI benefits. From some employees’ perspective, the employer is taking away their unemployment “windfall.”

Because of the way the CARES Act is written, however, the work sharing program could actually be a particularly good option for employers. The CARES Act does not prorate the payments for partial unemployment, so employees receiving partial unemployment benefits, even as little as $1, under the work sharing program will also receive the flat $600 CARES Act payments. Thus, employees may be able to work and collect wages for reduced hours, while also collecting partial state UI benefits and the $600 weekly federal payment. This could potentially ensure workers receive their full wages (or more in some cases), mitigate tensions in employee relations and allow employers to continue operating at reduced hours.

For eligible employers, the work sharing program could minimize the need for layoffs and/or could allow employers to return employees to work part time, which may be all some businesses can sustain as the state slowly reopens.

Work Sharing Requirements and Criteria

To participate, employers must submit an application to the EDD. Generally, employers would have to submit the Work Sharing Unemployment Insurance Plan Application (DE 8686) in writing, but when Newsom issued Executive Order N-50-20 on April 15, 2020, he directed the EDD to establish an electronic means of expediting access to the work sharing program and gave the EDD discretion to suspend certain application requirements for that purpose. The Work Sharing Application is now available online.

To be eligible for work sharing, the EDD states that employers must meet all of the following requirements:

  • Be a legally registered business in California.
  • Have an active California State Employer Account Number.
  • At least 10 percent of the employer’s regular workforce or a unit of the workforce, and a minimum of two employees, must be affected by a reduction in hours and wages. (Temporary, seasonal, leased and intermittent employees cannot participate in the work sharing plan.)
  • Hours and wages must be reduced by at least 10 percent but not exceed 60 percent.
  • Health benefits must remain the same as before, or they must meet the same standards as other employees who are not participating in work sharing. Any reductions in health benefits must be applied equally to all employees, those participating in the plan and those that are not.
  • Retirement benefits must meet the same terms and conditions as before, or they must meet the same as other employees not participating in work sharing. Any reductions in retirement benefits must be applied equally to all employees, those participating in the plan and those who are not.
  • The collective bargaining agent of employees in a bargaining unit must agree to voluntarily participate and sign the work sharing application.
  • Identify the affected work units to be covered by the work sharing plan and identify each participating employee by their full name, Social Security number and any other information required by the EDD.
  • Notify employees in advance of the intent to participate in the work sharing program. If the employer cannot notify the employees in advance, the employer must explain why.
  • Identify how many layoffs will be avoided by participating in the work sharing program.
  • Provide the EDD with any necessary reports or documents relating to the work sharing plan.
  • The employer must attest that participation in the program is consistent with its employment obligations under federal and state laws.

One downside to the work sharing program is that it’s administratively burdensome. In addition to the application itself, once approved, employers must send weekly certifications to the EDD for each participating employee. Employers will be charged for work sharing unemployment insurance in the same manner as regular UI benefits. While this has the potential to increase employers’ UI tax rate, layoffs would have the same result when the employees who were let go file for unemployment benefits.

Employers should consult with legal counsel to determine if the work sharing program is a good strategy given their particular circumstances. The program may allow employers to avoid layoffs and stay in operation at a reduced capacity. Additionally, given the problems employers are having trying to keep or rehire their workers because of the CARES Act unemployment benefits, participating in work sharing could create an incentive for employees to remain employed or return to work — and it might simultaneously allow employers to maintain better employee relations.  

Employers can read more about the program and how to apply on the EDD’s work sharing site.