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Business faces the coronavirus and a hike of minimum wages

Commentary

Wendy M. Lazerson is the co-chair of Sidley Austin LLP’s Labor and Employment international practice group and a partner in the firm’s San Francisco and Palo Alto offices. She can be reached at wlazerson@sidley.com.

Galit A. Knotz is counsel in Sidley Austin’s Los Angeles office. She can be reached at gknotz@sidley.com.

California’s minimum wage is scheduled for another increase on Jan. 1, 2021, up to $13 an hour for small employers and $14 an hour for employers with 26 or more employees.

Indeed, by the same date or perhaps earlier, the minimum wage may see greater increases in many cities across the state. These increases come at a particularly inopportune time, when many employers across the state and across industries are suffering financial hardships as a result of the COVID-19 pandemic. Increased costs associated with compliance with state and local public health orders, a condition precedent to returning workforces to work, as well as increased sick leave requests, loss of business and increased prices, among other things, leave many employers in precarious financial circumstances.

Though lobbyists are urging the state to delay the pay increase, and several local governments are considering delaying imminent local minimum wage increases, employers cannot wait for such measures to materialize as they must plan ahead. Employers have initiated or are contemplating a variety of cost saving measures, each carrying its own considerations.

For example, those businesses implementing a reduction in force (RIF) must consider whether such action could trigger potentially cost prohibitive notice requirements under the California and/or Federal Worker Adjustment and Retraining Notification Act (WARN).

At the outset of the pandemic, COVID-19 was viewed as an unforeseeable circumstance leading some authorities to relax WARN Act requirements under state and federal law. California’s Governor Newsom issued an executive order March 17 temporarily suspending the 60-day notice requirement under the California WARN Act where layoffs were triggered by COVID-related reasons.

However, by its terms, the suspension only applies when the triggering event is caused by “business circumstances that were not reasonably foreseeable at the time that notice would have been required.” This far into the pandemic, employers will need to consider whether a COVID-related layoff is “not reasonably foreseeable” when the pandemic has been affecting the economy for months. Neither the state nor the federal authorities have issued guidance to indicate their positions.

Employers are also considering alternatives to layoffs such as early retirement incentive programs, furloughs, salary reductions, hiring freezes, and/or a reduction of hours.

Yet, each of these options also presents unique considerations. Some of these measures, including furloughs or a substantial reduction in work hours, could trigger WARN requirements. Likewise, reduction in salaries could trigger loss of exempt status for employees. This is particularly true given that minimum wage increases will increase the thresholds for exempt status. And, unlike a reduction in hours, a reduction in wages alone will not enable employees to apply for unemployment benefits. Employers must also consider whether, if and when business picks up, laid off employees will be available to supplement reduced workforces.

Given the current challenges employers are confronting, it is incumbent upon them to maximize the utilization of employees by evaluating business needs and the skill set of their workforce.

In the ongoing pandemic, considerations could include cost savings that may flow from having employees who are able to work remotely from home and those who have multiple talents who can fill various roles as demands change.

This is also a good time to ensure that the workforce is functioning at its best by stepping up performance expectations and performance management.

Of course, having proper documentation to support performance management is essential to avoiding claims of discrimination and retaliation, which, in the current pandemic, include claims related to having or being perceived as having COVID-19.

There is some good news. Government assistance programs may be available for some employers.

For example, employers of fewer than 500 employees that are required to provide paid sick leave per the Families First Coronavirus Response Act (FFCRA) should keep careful documentation of such leaves to ensure that they receive maximum tax credits, as such credits could zero out their net FFCRA-related costs.

Some employers may also qualify for the Paycheck Protection Program, which is a loan forgiveness program applicable to small businesses who keep all their employees on payroll and utilize the money for payroll, rent, mortgage interest, or utilities. The application deadline is June 30.

Moreover, larger employers may be eligible to claim tax credits for wages paid to employees on furlough while the business was shut down due to a government order or if the employer suffered a significant reduction in business.

Commentary

Wendy M. Lazerson is the co-chair of Sidley Austin LLP’s Labor and Employment international practice group and a partner in the firm’s San Francisco and Palo Alto offices. She can be reached at wlazerson@sidley.com.

Galit A. Knotz is counsel in Sidley Austin’s Los Angeles office. She can be reached at gknotz@sidley.com.

This is not the first time employers in California have faced financial challenged, albeit COVID-19 has brought some unique challenges.

The pending minimum wage increase presents an additional hurdle, and while it is possible that the increase will not take place on its original effective date of Jan. 1, employers should evaluate all of their options in confronting the inevitable increase. The steps discussed above are some of the options to consider, but which path is best for any individual employer requires careful thought and analysis, particularly in a time where circumstances are constantly evolving along with the pandemic.

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