“There’s no magic legal definition that would cover the difference between a layoff and a furlough,” says Jacques, a partner and labor and employment attorney at Pepe & Hazard, LLP (www.pepehazard.com). However, as commonly defined, a “layoff” gives “no sense or indication that the person will be recalled,” and a “furlough” generally means that an employee will be out for a period of time or that the employer at least intends to recall the person, Jacques explains.

Risky Business Decisions

Furloughs are less risky than layoffs from a business perspective, he says. Furloughed employees might be willing to wait to be recalled, thus reducing recruiting and training costs later. However, laid-off employees—and even layoff “survivors”—often look elsewhere for employment.

Furloughs induce less anxiety than layoffs because, in general, they are for a set period of time, he says. “There’s no question that it is difficult to go through tough economic times, but if you give people hope—provided it is realistic—it is easier [for them] to deal with it.”

However, furloughs can create some potential problems that employers need to consider. If an employer promises to recall workers, but then cannot afford to do so, “at a minimum, it’s going to lead to a lot of frustration and anger,” Jacques says.

In some cases, such a promise also can create legal problems. For example, if an employer implements a furlough and tells an employee that he is going to be recalled on a particular date, the employee might not look for another job or might turn down a job offer from another company. If the employee is not recalled, that can lead to a “detrimental reliance” or “implied contract” claim in some states, Jacques explains.

Advice to Consider

Jacques has some sound advice for employers considering furloughs. “You have to go into it with your eyes open and recognize there are both legal and business risks. However, that doesn’t mean you don’t do it.”

Here are some additional tips:

Give yourself an exit strategy. “You ought to make it very clear that it is your intent to bring people back, but that is contingent upon certain things” happening (e.g., improvement in the company’s economic condition, a new contract award, etc.), Jacques says. Although it’s OK to promise to do everything in your power to recall furloughed employees, he recommends making it clear that you are not guaranteeing that you will be able to recall them.

Consider compensation issues. “If you have exempt employees, you’re going to have to manage any furlough or layoff very carefully. You cannot have a furlough every Friday and then not pay an exempt employee for those Fridays,” he says, noting that employers cannot reduce compensation for exempt employees for economic reasons. Instead, exempt employees would have to be placed on furlough for a block of time, generally for a week or more.