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Seven Reasons Employers Should Not Lay Off Employees in Response to COVID-19

Categories: Employment, Blog

why it is in your benefit to not layoff people during COVID-19

On March 19, 2020, Arizona Governor Doug Ducey issued an executive order to limit the operation of certain business, including bars, restaurants, movie theaters, and gyms in an effort to stop the spread of COVID-19. Although many other businesses remain fully operational, they are suffering the economic impacts. This has led many employers to face challenging decisions, including whether to lay off their employees.

There are at least seven reasons why Arizona employers should avoid layoffs.

1. 100% tax credit for all federal paid leave. Beginning April 2, 2020, employers with fewer than 500 employees will be required to provide their employees paid sick time and paid FMLA leave for COVID-19 related events.

Employers that provide paid leave are entitled to a 100% tax credit from their payroll taxes. The credit can be given at the time of the payroll, so the employer does not need to wait until they file their 941 payroll tax return. It costs employers nothing to keep employees on the payroll while they are on paid leave for COVID-19 related events.

This is important because many employees will qualify for leave, even if they are not ill. For example, while Arizona schools remain closed, parents of school age children are entitled to up to twelve weeks of paid leave to care for their children.

Employers should work with their employees to explore whether they qualify for paid leave before deciding whether or not to terminate them.

2. Stimulus including business loans. Although all of the details have yet to be unveiled, the U.S. Senate recently announced it has passed a stimulus bill that will provide one-time direct payment to many Americans, along with providing small businesses access to low interest loans. The U.S. Small Business Administration currently provides low-interest loans to small businesses and non-profits that have experienced revenue loss as a result of COVID-19. Such programs will enable many employers to stay afloat during this challenging time.

3. Business interruption insurance. Employers that have business interruption insurance may be entitled to coverage for COVID-19 related losses. States like New Jersey have already introduced legislation to compel insurers to pay for certain COVID-19 related business interruption claims. The Arizona legislature could follow suit.

4. Shared Work Unemployment Compensation Program. The Arizona Department of Economic Security has implemented the Shared Work Unemployment Compensation Program. The Program allows an employer to divide the available hours of work among a specified group of affected employees in lieu of a layoff. It allows the employees to receive a portion of their unemployment insurance benefits while working reduced hours. The Shared Work Program is not available to an employee unless the employer for whom the individual is currently working reduced hours completes an application, which then must be approved by the Arizona Department of Economic Security. An approved Shared Work Plan is valid for one year, and an employee may be eligible for up to 26 weeks of Shared Work benefits.

5. There are significant costs associated with hiring new employees. When the economy bounces back, and it will, employers that conducted mass layoffs will have the daunting task of recruiting, hiring, and training new employees. According to the National Association of Colleges and Employers, it costs the average employer with 500 or less employees an average of $7,645 to hire a new employee.

6. We’re all in this together. Keeping workers employed is a gesture of solidarity this country desperately needs. If every employer lays off employees, it will make a temporary problem more permanent. And, this may only be temporary. Although no one can predict the future, some economists project that unlike the 2008 economic crisis, the economy may recover more quickly, especially if employers focus on the long game.

7. Loyalty and Ethics Matter. Employees who were terminated will have long memories. Social media posts could cause boycotts of companies that don’t do everything they possibly can to retain their employees.

Employers should explore all options before considering laying off employees. There are a lot of options to consider.

About the Authors: Alden Thomas is an employment law attorney at Jaburg Wilk. She advises companies on state and federal sick leave, harassment, discrimination, wage and hour, wrongful termination, and whistle blower laws.

Jeff Silence is also an employment law attorney at Jaburg Wilk. He counsels employers on compliance with all employment laws including the new and complex federal laws related to COVID-19.