Hunton Employment & Labor Perspectives

President Obama is not only focused on health care these days.  He is also focused on helping companies keep employees, rather than lay them off, during a tough economic time.  The federal government will actually supplement wages, in certain circumstances, to stop layoffs. In February of 2012, President Barack Obama signed into law the Middle Class Tax Relief and Job Creation Act of 2012.  The chief focus of the Act was extending tax cuts for the middle class.  However, the Act also made substantial revisions to the unemployment insurance system.  One of the key revisions was to provide substantial federal funding for the expansion of state short-time compensation (“STC”) programs, which are sometimes referred to as “work sharing” programs.

STC programs are viewed as an alternative to layoffs and allow an employer to reduce work hours for a group of employees during temporary or sporadic tough economic times, rather than laying off a subset of the group.  The group affected by the reduced hours, and thus lower wages, have their lowered wages supplemented by unemployment compensation, and typically the employer continues to provide full benefits to the affected employees.  Proponents of STC programs view this as a win-win:  employees get to keep their jobs and benefits, while employers get to maintain their skilled workforce and avoid the hassle of hiring and retraining new workers when business activity picks back up.

Prior to the passage of the Act in 2012, a handful of states had maintained small-scale STC programs.  That all changed with the passage of the Act, which provided states with federal funding to implement an STC program law or improve their existing program.  To qualify for the funding, among other requirements, a state’s STC law must require that employers continue funding health insurance and other benefits for the affected workers.  Moreover, the state law must prohibit employers from reducing the workers’ hours by more than 60%.

To date, 28 states have STC program laws on the books that qualify for funding under the Act.  In an effort to encourage more states to adopt STC programs, the United States Department of Labor, Employment and Training Administration recently launched a STC website.  The website provides guidance and model legislation for states interested in developing an STC law that conforms with the Act’s requirements.

As more and more states adopt STC programs, employers contemplating layoffs as a result of business slowdown should consider whether an STC program provides a viable alternative to layoffs.  This is especially true where an employer anticipates that its business slowdown is temporary and that it will need to return to full staffing levels in a relatively short time period.