Update

Furloughs for California state workers are back on. The California Supreme Court overturned a lower court's restraining order that had blocked the furloughs.

Governor Schwarzenegger can order workers to take unpaid days off until the state Supreme Court makes a more permanent ruling on whether the Governor has the authority to order furloughs. The Court will hold a hearing on the issue in September 2010.

About 150,000 state workers will take furloughs three days in August 2010. The furloughs are estimated to save the state $150 million a month.

Original Article

There is a battle going on in California; it involves the governor, hundreds of thousands of state workers, unions and the courts. The battle is over furloughs.

Last year, to deal with California's budget problems, Governor Schwarzenegger issued an order instituting furloughs in various sectors. California unions then sued the governor claiming that the furloughs are either illegal pay cuts or are misapplied.

What Is a Furlough?

furlough is a temporary leave of absence from a job, duty in the armed services or a prison term. It may be voluntary or involuntary and can have a long or short duration.

California's Furlough

California's budget faces an $11 billion shortfall. As a result, Governor Arnold Schwarzenegger is trying to cut wages and benefits by instituting furloughs. Last year, he ordered state employees to take two days off without pay each month. This was later increased to 3 days.

The purpose of the furloughs was to generate money for the general fund. The governor estimated that it will save the state roughly $1.4 billion. The current three-day furloughs reduce the pay of about 215,000 state workers by about 14%.

The Legal Arguments

Unions representing 7,400 employees of the State Compensation Insurance Fund sued the governor, charging that Schwarzenegger's executive order was illegal. They said the governor cannot unilaterally cut wages or hours outside the collective bargaining process and without the Legislature's approval.

The governor's position was that the law authorizes him to take these steps in a fiscal emergency.

So far, the governor has been winning nearly all of the legal battles against him. The insurance unions lost the first trial in January 2009 when a Sacramento judge affirmed the governor's furlough power. The unions appealed, and in September 2009 the judges determined that the furloughs were illegal.

Why Were the Furloughs Ruled Illegal?

In the appeal, the judge decided that the governor had no authority to cut the staff of the insurance fund. The fund, based in San Francisco, sells workers' compensation insurance to employers and uses the proceeds to run its operations, with no support from the state treasury.

"We're very pleased, since our participation in the furlough program had no effect on the budget crisis," said Jennifer Vargen, spokeswoman for the insurance fund.1

Schwarzenegger will appeal the ruling, said spokesman Mike Naple. Another judge had issued a similar ruling in June 2009 overturning furloughs of a different fund for lawyers and hearing officers. Schwarzenegger has already appealed that ruling.

Unlike agencies directly under the Republican governor's financial control, employees of the insurance fund are legally exempted from "any hiring freeze and staff cutbacks otherwise required by law," according to state law.2 Furloughs can be viewed as staff cutbacks because they reduce employee availability.

Why Is This Decision So Significant?

If the judge's ruling is upheld, insurance fund workers will be entitled to back pay plus 7% interest for the days they were furloughed.

The two decisions are the first legal setbacks for the furlough program and may help workers in other states challenge their unpaid leaves.

Are Other States Using Furloughs?

Furloughs are being ordered nationally. Major companies such as Dell Inc., Gannett Co., American Airlines Inc. and DuPont Co. have announced plans to send workers home for a few days or a few weeks without pay as a way to cut costs. A growing number of employers are jumping on the furlough bandwagon. However, these decisions are creating confusion in the workplace. People are unclear what these actions mean to productivity as well as compliance with labor laws; and labor unions are challenging these orders.

Currently, at least 19 states are using furloughs to deal with budget problems and nearly a million state employees are facing furloughs in the next two years. Even teachers, who were once exempt from furlough days, have been forced to take unpaid days off in Georgia, New Mexico, North Carolina, Florida and California.

Myrtle Bell, associate professor of management at the University of Texas at Arlington explains, "Furloughs are an unfortunate consequence of a lot of bad decisions, greed and poor judgment that are hurting a lot of people. Some people really live paycheck to paycheck, and these furloughs are very difficult for them. However, the bottom line is that if furloughs help employers weather the storm and help employees avoid being laid off, I think they are useful."3

Sources
1 Bob Egelko, State's Finances, S.F. judge rules insurance fund furloughs illegal. SFGate.com, Sept. 2, 2009, available at http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/09/02/MNMD19H5G2.DTL, accessed Oct. 27, 2009.
2Id.
3Eve Tahmincioglu, Furloughs raise questions about worker rights, msnbc.com, June 1, 2009, available at http://www.msnbc.msn.com/id/30966653/wid/17621070//, accessed Oct. 27, 2009.

Questions for Your Attorney

  • Can I be furloughed if I'm salaried?
  • Can I file for unemployment insurance when I'm on furlough?
  • What if I work a bit while on furlough?
  • If I am in a union, will the union challenge the furlough for me?

Tagged as: Labor and Employment, Wage and Hour Law, california furlough, furlough fight