COVID-19 has had significant impacts on all aspects of business. While employers are assessing how to handle immediate employee needs related to sick leave, family leave and benefits claims, employers should also consider the impact that changes in their workforce or economic conditions will have on their compensation plans and programs.
This blog post addresses one of those compensation issues that many companies are currently grappling with – whether a temporary leave of absence or furlough triggers forfeiture, payment, vesting, or other treatment under compensation arrangements.
In following blog posts, we will address other compensation issues, including:
- Effect of salary reductions on compensation arrangements (including “good reason” triggers);
- Limitations on amendment of equity awards and performance goals; and
- Funding and termination of nonqualified deferred compensation plans (“NQDC plans”) and limitations on such actions.
Is a leave of absence or furlough a “termination of employment” or “separation from service”?
Many employment agreements, severance plans, equity awards and other compensation arrangements provide for partial or full vesting or payment of amounts upon an employee’s termination of employment or separation from service.
Although many employees have experienced a significant decline or cessation of work in connection with the COVID-19 outbreak, such employees may not have necessarily had a separation from service or termination of employment under the terms of the applicable compensation arrangement.
As a general matter, employers with compensation arrangements with separation from service or termination of employment triggers who have employees who are being placed on leave, reduced hours or furlough should take the following steps, preferably before or as soon as possible after implementing any workforce changes: