Unpaid leave exacts heavy price on jobs

SAN JOSE, Calif. – “Furlough Fridays” for John Krumm may as well be called “Food Bank Fridays.”

Along with 210,000 fellow California government workers, the driver and safety clerk for the Department of Motor Vehicles is helping California balance its battered budget by taking an unpaid day off from work three Fridays each month. But he’s not going to Project Open Hand’s kitchen to volunteer.

“I go to save money and get food for my table,” says Krumm, describing a still-life tableau of his furlough handout:

“Couple pieces of chicken. Some fruits and vegetables. Beans, milk and cheese. I’m losing $450 each month from my paycheck, so I’m watching every penny,” he says. “And if they make us take off any more days, I won’t be able to afford my rent.”

As private and public employers seek to whittle overhead while skirting the heavier costs of laying off and rehiring staff, millions of workers are being poked and prodded with America’s hottest management tool.

“Furloughs make sense because if you have a good employee, you want to do whatever you can to keep them,” says labor lawyer Michael S. Bernick, former head of California’s Employment Development Department under Gov. Gray Davis. “But while they may help reduce layoffs, they have their other side – for most workers, taking a 10 percent to 20 percent pay cut is a big hit.”

Furloughs can also create huge workload backups as well as raise sticky legal questions for employers who try to force exempt workers into unpaid leaves. And critics like San Francisco State University professor John Sullivan say the management tool could actually end up causing more workplace problems than they solve. “If you cut everyone’s pay,” he says, “you’ll drive away your top performers and end up with mediocre people.”

As the new F-word makes the rounds of the water-cooler and cocktail-party circuit, it seems everyone from autoworkers to bridge inspectors to newspaper reporters is being forced to take unpaid leave as companies try to stay afloat and governments slash budgets. Firm numbers are hard to come by, according to economist Stephen Levy, who says that in the private sector, at least, “as long as sales start to pick up slightly, we’re probably at the peak of layoffs and furloughs right now.”

But in an economy where 6.7 million jobs have disappeared since the recession began in December 2007, and as private wages and salaries continue to fall each month, no one’s betting against the prospect of more furloughs. In fact, 6 percent of employers surveyed by the consulting firm Watson Wyatt Worldwide say they will force mandatory furloughs within the next 12 months, while nearly one in 10 of those asked say they expect to implement a shortened workweek over the same time frame.

And while nearly half the state governments have instituted or proposed furloughs, it may have been California’s historic embrace that moved them onto the front page. In addition to planned layoffs, California hopes to save $3 billion over 17 months by sending home state employees the first three Fridays of each month. With the Department of Personnel Administration using the tool for the first time to bridge its gaping deficit, spokeswoman Lynelle Jolley says furloughs were the best fix for a dire situation.

“With the state in a precarious position, we needed to conserve cash immediately,” she says. “The layoff process can be quite lengthy, but with furloughs we can achieve savings immediately. We were desperate.”

State governments seem to be taking a page from industries like heavy manufacturing and airlines, which historically have furloughed employees when business slowed. In Silicon Valley, temporary shutdowns have been a common practice, often a year-end tradition at many high-tech firms.

While most experts stress the positive impacts of furloughs over layoffs, no one says they’re a panacea. They punish lower-paid workers disproportionately; they can torpedo workplace morale; and workers whose pay has been cut make for lousy consumers, saving more and spending less, hampering a quick economic recovery.

Yet for Rick Binger, furloughs became a powerful if painful management tool to save his San Francisco catalog marketing firm and, he hopes, will ensure that his six staffers all have jobs when the recession recedes. In February, faced with a virtual collapse of his business, Binger had his employees take a month off without pay. When new business didn’t materialize, the furlough grew even longer until work picked up and employees started coming back to their jobs in July.

“I told everyone I was really sorry, but I just didn’t have any work so there was no income coming in,” he says. “My hands were tied. Everyone sacrificed, and I think they knew that as hard as this was, it was better than being laid off.”

The use of furloughs, says Binger, “enabled me to survive over those four months.”

Others, though, say furloughs create more problems than they fix. Sullivan, of San Francisco State University, is not only a passionate critic of the practice, but he’s now being forced to take a furlough himself as part of the college system’s efforts to cut costs.

“I ask employers, ‘Why are you doing furloughs?’ and they say, ‘Because the other guy is,”’ he says. “But they’re a fad and they don’t really save money. It’s the poorly managed companies that use them, not places like Microsoft or Google.”

Sullivan says the smarter route would be better planning, a greater push for productivity gains – and the corner-office fortitude to let heads roll.

“Managers are chicken to make the tough decision and let you go. But that’s what a great manager does.”