Sequestration and the Government Contractor’s Employees: Double Trouble

With Sequestration upon us, many government contractors are facing workforce challenges. Some contracts will be lost, others scaled back. Some contractors will be forced to undergo significant layoffs. Others will try to do more with fewer employees. These issues make your employment lawyers nervous (and it should make you feel the same), as it triggers questions that can end up with your company being hit with significant employment liability. Out of the myriad of employment laws that contractors will face in dealing with Sequestration, there are at least two that jump to the forefront.

First, whenever deciding on a significant layoff or reduction in force, contractors must make sure they comply with the federal Worker Adjustment and Retraining Notification Act (the WARN Act). In a nutshell, the WARN Act requires that subject employers provide employees a 60-day notice before a “plant closing” or “mass layoff.” Failure to do so triggers significant liability, ranging from penalties, to 60 days’ worth of pay and benefits for the affected employees, to having to pay an employee’s attorney fees if he or she wins a WARN Act lawsuit.

In order to trigger the WARN Act notice requirement, certain factors must be present (relating, for example, to the size of the employer and the number of employees losing employment). A number of carved out exceptions also exist. The one most related to Sequestration is the “unforeseen business circumstance” exception. If a closing or layoff otherwise subject to notice requirements is the result of an unforeseen business circumstance, the employer is generally relieved of WARN Act obligations.

Last Summer and Fall (as “election season” was in full gear), you may have heard that the Department of Labor and the White House Office of Management and Budget issued guidance on the applicability of the WARN Act to Sequestration. The general message was that Sequestration was an “unforeseen business circumstance,” for which no WARN notice was required. Many employment lawyers (including the authors of this blog entry) cautioned against accepting this guidance, because it contradicts the case law developed in the courts on the subject of foreseeable business conditions. Since that time, no court has addressed the issue; thus, the court system has yet to endorse the Administration’s guidance. As a result, the prudent contractor facing layoffs or stopping work on contracts should analyze and comply with the WARN Act.

The WARN Act is only one of several laws that can be triggered by acts taken by a contractor to deal with Sequestration. In our next blog entry, we will discuss another one: the Fair Labor Standards Act (the FLSA).


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