Sequestration and the Government Contractor’s Employees: Double Trouble (continued)

In our last blog entry, we discussed how the notice requirements of the WARN Act may apply to decisions made by the contractor to deal with Sequestration. Another employment law that rears its head in Sequestration-related employment decisions is the Fair Labor Standards Act (the FLSA). The FLSA deals with wage and hour issues for your employees, and can be the most dangerous and costly set of employment statutes in existence. It can lead to large awards for unpaid compensation, penalties and large attorney fee awards to prevailing plaintiffs.

So what does the FLSA have to do with Sequestration? Well, when contractors get pinched on labor costs, they may try to get creative with staffing and compensation plans. Let’s say, for example, a contract is staffed with several computer-related professionals, each of whom is paid a salary by the contractor (and considered an “exempt” employee by the contractor). Let’s also say the contractor is told to cut its labor costs. The contractor wants to save everyone’s job, so it decides to have one of the employees each week take a day off (some may call this a “furlough”). Although this plan would cut the contractor’s labor costs, it also would violate the FLSA.

According to the FLSA, an exempt employee has to be paid on a “salary basis.” This means the employer must pay the worker a predetermined amount of compensation each pay period, regardless of the quality or quantity of the employee’s work or the actual hours he or she works. Generally speaking, an exempt employee must receive the full salary for any week in which the employee performs any work, regardless of the number of days or hours worked. So, the hypothetical plan above would violate the FLSA in at least two ways, by (1) paying the employee based on the “quantity” of hours worked by the rotating employee, and (2) not paying the same employee for a full week’s salary because he or she worked that week.

So, if and when you have to get out your sharp pencil to deal with cuts related to Sequestration, by all means be creative, but don’t forget about complying with applicable employment laws, including the WARN Act and the FLSA.


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