March 1, 2013, arrived without a budget compromise in Washington, D.C. As a result, across-the-board federal budget cuts, known as sequestration, are expected to go into effect. For employers, the most significant impact will be on those doing business with the federal government, particularly those with a large number of workers employed on federal contracts.
Many contractors are anxiously waiting to find out whether cuts will specifically impact them and, if so, how much advance notice they will receive, according to Louis Wilson, an attorney in Ford Harrison’s Melbourne, Fla., office. The issue of notice is very significant from an employment law standpoint, given an employer's notice obligations under the Workers Adjustment and Retraining Notification (WARN) Act, Wilson said.
Pursuant to the WARN Act, employers with 100 or more employees are generally required to give at least 60 days advance notice prior to instituting mass layoffs or plant closings, as those terms are defined in the statute. In the sequestration context, the WARN Act could be implicated if a contractor suddenly finds it necessary to cut its workforce drastically in response to its federal projects being terminated or the funding reduced, Wilson explained. A number of contractors have expressed concern that they might be forced to take immediate action in response to sequestration and find themselves in a position where it is not possible or practicable to provide the full 60-days of notice contemplated by the WARN Act.
Although one exemption to the WARN Act authorizes less than 60-days notice in the case of “unforeseeable business circumstances,”
“How can anyone say with a straight face, that these are unforeseeable circumstances?” noted Harold Coxson, the head of Ogletree Deakins' Governmental Affairs Practice Group.
No Exception for Sequestration
“Sequestration should not be viewed or invoked by government contractors as a catch-all justification for adverse job actions taken as a result,” said Connie Bertram, an attorney in Proskauer’s Washington, D.C., office. “Given the scope of program cut-backs, the risk of litigation is high. Contractor employees often work in highly specialized fields, so if entire programs are eliminated or substantially reduced, it will be difficult for former employees to find comparable employment. This is a recipe for employment litigation,” she cautioned.
“Even if there will only be temporary employment disruptions including partial furloughs, these employment decisions will be subject to legal oversight. There is no exemption from the employment laws because of sequestration,” added Larry Lorber, also of Proskauer’s Washington office, and, with Bertram, co-head of the firm’s Government Regulatory Compliance & Relations Group.
As a result of this uncertainty and the risk of potential liability, some federal contractors have chosen to issue "contingent" WARN Act notices, which notify employees that mass layoffs and/or plant closings may become necessary as a result of sequestration. The validity and effect of such notices is unclear, however, Wilson said.
The Employment and Training Administration (ETA) of the U.S. Department of Labor, on July 30, 2012, issued a guidance letter urging contractors to hold off issuing WARN Act notices before the sequestration deadline, noting that specific cuts were still speculative and unforeseeable, and, that, in its view, blanket notices are contrary to intent of the WARN Act..
However, the WARN Act's implementing regulations make clear that enforcement of the act is to be done through the courts and that the Department of Labor and ETA have "no legal standing in any enforcement action and, therefore, will not be in a position to issue advisory opinions of specific cases."
Further, the federal Office of Management and Budget (OMB), issued a memorandum on Sept. 28, 2012, which suggested that any WARN Act liability costs incurred by contractors who followed the guidance letter, including litigation costs, would be reimbursable and covered as allowable costs by the contracting agency. But, it is doubtful, Coxson said, that the OMB has the authority to say, “Go ahead and violate the law. We’ll indemnify you.”
In the weeks following the OMB memorandum, a number of contractors chose to issue contingent WARN Act notices in anticipation of the initial Jan. 2, 2013 "fiscal cliff" deadline, Coxson noted. No further guidance has been provided by the federal government since the OMB memorandum.
In a number of states this issue is further complicated by existence of "mini-WARN Acts," Coxson said. California, Connecticut, Hawaii, Illinois, Iowa, Maine, Massachusetts, Michigan, New Hampshire, New Jersey, New York, Tennessee, Wisconsin and the U.S. Virgin Islands have all passed laws imposing obligations similar to those imposed by the federal WARN Act, but some state statutes require even more advance notice, apply to smaller employers and are triggered when even fewer employees are let go. For example, New York State's WARN Act requires that 90 days advance notice be given, applies to employers with 50 or more employees and can be triggered when as few as 25 full-time workers are being let go.
In deciding how to respond to sequestration, contractors should work closely with legal counsel, Coxson advised. "Some employers may try to reduce hours below the threshold that triggers the WARN Act," noted Coxson, "but that has implications for federal and state wage and hour laws, including possible loss of exempt status."
If your company has federal contracts, “My advice would be, to be safe, not to subject yourself to liability, issue a WARN notice, be as specific as you can. Be sure it’s within 60 days” of when you anticipate layoffs will become necessary, he said.
“Sequestration cuts should be treated like a reduction in force,” Bertram and Lorber advised. Employers should carefully identify the justification for selection decisions and analyze the adverse impact of the proposed selections. Government contractors must ensure that each adverse job action is grounded in clear, articulable bases, such as. performance rating, job class and seniority, and that those criteria are consistently applied.” Government contractors should consider offering fair severance packages to terminated personnel that require full and compliant releases of the terminated employees’ claims, they added.
This insecurity may last only 30 days, Coxson said, noting that Congress may come up with more specific cuts. “But I don’t know if this will occur. I don’t know if anyone is betting on Congress doing anything these days,” he concluded.
Joanne Deschenaux, J.D. is SHRM’s senior legal editor.