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Washington Update


With the 'fiscal cliff' looming, a second federal agency has issued guidance on whether employers must issue Worker Adjustment and Retraining Notification (WARN) Act notices to employees who work on sequestered federal contracts.

On September 28, the Office of Management and Budget (OMB) issued a guidance memo stating that if sequestration occurs, the Federal government may pay for an employer’s compensation costs for WARN act liability if a court finds an employer liable. The U.S. Department of Labor (DOL) previously issued its own guidance on WARN in July, stating: “WARN Act notice to employees of federal contractors…is not required 60 days in advance of Jan. 2, 2013, and would be inappropriate, given the lack of certainty about how the budget cuts will be implemented and the possibility that the sequester will be avoided before January.”

As you have likely heard or read in the news, automatic federal spending reductions (known as sequestration) are part of the “fiscal cliff” looming at the end of 2012, when series of automatic tax and spending provisions that will kick in at the beginning of 2013 if Congress does nothing. The fiscal cliff also includes the expiration of the Bush-era tax cuts (including employer-provided educational assistance under Internal Revenue Code Section 127) and the FICA payroll tax holiday.

The federal budget sequester may hit hundreds of federal programs on Jan. 2, 2013. If sequestration happens, many federal contractor organizations will be forced into mass layoffs and be required by the WARN Act to provide affected employees with 60 days written advance notification of plant closings and mass layoffs.

Importantly, you’ll note that 60 days prior to Jan. 2 is Nov. 3, which is the Saturday prior to Election Day. The last thing an incumbent administration wants is for hundreds of thousands of voters to be warned of imminent pink slips only days before an election.

While Congress may act after the election to prevent sequestration’s automatic cuts from occurring, both sequestration and the WARN Act are currently the law of the land. Furthermore, neither OMB nor the Department of Labor has enforcement authority over the WARN Act. So guidance from these two agencies might not be considered in court.

In sum, HR professionals are justified if they are perplexed. The confusion is not lost on congressional leaders; U.S. House Armed Services Chairman Howard P. "Buck" McKeon (R-CA) referred to the DOL and OMB guidance as “politically motivated memos with dubious grounding in the law.”

HR professionals may want to seek counsel. For more information on how employers should navigate the weeks prior to sequestration, check out SHRM’s recent Legislative Webcast "A Warning about WARN.”

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