Government Shutdown Would Affect Many Businesses

Allen Smith, J.D. By Allen Smith, J.D. December 17, 2018
Government Shutdown Would Affect Many Businesses

​Businesses and government employees must brace themselves for the possibility of a partial federal government shutdown, as the deadline for funding a quarter of federal agencies nears.

Politico reports that President Donald Trump, battling with Congress to pay for and build a wall along the border of Mexico, may delay the fight over funding until next year. He may consider a two-week stopgap that would fund the handful of agencies waiting to have their budgets approved. But White House senior advisor Stephen Miller on Dec. 16 repeated Trump's threat to shut the government if Congress does not pass a measure to pay for and build the wall. The deadline to pass a measure to fund the remaining government agencies is Dec. 21.

If there is a shutdown, thousands of government and federal contractor employees would be furloughed—put out of work temporarily because of a lack of funds. Furloughed nonexempt employees of federal contractors that work with closed agencies would not be paid, unless there is a contract or collective bargaining agreement stipulating otherwise. Furloughed exempt employees would not be paid for any workweek if they performed no work. In addition, 380,000 federal employees may be furloughed and 420,000 federal employees would have to work without pay during the shutdown, according to Sen. Patrick Leahy, D-Vt.

Plus, E-Verify may not operate during a shutdown, affecting businesses that use it nationwide.

Federal employees would go without pay during the shutdown but would probably be paid retroactively after the shutdown has ended. 

Unpaid employees of federal contractors, however, might not be paid. "In the past, some contractors have secured retro-financing, but it varies from agency to agency and contract to contract," said Michael MacHarg, an attorney with Freeborn & Peters in Chicago.

However, Libby Henninger, an attorney with Littler in Washington, D.C., said, "Retroactive compensation typically is not the case for government contractors."

Most of the government, including the departments of Defense and Labor, has been funded through September 2019. The departments of Homeland Security, Justice, Commerce and Agriculture, as well as the Equal Employment Opportunity Commission, are among those still awaiting funding.

Wage and Hour Issues for Contractors

Some federal contractors have project deadlines that must be met regardless of whether a shutdown occurs, so their employees will keep working even if the government closes, noted Cheryl Behymer, an attorney with Fisher Phillips in Columbia, S.C.

Contractors without such deadlines may want to close shop and require employees to stay home. Federal contractors should review their government work contracts to see if penalty clauses would apply if the work isn't completed on time "or if the contracts directly address procedures to follow during a shutdown," she recommended.

Exempt staff must be paid a set salary if any work is performed during a workweek. If a federal contractor furlough will last a full week and the employer does not plan on paying an exempt employee, it must be careful that the employee does not perform any work during that time. This means no responding to e-mails, answering company phone calls or attending team meetings, MacHarg noted.

[SHRM members-only toolkit: Complying with U.S. Wage and Hour Laws and Wage Payment Laws]

Contractors also may consider moving employees to reduced-hour positions, Henninger said.

However, a salary still needs to equal at least $455 per week to meet the Fair Labor Standards Act exemption requirement. An employer must carefully consider the period for the reduced schedule and not frequently change the schedule and corresponding salary, or else it could jeopardize an exemption, cautioned Leslie Stout-Tabackman, an attorney with Jackson Lewis in Reston, Va.

E-Verify May Be Inaccessible

In past shutdowns involving the failure to fund Homeland Security, E-Verify has been inaccessible.

If that's the case again, "every employer will be expected to continue to complete the I-9 verification process," said Leigh Ganchan, an attorney with Ogletree Deakins in Houston.

She noted that during past shutdowns, employers could not access their E-Verify accounts or:

  • Enroll in E-Verify.
  • Create E-Verify cases.
  • View or take action on any case.
  • Reset passwords.
  • Edit company information.
  • Terminate accounts.
  • Run reports.
  • View any information about an account.

U.S. Citizenship and Immigration Services typically has implemented temporary policies to lessen the burden of these inconveniences by suspending the three-day rule for E-Verify cases affected by the unavailability of E-Verify and by extending the period during which employees may resolve E-Verify tentative nonconfirmations. But employers still must complete I-9 forms no later than the third business day after an employee starts work, and they may not take any adverse action against an employee while the employee's case is in an extended interim case status due to the unavailability of E-Verify.

Other Considerations for Federal Contractors

The Worker Adjustment and Retraining Notification Act's notice requirements for layoffs likely won't apply to this partial shutdown because it isn't anticipated to exceed six months, said Samuel Long, an attorney with Polsinelli in Washington, D.C.

Employees who are furloughed may be eligible for unemployment benefits, Stout-Tabackman noted.

She also recommended that employers examine the terms of their group health plans to ascertain whether a reduction in hours due to furloughs or terminations will trigger a loss of coverage and entitlement to continued health care coverage under COBRA.

In addition, employers that alter work schedules may see a rise in applications for loans or hardship distributions from 401(k) plans to replace lost wages from furloughs or terminations, she said.

Federal Employees

Not only would thousands of federal government employees be furloughed if the government shuts down, some would have to work during the furlough without pay.

Those who would have to work without pay include:

  • 54,000 Customs and Border Protection agents and customs officers.
  • 53,000 Transportation Security Administration employees.
  • 42,000 Coast Guard employees.
  • 41,000 federal law enforcement and correctional officers.
  • 5,000 Forest Service firefighters.

"The prospect of a federal government shutdown, regardless of the scale, is a disruptive and costly exercise," said Alfred Robinson Jr., an attorney with Ogletree Deakins in Washington, D.C., and former acting administrator of the Department of Labor's Wage and Hour Division.

"Agencies and departments that are impacted expend many resources on planning for a shutdown and then actually implementing their plans. It is a time-consuming, costly process also to identify critical or essential employees who must continue to work through a shutdown."



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