Government Shutdown: To WARN or Not to WARN?

In two previous posts, we addressed several wage-hour and contracts-related issues arising from a potential government shutdown. In this third — and, hopefully, final — post on this subject, we address whether a government contractor should consider giving notices to employees who might find themselves out of work due to a government shutdown.

Please note that this post is not intended to provide legal advice relating to a specific government contract or employment situation, only to set forth some of the major considerations that may be relevant. Please note also that some states have their own, stricter notice requirements.

The Worker Adjustment and Retraining Notice (WARN) Act

The WARN Act is intended to offer protection to workers, their families and communities by requiring employers to provide notice 60 days before covered plant closings and covered mass layoffs. 

A plant closing occurs when an employment site will be shut down, and the shutdown will result in an employment loss for 50 or more employees during any 30-day period. 

A mass layoff occurs when, without a plant closing, there is an employment loss at the employment site during any 30-day period for 500 or more employees, or for 50- 499 employees if they make up at least 33% of the employer's active workforce.

Employment loss

The definition of employment loss is very important in determining whether WARN Act notice is required. That definition is:

1. an employment termination, other than a discharge for cause, voluntary departure or retirement;
2. a layoff exceeding 6 months; or
3. a reduction in an employee's hours of work of more than 50% in each month of any 6-month period.

Unforeseeable business circumstances

An employer is not required to give 60-days' notice if the closing is due to "unforeseeable business circumstances." According to the U.S. Department of Labor (DOL), an important indicator of a business circumstance that is not reasonably foreseeable is that the circumstance is caused by some sudden, dramatic, and unexpected action or condition outside the employer’s control. 

As relevant to government contractors, an example of an "unforeseeable business circumstance" is a major customer's sudden and unexpected termination of a major contract with the employer.

Application to a government shutdown

How does the above apply if the government shuts down at the end of September because Congress has not enacted a budget?

Will there be employment loss?

First, it is significant that no prior government shutdown has lasted anywhere near six months. The longest (so far) was for 35 days in 2018-19. Before that, the shutdown of 1995-96 lasted 21 days. Thus, a contractor reasonably could assert that it does not foresee a shutdown lasting six months, such that the definition of employment loss is not satisfied and no notice is required.

Is a shutdown unforeseeable?

Beyond that, a shutdown may be unforeseeable even at this late date.

In 2012, DOL issued Guidance Letter 3-12 intended to advise contractors on the application of the WARN Act to the effects of sequestration, which was an across the board budget cut ranging from 8-10% for all federal agencies. DOL said in that publication:

"Although it is currently known that sequestration may occur, it is also known that efforts are being made to avoid sequestration. Thus, even the occurrence of sequestration is not necessarily foreseeable. ... Perhaps more importantly, federal agencies also have some discretion in how to implement the required reductions."

Thus, DOL said, employment losses from sequestration were not foreseeable.

Applying DOL's analysis to the present circumstances, House Speaker Kevin McCarthy was quoted recently in the media as saying, "It's not Sept. 30 — the game is not over." In other words, Congressional leaders are still working to avoid a shutdown before the government's fiscal year ends at the end of the month.

Moreover, even if the government were to shutdown, some agencies have leftover funds from prior years or other discretionary funding to keep some contracts going. 

Thus, it could be argued that, as DOL said in 2012, "in the absence of any additional information, potential plant closings or layoffs resulting from contract terminations or cutbacks are speculative and unforeseeable."

Conclusion

Most of us hope that sanity prevails and Congress finds sufficient unity to prevent a government shutdown. Even if that happens, it's still useful to have reviewed the wage-hour, contracts, and WARN Act issues we have discussed in these three posts, as all of them have other applications. (Of course, as noted, those applications are fact specific.)

If you did not see our prior posts about legal implications of a government shutdown, or if you want more information, please get in touch with your usual Brown Rudnick contact or with the authors.