DOL Provides Guidance on WARN’s Application to Contractors

On July 30, 2012, the United States Department of Labor (“DOL”) issued a guidance to federal government contractors advising them how to comply with the Worker Adjustment and Retraining Act (“WARN”) when they undertake mass layoffs due to cuts in government spending.

The DOL published this guidance document in the event that the President orders a sequestration on January 2, 2013 that causes funding on federal contracts to be terminated or reduced. The Balanced Budget and Emergency Deficit Control Act of 1985 (“BBEDCA”), which was amended by the Budget Control Act of 2011 (“BCA”), requires that the President issue a sequestration order on January 2, 2013, that reduces non-exempt defense and non-defense accounts by a uniform percentage, if an alternative agreement is not reached concerning reductions in federal spending required by the BCA. Although President Obama and several members of Congress have indicated that their goal is to avoid a sequester, the Congressional Budget Office has estimated that base defense discretionary spending could be cut by approximately ten percent while non-defense discretionary spending could be cut by almost eight percent if the federal government does not meet the federal spending restrictions mandated under the BCA.

These across-the-board cuts in federal spending could trigger mass layoffs and closings for federal contractors. Given that contractors may not be able to predict whether these spending cuts will occur, this raises the question of whether and when contractors will be required to issue written notices under WARN. In general, WARN requires employers with at least 100 employees to provide written notice to employees, state agencies, and local governments at least 60 days before closing a plant or otherwise implementing a mass layoff. Under the DOL’s guidance, the DOL concluded that, “in the context of prospective across-the-board budget cuts …, WARN Act notice[s] to employees of Federal contractors, including in the defense industry, is not required 60 days in advance of January 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.”

The DOL explained in its guidance that WARN recognizes that there are instances when an employer is unable to give 60-days advance notice, including circumstances where a company is faltering, when natural disasters strike, and in unforeseeable business circumstances. The DOL found that the inability to provide required WARN notices could be excused under the unforeseeable business circumstances exception if the federal government orders sequestration. DOL found that it will not likely be foreseeable whether (1) a sequestration would even occur; or (2) what particular government programs or contracts would be affected by a sequestration because federal agencies would have discretion in implementing cuts in funding. Given this uncertainty, the DOL concluded that “contractors’ obligation to provide notices under the WARN Act would not be triggered until the specific closings or mass layoffs are reasonably foreseeable” and that blanket notices were neither appropriate nor required in this instance.

Although the DOL’s guidance is helpful for federal contractors to understand their WARN obligations in case of a sequestration, contractors should precede cautiously because the DOL’s guidance is not binding authority and the DOL does not have an enforcement role for violations of WARN. In addition, many states have their over version of WARN, some of which have different and more stringent requirements. These state provisions are not affected by the DOL guidance.

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