National Association of Government Contractors

Considerations for Another Shutdown Part 2

For government contractors concerned about the possibility of continued impasse with short-term funding set to expire February 8, 2018. The following issues -- beyond contract management concerns -- are important to be aware of in the event of another government shutdown.


Keep in mind that many of the issues described in Part 1, will also apply to subcontractors. For example, if prime contractor employees are not permitted to work on certain federal government sites during a shutdown, then subcontractors may not be granted site access either. Prime contractors should also be prepared to receive requests from subcontractors for authority-to-proceed commitments and for various forms of risk authorization.

The WARN Act

If a federal shutdown forces contractors to lay off workers, or significantly cut scheduled hours for employees assigned to such work, the federal Worker Adjustment and Retraining Notification (WARN) Act may require advance notification to employees affected by a facility closing or layoff event, depending on factors such as the number of affected employees.

The WARN Act generally requires employers that employ 100 or more employees, excluding part-time employees, or 100 or more employees who in the aggregate work at least 4,000 hours per week (exclusive of overtime hours), to give written notice to affected employees (and certain governmental offices) of a covered facility closing or mass layoff at least 60 days prior to such action.

A WARN Act notice must be specific, including such information as the employees who will be affected and the timing of the expected separation from employment. However, a notice may be issued contingent on the occurrence of a future event, such as the potential but uncertain cancellation of a federal contract.

A WARN Act notice regarding a facility closing or layoff focuses on "loss of employment," which generally involves a termination without cause and without any intent on the part of the employer to rehire. The definition of "employment loss" specifically includes:

an employment termination, other than a discharge for cause, voluntary resignation, or retirement;

a layoff exceeding six months; or

a reduction in work hours of more than 50 percent during each month of any six-month period.

Whether a WARN Act notice is appropriate is decided by the number of employees to be terminated and their employment or job site location. Further, whether notices should be issued as a result of a government shutdown (when the period of work disruption may be unknown) requires a fact-specific inquiry.

Prior to the sequestration and government shutdown in 2013, the U.S. Department of Labor (DOL) announced its position that WARN Act notices would not be required.

However, the DOL did not issue a similar announcement concerning the Jan. 20, 2018 shutdown.

Furloughs and Reduced Hours

As a way to control labor costs during a federal government shutdown, many contractors may consider adopting furloughs or mandatory reduced hours. Employers utilizing either approach should take proactive steps to ensure compliance with federal and state wage and hour laws, employee benefit laws, anti-discrimination laws, and contractual collective bargaining agreements. Moreover, furloughs and reduced hours can, in some circumstances, trigger state unemployment benefit eligibility.

The Fair Labor Standards Act and State Wage and Hour Law

Potential furloughs involving "exempt" employees present a complicated set of problems for employers. For example, in implementing furloughs for exempt workers, employers risk losing the exemption by violating the "salary-basis" requirement.

Under federal and most state laws, exempt employees must be paid the same minimum salary for each pay period. Except under limited circumstances, this predetermined amount is not subject to reduction if an exempt employee performs any work during a workweek. Federal Fair Labor Standards Act (FLSA) regulations specifically provide that employers may not make deductions from an exempt employee's predetermined salary for absences "occasioned by the employer" or caused by "the operating requirements of the business." If an exempt employee is "ready, willing and able to work," an employer may not make deductions for time when work is unavailable. Thus, if a government shutdown results in a partial-week furlough or a reduction in hours, employers need to ensure that their exempt employees receive their guaranteed weekly salary if they performed any work during a given workweek.

Although furloughing or reducing the hours of non-exempt employees is relatively straightforward, employers need to be aware of the risks involved for such workers as well. Non-exempt employees need only be paid for the work they actually perform (i.e., "hours worked"). Nevertheless, employers furloughing or reducing the hours of non-exempt employees during a shutdown must ensure proper payment for work performed on the employees' regularly scheduled payday.

Health Insurance

Employers should examine their group health insurance plans to determine whether a furlough or reduction in hours due to a government shutdown will trigger loss of coverage and entitlement to continued health insurance coverage under the Consolidated Omnibus Reconciliation Act (COBRA).


Lastly, when making decisions on which employees will be subject to layoff, furlough or reduction in hours, contractors should also ensure that these decisions are based on consistent and articulable business reasons. Otherwise, employers could expose themselves to claims of unlawful discrimination and retaliation if the individuals impacted by these decisions belong to a protected classification.

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