[author: Michael C. Jacobson, J.D., XpertHR Legal Editor]
Despite written guidance from the Department of Labor (DOL) and the White House through its Office of Management and Budget (OMB), the so-called "Fiscal Cliff," a series of budget cuts and simultaneous expiration of tax cuts, may still trigger WARN Act requirements for employers with federal contracts and could force federal contractors into costly and time-consuming WARN Act litigation.
On January 2, 2013, the Budget Control Act of 2011 (BCA) will go into effect, slashing over $100 billion in spending from the federal budget. Unless a gridlocked Congress passes countervailing legislation before the end of 2012, this tremendous reduction in spending, coupled with expiration of the Bush-era tax cuts, will push employers over the so-called "Fiscal Cliff." One of the many results of that event would be a severe reduction in the workforce of many federal contractors.
Making matters more daunting, the Worker Adjustment and Retraining Notification Act ("WARN Act") requires employers with at least 100 employees to provide 60 days' notice to employees for certain mass layoffs or plant closings. Thus, if the BCA goes into effect on January 2, 2013, such notices would have been due to potentially-affected workers on November 3, 2011, three days before Election Day.
"Guidance" Issued by the Department of Labor and the Office of Management and Budget
Given the potential conflict, the Department of Labor (DOL) issued a "Training and Employment Guidance Letter" to state workforce agencies and administrators on July 30, 2012, encouraging those entities and the employers that would be beholden to them not to issue WARN Act notices to their employees by November 3rd.
The DOL reasoned that since the Fiscal Cliff is merely possible as opposed to probable that the potentially-affected federal contractors could cite the unforeseeable business circumstance exception to the WARN Act. This exception shields employers from the 60 days' advance notice requirement if a mass layoff or plant closing is caused by business circumstances that were not foreseeable at the time the 60-day notice would have been required.
The DOL further reasoned that if the Fiscal Cliff became probable as opposed to merely possible, federal contractors would have discretion in terms of how to implement the required cuts. To that end, federal agencies like the Department of Defense have not yet determined which contracts would be affected by the cuts and may not do so until and unless the Fiscal Cliff gets closer. Thus, notices to potentially-affected workers and state dislocated worker units - as is required by the WARN Act - would cause unnecessary anxiety for workers and would waste the resources of the states in notifying them to provide "rapid response" actions where they are not required.
Following the DOL's guidance, a number of federal contractors indicated that they still intended to issue WARN Act notices given the uncertainty as to who or what entity would cover WARN Act penalties, if they were to be issued. Thus, the Office of Management and Budget (OMB) issued additional "guidance" on September 28, 2012, informing federal contractors that if the Fiscal Cliff becomes reality and if contractors had followed DOL guidance to their detriment, WARN Act liability would be covered by the federal government. The OMB specified, however, that such costs would have to be considered "reasonable and allocable" and cautioned contractors that OMB guidance does not alter obligations or absolve contractors from their obligations under individual contracts or other laws including, apparently, the WARN Act.
Similarly, the DOL's WARN Act Guide for Employers reminds employers that the WARN Act is enforced by U.S. District Courts and that the DOL has "no authority or legal standing in any enforcement action and cannot provide specific binding or authoritative advice or guidance about individual situations."
Guidance for HR and Federal Contract Employers With Potential WARN Act Exposure
Now that President Obama has been reelected and the balance of power in Congress is mostly left unaltered (with Democrats controlling the Senate and Republicans controlling the House of Representatives) the so-called Fiscal Cliff is a real possibility. Whether or not it becomes probable is a question of timing and of monitoring the progress of negotiations in Congress.
Significantly, employers who are potentially affected by the approaching Fiscal Cliff may still have to comply with the WARN Act, despite the DOL's guidance to the contrary, and these employers could still face time-consuming and costly litigation despite the OMB's promise to cover WARN Act-related costs and penalties. Even if the ultimate costs of litigation are reimbursed or covered by federal agencies, employers typically strive to avoid being pulled into litigation to begin with, something which neither the DOL nor the OMB can prevent.
In order to offset possible liability, consumption of valuable time and resources and the potential for costs that are not covered by federal agencies, employers should still issue notice to potentially-affected workers "as soon as is practicable." Such notice is required by the WARN Act even if employers successfully argue for the unforeseeable business circumstance exception, as described above. Further, the WARN Act requires such employers to provide a statement to all affected individuals and entities, explaining why the 60 days' advance notice was not possible.
To the extent that employers are unable to pinpoint an exact date for mass layoffs or plant closings, the WARN Act allows employers to notify employees of a two-week window during which they can expect to experience a plant closing or job loss.
Alternatively, if employers notify employees of a future mass layoff or plant closing, but then need to postpone the action, the WARN Act requires employers to issue an additional notice, as soon as possible after the decision to postpone the action, and include a reference to the original notice. If the action is postponed more than 60 days, the employer would be obligated to provide a new notice.
Finally, employers should always be aware of whether the state where the affected plant or group of workers is located has its own WARN Act legislation. Some states impose stricter WARN Act thresholds and notice requirements, whereas other states do not have WARN Act legislation at all.
This is an uncertain time for employers, particularly those that benefit from federal contracts, and the uncertainty will likely remain as we inch closer to January 2, 2013. Given the uncertainty, employers can take the reins, so to speak, by proactively striving to comply with the WARN Act even though it may ultimately be unnecessary. Peace of mind is, after all, invaluable.
Organizational Exit > Involuntary Terminations > WARN Notifications
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