Federal spending cuts as a result of the looming fiscal cliff may have an additional impact on federal contractors anticipating layoffs or plant closures. Employers with 100 or more employees are required to provide their employees with a 60 day notice prior to a mass layoff or plant closing under the Worker Adjustment and Retraining Notification (WARN) Act.
Failure to comply with the WARN Act results in potential fines and liability to each affected employee. Additional fines and liability may also be incurred in states that have adopted their own versions of the WARN Act.
One of the results of the fiscal cliff is the sequestration of federal funds, in other words, a reduction in federal spending. In July, the Department of Labor (DOL) issued a memorandum assuring that notice is not required for federal contractors in anticipation of the fiscal cliff because it qualifies as an "unforeseeable business circumstance," an exception to the WARN Act. The DOL memorandum can be accessed here
. The White House Office of Management and Budget (OMB) also issued a memorandum in September, assuring federal contractors that they were not required to provide WARN notices for potential layoffs resulting from the sequestration of federal funds. The OMB also stated that, provided that the employer otherwise complied with DOL regulations, federal agencies would cover potential liability under the WARN Act, should any arise. The OMB letter can be accessed here
While these assurances should provide some solace to federal contractors, their legal effect is unknown. The degree to which these memorandums are binding is unclear as is the government’s ability to indemnify private employers. Further, employers in states with their own WARN acts should take particular warning as the effect of the federal issued guidance is even less certain.