“How to Handle Possible January Budget Sequestration under WARN”

On July 30, 2012, the U.S. Department of Labor (DOL) issued Training and Employment Guidance Letter No. 3-12, offering guidance on how  federal contractors should comply with the Worker Adjustment and Retraining Notification (WARN) Act, 29 U.S.C. § 2101-2109, when facing potential layoffs if federal funds are automatically cut in January of 2013 under the Balanced Budget Emergency Deficit Control Act of 1985 (BBEDCA), as amended by the Budget Control Act of 2011.

If  a solution is not reached on certain federal budget issues by January 2, 2013, the President is required to cut discretionary defense spending and discretionary non-defense spending by uniform percentages, estimated to be approximately 10% and 8%, respectively.

A sudden cut of the revenues that fund job positions at federal contractors and specifically in the defense industry may cause employers to layoff immediately a large number of employees and close some facilities. Since many employers are aware of these potential cuts and the resulting layoffs and closures, employers are asking how to comply with WARN, which requires 60-days advance notice to employees of covered plant closings or mass layoffs.

The DOL’s Guidance Letter points out that there are a number of contingencies which may prevent layoffs or facility closures. For example, the Guidance Letter recognizes that it is possible that a budget deal is reached and sequestration avoided altogether. Or, if sequestration is required, it could be implemented over time as provided by BBEDCA. Further, some contracts could be declared discretionary and others non-discretionary, so that some jobs would be funded. Thus, the DOL Guidance Letter states that conditional WARN notices sent in advance of sequestration might unnecessarily notify too many employees. The DOL Guidance Letter also notes that such conditional notices might not be legally compliant because they could not  contain accurate content due to the unknown variables currently existing regarding sequestration.

Further, the DOL’s Guidance Letter notes there is an exception to WARN’s 60-day notice requirement where the plant closing or mass layoff “is caused by business circumstances that were not reasonably foreseeable as of the time that notice would have been required.” 29 U.S.C. § 2102(b)(2)(A). Under the “unforeseeable business circumstances exception,” an employer may order the plant closing or mass layoff “before the conclusion of the 60-day period ….”  Consequently, the Guidance Letter concludes:

“If Federal agencies announce before January 2 [2013], or in the wake of sequestration, specific contract terminations or cutbacks that will require contractors to lay off or separate their employees in less than 60 days, such Federal announcements would be sudden and dramatic, and in such cases, consistent with the WARN Act, employers will not have to provide the full period of notice.”

The Guidance Letter anticipates that many agency decisions on how to operate within the constraints of a sequestration order will occur after January 2, 2013.  In that scenario, an employer’s obligation to provide WARN notice would not be triggered until the specific layoffs or facility closures are reasonably foreseeable.

Government Contractors who must comply with WARN will be carefully watching the elections and budget negotiations and preparing their WARN Notices, but it is still too early to determine when the notices may be required or what specific information they must contain. The Guidance Letter suggests that the timing may not require WARN notices until after actual sequestration is ordered in January of 2013.