The looming sequester is giving defense contractors major heartburn. Anxiety is exacerbated by uncertainties about application of the WARN Act, a federal labor law requiring employers to give 60 days advance notice before implementing a significant layoff or closing a facility. WARN imposes significant back pay liability and other litigation expenses on employers who fail to comply with the notice requirements.
In the next few days, companies will get more specific information from DoD about likely funding cuts. Many of these directives may identify particular contracts, options, task orders, and other contract funding vehicles. But even these directives may still provide insufficient information as to whether expected cuts will cause an employment loss triggering WARN notice obligations. Many companies will be given less than 60 days notice of specific cuts.
Companies will have to make difficult choices about when to notify their employees of probable layoffs. Mindful of legal risk, some will conclude they should begin providing some sort of notice as early as next week. WARN permits employers to give what is called “conditional notice” of less than 60 days notice in circumstances where the employment loss is due to an event that is not reasonably foreseeable. These notices are often necessarily general about the expected impact on workers at particular locations, as employers scramble to minimize disruptions to their business.
Costly litigation is inevitable, as companies are likely to be second guessed for whatever decision they make. A central question in many of these cases will be the latest version of the old question of “what did they know and when did they know it.”
The challenges facing contractors have been exacerbated by the Obama administration. The Department of Labor issued regulatory guidance last summer suggesting that companies should not feel obligated to issue a conditional notice in October, because sequestration was not yet reasonably certain. That guidance, which is not binding in WARN litigation, only confirmed the uncertainty about the utility of giving conditional notice.
Litigation risk is not the only concern. The decision to issue layoff of furlough notices will cause significant disruption for many companies. Productivity will suffer as employees become increasingly anxious about job security. Companies in the technology sector have very real brain drain concerns, as competition remains fierce for highly talented and skilled employees like software design engineers. Moreover, significant cuts in DoD contracts threaten the military.
Companies are also concerned about whether costs associated with WARN compliance will be reimbursed by the government. There is no definitive, “one-size-fits-all” answer to the question of whether, in the wake of sequestration, a contractor’s costs of defending against alleged violations of the WARN Act, would be deemed allowable by DoD. Regulatory guidance issued by OMB issued in response to the Department of Labor’s statement was widely read as suggesting that WARN costs should be reimbursable. This has raised the significant policy question as to whether it is appropriate for taxpayers to end up footing the bill for potentially avoidable litigation expenses.