Economics, U.S. Economy

A WARNing about the sequester

Image Credit: Shutterstock

Image Credit: Shutterstock

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.

5 thoughts on “A WARNing about the sequester

  1. initially DOD hired contractors to handle extra work that was considered not permanent.

    then DOD saw it as a way to hire cheaper help to they could basically staff up more people with less money – and scale back if budgets got cut.

    what you don’t really hear with the sequester is how many DOD are permanent govt employees and how many are contractors that can be cut lose much quicker.

    I suspect that there are fair number of contractors these days and they can be shed quite easily …. and probably should.

  2. According to Andrew Ferguson in his Time article, “Bubble on the Potomac” –

    The size of the nonmilitary, nonpostal federal workforce has stayed relatively stable since the 1960s. What has changed is not the government payroll but the number of government contractors. It’s estimated that, thanks to massive outsourcing over the past 20 years by the Clinton and Bush administrations, there are two government contractors for every worker directly employed by the government. Federal contracting is the region’s great growth industry. A government contractor can even hire contractors for help in getting more government contracts. You could call those guys ­government-contract contractors. Which means government hasn’t shrunk; it’s just changed clothes (and pretty nice clothes they are).

    • Which is why commentaries like this posting are ridiculous. Funny how so-called conservative sites are in a panic every time the government threatens to make a small cut no matter how insignificant.

      • Where do you get “panic” from that post?

        What part of DC metro do you live in? Out here on the Pacific, outside “Greater Rome” aka DC … we applaud every cut.

        As for the job losses … f em. Sorry, but normal people don’t take kindly to theft….

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