If you provide goods or services to the Department of Defense as
a prime contractor or subcontractor, you may be concerned about the
sequestration of funds beginning January 2, 2013 and its impact on
your business. Worrying about your level of contract funding
(current or new) and having sufficient work for your employees is a
headache. Your headache may have become a migraine. Now, however,
you also may have concerns about compliance with the Worker
Adjustment and Retraining Notification Act (or "WARN
Act").
Here's a high-level summary of why:
WARN Act Requirements. As a general rule, the
WARN Act requires companies with more than 100 employees to give
written notice of a facility closing or mass layoff to the affected
employees (and certain governmental offices) at least 60 days prior
to the facility closing or layoff. Employees who have worked less
than 6 months in the past 12 months and employees who work an
average of less than 20 hours a week are excluded from the
"more than 100 employees" calculation.
The WARN Act notice regarding a facility closing or layoff focuses
on "loss of employment" which is, among other things,
termination that is not voluntary, is not retirement, or is not
based on "cause." Determining whether a WARN Act notice
is appropriate includes identifying the number of employees to be
terminated and their employment or job site location.
Generally, an employer who does not give the required 60-day
advance notice is liable to each affected employee for an amount
including up to 60 days of back-pay and benefits, as well as civil
penalties of up to $500 per day. Not unexpectedly, the statutory
and regulatory requirements are more technical, but this is the
basic outline.
Long story, short: If your company is subject to
the WARN Act, you may be required to give written notice of
lay-offs on or before November 1, 2012.
January 2, 2013 Department of Defense
Sequestration—Does the WARN Act Apply? The WARN
Act and its regulations do not contain clear, unambiguous
exceptions to the Act's notice requirements based on changes in
available funding for Department of Defense procurement contracts
for good or services. Various interpretations of possibly relevant
judicial decisions also may not provide the comfort a contractor
seeks.
However, earlier this year the US Department of Labor announced in
its Training and Employment Guidance Letter No. 03-12,
that "contractors of the DOD whose contracts may be terminated
or reduced in the event of sequestration on January 2, 2013,"
are not required to give the 60-day WARN Act
notice to employees working under such contracts. As announced by
the Department of Labor, the basis of this direction to DOD
contractors is that "efforts are being made to avoid
sequestration" and that potential closing and layoffs
resulting from DOD contract terminations or cutback "are
speculative or unforeseeable."
This Department of Labor "guidance" was reinforced by a
June 30, 2012 guidance letter from an Assistant Secretary at the
Department of Labor. Additionally, a September 28, 2012 Executive
Memorandum from the White House confirms the Department of
Labor's guidance that "it is neither necessary nor
appropriate for federal contractors to provide WARN Act notice to
employees 60 days in advance of the potential
sequestration."
The September 28 Executive Memorandum also states that if a DOD
contractor follows the Guidance Letter, then "any resulting
compensation costs for WARN Act liability as determined by a court,
as well as attorneys' fees and other litigation costs
(irrespective of litigation outcome)," which the contractor
incurs "would qualify as allowable costs and be covered by the
contracting agency, if otherwise reasonable and
allocable."
Simple, easy, right?—Don't give the WARN Act notice
and the US Government will pay any employee claims for compensation
and your legal fees and related costs. Not so fast, the devil, as
always, is in the details, and there is more to this saga.
First, the March, 2012 Guidance Letter from the
Department of Labor is generally a "best practices"
statement, not a binding legal decision, not an amendment to the
WARN Act adopted by Congress, and not a new regulation.
Second, the September 28 Executive Memorandum
contains a disclaimer and may not answer all of a contractor's
business and legal questions.
Long story, short: You may want to dig a little
deeper before making your decision about whether or not you follow
the Executive Memorandum and Guidance Letter or take the more
conservative approach of complying with the WARN Act.
There's uncertainty and unexplored ground in this arena. Move
forward carefully, but don't overlook the November 1, 2012
notice deadline (and setting your calendar for the last week in
October is probably safer).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
