Monday, August 6, 2012

Sequestration and the WARN Act

"Sequestration" is one of the hottest political issues in Washington. It is a term for mandatory cuts to federal programs, the process of cordoning off money that may have been authorized by Congress but is now prohibited from being spent. The Government is facing one of the biggest sequestrations of all time - $600 billion out of Defense and another $600 from domestic programs. This sequester came up last year as part of the debt limit law as punishment for not coming up with a plan to cut the deficit.

If sequestration kicks in next January, there will be significant program cancellations and curtailments which could lead to plant closing and/or significant layoffs.

The WARN Act (Worker Adjustment and Retraining Notification Act) applies to employers with 100 or more employees and requires employees be provided with a 60-day advance notice when a plant is to be closed or there is to be a mass layoff.

There has been concern raised as to whether the WARN Act requires Federal contractors, including, and in particular, DoD contractors whose contracts may be terminated or reduced in the event of sequestration on January 2, 2013, to provide WARN Act notices 60 days before that date to their workers employed under Government contracts.

The Department of Labor (DOL) is the Agency responsible for implementing and enforcing the WARN Act. Last week, DOL issued guidance that emphatically stated that Government contractors are not required to provide WARN Act notices 60 days before January 2, 2013, in anticipation of a potential sequestration order that could be issued on that date. The guidance explains that such notices would be inconsistent with the purposes of the WARN Act.

This DOL guidance might be different than you've read elsewhere. Some contractors are considering issuing  WARN Act notices anyway, as a precaution,  Perhaps there is merit to that position. The Northrup Grumman CEO in responding to the DOL guidance stated: "... but I think simply saying you don't have to do it is perhaps not a fully considered position when it comes to recognizing the force of law".

One source reported that DOL " ... is not the sole entity in charge of making this determination." and you need to watch out for DCAA (Defense Contract Audit Agency) who might disallow severance payments, termination costs, and plant closures barring a WARN Act notice. We think that probably overstates DCAA's authority in light of clear guidance from DoD (who posted the DOL guidance on their Policy website).

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