In a Memorandum issued on 28 September 2012, the Federal Office of Management and Budget (“OMB”) informed senior financial and procurement officials that the Federal Government will reimburse contractors for WARN Act litigation costs resulting from the across-the-board budget cuts (commonly known as “sequestration”) scheduled for 2 January 2013. This Memorandum comes on the heels of a Department of Labor (“DOL”) Guidance Letter issued on 30 July 2012 that concluded  WARN Act notices are not appropriate in situations like sequestration.

Despite DOL's Guidance, many companies remained intent on giving the necessary Notices since the DOL was not the only party who could challenge an employer's failure to provide the required Notice - the employee being laid off can challenge his employer's failure to give notice.  The Federal Government, however, is trying to avoid the wholesale panic (specifically "unnecessary anxiety and uncertainty for workers") that could result from huge numbers of WARN Act notices being issued on or about November 1 (since notices must be sent out 60 calendar days in advance of plant closings and/or mass layoffs) for layoffs beginning in January 2013.

So, to discourage contractors from issuing WARN Act-related notices as a precautionary measure, OMB  has taken an unprecedented action of telling procuring agencies that the Federal Government will PAY for all costs associated with a contractor's failure to give WARN Act notices before sequestration goes into effect, including attorneys fees.  In its Memo to Chief Financial Officers and Senior Procurement Officials, the OMB informed  them  that, (1) if a contract is terminated or modified by an agency because of sequestration and a plant closing or  mass layoff occurs, then (2) “any resulting employee compensation costs for WARN Act liability as determined by a court, as well as attorneys’ fees and other litigation costs (irrespective of litigation outcome), would qualify as allowable costs and be covered by the contracting agency, if otherwise reasonable and allocable.”

Unfortunately, in trying to soothe anxious workers, the Memo creates additional headaches for employers.  A cursory reading of the OMB's 2-page Memo quickly identifies large problems.  First, in order for costs associated with WARN Act liability to be reimburseable, the "liability must be determined by a court",  meaning that nothing short of a judicial endorsement of liability from a Federal district court will satisfy.  No settlements will be reimburseable.  Second, the Memo only speaks in terms of "contractor" and makes no mention of subcontractors or vendors who also could be exposed to the same WARN Act requirements and liabilities as the contractor.  This is especially troubling where, as In today's economy, so many prime contractors are also subcontractors or vendors on other projects.  What does OMB's Memo mean?

OMB certainly tried to address the problems created by the Department of Labor's Guidance in July, but it may have only added fuel to the fire.  Uncertainly regarding the WARN Act and Sequestration remains.