Contractors affected by "sequestration" budget cuts may rely on WARN's "unforeseeable business circumstances" exception in issuing notices, but should be aware of potential WARN challenges.

On July 30, the U.S. Department of Labor (DOL) issued a guidance letter[1] on whether federal contractors must issue written notices—pursuant to the federal Worker Adjustment and Retraining Notification Act (WARN)—regarding government contracts that may be terminated or reduced on January 2, 2013, as a result of "sequestration" budget cuts.

The Budget Control Act of 2011 (BCA) provides for across-the-board budget cuts on January 2, 2013, if there is no alternative agreement on reductions in federal spending as mandated by the BCA. These across-the-board curtailments in federal spending, known as "sequestration," could force many federal contractors to implement significant workforce reductions. This raises the question of whether, or when, such contractors may be required to issue written WARN notices.

As to whether federal contractors must issue WARN notices by Friday, November 2, 2012 (i.e., 60 days before January 2, 2013), the DOL guidance states "no." The guidance emphasizes that many variables exist regarding the timing, nature, and extent of possible sequestration budget cuts, and indicates that these variables prevent federal contractors from having the information necessary for the issuance of such notices. The guidance also states that WARN's "unforeseeable business circumstances" provision—which permits the issuance of written notices less than 60 days prior to certain WARN-triggering events—"would apply to plant closings or mass layoffs occurring before or in the wake of the potential sequestration on January 2[]."

The DOL guidance should be helpful to federal contractors who attempt to rely on WARN's "unforeseeable business circumstances" provision to justify the issuance of WARN notices less than 60 days before any major reductions caused by sequestration budget cuts. However, federal contractors should still very carefully evaluate potential WARN notice issues for several reasons:

  • The DOL is authorized to promulgate WARN regulations, but it plays no role in WARN's enforcement. Any failure to issue WARN notices, if challenged, would be the subject of court litigation in which contractors would be required to defend themselves.
  • Even if WARN's "unforeseeable business circumstances" provision potentially applies to a particular reduction in force, this provision is only available if WARN notices are issued "as soon as practicable" when the employer determines that the reduction will occur.
  • WARN contains many complicated provisions—including exceptions, exemptions, and exclusions—that are very difficult to apply even in straightforward situations.[2]
  • The DOL guidance relates to federal WARN obligations; however, employers should also carefully assess potential requirements under state and local notice laws that, in many cases, are more stringent than WARN.
  • Republican members of Congress have criticized the DOL's failure to note that federal contractors must defend themselves in court if employees or unions challenge any failure to issue 60-day WARN notices regarding sequestration-caused workforce reductions, as well as its suggestion that employers should refrain from voluntarily giving employees and government representatives whatever information is available regarding such reductions.[3]

Employers who face the possibility of federal contract reductions and curtailments should carefully evaluate potential WARN obligations and seek legal advice regarding whether, or when, WARN notices might be required.