On March 21, 2013, the House of Representatives approved a spending bill that would provide funding for the federal government through September 30.  The Senate had already passed the bill and President Obama is expected to sign it.  Although the bill locks in the $85 billion in sequester cuts, it provides agencies more flexibility in implementing them.  In response to the bill, the Department of Defense has announced it is delaying furlough notices to approximately 800,000 civilian employees in order to assess its options under the bill.

Notwithstanding the additional flexibility provided by the bill, sequestration will still cause significant uncertainty for government contractors.  In implementing employment decisions, including furloughs, reduced hours programs and terminations, caused by sequestration spending cuts, contractors must engage in careful planning, including considering the federal and state employment law implications of them, including:

  • In selecting the employees who will be impacted by sequestration cuts, contractors should apply reduction-in-force principles to reduce the likelihood of discrimination claims. Contractors should identify articulable (and, preferably, objective) standards for selecting employees and consistently apply them. Contractors should also coordinate with their counsel to conduct a privileged review of the potential impact of furloughs and terminations on protected job classes and the contractor’s affirmative action plan.
  • During the first round of reductions in early March, in certain instances, contracting officers identified the employees or employee classifications that needed to be removed from contracts. Contractors should make certain that they carefully document these requests and consistently implement them. Again, if the contractor is able to place certain of the impacted employees on other contracts or in other roles, it should be prepared to articulate the justification for selecting these employees over the remaining impacted employees and should conduct a privileged assessment of the impact of these decisions on protected classes.
  • In many instances, contractors have elected reduced hour programs at the request for their government customer or to match furloughs implemented by it. Contractors should confirm that their pay practices for these employees do not imperil employees’ exempt status under the Fair Labor Standards Act and state equivalents and otherwise comply with state wage payment requirements.
  • Contractors also must be mindful of the implications of their benefits plans when undertaking terminations, furloughs and hours reductions. Before undertaking job actions, employers should review the hours and service thresholds of their benefits and retirement savings plans and coverage requirements under state or local and state law. Employers should be mindful that, starting in 2014, the Affordable Care Act may subject employers to penalties if they reduce employees’ work below the hours thresholds for coverage.
  • For covered benefits, a termination, furlough or hours reduction will likely trigger the obligation to offer benefit continuation through COBRA. In situations involving temporary furloughs or hours reductions, contractors may be tempted to continue the affected employees on their benefit plans even if they do not technically qualify for coverage. Contractors, however, need to confirm whether the plans permit benefit continuation, and, if not, request an exemption from their carriers. Otherwise, carriers may deny benefits to employees (and their dependents) who are on furlough or in an hours-reduced status.
  • Contractors should continue to evaluate their obligations under federal and state WARN laws. Contractors may be required to consider the impact of employment actions taken during the first round of sequestration cuts in determining whether the WARN thresholds have been triggered. Moreover, although guidance has been offered to contractors on this topic by various federal agencies and authorities, contractors should understand that this guidance is not binding in a private federal or state WARN lawsuit brought by terminated employees and may not impact contractor obligations under state and local mini-WARN acts.
  • If contractors elect to offer releases in connection with terminations, they should need to be mindful of their obligation to comply with the Older Worker Benefit Protection Act (OWBPA). The OWBPA which requires a 45-day consideration period and disclosures concerning the ages of employees within the group considered for termination. In addition, it includes “look-back” provisions that require contractors to consider the impact of terminations and other job actions prior to the current job actions in preparing OWBPA disclosures.