White House: Feds Will Cover Budget Cut WARN Act Litigation Costs of Federal Contractors | Practical Law

White House: Feds Will Cover Budget Cut WARN Act Litigation Costs of Federal Contractors | Practical Law

The White House Office of Management and Budget (OMB) offered to provide resulting costs and fees to federal contractors who are sued for failure to provide Worker Adjustment and Retraining Notification (WARN) Act notifications to employees subject to mass layoff or plant closing because of federal budget cuts. Payment would be contingent on WARN Act covered mass layoffs occurring and the covered contractors following earlier Department of Labor (DOL) guidance informing contractors that WARN notification would not be required due to the speculative nature of the cuts.

White House: Feds Will Cover Budget Cut WARN Act Litigation Costs of Federal Contractors

by PLC Labor & Employment
Published on 05 Oct 2012 • USA (National/Federal)
The White House Office of Management and Budget (OMB) offered to provide resulting costs and fees to federal contractors who are sued for failure to provide Worker Adjustment and Retraining Notification (WARN) Act notifications to employees subject to mass layoff or plant closing because of federal budget cuts. Payment would be contingent on WARN Act covered mass layoffs occurring and the covered contractors following earlier Department of Labor (DOL) guidance informing contractors that WARN notification would not be required due to the speculative nature of the cuts.
In a memorandum issued September 28, 2012, the White House Office of Management and Budget (OMB) offered to provide compensation for legal costs and fees to federal contractors who are sued for failure to provide Worker Adjustment and Retraining Notification (WARN) Act notifications to employees subject to mass layoff or plant closing because of federal budget cuts. Payment would be contingent on following DOL guidance, issued July 30, 2012, that informed contractors that WARN Act notification would not be required. The DOL administers but does not enforce the WARN Act; enforcement requires exercise of a private right of action (see DOL: WARN Act Compliance Assistance).
The budget cuts, known as sequestration, were adopted as a result of 2011's Budget Control Act, which mandated around $1.2 trillion in spending reductions over the following decade. Approximately $110 billion in cuts are currently scheduled to occur on January 2, 2013.
The earlier DOL guidance addressed whether federal contractors who may be affected by the cuts were obligated to provide WARN Act notice 60 days in advance of the planned sequestration. The DOL concluded that they were not required to send the notices due to the speculative nature of the budget cuts, including the lack of information about which contracts will be affected, if any. To notify all potentially affected workers, the DOL stated, would constitute a waste of resources and would be inconsistent with the purposes of the WARN Act.
In its memorandum, the OMB noted that, despite the DOL guidance, some contractors continued to consider issuing notices to employees. To "further minimize the potential for waste and disruption associated with the issuance of unwarranted layoff notices," the OMB announced that contracting agencies would provide compensation to contractors in the event that:
  • Sequestration occurs and an agency terminates or modifies a contract that requires a contractor to conduct a plant closing or a mass layoff subject to WARN Act requirements.
  • The contractor has followed a course of action consistent with DOL guidance.
  • The employer suffers certain costs associated with WARN Act non-compliance.
Allowable costs that would be covered by a contracting agency include:
  • Employee compensation costs as determined by a court.
  • Attorneys' fees.
  • Other litigation costs.
Agencies may also allow other costs associated with sequestration, including WARN Act-related costs beyond those specified, based on individual contract provisions or the governing cost principles of the Federal Acquisition Regulation (FAR), according to the OMB.

Practical Implications

The OMB's guidance provides added assurance to federal contractors considering whether to send WARN Act notices to potentially affected employees ahead of sequestration. However, because the question of budget cuts is unresolved, contractors continue to face uncertainty regarding their obligations under the WARN Act. Also, the guidance provides no commentary on potential payment related to liability under state equivalents to the federal WARN Act. Those mini-WARN acts may require different or additional actions by employers in anticipation of reductions in force and may subject employers to additional liability (see Mini-WARN Acts: State Q&A Tool).
For more information on related topics, see: