Here We Go Again! Government Shutdown Employment Issues for Federal Contractors
In the seemingly annual cadence of life, we are again facing the possibility of a government shutdown. For federal contractors, this means significant impact on workforce needs, planning and compensation.
Here are some of the preparatory issues employers may wish to consider:
1. Determine Whether a Government Shutdown Affects Your Company
Not all federal contracts will necessarily be affected by a government shutdown - for example contracts for which funds have already been obligated or paid to the contractor, or contracts deemed “essential” to protect life and property.
The relevant government contract itself should include a reference to FAR 52.242-15, which permits the government to issue a “stop-work order.” If a shutdown prevents a contractor from performing its work (e.g., necessary funding cannot be obligated to the contracts, or contractor personnel cannot access the government facilities where work is to be performed), then the Contracting Officer should issue a written stop-work order to the contractor prior to, or as soon as the shutdown occurs.
If you are unsure whether a shutdown will require you to stop work on a federal contract, seek guidance from the Contracting Officer and/or an attorney specializing in government procurement.
2. Furloughs
When the government shuts down, so does contract funding and employee access to government sites. Employers may need to temporarily reduce staffing levels and place employees on unpaid leave (a furlough). Here are some issues to keep in mind:
a. Losing Overtime Exemption by Docking Pay for a Partial Workweek
The Fair Labor Standards Act (FLSA) provides that employees who are exempt from overtime pay generally must be paid the same predetermined amount every pay period if they do any amount of work during that pay period. See 29 CFR 541.602. Though deductions may be allowed in certain enumerated circumstances, an absence due to a government shutdown is not one of those permissible circumstances. Therefore, in a shutdown scenario exempt employees who work any portion of a work week must be paid for the whole work week. Exempt employees need not be paid for any work week in which they do no work.
b. WARN Act
In the case of certain mass layoffs or plant closings, under the federal Worker Adjustment Retraining Notification Act (“WARN Act”) and state equivalents, an employer may be required to provide workers and state and local officials with 60 days notice of a “mass layoff”. Some states maintain parallel statutes. Applicability of WARN Act requirements are highly fact-specific, so consult counsel to discuss the issues presented for your organization.
c. Benefits Issues
Employers who are considering furloughing employees should review benefit plan documents to determine whether the planned action would trigger a loss of coverage eligibility. In such a case, the employer must provide affected employees with notice of their rights and responsibilities under the Consolidated Omnibus Budget Reconciliation Act (COBRA).
d. Unemployment
Some states, including California and Maryland, allow furloughed employees to collect unemployment insurance. Evaluate the jurisdictions in which furloughed employees work and determine the impact and requirements of local unemployment compensation laws.
3. Reductions in Pay
Federal contractors who need to reduce (but not eliminate) employee headcount may change the predetermined amount paid to the employees in exchange for a reduced schedule. This should only be done prospectively and after notice has been given to the affected employees. Remember that some states require between 7 and 30 days of advance notice, or at least one full pay period’s notice, before a change in pay can be implemented. So check applicable state and local laws. here it is permissible, for exempt employees the predetermined amount should not fall under the minimum salary thresholds set forth under the FLSA and applicable state law.
4. Mandating PTO Use
Contractors may consider requiring employees to utilize accrued paid time off (PTO) during the shutdown. Confirm that the company policy allows for the mandated use of accrued PTO, and check local laws (for example those in California and Maryland) for restrictions on employer mandates on the use of accrued PTO.
5. Other Issues
Federal contractors who are evaluating options, for example furloughing employees or reducing work hours, should seek advice from legal counsel as soon as possible. Communicate with employees about prospective changes to the terms and conditions of employment. Follow federal, state and local wage and hour and wage payment laws. Examine immigration related issues for employees who hold visas. If the workforce is unionized, negotiations with the union may be required.
Contact us for assistance.
