On July 30, 2012, the U.S. Department of Labor (DOL) issued Training and Employment Guidance Letter No. 3-12 (Guidance Letter), offering guidance on the applicability of the Worker Adjustment and Retraining Notification (WARN) Act, 29 U.S.C. § 2101-2109, to potential layoffs among federal contractors and the defense industry. The DOL has issued this guidance because there is a possibility of sequestration of funds under the Balanced Budget Emergency Deficit Control Act of 1985 (BBEDCA), as amended by the Budget Control Act of 2011, unless a solution is reached on certain federal budget issues by January 2, 2013. If a solution cannot be found by that date, the President is required to cut discretionary defense spending and discretionary non-defense spending by uniform percentages, estimated to be approximately 10% and 8%, respectively.

The Problem

A sudden sequestration of the revenues that fund job positions with federal contractors and specifically in the defense industry would likely compel these employers to layoff immediately a large number of employees and potentially close facilities. Since many employers are aware of the risk that these actions may occur, these employers are trying to determine how to comply with WARN, which requires 60-days advance notice to employees of covered plant closings or mass layoffs.

The DOL’s New Guidance

In response to this concern, the DOL’s Guidance Letter maintains that there are a number of contingencies which may prevent layoffs or facility closures. For instance, the Guidance Letter notes it is possible the budget issue may be remedied and sequestration avoided altogether. Or, if sequestration did occur, it could be implemented over time as provided by BBEDCA. Further, some contracts would be considered discretionary and others non-discretionary, and even then some workers would be able to keep their jobs. Thus, the DOL Guidance Letter indicates that conditional WARN notices sent in advance of sequestration in order to comply with the WARN Act would unnecessarily and against the spirit of the law cover too many employees. The DOL Guidance Letter asserts that the conditional notices would not be legally compliant because it would be impossible for them to contain accurate content due to the unknown variables currently existing regarding sequestration.

Further, the DOL’s Guidance Letter notes there is an exception to WARN’s 60-day notice requirement where the plant closing or mass layoff “is caused by business circumstances that were not reasonably foreseeable as of the time that notice would have been required.” 29 U.S.C. § 2102(b)(2)(A). Under the “unforeseeable business circumstances exception,” an employer may order the plant closing or mass layoff “before the conclusion of the 60-day period ….” Id. Consequently, the Guidance Letter concludes:

If Federal agencies announce before January 2 [2013], or in the wake of sequestration, specific contract terminations or cutbacks that will require contractors to lay off or separate their employees in less than 60 days, such Federal announcements would be sudden and dramatic, and in such cases, consistent with the WARN Act, employers will not have to provide the full period of notice.

The Guidance Letter also maintains that many agency decisions on how to operate within the constraints of a sequestration order will occur after January 2, 2013 and that in such circumstances an employer’s obligation to provide WARN notice would not be triggered until the specific layoffs or facility closures are reasonably foreseeable.

Immediate Questions About the DOL’s Guidance Letter

On August 2, 2012, the Chairmen of The Committee on Education and the Workforce, The Subcommittee on Workforce Protections and The Subcommittee on Health, Employment, Labor and Pensions in the U.S. House of Representatives jointly wrote the Secretary of Labor to express their concern over the DOL’s conclusions in the Guidance Letter and to inquire about the development of the analysis contained therein (full text of the August 2, 2012 letter to Labor Secretary Hilda Solis is available here). The Chairmen also ask what deference, if any, the DOL expects the courts to show the Guidance Letter. The August 2, 2012 letter from the Chairmen questions both the DOL’s legal basis for the Guidance Letter and its conclusions. The Chairmen also request a list of documents and communications related to the development of the Guidance Letter.

Employer Considerations and Concerns

It is uncertain what legal deference the Guidance Letter will enjoy in the courts. The WARN Act’s implementing regulations state that the DOL “has no legal standing in any enforcement action and, therefore, will not be in a position to issue advisory opinions of specific cases.” 20 C.F.R. § 639.1(d). However, the same regulations also state that the DOL “will provide assistance in understanding these regulations ….” Id. Thus, the DOL is not the entity that enforces the WARN Act, and its regulations disclaim giving advice in specific cases. Further, contrary to the DOL Guidance Letter’s cautionary tone about premature WARN notices, the implementing regulations also admonish employers to consider giving notice in ambiguous circumstances where it is unclear if WARN actually requires notice. 20 C.F.R. § 639.1(e). Instead, the implementing regulations provide that the DOL “encourages employers to give notice in all circumstances.” Id.

As to what WARN actually requires of an employer in the context of potential sequestration, the courts, not DOL, will determine if conditional WARN notices were required and whether any such notices complied with WARN. A court also will have to decide if the unforeseeable business circumstances exception of the WARN Act applies. In recognition of this enforcement reality, the Guidance Letter references case law from the Fifth and Eighth Circuit Courts of Appeal to support its position that WARN notices are not currently required for contractors. The cases support the argument that even with notice that a particular government contract in question is in danger of being terminated, a contractor may, in the exercise of commercially reasonable business judgment, conclude it was not “reasonably foreseeable” that the contract would be terminated. The cases, however, make clear that the analysis of the contractor’s actions is a fact-specific inquiry. Neither of the cases referenced in the Guidance Letter involves sequestration under BBEDCA.

While the DOL’s Guidance Letter attempts to give direction to contractors that WARN notices are not presently required or permissible for business changes related to anticipated or actual sequestration under BBEDCA, a contractor still must make an individualized assessment of its particular situation and must be confident it can defend its position in court. What legal protection, if any, will be afforded employers who rely on the Guidance Letter is unknown at present, as is what degree of deference the DOL expects the courts will show to the Guidance Letter’s conclusions about WARN’s applicability to the possibility of sequestration and its effect on contractors. As a practical matter, if a contractor finds itself in WARN litigation after January 3, 2013, it cannot hurt to have the DOL on the contractor’s side.

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