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What does a government contractor do if the federal government suddenly, and without notice, cuts funding to its project? What if the funding cuts compel the contractor to close a facility and/or lay off workers?

The Worker Adjustment and Retraining Notification Act requires that employees be given 60 days鈥� advance notice of covered plant closures or mass layoffs. But if money no longer is coming in from the federal government for a contractor to continue paying its workers for 60 days, what does it do then?

On July 30, the Department of Labor issued a guidance letter with some direction on the applicability of the WARN Act in regard to potential layoffs by federal contractors.

Under the Budget Control Act of 2011, Congress must either cut $1.2 trillion from the deficit or raise the debt ceiling by the same amount. If it were to opt for the latter, however, across-the-board cuts in federal programs would be enacted automatically. These automatic cuts 鈥� approximately 10 percent 鈥� would take effect on Jan. 2, 2013.

A sudden cut in the revenues that pay for job positions with federal contractors would likely compel many of these employers to lay off a large number of employees immediately and potentially close facilities. Because many employers are aware of this possibility, they are trying to determine how to comply with the 60-day advance notice requirement under the WARN Act.

In response to this concern, the DOL鈥檚 guidance letter maintains that circumstances requiring layoffs may never occur. Any number of contingencies may occur 鈥� and if so, layoffs or facility closures may not be necessary.

For example, the guidance letter notes, it is possible that the budget issue may be remedied and cuts avoided altogether. Or, if cuts were to occur, they could be implemented over time. Thus, the guidance letter indicates that conditional notices sent in advance of any budget cuts to comply with the WARN Act would unnecessarily, and contrary to the spirit of the law, cover too many employees. The guidance letter asserts that conditional notices would not be legally compliant because it would be impossible for them to contain accurate content because of the unknown variables regarding cuts.

Further, the guidance letter notes that there is an exception to the WARN Act鈥檚 60-day notice requirement where the plant closure or mass layoff 鈥渋s caused by business circumstances that were not reasonably foreseeable as of the time that notice would have been required.鈥� Under the 鈥渦nforeseeable business circumstances exception,鈥� an employer may order the plant closure or mass layoff 鈥渂efore the conclusion of the 60-day period鈥︹��

Consequently, the guidance letter concludes: 鈥淚f Federal agencies announce before Jan. 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.鈥�

It is uncertain what legal deference courts will give to the guidance letter. The WARN Act鈥檚 implementing regulations state that the DOL 鈥渉as no legal standing in any enforcement action and, therefore, will not be in a position to issue advisory opinions of specific cases.鈥�

As to what the WARN Act actually requires of an employer in the context of potential cuts, the courts 鈥� not the DOL 鈥� will make that determination. Moreover, a court will have to decide whether the unforeseeable business circumstances exception of the WARN Act applies.

NLRB upholds ruling that company violated NLRA

On Aug. 4, 2007, following the breakdown of contract negotiations between Dresser-Rand Co. and Local 13 of the International Union of Electronic, Electrical, Salaried, Machine and Furniture Workers – Communications Workers of America, the union began striking to pressure Dresser-Rand to agree to union bargaining demands.

Dresser-Rand continued operations throughout the strike by hiring both temporary and permanent replacement workers. During the strike, 13 strikers crossed the picket line and returned to work at the plant.

On Nov. 19, 2007, the union offered to return to work on behalf of the remaining strikers. Dresser-Rand rejected the union’s offer and began a lockout. It did not lock out the permanent replacement workers it hired during the strike. However, it did lock out both the current strikers and the crossovers.

After the lockout ended, the union claimed that Dresser-Rand had violated the National Labor Relations Act, in part by locking out the strikers and the crossovers but not the permanent replacement employees; and by recalling the crossovers to work before the union made an unconditional offer to return and the rest of the employees were recalled.

On Aug. 6, in a 2-1 decision, the National Labor Relations Board upheld the administrative law judge’s decision that Dresser-Rand had violated the NLRA by: locking out full-term strikers and crossovers, but not other unit employees; reinstating crossovers ahead of full-term strikers; discharging a striker for purported strike misconduct; suspending a reinstated striker for referring to permanent striker replacements as 鈥渟cabs鈥� during a floor meeting; and denying accrued vacation leave to certain strikers.

The board also found that the employer violated the NLRA by failing to bargain over the process of returning strikers to work.

Howard Rubin is a shareholder in Littler Mendelson鈥檚 Portland office. Contact him at 503-221-0309 or [email protected].

Don Stait is Special Counsel in Littler Mendelson鈥檚 Portland office. Contact him at 503-221-0309 or [email protected].