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Is Sequestration an "Unforeseen Business Circumstance" Excusing WARN Notice?

    Client Alerts
  • March 15, 2013

Last month's initiation of federal budget sequestration is already resulting in employee layoffs. Federal agencies are notifying contractors of the cancellation or delay of orders and projects, especially those involving defense contractors. Facing substantially reduced business, some employers have concluded that they must reduce their workforces.

Federal law requires that employers conducting mass layoffs or plant closings affecting certain threshold numbers of employees provide 60 days advance notice of the employment loss. The Worker Adjustment and Retraining Notification Act contains limited exceptions to this rule. The main exception involves situations where the employer could not have reasonably foreseen the need to reduce staff 60 days in advance of the effective date of the layoffs.

Do layoffs caused by sequestration fall within this exception? Last year when the possibility of such action became clearer, some federal contractors began providing conditional WARN notice to comply with the law in the event they were required to reduce their workforces. At that time, the Department of Labor stated that the mere possibility of sequestration did not require or merit WARN notice given the lack of certainty of the effect of the measure on any particular employer.

Given the reality of sequestration, its impact on WARN notice will depend on the particular circumstances involved. Employers that suspected that sequestration could affect their federal contracts can claim unforeseen business circumstances if the contracting agency did not provide specific advance warning that the business was in jeopardy. In other words, the mere possibility of loss of the business should not defeat use of the WARN exception absent other information relating to the loss of the particular federal contract involved.

On the other hand, some employers, especially in the defense industry have been aware for some time that the federal government is reducing expenditures independent of sequestration. In these cases, employees not provided with full WARN notice could contend that the business loss and need to reduce the workforce was reasonably foreseeable well in advance of the sequestration date and formal notification from the contracting agency.

Employers faced with the need to reduce their workforces should provide as much advance notice as possible. If they cannot provide full WARN notice, employers should thoroughly document the circumstances and timeline regarding their realization of the need to reduce the workforce.