The Office of Management and Budget (OMB) issued a memo on Friday to Federal agencies reiterating the Department of Labor’s position that the WARN Act does not require federal contractors to issue layoff notices to employees in anticipation of sequestration. The OMB took the position even further by stating the any direct costs associated with WARN violations are allowable expenses under federal contracts and reimbursable by the contracting federal agency or department.
“Specifically, if (1) sequestration occurs and an agency terminates or modifies a contract that necessitates that the contractor order a plant closing or mass layoff of a type subject to WARN Act requirements, and (2) that contractor has followed a course of action consistent with DOL guidance; then any resulting employee compensation costs for WARN Act liability as determined by a court, as well as attorneys’ fees and other litigation costs (irrespective of litigation outcome), would qualify as allowable costs and be covered by the contracting agency, if otherwise reasonable and allocable”
This drew an immediate response from U.S. Senators John McCain (R-AZ), Lindsey Graham (R-SC) and Kelly Ayotte (R-NH). Their statement reads, in part,
“The WARN Act exists to protect workers by providing at least 60 days’ notice of layoffs from government contracting work. But today, the Office of Management and Budget published guidance for the defense industry and other government contractors that they do not have to provide that notice now even though, under current law, $109 billion in across-the-board budget cuts scheduled to occur on January 2 are estimated to result in as many as 1 million lost defense jobs.”
It is unclear if OMB has the legal authority to authorize payment to contractors for the legal expenses and wages paid under WARN Act prosecution. That was clearly not the intent of Congress when the Act was passed. The penalties in the Act are intended to punish employers who do not provide their employees with timely notice of layoffs.
The Worker Adjustment and Retraining Notification Act (WARN) requires sixty calendar days notice to employees in advance of plant closings and major layoffs. Sequestration is due to be implemented January 2, 2013. WARN Act notices are due to be in employee hands by November 2. November 6 is Election Day.
At this writing, it is unclear if any of the federal contractors to be affected by sequestration will not send out WARN Act notices based upon this guidance from OMB. Several large firms had indicated their intent to send the notices in late summer.
Charles Simmins brings thirty years of accounting and management experience to his coverage of the news. An upstate New Yorker, he is a free lance journalist, former volunteer firefighter and EMT, and is owned by a wife and four cats.
