To Warn or Not to Warn? - That's the Hot Question

Sequestration is one of the hot issues in DC, thanks to huge budget cuts that are due to hit soon under the Budget Control Act, triggering across-the-board cuts that will eliminate many jobs in the federal government contract arena.  An important issue has now arisen under the Workers Adjustment and Retraining Notification (‘WARN’) Act, which provides that employers with 100 or more employees anticipating a significant layoff must provide at least sixty calendar days advance notice to those who could lose their jobs.  Companies face serious sanctions if they fail to follow the Act.

If sequestration hits as currently planned on January 1, government contractors face loss of funding and would therefore have some of their contracts terminated.  Their affected employees would need to receive WARN notice by the end of October – just a few days before the Presidential election.  Apparently recognizing the sensitivity of this issue, the White House has released a memo telling contractors they do not have to provide WARN notice to employees, and in the event they get hit with legal costs they can pass those along to the government as an ‘allowable cost.’  In our view, this advice is fraught with peril.  The FAR governs what costs are allowable, and running the risk of liability for not providing a statutory layoff notice is not an obvious allowable cost.  Without a contract modification confirming a waiver of indemnification, contractors cannot take the White House memo to the bank.

Some contractors should consider providing WARN notice as an abundance of caution, and let their employees know that if circumstances change to advert a layoff the company will provide timely notification.  “Throwing the dice” by doing nothing and having a general trust in the White House memo, especially when several Senators on the Hill have made it clear they will fervently oppose taxpayer subsidy of such costs, is a dangerous move.

Author Seth Berenzweig is the Managing Partner for the Washington, DC regional business law firm of Berenzweig Leonard, LLP.  He can be reached at sberenzweig@BerenzweigLaw.com.