Watch the Deep Dive of this post
Navigating the WARN Act: Essential Compliance Steps for Federal Contractors Facing Shutdowns and Contract Cuts
The volatile landscape of federal spending and potential government shutdowns often leaves federal contractors in a precarious position. As the administration focuses on reducing federal spending, contractors and grant recipients are increasingly bracing for sudden contract terminations, reductions, and rigorous reviews. These rapid changes frequently force difficult decisions regarding workforce reductions, bringing significant legal obligations under the federal Worker Adjustment and Retraining Notification (WARN) Act.
Understanding the complexities of the WARN Act, and its state-level counterparts, is crucial, as failure to comply can result in substantial costs, including back pay and benefits to each affected employee for up to 60 days.
WARN Act: The 60-Day Notice Requirement
The WARN Act is a federal statute designed to provide employees with 60 days’ advance notice before a mass layoff or a plant closing, giving them ample time to prepare for new employment.
To be a covered employer subject to the Act, a company generally must have 100 or more employees (excluding part-time employees), or 100 or more employees (including part-time staff) who collectively work at least 4,000 hours each week, excluding overtime.
What Triggers the WARN Act?
The Act is triggered by two main events:
- Plant Closing: A permanent or temporary shutdown that results in an employment loss for at least 50 employees at a single site of employment or within facilities or operating units within a single site during a 30-day period. Note that a “plant” does not have to be a factory; it simply must be a single site of employment.
- Mass Layoff: A reduction in force, not resulting from a plant closing, that causes an employment loss at a single site during any 30-day period for either:
- 50 employees who comprise at least 33% of active employees, or
- At least 500 employees.
The Nuance of Location and Projects
Determining the “single site of employment” is critical. While it can be a straightforward single building, it may also encompass groups of adjacent facilities or separate buildings that are reasonably close, share equipment and staff, and serve the same purpose. This analysis is often nuanced for federal contractors operating across multiple sites.
The calculation is further complicated by remote workers, which are common in federal service contracting. For WARN purposes, a remote worker’s single site of employment may be considered the location designated as their home base, the place where work assignments originate, or the site to which they report. This means that remote workers across different states could be aggregated to reach the triggering thresholds.
A potential trigger specific to contractors is the closing of an “operating unit,” defined as an organizationally or operationally distinct work function or project. If a federal contract project is distinct—with a separate operating budget, cost center, and management—the cancellation of that project leading to 50 or more terminations within 30 days may constitute a plant closing under the Act.
Understanding Employment Loss and Aggregation
For the Act to be triggered, there must be a requisite number of employment losses. An employment loss is defined as:
- A termination (other than discharge for cause, voluntary departure, or retirement).
- A layoff that exceeds six months.
- A reduction in work hours of more than 50% during each month of a six-month period.
This definition directly impacts federal service contractors, where the cessation of a contract often leads to furloughs or extended layoffs lasting multiple months.
Furthermore, contractors must heed the 90-day aggregation rule. Employers must look both 90 days ahead and 90 days back from any employment loss to consider planned and completed employment losses. This prevents employers from using a series of small layoffs to evade the notice requirements. If a mass layoff or plant closing is triggered, all employment losses within a 30-day window of that event are also aggregated with it.
Exceptions and State Mini-WARN Acts
While the standard requirement is 60 days’ notice, the Act includes three exceptions. The most relevant for federal contractors facing contract loss is the unforeseeable business circumstances exception. This applies when a contract termination or reduction by a government agency is sudden and unexpected.
However, even if this exception applies, contractors must still provide notice as soon as the triggering event becomes reasonably foreseeable.
Contractors must also be aware that dozens of states have enacted “mini-WARN Acts.” These state laws can impose more stringent standards, lower employee or termination thresholds, and stricter notice obligations than the federal Act. States like California, New York, Illinois, New Jersey, and others have their own laws that apply alongside federal obligations.
Key Takeaways for Contractors
As federal contracts face uncertainty due to funding fluctuations or shutdowns, contractors must prioritize diligence. It is vital to track all layoffs and reductions in work hours over the 30- and 90-day periods. The careful application of definitions—particularly the “single site of employment” and the assignment of remote workers—will determine whether notice obligations are triggered.
Given the inherent uncertainties surrounding the scope and duration of government funding disruptions, federal contractors and grant recipients should work immediately with experienced counsel regarding potential WARN issues as soon as contract terminations or reductions become apparent.
Tags: WARN Act, federal contractors, government shutdown, contract termination, layoffs, advance notice, mass layoff, employment loss, mini-WARN, regulatory requirements, employer responsibilities, marketus