News & Insights  |  Alerts

Update on Sequestration WARN Notification Requirements: OMB Report Issued

September 24, 2012

On September 14, 2012, the Office of Management and Budget (OMB) issued its overdue report to Congress on the effects sequestration will have on agency appropriations. See OMB Report Pursuant to the Sequestration Transparency Act of 2012. Contractors were awaiting OMB's report because—depending on the level of detail provided by OMB—the report could trigger reporting obligations under the Worker Adjustment and Retraining Notification (WARN) Act, pursuant to previously issued sequestration guidance from the Department of Labor (DoL). See DoL Training and Employment Guidance Letter No. 3-12 (July 30, 2012).

The WARN Act, 29 U.S.C. §§ 2101-2109, requires employers to provide employees with 60 days notice before ordering a plant closing or mass layoff. In response to concerns from industry that current sequestration deadlines would trigger WARN's notice requirements, DoL recently issued guidance adopting the unequivocal position that such notices are not required to be issued to workers employed under government contracts at this time. DoL reasoned that such notification would currently be based on mere speculation as to whether sequestration will actually occur and which contracts would be affected. Given this uncertainty, DoL concluded that WARN's "unforeseeable business circumstances" exception would be applicable in the event cutbacks were announced with less than 60 days advance notice. A contractor's obligation to provide WARN notices would therefore not be triggered until specific closings or mass layoffs are reasonably foreseeable.

Contractors were awaiting the OMB report because, pursuant to the Sequestration Transparency Act of 2012 (Pub. L. 112-155, Aug. 7, 2012, 126 Stat. 1210), the OMB report was supposed to provide details regarding "reductions at the program, project and activity level" that will be enacted on January 2, 2013 as a result of sequestration. The OMB report, however, does not provide such detailed information, but instead merely provides "preliminary estimates of the sequestration's impact on more than 1,200 budget accounts." There is no information regarding specific reductions at the "program, project and activity level," as required by Congress. Because the OMB report merely provides high-level information regarding the impact of sequestration on 1,200 budget accounts, the OMB report fails to provide the type of information that, in the opinion of DoL, is necessary to trigger WARN Act notices.

If federal agencies announce which contracts will be terminated or curtailed as a result of sequestration, pursuant to DoL guidance, WARN Act notices would be required at that time. Contractors should therefore continue to monitor developments for any sequestration information that would impact their specific contracts. As soon as OMB or another federal agency provides additional information as to which programs or contracts will be affected by sequestration, WARN Act notices are likely to be appropriate at that time. Contractors are therefore well advised to actively seek out information related to their programs so that they can promptly determine when terminations or cutbacks to their specific contracts are foreseeable. This will be especially important if the information is received with less than 60 days of the announced cutback if the contractor wants to avail itself of the "unforeseen business circumstances" exception.