It is unfortunately likely that the federal government will shut down after funding expires this Saturday. This Alert discusses many of the significant employment-related issues caused by the shutdown. Contractors who are required to stop work will need to decide whether to continue to pay employees for the period of the shutdown, reassign employees to unaffected contracts, require employees to take paid or unpaid leave or lay off/furlough employees.
Wage and Hour Issues
Under the federal Fair Labor Standards Act (“FLSA”), a federal contractor may make mandatory deductions from an exempt employee’s paid leave or other leave banks for a full or partial day’s absence during a shutdown, furlough or reduced hours plan without affecting the employee’s FLSA-exempt status, as long as the employee receives their full salary. However, federal contractors will need to be mindful of applicable state wage and hour laws before requiring the use of paid time off.
Federal contractors can withhold payment for any full week in which an exempt employee does not work. However, payment cannot be withheld if an exempt employee performs any work during a furlough week. Non-exempt employees who perform work must be paid for all time worked. Accordingly, federal contractors should instruct employees not to perform any work while on furlough.
Potential layoffs may trigger the federal Worker Adjustment and Retraining Notification Act (WARN Act), which generally requires covered employers to provide 60 days’ notice to employees affected by a plant closing or mass layoff resulting in an “employment loss.” An “employment loss” is defined as: (1) a termination, (2) a layoff exceeding 6 months, or (3) a reduction in an employee’s hours of work of more than 50% in each month of a 6-month period. If the shutdown lasts for more than 4 months, federal contractors will need to consider whether to provide the notices required under the WARN Act. Federal contractors also will need to consider applicable state laws governing employer obligations that may be triggered by layoffs.
Employee Benefits Issues
Federal contractors may also need to consider the shutdown’s impact on employee benefits. For example, federal contractors should consider how they will handle a furloughed employee’s portion of insurance premiums if the shutdown lasts longer than anticipated. In addition, a furlough or reduction in hours may cause employees to lose coverage under the employer’s health plans. In that case, affected employees could be eligible for COBRA continuation coverage, and the employer would need to send out COBRA notices.
Federal contractors should be aware that employees who are furloughed may be eligible for unemployment insurance benefits. State laws vary on eligibility for benefits, and may require the employer to provide certain notices to employees at the beginning of the furlough.
Federal contractors should reach out to their contracting agencies for guidance on the status of their contracts. If you have any questions about this Alert, we encourage you to contact your Shulman Rogers attorney for solutions and recommendations.
