What every federal contractor needs to know about a possible government shutdown
We seem to be on the verge of another federal shutdown. The federal government’s funding is set to run out December 21, 2024 if there is no political compromise. During previous shutdowns, agencies and departments would issue stop-work orders to bring government projects and contracts crashing to a halt. Contractors are now preparing for a possible shutdown. They’re evaluating how to deal with these complex employment issues. Although the discussion below is not intended to be comprehensive, it discusses many of the significant employment-related issues a shutdown presents for contractors.
Wage and Hour Considerations
During a shutdown, non-essential government employees are typically furloughed, and many contractors implement furlough programs for their own employees. Contractors should be aware of their obligations under federal and state wage laws when putting employees on furlough. If a contractor begins a furlough in the middle of the week, it may decide to not pay its employees during the days they are furloughed. However, doing so for employees exempt from overtime under federal and state laws could place their exempt status in jeopardy.
With a few exceptions, to be exempt from the overtime provisions of the federal Fair Labor Standards Act (“FLSA”), an executive, administrative, or professional employee must be paid on a salary basis of at least $684 per week, regardless of the amount of work performed. Employers can withhold payments for any
full weeks that the employee doesn’t work. However, they cannot withhold payments for any parts of a week where the employee is on furlough. Employers should be aware that in certain circumstances, the exemption is lost not only for the employee who receives a prorated weekly salary, but also for other employees in the same job classification working for the same managers. Employers should be mindful, however, that under certain circumstances, the exemption is lost not only for the employee who receives a prorated weekly salary, but for other employees in the same job classification working for the same managers.During previous shutdowns, some contractors mitigated the foregoing risk by requiring exempt employees to use vacation pay or paid time off (“PTO”) to cover compensation for non-working days during partial furlough weeks. Contractors must ensure that this practice does not violate state wage and hours laws, even though it complies with FLSA exemption requirements. Some states, for example, require employers to adhere to their own published policies regarding leave. Therefore, in such states, employers should review their policies and applicable laws before mandating the use of vacation time or PTO.
Contractors should instruct employees not to perform any work while on furlough. If an exempt employee performs any work (such as checking or responding to emails), they must be paid the full weekly salary, otherwise they will be eligible for overtime pay. Non-exempt workers who work must be compensated for the time they worked. Employers should communicate clearly to employees and supervisors that work cannot be performed by them while on furlough. During past shutdowns, some contractors confiscated company-issued smartphones and computing devices, and restricted remote access to company systems, to ensure no work was performed.
Another approach contractors have considered during previous shutdowns is requiring exempt employees to work a reduced workweek. Contractors who are considering this option should be aware of the implications for salary bases. In certain circumstances, it may be possible to adopt a reduced-work-hours program in a time of economic hardship. The Department of Labor stated in several opinion letters that a fixed reduction in pay during a time when a company has a shortened week due to economic conditions is a genuine reduction and not intended to circumvent salary basis payment. Therefore the exemption would remain in effect as long as the employee receives the minimum salary required by the regulations and meets all the other requirements for the exemption.” Opinion Letter FLSA2009-18.
Before instituting such a change, however, employers must consider a number of issues, including: (1) any contractual obligations to employees; (2) state and local notice requirements for changes in compensation; (3) requirements for foreign workers on work authorizations (discussed below) and (4) compliance with other requirements for overtime exemptions (including state requirements).
The WARN Act
As noted above, the looming government shutdown also with it the prospect of furloughing large numbers of employees. These potential furloughs could be impacted by the federal Worker Adjustment and Retraining Notification (WARN) Act and its equivalents in states. With some exceptions, the WARN Act requires that employers provide 60 days’ notice to employees affected by a “plant closing” or “mass layoff.” However, depending on what a government contractor plans to do in response to the shutdown, the WARN Act may not apply.
Historically, some contractors have furloughed workers on suspended projects until they are resumed. The WARN Act only applies if there’s an “employment loss” which is defined by: (1) an employment termination, (2) a layoff lasting more than six months, or (3) a reduction of an employee’s work hours of more 50 percent each month for a period of six months. In the unlikely event that a shutdown lasts longer than four months, contractors will have to decide whether or not to provide the notices required under WARN Act. In the unlikely event that the government shutdown continues for more than four months, contractors will have to consider at that time whether to provide the notices required under the WARN Act.
However, even if the WARN Act does not apply to a government contractor’s furlough program, contractors should be aware that analogous state laws may be triggered by their furloughs.
E-Verify
Government contractors are required to utilize the Internet-based employment verification system called E-Verify to confirm the employment eligibility of their new hires and current employees. The website, administered by the Department of Homeland Security (DHS), has historically been unavailable when the government is shut down. If an employee has received “Tentative non-Confirmation” notification from E-Verify, they will likely not be able resolve the issue during a shutdown. The deadline for responding to a Tentative Non-Confirmation notice will likely be extended during the shutdown if this is the case. During this period, the employer should not take any adverse action against the employee as a result of the notice.
Benefits Issues
If a government shutdown lasts longer than anticipated, there may also be certain benefits implications for furloughed employees. First, a reduction in employee hours could cause some employees to lose their health coverage. Employees who are affected will be eligible for COBRA continuation insurance, and employers will need to send COBRA notices. Some employers’ health plans require coverage during the furlough. In those cases, employers would need to make arrangements for payment of the employee’s share of the cost of continued coverage.
Continuation of other benefits during a furlough would depend on the plan terms. It is important to review the severance plan to determine if severance obligations have been triggered. In addition, continuation of life insurance, disability insurance, and other insurance benefits will depend on the plan terms.
Unemployment Benefits
Contractors should also be aware that furloughing their employees may make the employee eligible for unemployment benefits. Contractors should consult their state laws to determine the impact of furloughs on unemployment benefits.
Conclusion
A government shutdown will require many contractors to make difficult choices. Contractors should consult employment counsel familiarized with government contracting requirements if there is a government shutdown to avoid costly legal liabilities.
