During a hearing conducted by the House Subcommittee on Workforce Protections, Littler Shareholder Kerry Notestine outlined the potential pitfalls in relying on recent Department of Labor (DOL) and Office of Management and Budget (OMB) guidances regarding an employer’s Worker Adjustment and Retraining Notification (WARN) Act responsibilities as the specter of massive budget cuts looms. Commonly referred to as “sequestration,” these cuts slated to begin on March 1, 2013 will have a significant impact on Defense and other federal contractors. 

Mass layoffs or plant closings trigger employer advance notification and other requirements under the WARN Act. This law generally requires employers with more than 100 employees to give their workers 60 days’ notice of an impending mass layoff or plant closing. On July 30, 2012, however, the DOL issued Training and Employment Guidance Letter (TEGL) No. 3-12, which offered guidance on the applicability of WARN to potential layoffs by federal contractors affected by sequestration, which initially would have occurred on January 2, but was postponed as part of the fiscal cliff deal. Notably, the letter stated that employers would not be obligated to provide WARN notices under the federal WARN unforeseeable business circumstances exception until specific layoffs or facility closures became reasonably foreseeable. Two months later, the Office of Management and Budget (OMB) issued a memo stating that compensation, litigation and other costs resulting from federal WARN Act liability for those employers who followed the DOL guidance letter would qualify as allowable costs and be covered by the contracting agency. As Notestine testified, however, there are three main problems with these guidance documents.

First, the TEGL fails to disclose that this guidance is not binding on the federal courts that have the jurisdiction to enforce the WARN Act and assess significant penalties on employers for noncompliance. Notestine said that there is no way to determine the amount of – if any – deference a federal court would afford the TEGL.

Second, while the guidance relies on the Act’s “unforeseeable business circumstances” exception to allow employers to forego the provision of advance notice, it fails to mention that employers are required to provide “as much notice as is practicable,” as well as a statement explaining why they were unable to give notice sooner. “Failure to give this required brief statement in the written notice has very severe consequences: The statutory exception becomes unavailable.”

Third, Notestine remarked that there are “numerous other areas of liability” other than that created by the federal WARN Act. Several states, for example, have “mini” WARN statutes with different notice and eligibility requirements. Notestine explained that the mini WARN laws in New Jersey and California, for instance, do not provide notice exemptions for unforeseeable circumstances. Thus, employers may be obligated to provide notice under state law even if they are not arguably required to do so under federal law.

Notestine concluded that: “the guidances issued to employers by the DOL and OMB regarding WARN compliance have done little to reassure” him that employers will be relieved of WARN Act obligations. Employers who are found in violation of this statute are subject to “harsh penalties,” which justifies caution in relying on the DOL TEGL guidance.

Further, Notestine noted that in the past the DOL has “consistently advocated providing as much notice as possible,” and that the agency is “now taking a very different position.” He mentioned that at a May 2008 hearing conducted by the Senate Committee on Health, Education, Labor and Pensions, then-Senator Barack Obama urged employers to provide as much notice as possible when facing the serious risk of a plant closing. Sequestration, Notestine testified, arguably creates such a risk. He stated that “sequestration appears more likely to happen this time around,” and that the chances of an employer claiming that a plant closing is unforeseeable “lessen every day.”

Subcommittee Chairman Tim Walberg (R-MI) agreed that the DOL’s guidance “is misleading, incomplete, and may result in workers not being notified of pending layoffs.” Walberg echoed Notestine’s concerns that the guidance seems to contradict current regulations that require employers to provide notice of impending layoffs/plant closings when they are reasonably foreseeable, and that it “creates the impression that those who follow it will be immune from future litigation. Nothing can be further from the truth.”

Jane Oates, the Assistant Secretary of Labor for the Employment and Training Administration – the DOL sub agency that issued the controversial TEGL in the first instance – claimed that the guidance still applies to the current threat of sequestration. She clarified, however, that if employers get more specific information from government agencies indicating that sequestration will be more of a certainty, then they should revise their plans. Oates recognized that the DOL does not have WARN Act enforcement authority, but said that the agency does have the statutory authority to issue regulations that “articulate clear principles and guidelines.”

Oates also defended the TEGL on the grounds that before the first threat of sequestration, her agency received information that the goal was to avoid this occurrence, and agencies had not yet announced which contracts would be terminated. Therefore, issuing blanket WARN notices would have been speculative, she testified. She explained further that the TEGL does not suggest that federal contractors do not need to take sequestration into account, but that providing WARN notices to those not likely to lose their jobs would have caused “disruption.”

Ross Eisenbrey, Vice President of the Economic Policy Institute, testified that he believed what the DOL did “was completely appropriate” since giving guidance is part of its responsibility, and that providing a WARN notice at the time would have been premature. He noted, however, that the Congressional Budget Office (CBO) estimates that if the current sequestration were to occur, approximately three-quarters of a million jobs will be lost.

A complete list of panelists and links to their testimony can be found here.

Photo credit: matsou