What to tell employees as sequestration looms.

• Author: Pankowski, Jacob B.
• Position: Ethics Corner

Some view the fast approaching sequestration deadline--imposed by the 2011 budget deal cut between the Obama administration and Congress--to be on a collision course with the Worker Adjustment Retraining and Notification (WARN) Act requirement that employers give employees 60 days notice of impending layoffs.

Recently published guidance from the Department of Labor states that the WARN Act does not apply to hypothetical sequestration-related layoffs by government contractors. In light of political charges that this guidance is wrong legally--and perhaps even politically motivated--a look at applicable law should help in determining legal and ethical obligations employers owe under this law to their employees.

In August 2011, as a trade-off for an increase in the debt ceiling to avert a default on the government's sovereign debt, the Budget Control Act of 2011 imposed automatic, across-the-board spending cuts, at a uniform percentage, to all non-exempt government accounts to take effect Jan. 2, 2013, unless an agreement on a deficit-reducing spending bill can be reached before then.

Sequestration obviously will force termination of unfunded government contracts, which in turn may force affected federal contractors to layoff a large number of workers. The exact consequences of sequestration are difficult to predict but the Defense Department could see its budget shrink by $500 billion over the next 10 years, and some experts estimate that the economy could shed as many as 1.5 million jobs. Needless to say, the bulk of these jobs will be federal civilian employees and employees of federal government contractors.

Enter the WARN Act, the core provision of which, with three exceptions, requires employers with at least 100 employees to provide written notice at least 60 days before ordering a plant closing or mass layoffs. The three exceptions are: faltering companies seeking capital to stay afloat; the occurrence of a natural disaster; and, as is most relevant here, "business circumstances that were not reasonably foreseeable as of the time that the notice would have been required." WARN Act implementing regulations put a finer point on the "unforeseeable" exception: companies are relieved of the notice requirement when the layoffs are "caused by some sudden, dramatic and unexpected action or condition outside the employer's control."

Labor Department guidance issued on July 30 announced, due to "lack of certainty" that hypothetical contractor...