OMB to contractors: Follow Labor guidance on pre-sequester layoff notices

The Office of Management and Budget Friday reinforced a Labor Department ruling that federal contractors need not issue notices of impending layoffs to employees related to the looming budget sequester. OMB said agencies would cover contractors’ “liability and litigation costs” related to such notices if they follow Labor’s guidelines.

In a memo to senior finance and procurement officials at agencies, Danny Werfel, OMB’s controller, and Joseph Jordan, head of the Office of Federal Procurement Policy, expanded on guidance provided by Labor in July about layoff notices.

In that guidance, Labor officials said contractors should not send warnings of impending layoff notices to their employees in advance of a potential budget sequester in January. Such notices, they said, are not required under the 1988 Worker Adjustment Retraining Notification Act, and in fact are “inconsistent” with the law, according to a policy letter to state workforce agencies issued by Labor officials.

Contractors have expressed concern that the WARN Act, which requires companies to provide 60-day notice to employees of impending mass layoffs, might apply to a budget sequester that could slash federal agencies’ budgets. Labor’s Employment and Training Administration said it does not, largely because it is not clear yet -- and may not be clear until the last minute -- whether a sequester actually will go into effect.

Despite the Labor ruling, several contractors have indicated recently that they intend to send WARN Act notices to their employees.

In their memo Friday, Werfel and Jordan said some contractors “have inquired about whether federal contracting agencies would cover WARN Act-related costs in connection with the potential sequestration.”

In order to “further minimize the potential for waste and disruption associated with the issuance of unwarranted layoff notices,” the OMB officials specified that under certain circumstances, “liability and litigation costs associated with WARN Act compliance” would be covered by federal agencies. Two conditions would have to be met, they wrote: “(1) sequestration occurs and an agency terminates or modifies a contract that necessitates that the contractor order a plant closing or mass layoff of a type subject to WARN Act requirements, and (2) that contractor has followed a course of action consistent with DOL guidance.”

In such cases, OMB said, “any resulting employee compensation costs for WARN Act liability as determined by a court, as well as attorneys’ fees and other litigation costs … would qualify as allowable costs and  be covered by the contracting agency, if otherwise reasonable and allocable.”

OMB also said agencies “agencies may treat as allowable other costs potentially associated with sequestration, including WARN Act-related costs arising under circumstances not specified in this guidance…”