Government Contractors: Beware the WARN Act.

Because of the Budget Control Act of 2011 (BCA), government contractors are potentially caught between a rock and a hard place.

The rock is the Worker Adjustment and Retraining Notification (WARN) Act, which requires employers of more than 99 people to notify employees 60 days before laying off employees.

The hard place is the automatic cut in government spending required by the BCA. The automatic cut, known as sequestration, is scheduled to occur on January 1, 2013, if Congress doesn’t pass a plan to reduce the government’s deficit.

So if sequestration occurs, the concern is that government contracts will be cut. Since Congress has not yet developed a plan for cutting the deficit and since the deadline for the 60-day notice requirement of the WARN Act is approaching, what’s a contractor to do?

The U.S. Labor Department has issued a guidance letter indicating that it’s highly speculative to issue a blanket WARN Act notice. In addition, the White House has also issued a statement suggesting (but not guaranteeing) that costs associated with issuing WARN Act notices are allowable expenses for contractors under government contracts.

Since government contractors are not guaranteed to be able to recover costs associated with failure to comply with the WARN Act, government contractors with more than 99 employees should immediately become familiar with the requirements of implementing a WARN Act notice and seek legal counsel about the best way to protect their interests before November 1.