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A Federal Government Shutdown Has Been Averted... For Now

On November 14, 2023, the U.S. House of Representatives passed a last-minute continuing resolution that keeps different parts of the federal government funded on two different timelines. This legislation passed in the Senate on November 15th and was signed by President Biden on November 17th.

Applies to:

Federal Government Employees and Federal Contractors


November 17, 2023

Key Information:

    • On November 14, 2023, the U.S. House of Representatives overcame the primary obstacle to funding the federal government by passing an unusual “two-track” continuing resolution that will keep some federal agencies open until January 19, 2024, and others open until February 2, 2024.

    • President Biden signed the legislation into law on November 17th, narrowly averting a government shutdown that would have impacted millions of people.

    • If, by January 19, 2024, Congress has not achieved a longer-term government funding solution, parts of the government may face the threat of a shutdown, with various employment-related impacts on affected federal employees and government contractors.

Who is impacted by a government shutdown?

All federal agencies are required to maintain contingency plans in the event of a government shutdown. Many of these contingency plans require reduced or no pay for federal workers and, in some cases, a forced furlough of thousands of government employees. Federal law says that employees who are in “non-essential” roles are prohibited from working during a lapse in government funding. With more than 800,000 government employees designated as “non-essential,” many federal operations may come to a standstill as a result of a potential shutdown.

Alternatively, those federal employees whose absence would endanger life and property or whose responsibilities derive from the Constitution are required to continue working, albeit with delayed compensation or no compensation at all during the shutdown period. This would include the almost 2-million United States military personnel who would be required to continue to perform their duties throughout the shutdown.

In past government shutdowns, federal employees have eventually received back pay. However, back pay was not fully guaranteed until 2019. A shutdown this year would be the first time all federal employees are guaranteed back pay ahead of a shutdown period.

Also impacted by a looming shutdown is the expansive group of government contractors who work for outside firms that are hired and funded by government agencies. A shutdown may present similar issues for federal contractors, who may also experience wage payment delays or potential furloughs. Unlike federal employees, government contractors are not guaranteed back pay once the shutdown is over.

What is a furlough?

A furlough is a temporary leave of absence initiated by an employer, typically due to economic hardship or a lack of available work. Employees affected by furloughs are required to take temporary time off, usually without pay. Furloughed employees technically remain employed; however, they may have the opportunity to seek temporary employment elsewhere, subject to any applicable state regulations or corporate policies.

A furlough is distinct from a layoff, which entails the permanent termination of an employee, usually related to economic or business reasons. Notably, furloughs are not used to address employee misconduct, which is a subject addressed by employee discipline or termination.

Are there EEO considerations associated with a furlough?

As always, when making any decisions impacting the terms, conditions, or privileges of an individual’s employment, employers must refrain from any unlawful, discriminatory, or retaliatory action. This requires that, when selecting employees for furlough or a reduction in working hours, employers use consistent and articulable metrics that are evenly applied across their workforce, and which are consistent with the company’s legitimate business interests (e.g., newest hired, department shutdown, etc.). Otherwise, employers may risk exposure for claims of discrimination or retaliation.

What are the wage and hour considerations associated with a furlough?

Under the federal Fair Labor Standards Act (FLSA), exempt employees must be paid the same minimum salary for each pay period in which they perform any amount of work (with limited exceptions). Notably, the FLSA cautions that employers may not make deductions to an exempt employee’s predetermined salary for absences “occasioned by the employer” or caused by “the operating requirements of the business.” Therefore, while an employer may withhold payment for a full week in which the exempt employee does not work at all, the employer cannot reduce an exempt employee’s salary based on a partial week in which the employee did not perform work. Doing so may jeopardize the employee’s exempt status by violating the “salary-basis” requirements.

Additionally, under the FLSA, employers must compensate non-exempt workers for any work actually performed. Because of this, employers should carefully instruct both exempt and non-exempt furloughed employees not to perform any work while on furlough status. This may include a restriction on email access or revocation of company-issued phones to ensure that employees are not performing any type of work-related duties while on furlough.

Before taking any action with respect to wage and hour reductions for exempt or non-exempt employees during a furlough, employers are encouraged to speak with legal counsel about proper compliance with applicable federal, state, and local wage and hour laws.

Does a furlough require notice under the WARN Act?

The federal Worker Adjustment and Retraining Notification (WARN) Act took effect in 1989 to protect workers, their families, and communities by ensuring workers receive advance notice about qualified plant closings and mass layoffs. Notably, the WARN Act requires an “employment loss,” which is defined as: (1) an employment termination; (2) a layoff exceeding six months; or (3) a reduction in an employee’s hours of work of more than 50 percent in each month of a six-month period.

That said, federal, state, and local government entities that provide public services are not covered by the WARN Act, and therefore, federal employees furloughed due to an impending government shutdown would not be entitled to the advance notice requirements. On the other hand, government contractors may be subject to the WARN Act’s requirements, depending on the circumstances of the furlough.

Traditionally, the WARN Act’s notice requirements do not apply to furloughs if the employer communicates that the furlough is temporary and that employees can expect to return to work within six months. Because an anticipated government shutdown is unlikely to exceed six months, the WARN Act is unlikely to be triggered for most government contractors. However, if circumstances change and a temporary furlough extends beyond six months or becomes a permanent layoff, then the WARN Act’s notice obligations may be triggered.

Federal employees furloughed due to an impending government shutdown would not be entitled to advanced notice.

Despite the WARN Act’s seemingly straightforward application, the U.S. Department of Labor (DOL) issued a guidance letter in 2012 urging government contractors not to issue WARN notices when facing the increased possibility of sequestration. The DOL’s rationale that government contractors were not entitled to the WARN Act’s notice requirements was premised on the fact that contractors did not know specifically who was going to be laid off, and further, whether they would even be affected by the sequestration. Because of this, the DOL opined that government contractors did not have the appropriate information to provide proper WARN notices until such time that specific closings or mass layoffs became “reasonably foreseeable.” The DOL could interpret the circumstances surrounding a government shutdown similarly. However, they have not specifically addressed the situation in recent guidance. More significantly, there is no guarantee that a court reviewing the matter would give deference to the DOL’s opinion.

While the DOL is not the entity that enforces the WARN Act, they do provide compliance assistance materials that employers may consult to determine at what time certain notice obligations may be triggered. There may also be state-specific laws that apply (i.e., “mini-WARN laws”) regarding long-term furloughs or permanent reductions in force that impose notice requirements distinct from the WARN Act. Because of these complexities, employers are encouraged to speak with legal counsel to determine their compliance obligations for providing any advance notice to employees ahead of a shutdown period.

Are furloughed workers eligible for unemployment compensation?

Furloughed employees may become eligible for unemployment compensation; however, unemployment compensation requirements will differ by state. Some states may require a one-week waiting period before an individual qualifies for payments, whereas some do not. Additionally, certain states typically require proof that an individual is seeking work to qualify for unemployment compensation, but this requirement may be suspended for furloughed workers impacted by the government shutdown.

Federal employees who qualify for unemployment compensation during furloughs often must return the money after the government reopens and they receive retroactive back pay. Government contractors who receive unemployment compensation and who do not receive retroactive back pay may not be required to return the money once they have been restored to their prior positions.

Government employees who are required to continue to work without pay during the furlough are not eligible for unemployment compensation, per the U.S. State Department’s Furloughed Employees Handbook.

Do furloughed workers remain eligible to participate in an employer’s benefits plan?

Health insurance coverage generally continues for federal employees during a shutdown. Agencies continue to process transactions for the Federal Employee Health Benefits (FEHB) program (among others); however, employee premium payments are typically paused during a shutdown. Once the shutdown ends, furloughed employees will begin repaying accumulated FEHB premiums through a payroll withholding.

For furloughed government contractors, the question of benefits eligibility is not as straightforward. Most employer benefits plans set forth certain eligibility requirements, such as a minimum number of working hours required for eligibility in the plan. As a result of a furlough, impacted government contractors will experience a reduction in their working hours, which may cause them to drop below the minimum number of hours required to remain eligible for their employer’s benefits plan. If an impacted employee drops below the required number of hours, employers may need to terminate the employee’s benefits, pursuant to their plan’s documents.

Employers of government contractors should review their plan documents to determine eligibility requirements and speak with their plan administrators about preparations needed to potentially terminate coverage.

Is a furlough a COBRA-qualifying event?

If a reduction in an employee’s hours causes them to lose coverage under the terms of the employer’s COBRA-covered health plan, the employer is required to send out qualifying event notices to impacted employees. Impacted employees and their qualified beneficiaries must be offered the opportunity to continue coverage during the furlough period at their own expense, up to the maximum COBRA continuation period.

Important Takeaways

While this list is not exhaustive, it illustrates that a government shutdown requires careful consideration of various employment-related issues, including those related to wage and hour, employee benefits, the WARN Act, and anti-discrimination concerns. In the event that a longer-term funding solution is not achieved by the November deadline, employers who expect to be impacted by a potential government shutdown should consult with legal counsel regarding their specific compliance obligations and begin necessary preparations now.

Action Items for Employers

    1. Continue to monitor updates to Congress’ funding legislation negotiations.
    2. Consult with legal counsel regarding specific compliance obligations in the event of a government shutdown.

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