United States: How Will The Partial Government Shutdown Affect Employers, Especially Federal Contractors?

Last Updated: January 4 2019
Article by Meredith C. Shoop

After a tumultuous week on Capitol Hill, Congress adjourned Friday evening without reaching a deal to fund portions of the U.S. government, resulting in a partial government closure when funding lapsed at midnight. President Trump indicated he would not sign any bill that did not include roughly $5 billion to pay for a U.S.-Mexico border wall, creating a political impasse. Although negotiations to fund nine federal departments and several smaller agencies could resume next week, it is not possible to predict how long the government will remain partially closed. In the meantime, many employers are wondering what this means for their operations.

Why is this Considered a "Partial" Shutdown?

Unlike other recent government shutdowns, the instant closure affects only nine federal agencies: the Department of the Treasury, Department of Agriculture, Homeland Security Department, Department of the Interior, Department of State, Department of Housing and Urban Development, Department of Transportation, Department of Commerce, and the Department of Justice. In addition, certain smaller independent agencies, such as the Equal Employment Opportunity Commission (EEOC), will also be impacted. It will be business as usual for other agencies, including the Department of Labor (DOL), National Labor Relations Board (NLRB), and the Department of Health and Human Services (HHS), which have already been funded through September 2019.

Which Employment Agency Could be Hardest Hit?

The EEOC was not included in the spending bill signed into law earlier this year. On December 3, the Commission released a contingency plan, indicating the following operations will cease during a shutdown: (1) Staff will not be available to answer questions from the public, or to respond to correspondence from the public; (2) the Commission will accept charges that must be filed in order to preserve the rights of a claimant during a shutdown, but will not investigate them; (3) Insofar as the courts grant EEOC's requests for extensions of time, EEOC will not litigate in the federal courts; (4) Mediations will be cancelled; (5) Federal sector hearings will be cancelled, and federal employees' appeals of discrimination complaints will not be decided; (6) Outreach and education events will be cancelled; and (7) No Freedom of Information Act requests will be processed.

The EEOC will continue, however, to staff some functions under its "emergency" exception to the general government shutdown, including charge intake, temporary restraining orders, ongoing litigation for which an extension has not been granted, and maintenance of office security and information systems.

How will this Affect Immigration Compliance?

The U.S. Citizenship and Immigration Services, which is part of the Department of Homeland Security, typically remains operational during a shutdown, as it is funded in large part by filing fees. If past shutdowns are any indication, however, visa processing and other immigration-related activities could be delayed. Operational activities by the U.S. Immigration and Customs Enforcement (ICE) are expected to continue.

What are Some Considerations for Government Contractors?

Employers that do business with any of the agencies impacted by the shutdown could also be impacted.

OFCCP Compliance Evaluations

The DOL, including the Office of Federal Contract Compliance Programs (OFCCP), has already been funded through earlier spending bills. As a result, the OFCCP will not cease any operations as a result of the shutdown. Ongoing OFCCP compliance evaluations should continue unaffected by the shutdown.

Wage and Hour Obligations

As with the OFCCP, the DOL's Wage and Hour Division will continue to operate. In this respect, DOL enforcement will be unaffected.

However, federal contractors should be aware of wage and hour considerations raised by the shutdown. For instance, federal contractors employing service workers at federal facilities may need to place on furlough employees whose job functions will be negated by facility closure.

To the extent this impacts employees who are nonexempt under the federal Fair Labor Standards Act (FLSA), furloughs have little impact. Nonexempt employees working on federal contracts must continue to be paid at least the federal minimum wage or the federal contractor minimum wage1 where applicable. Likewise, overtime hours in excess of 40 per week must continue to be paid at one and one half nonexempt employees' hourly rate. If nonexempt employees are furloughed and miss work as a result, they need not be paid for the time they did not work.

Exempt salaried employees may also be furloughed, but not without consideration of the potential impact a furlough could have on exempt status. Reductions in an exempt employee's salary can cause a loss of the minimum wage and/or overtime exemption.

Under the FLSA, an employer must pay exempt employees their full salary for any week in which the employee performs any work, without regard to the number of days or hours worked. While exempt employees need not be paid their salary for weeks in which they perform no work at all, deductions may not be made from for partial week absences resulting from the operating requirements of the business. Thus, forced furloughs of salaried employees can result in loss of the exemption under the FLSA.

By contrast, voluntary furloughs, including furloughs during which exempt employees choose to use paid time off or to take days off without pay on a completely voluntary basis, may result in salary reduction. Government contractors that seek volunteers for paid or unpaid furlough of exempt employees should, however, ensure that employees' participation is truly voluntary, and that exempt employee furlough is only for whole-day absences and never for any partial workday.

Immigration Concerns

Federal contractors that hold H-1B visas, which are non-immigrant visas that allow U.S. employers to employ workers in certain specialty occupations, are required to pay their workers their regular wages even if the shutdown stalls their operations. H-1B visa holders can, however, be required to use up any accrued paid time off during the shutdown. If that accrued time runs out before the shutdown ends, the contractor must resume paying regular wages.

Moreover, E-verify assistance will likely be unavailable during the partial shutdown.

WARN Obligations

Where federal contractors are forced by the shutdown to furlough large numbers of employees, the federal Worker Adjustment and Retraining Notification (WARN) Act and its state equivalents may also apply, requiring 60 days' notice to employees of a plant closing or mass layoff. Generally, WARN laws do not apply to short-term furloughs of less than six months. Nonetheless, federal contractors should carefully consider the potential application of state WARN laws, which may be triggered by shorter layoff periods.

Recommendations

Ultimately, many federal contractors will be impacted most by the partial shutdown. All employers can expect to see a drop in charge-related activity, including investigation, from the EEOC. However, this will not be the case with OFCCP investigations and hearings. As a result, federal contractors should not expect a temporary reprieve in ongoing compliance evaluations.

Where federal contractors seek to furlough employees for lack of work, they should carefully consider wage and hour implications for FLSA-exempt employees as well as the application of state WARN laws. Likewise, federal contractors' H-1B visa workers whose job function is obviated by the shutdown must continue be paid. However, they may be required to use up accrued paid time off during this time. Government contractors should consult counsel familiar with government contracting requirements to ensure actions taken in response to the shutdown do not have unintended, lasting, and costly impact on their operations.

Footnote

1 Or a state or local minimum wage if higher, as determined by applicable law.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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