Interview transcript: 

Terry Gerton Well, we’re now in the midst of the longest lapse in appropriations in our government’s history at the federal level, so we kind of were tuned in to the impacts right away on federal workers and contractor workers. What are you seeing now that this has gone on for over a month?

Andrew Turnbull [It’s] really creating a lot of challenges for federal contractors and their employees. I think we’ve seen, unfortunately over the last decade or so, a number of different government shutdowns. And so I think it’s not surprising to either federal contractors or employees that there was going to be a shutdown potentially this time. I think what is surprising at this point is how long it’s going on. And so this is really causing a lot of issues for contractors and their employees. You know, certainly from the contractor side of the house, some are experiencing stop work orders; they’ve already had those. They’re getting delays in contracts, awards and payments. And obviously this impacts their cash flows, their project timelines, how are they going to do the work that they’re contracted to do, but it also has a lot of ripple effects for their employees. We are seeing a lot of cases where certain contractors’ employees have been permanently laid off. In a lot of other cases they’re just being furloughed and some of them are being asked to use their PTO during this period of time to kind of cover their pay. But, you know, this is continuing to go on and so that PTO is running out and that is causing a lot of unique issues for contractors to have to navigate. And so there’s a lot of business and legal issues for contractors to consider here. They need to think through various federal and state compliance issues like wage and hour issues, providing advanced notice for layoffs. If they have unionized workforces, maybe there are going to be issues with having to comply with their collective bargaining agreements or potentially bargaining with their unions. And then from the business side of the house there are a lot of practical issues in terms of trying to have good employee relations here. You know, they want to certainly treat their employees the right way and also try to retain the talent so when the shutdown hopefully ends and they get the work back they can have everybody back in the seat and retain the good people.

Terry Gerton Talk us through some of those labor law issues that apply to the private sector that are different from how federal employees, furloughed federal employees or accepted service are are affected.

Andrew Turnbull One of the big issues that comes up here is wage and hour compliance. And that applies sometimes to federal employees as well, but also certainly to private contractors. And there’s a federal and state overlay that can sometimes have conflicting rules on certain things. A lot of contractors have had to furlough employees so they don’t have work for them at a certain point in time. And if you’re talking about non-exempt employees, employees who are eligible for overtime and are hourly workers, it’s generally, from a wage and hour perspective, pretty easy for compliance because if they’re not working, you don’t have to pay them. Now that could not be the case, particularly if you have a collective bargaining agreement, there may be issues where you have to bargain with the union or comply with that. But it becomes much more complex where you have exempt employees who you pay a salary to and you don’t have to pay overtime to. Exempt employees, per federal and state law, have to receive their full salary for any week in which they perform any work. Now, this is regardless of the number of days or hours that they work in a week, and you can’t deduct from their salary for like partial day absences. So, you know, essentially what contractors have to do is make sure that they don’t perform any work during a work week during a furlough, or they could be on the hook to pay their entire salary. And if you fail to comply with this, you potentially could lose the exempt status for that employee. And in some circumstances, you may lose that for all employees who are in the same position, so it’s a big issue to comply with. And this creates a lot of practical challenges because we all know during shutdowns, there’s a lot of ongoing work where things kind of ramp up, may shut down, or maybe it’s periodic. And so how do you comply with this? How do you tell people, hey, you can’t work at all, or you can only work these amounts, and making sure that you have the funds to pay for these things. And in some cases, the government’s not going to pay you for all the idle time that they’re doing. And then it creates practical challenges from a compliance and also a business perspective. Another issue that can come up too is that some contractors, unfortunately, due to being cash-strapped, may have to ask certain employees to take salary reductions. And they can do that under federal law. State laws may differ on some of this, but they have to be very careful in terms of how they do these salary reductions. Obviously, there’s an employee relations issue to that, but from a wage and hour perspective, they can’t reduce it below a certain minimum salary threshold, or they can void that exempt status. And they also can’t kind of fluctuate their salary back and forth because if they do that, then they’re considered more like hourly employees, and they may also lose the exempt. PTO can also create some interesting issues as well. Most companies that have PTO policies, they have to make a business decision. Do we want to force our employees to use their accrued PTO during this period of time? You know, that’s not an easy question for all companies. Employees sometimes view that very negatively, but from a compliance perspective, most of the time, employers can have a right to force their employees to use their PTO subject to certain exceptions. Certain state laws may have certain rules around when you can have employees use their PTO. For example, PTO may include paid sick leave and some states have mandatory paid sick leave thresholds, and it could violate paid sick leave laws to mandate that an employee have to take a paid sick leave for something like a furlough, which is not a covered reason for that sick leave.

Terry Gerton I’m speaking with Andrew Turnbull. He’s the co-chair of the employment and labor practice at Morrison and Foerster. It sounds like from a corporate HR perspective, this is a really tricky time. And on top of that, the federal Wage and Hour office is mostly furloughed, so there’s less oversight and really not anybody to call if you have questions. How are companies navigating in this time frame?

Andrew Turnbull Yeah, I think at this point a lot of companies are having to make sure that they look at their compliance. There are a lot of areas that you can misstep, and even though maybe some of these federal regulators right now are not looking at these claims, certainly the plaintiff’s bar is. And employees know how to contact attorneys and enforce their rights. And in some cases, these attorneys are not going to go through federal enforcement agencies, they’re gonna go straight to court, particularly for wage and hour issues. Another issue that can come up here is the federal WARN Act. And states have a lot of WARN laws, and that creates a lot of issues. So these WARN laws typically require contractors to provide advanced notice if they are going to lay off and, in some cases, furlough employees for a certain period of time. Under the federal WARN Act, if there is a mass layoff or a plant closing, you have to provide sixty days advanced notice. Now you could, in some instances, pay in lieu of, but that’s a bigger chunk of money if the company can’t provide that advanced notice. The good news is under federal WARN, they do have an exemption for furloughs. So, if it’s not an actual employment loss, you do and plan as the employer to call back these individuals to work, there is a six-month period of time where you could furlough someone without triggering WARN. We hope that this shutdown does not go past six months, so for most federal contractors, you may not trigger federal WARN. But not all states follow that same exception for their many state WARN laws. For example, California famously does not follow that. If you have furloughed employees for a certain period of time and you trigger that law from a WARN perspective, you may still have to comply with it. It creates a very nuanced kind of patchwork of laws that you have to kind of think through in this area. And that’s just one example of the many things that contractors have to continue to navigate.

Terry Gerton It sounds like there’s a lot of uncertainty and a lot of variability in how these wage and hour laws apply to companies depending on where they are, how long their folks might be off the job and when they might alert them to come back. Are there best practices that you suggest for companies as they’re trying to communicate with their employees about what’s happening?

Andrew Turnbull Yes, I think it is hard for a lot of contractors to [spend] a lot of time in these in these types of situations. You may receive a stop work order and have to immediately stop work and make decisions on that.  But I think this is where trying to get as much advanced planning as possible is very key here. There are a lot of issues to consider and plan for, as we’ve talked about: wage and hour issues, WARN issues. And a lot of times when you have contractors, there are a lot of stakeholders that you have to consider internally, both from a management and executive capacity. You may have other types of subcontractors and other entities that you may need consider what to do with. There are a lot of decisions to be made. Planning as early as possible is very key here. And, working closely with your internal or external counsel to understand what the landmines are that you need to navigate here. As you mentioned, communication is key, and that goes for multiple levels. One of those is making sure you communicate with your customer, the government customer, what are the expectations here from the government customer? Is it completely stopping work? Is it stop and start? What are their expectations? They may not know all of these things, but certainly trying to have good communication with them to understand what they are being pressured to do at this point in terms of their funding, what do they expect. And that will hopefully give you some insight to plan a little bit better. Also, understand in past government shutdowns, some contractors were not reimbursed for days their employees were idle. I don’t know if agencies are going to have clarity on that here, but maybe talk with your contracting officers to understand if that is going to be the case going forward. They may not have received any direction on that yet, but [it’s] certainly something to cover with your contracting officer. Also, make sure you communicate with, obviously, impacted employees. Retention and employee morale is key here. It’s a difficult time for everyone and I think [it’s beneficial] having some sensitivity with your employees, making sure that your communications are clear, consistent, transparent. Obviously, you may not know all the details of everything, but try to be as transparent as possible. Make sure they understand the rules of the road that you’ve set in place and make sure that managers understand those things as well. We talked about the wage and hour compliance issue earlier, and if you have employees who are exempt employees, who are furloughed in a week, and you don’t want them to perform any work during that work week so you don’t have to actually pay their full salary. You want to make sure that you have communications in place to inform employees: do not perform any work. You may even want to think about taking a step further and saying, we’re just going to cut your system access during this period of time so you can’t actually work. You might want to hop on an email and we don’t want to have to pay you for that. These are all things that you have to kind of think through as a best practice [in these scenarios]. I think the other thing is there are a lot of things that can come into play here from a contractual and legal perspective. Sometimes we will find that in the haste of doing things, people may forget, oh yeah, this employee actually has an employment agreement that requires severance. Maybe it’s for good reason if you diminish their duties at all, and a furlough may trigger that. [You should] making sure that you know where all the different traps could be can take time to pull these things together. So checking all those boxes. And then this is obviously a fluid situation. Be prepared to monitor and adjust and ramp back up and ramp down as need be.

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