As the federal government shutdown slogs on with no end in sight, private employers financially impacted by the government shutdown, including federal contractors, may be soon facing critical economic issues that may trigger employment decisions such as pay reductions, furloughs, and layoffs.

Employers should consider the following points to lessen their risk of facing future employment claims when taking these actions.

Pay Reductions

Wage Payment Laws: Perhaps the most important thing for employers to keep in mind is that the government’s failure to pay a contractor pursuant to its contract during this shutdown is not a legal basis for the contractor to withhold wages already earned by its employees. Various state wage payment laws mandate the payment of wages earned by employees and provide stiff penalties for violations.

Wage and Hour Laws: Should an employer choose to implement pay cuts to its exempt employees, the employer must take care that it has not done this several times in the recent past or that it is not likely to take place with some frequency in the future. That is, the employer must limit the number of times it takes such an action because some courts have held that numerous reductions in wage rates of exempt employees result in the loss of their exempt status because they are not being paid on a salary basis. Should an exempt employee lose his or her exempt status, he or she may be able to recover overtime wages for any hours worked exceeding 40 in a workweek.

Discrimination Laws: If a government contractor chooses to reduce the wages of only certain employees or to make reductions in varying amounts, it must ensure that it has a legitimate non-discriminatory reason for selecting employees for the pay cut and for the pay cut rate. In addition, after making preliminary decisions as to who will receive the pay cut, the contractor should review the decision to ensure that it does not result in a reduction to an inappropriate percentage of employees in a legally protected category, such as age, race, national origin, or gender.


Wage Payment/Wage & Hour Laws: Employers should instruct all furloughed employees that absolutely no work is to be performed during the furlough. This includes working on handheld devices and from home. Any work performed during the furlough is compensable time and thus could subject an employer to a claim under the applicable state wage payment law and wage and hour laws. Government contractors may want to consider turning off remote access to computers and other electronic equipment by furloughed employees during this time.

Wage and Hour Laws: In addition, if the furlough involves so-called exempt employees, (i.e., those employees who are exempt from the overtime and minimum wage requirements of the federal Fair Labor Standards Act and corresponding state wage and hour laws), employers must pay these exempt employees their full salary for any week in which they perform work. Thus, if the employee worked on Monday but was furloughed on Tuesday as a result of the government shutdown, then that employee must be paid his or her full salary for the entire week. This is because the employer must pay the employee on a salary basis in order to keep the employee’s exempt status. However, if an exempt employee does not perform any work in a work week, the employer is not obligated to pay the employee his or her salary.

Health Insurance: A reduction in hours such as a furlough may terminate coverage under the contractor’s health insurance policy. Government contractors should review their insurance policies to see if coverage may be maintained for employees during a furlough and if not, to issue timely notification to the employees of their ability to continue coverage through COBRA or state continuing coverage laws.


WARN Act: The federal Worker Adjustment and Retraining Notification Act requires employers with 100 or more employees to provide employees who are being laid off as part of a “mass layoff” or a “plant closure,” as those terms are defined in the law, with 60 days advance notice. The employer must also give notice to any union representative, the local chief elected official, and the state dislocated worker unit. In addition, some states, such as Maryland, have similar laws seeking advance layoff notices. Employers implementing a layoff should consult with counsel to see if WARN Act compliance is required.

Various Discrimination Laws: As discussed above with regard to making decisions on pay cuts, to reduce the risk of discrimination claims filed by laid-off employees and the likelihood of any such claims’ success, employers should articulate the legitimate non-discriminatory reason for each employee’s selection for the layoff and should review preliminary selections to avoid concentration in a protected classification.

COBRA: Termination of employment triggers termination of coverage for employer-provided health insurance benefits. Thus, government contractors must issue a timely notice to laid-off employees regarding their ability to continue their insurance coverage through COBRA or the corresponding state law. Failure to provide such notice may result in stiff penalties.

Julie Reddig is an employment attorney who represent management in workplace employment matters. For more information about employment actions during the government shutdown, contact Julie at [email protected] or (301) 961-6099.