February 8, 2023

Volume XIII, Number 39


February 08, 2023

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Guidance for Government Contractors - Navigating the Potential Government Shutdown

For the second year in row, the federal government could be headed towards a partial shutdown.  The shutdown would be smaller in scale than those in recent years because appropriation bills have been passed to fund numerous departments and agencies through September 2019. On December 21, 2018, funding expires for the Department of Homeland Security, the Justice Department, the State Department, the Interior Department, and the Department of Agriculture, among others.  Thus, government contractors may once again face difficult questions regarding how to comply with applicable employment-related laws while their work for and with the federal government is paused. The below discussion is designed to assist contractors in navigating common issues that arise during a shutdown, but is not inclusive of all potential legal issues.

Exemption Status Under the Fair Labor Standards Act

During a shutdown, government contractors must be careful to remain in compliance with applicable federal and state wage and hour laws.  Unlike non-essential government employees who are typically furloughed during a shutdown, a contractor must decide whether to pay employees while their contracts and work are put on hold.  When making this decision, contractors must be aware that failing to pay employees can affect an employee’s exempt status under the federal Fair Labor Standards Act (“FLSA”). 

In general, an employee who is exempt from overtime under the FLSA must be paid on a salary basis of at least $455 each work week, regardless of the number of hours or days worked.  If an employer only pays exempt employees for the days or hours they work during the furlough, the employee may be deemed non-exempt.  This scenario presents a host of problems that most contractors would prefer to avoid. 

Accordingly, contractors must be vigilant in instructing and preventing employees from performing any work while on furlough.  A non-exempt employee should be paid for each work week they perform any work.  Even simple tasks such as reading and responding to emails would be considered work, thereby entitling the employee to pay for the entire week.  Some contractors may want to consider confiscating company laptops and other devices to avoid this issue.

One solution to this problem that government contractors have used during past shutdowns is to require employees to use paid time off or vacation leave for days during partial furlough weeks.  Although this approach complies with the FLSA, it may also present unforeseen conflicts with contractual obligations and state and local law, which must also be reviewed. 

Another alternative that contractors have considered is requiring exempt employees to work a reduced workweek.  The DOL has approved of reduced work-hours programs for employers during periods of economic hardship.  In opinion letters, it has stated “a fixed reduction in salary effective during a period when a company operates a shortened workweek due to economic conditions would be a bona fide reduction not designed to circumvent the salary basis payment. Therefore the exemption would remain in effect as long as the employee receives the minimum salary required by the regulations and meets all the other requirements for the exemption.”  Opinion Letter FLSA2009-18.  Implementing a reduced work-hours program can present a host of issues, and experienced employment counsel should be consulted to avoid any costly mistakes. 

Pay Rate Issues for Foreign Workers

During a shutdown, contractors need to be mindful of their obligation to pay foreign workers on visas. When employers sponsor foreign workers under H-1B, H-2B and E-3 visas, they are required to pay the rate set forth in the labor condition applications certified by the Department of Labor (“DOL”).  Even foreign workers placed on a non-productive status or reduced work schedules must be paid at the certified pay rate. 

Issuing WARN Act Notices to Furloughed Employees

The federal Worker Adjustment and Retraining Notification (“WARN”) Act notice requirements may be triggered if a contractor furloughs a large number of its employees.  The WARN Act requires that employers provide 60 days’ notice to employees affected by a “plant closing” or “mass layoff.”  However, this requirement only applies if there is a qualifying “employment loss,” which is satisfied by one of the following:  (1) an employment termination, other than a discharge for cause, voluntary resignation, or retirement; (2) a layoff exceeding six months; or (3) a reduction in work hours of more than 50 percent during each month of any six-month period.  Thus, a mass furloughing of employees only triggers the WARN Act if it exceeds six months.  Like previous shutdowns, it is not anticipated that the looming government shutdown will exceed six months.  Nevertheless if the shutdown does extend for four months, contractors must consider issuing WARN Act notices.  In addition, contractors must also review analogous state laws that may be triggered.  

Compliance with E-Verify Requirements

When a government contractor hires a new employee, it is required to confirm the employment eligibility of the employee using the government’s E-Verify system.  During prior shutdowns, the E-Verify system went offline for the duration of the shutdown.  That will likely be true in this case as well unless the Department of Homeland Security announces otherwise.  While E-Verify is unavailable, employers will not be able to access their E-Verify accounts and will be unable to enroll in E-Verify, create E-Verify cases, and run reports.

Although the program may be unavailable, government contractors should continue to complete and maintain records of its I-9 paperwork.  The “three-day rule,” which requires employers to create a case in the E-Verify system within three business days after an employee begins working, will likely be suspended for cases affected by the shutdown.  Employers should submit the I-9’s as soon as the system comes back online.

Likewise, the deadline for responding to “Tentative Non-Confirmation” notices will likely be extended for the duration of the shutdown.  If an employee has received such determination, the employer should not take any adverse action during the shutdown period due to the notice. 

Benefits for Furloughed Employees

In the unlikely event that the government shuts down for an extended period of time, employee benefits may also be affected.  For example, some employees may lose coverage under the terms of the employer’s COBRA covered plan if their hours are reduced below certain thresholds.  In such a scenario, the employer would be required to send qualifying event notices and offer continuation coverage to impacted employees and their dependents. 

In addition, in some states, furloughing employees may make them eligible for unemployment benefits.  Contractors should review state and local law to determine potential eligibility.


A government shutdown would present government contractors with a slew of challenging compliance and legal issues.  It is critical for contractors to review the options available to them and consider, in consultation with counsel, the legal challenges and HR considerations raised by each.    

© Polsinelli PC, Polsinelli LLP in CaliforniaNational Law Review, Volume VIII, Number 353

About this Author

Conne Bertram Government Contract Lawyer Polsinelli Law Firm

Connie focuses her practice on whistleblower, trade secrets, government contractors and employee mobility counseling and litigation. She frequently conducts confidential internal investigations involving executive-level employees, including alleged fraud, theft or misuse of company data, trade secrets, sexual harassment and code of conduct violations. She routinely counsels, investigates and litigates restrictive covenant and trade secrets disputes between employers and former employees.

Connie has defended complex whistleblower, trade secrets and restrictive...


Samuel Long is an associate in the Employment Disputes, Litigation and Arbitration practice group. Sam represents corporate clients and individuals in a variety of industry sectors in all aspects of labor and employment law, including representation before administrative agencies and litigation in state and federal court. Clients rely on him for valuable legal counsel as they face sensitive workplace issues. He has successfully defended clients against claims of discrimination, retaliation, and wrongful termination under state and federal statutes, including Title VII,...