What is Up for Contractors When the Federal Government Shuts Down?

Employment Law

What is Up for Contractors When the Federal Government Shuts Down?

Sep 7, 2023 | Employment Law

With the Senate returning from its August recess on September 5, 2023, and the House not back in session until September 12, 2023, — and differences of hundreds of billions of dollars on spending remaining between the two chambers — time may have run out to avoid a federal government shutdown on October 1, 2023, according to many experts. Without Congressional enactment of the required annual appropriation bills, federal agencies are unable to spend federal resources and must cease all non-essential governmental functions until Congress acts. 

A full-blown federal government shutdown on October 1, 2023, is not a foregone conclusion. Congress can avoid a shutdown if it passes all 12 annual appropriations bills or by agreeing to a continuing resolution for short-term funding to extend governmental operations until the larger disagreements over annual appropriations can be resolved. Alternatively, Congress could decide to pass some, but not all, of the 12 annual appropriations bills, which would result in a partial shutdown of the federal government, limited to those agencies without appropriations of funds.

Federal government shutdowns are rare. There have been only four shutdowns lasting one or more business days, according to the Brookings Institution. The most recent one occurred back in December 2018, and lasted for thirty-five days. In the time remaining before a potential government shutdown on October 1, 2023, what are some of the workforce issues federal contractors should be thinking about? 

During a shutdown, government contractors face the challenge of complying with a complex set of federal and state employment laws, while their federal contract work and workers remain idle. This article briefly identifies some of the issues affecting government contractors during the shutdown and provides guidance on how to navigate those issues.

Federal Wage-Hour Laws

Government contractors are still required to comply with federal and state wage-hour laws, even though their contract work has come to a stop. The federal Fair Labor Standards Act (“FLSA”) requires employers to pay at least the federal minimum wage to non-exempt employees in the U.S. for all hours worked, and overtime for hours worked in a week over 40. Accounting for a non-exempt employee’s wages is relatively straightforward: the non-exempt worker must be paid only for the hours worked in a week.

The accounting is more nuanced, however, for an employee who is exempt from overtime under the FLSA. Exempt employees must be paid a minimum of $684 per week, for any week in which the exempt employee performs anything more than de minimis work. No pay is required for weeks in which an exempt employee performs no work at all. For example, an exempt employee who responds to emails or telephone calls from home one morning during the shutdown would be entitled to receive the employee’s usual full salary for that week. This would hold true even if the employee did not perform additional work during the rest of the workweek.

In 2018, some government contractors began disabling company-provided electronic devices to make it more difficult for employees to engage in sporadic, unintended work during a government shutdown. Contractors may also require employees to utilize accrued paid time off (“PTO”) during shutdown weeks. While the FLSA permits mandated use of PTO during a shutdown or furlough, the practice can run afoul of applicable wage-hour laws in some states and localities and should be reviewed with legal counsel prior to implementation.

Employee Benefits during a Shutdown

Depending on relevant state law, employees may be eligible to claim unemployment benefits during the federal government shutdown. Government contractors should carefully review the terms of their health insurance plan to determine whether, or to what extent, a government shutdown could affect coverage or trigger a COBRA qualifying event.

WARN Act Notice

Under the federal Worker Adjustment Retraining Notification Act (“WARN Act”), an employer with more than one hundred employees must provide its workers and state and local officials with sixty days’ notice of a pending plant closure or mass layoff, which typically occurs when fifty or more employees at a single site are terminated or are laid off for more than six months (or have their hours reduced by more than half over a six-month period). A failure to provide the required notice can subject a covered employer to significant penalties unless the failure was due to circumstances not reasonably foreseeable at the time that notice would have been required. Notice should be provided, however, as soon as the notice-triggering event becomes foreseeable.

Immigration Law Compliance

The E-Verify system may not be available during a government shutdown. Nevertheless, government contractors who participate in E-Verify still must continue to complete an I-9 for each newly hired employee. The U.S. Citizenship and Immigration Services (“USCIS”) is expected to suspend application of the “three-day rule” for employer completion of the E-Verify process. Employers should be prepared to file completed I-9s for each new hire as soon as the USCIS brings the E-Verify system back on-line. Employers may not take an adverse action against an employee while the employee’s case is in extended interim case status while E-Verify remains unavailable. Employers should seek legal guidance in connection with any H-1B, H-2B, or E-3 employees who are placed in non-productive status or reduced work schedules.


A full or partial federal government shutdown can create a host of legal challenges for government contractors. To ensure compliance with federal, state, and local laws, federal contractors should discuss requirements and strategies with their legal counsel. Bean, Kinney & Korman’s government contracts practice group works proactively with employers of all sizes, to craft a full range of employment policies and documents to meet the compliance challenges of all applicable federal, state, and local laws. If you have questions or need assistance with your company’s government contracts, policies and practices, please contact your current Bean, Kinney & Korman attorney or call (703) 525-4000.

This article is for informational purposes only and does not contain or convey legal advice. Consult a lawyer. Any views or opinions expressed herein are those of the authors and are not necessarily the views of any client.


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