The Government Shutdown and Wage Payment Issues Facing Contractors

by

Jeffrey J. Pargament & Frank C. Gulin

Many federal contractors are wrestling with the question of how to compensate employees in light of the government shutdown that commenced on Tuesday, October 1, 2013. Employees assigned to work at federal government locations have effectively been “locked out” and prevented from working. Others may have been directed to stop work due to lack of funding.

Compensation questions are governed by the federal Fair Labor Standards Act (FLSA) and applicable state and local laws. The answer is simple as to employees who are classified as “non-exempt” under the FLSA, meaning employees who are eligible for overtime compensation. Such employees are entitled to be paid only when they actually work. Thus, they need not be paid when no work is performed as a result of the shutdown.

The answer is considerably more complicated for employees classified as “exempt” from the minimum wage and overtime requirements of the FLSA. In order to maintain their exempt status, such employees generally must be paid a predetermined salary, of at least $455, during each workweek. Under the FLSA, the term “workweek” is defined as the fixed seven-day period used by the employer to calculate overtime and other wage entitlements. Employers can not reduce an exempt employee’s salary when the employee misses part of the workweek, except in very limited circumstances. Employers may not reduce an exempt employee’s salary for partial-week absences resulting from the temporary closure of the workplace.

For example, if the employer’s “workweek” runs from Monday through Sunday, and an exempt employee worked on Monday, September 30, 2013, and then missed all or part of the rest of the workweek because of the shutdown, the employee would be entitled to his or her full regular salary for that week.

Should the shutdown continue, such that it lasts throughout entire workweeks, employers may find some relief. Exempt employees are not entitled to be paid for workweek in which they have performed no work, even if the lack of work results from the closure of the business. It should be noted, however, that if an exempt employee performs any work at all in the workweek, they would be entitled to their full salary. Thus, in the event of an extended shutdown, exempt employees should be directed not to perform any work at all, including electronic correspondence and telephone calls.

Employers may consider requiring exempt employees to use accrued vacation or “paid time off” during the shutdown. The FLSA generally permits this practice. However, employers must be mindful of applicable state laws. For example, under the Maryland Wage Payment and Collection Law, accrued vacation pay is a “wage” payable upon termination unless the employer has a policy providing otherwise, and that policy has been disseminated to employees in advance. In Maryland, and jurisdictions with comparable laws, docking accrued leave to cover absences resulting from the closure of the workplace may be problematic unless employees have been notified in advance, through a written policy, that their leave may be docked in such circumstances.

Finally, it should be noted that state and local wage and hour laws may not always apply to employees assigned to work at certain federal facilities. If the state has formally ceded jurisdiction of the facility to the federal government, state laws that became effective after the transfer may be inapplicable under the “federal enclave” doctrine. Many military bases are considered to be federal enclaves. The federal enclave doctrine is highly fact-specific, and employers should consult legal counsel should they wish to rely on the doctrine to avoid the requirements of state wage and hour laws.

This article should not be considered legal advice. Should you have questions concerning this article, please contact Jeffrey Pargament or Frank Gulin at (202) 775-0707 or by email at jpargament@pandhlaw.com or fgulin@pandhlaw.com.