Federal Funding Freeze & Potential Government Shutdown

Joe Young
Hello, GovCon friends. Good afternoon and welcome to the February edition of The GovCon HR Round-Up Podcast and day 30 of the Trump administration. Never a dull moment. Plenty of exciting things.

Declan Leonard
The guy never sleeps.

Joe Young
That's for sure. So welcome back, everyone. Hope everyone is doing well. It's great to have you join us again, as always. My name is Joe Young. I'm the president of GovConPay. We are the only outsourced payroll and HR company focused exclusively on serving the government contracting marketplace. As always, we are coming to you today from a very chilly Tysons Corner, Virginia, live from the studios of BLC Digital Strategies, the media affiliate of Berenzweig Leonard LLP, and under the direction of our producer and friend, Mr. Todd Castleberry.

Before we get started, as always, I also want to recognize our sponsor, our friends from Berkshire Associates. For those of you not familiar with Berkshire, they are HR compliance experts with over 50 years of experience with, as I said last time, frankly experience on a lot of topics that we're covering these days in the changing landscape of HR and the government contracting world.

And as always, I'm with my friends and colleagues from Berenzweig Leonard LLP: Seth Berenzweig and Declan Leonard.

Seth Berenzweig
Once again, good to see you. I'm Seth Berenzweig, co-managing partner of the firm. Among other things, I cover the corporate and transactional part of our practice here at the law firm.

Declan Leonard
Great to be here again for another one of these Round-Ups. I'm Declan Leonard. I'm also a managing partner here at Berenzweig Leonard. I head up the firm's employment law practice. I work with HR folks like hopefully most of you out there all the time.

Joe Young
Well, before we dive in to the topic today, I do want to remind all of our viewers out there, as always, if you have any questions as we go along, follow ups to what we're talking about, or just with what's going on in your organization, feel free to jump that into the chat and our team will put that up and we will definitely try to address that before we get off the air today.

Today's topic, in addition to the ever-changing landscape, we're going to really focus on, as we said here, navigating the double threat: the federal funding freeze and a potential government shutdown on the horizon here, in addition to a lot of the other changes that we've been dealing with.

So, Declan, as I said, we're one month into the new Trump administration. Things are happening at breakneck speed when it comes to funding cuts. Where do you think things currently stand?

Declan Leonard
Yeah, you'd have to live under a rock to not know that DOGE is in full swing. They're cutting, slicing, dicing… A lot of the focus is so far on federal employees. But remember, this has a ripple down effect for all contractors. When you're getting rid of programs, when you're getting rid of federal employees, inevitably, that's going to impact the work that the private sector does to assist those federal employees and those federal agencies.

We've heard a ton about USAID. That's an easy one. USAID is really being dismantled one by one. There was an injunction that was recently issued, but it looks like the Trump administration has actually gotten around that injunction and just continues to dismantle that agency. Anything DEI related - services contracting, anything - that's also going to be gone right off the bat and already is.

There's lots of legal challenges. So, we'll see how this works out. But I suspect I wouldn't get too heightened if I was looking to slow down the Trump administration. These injunctions are usually pretty short-lived. It's very easy for a judge to issue an injunction. They're very short-lived. And you really then have to have the legal substance to be able to have that in more perpetuity.

It's a little bit of a to be determined in terms of like actual contract cuts beyond USAID and beyond DEI at this point. We are hearing from our clients, we are seeing evidence of slowdowns and whether or not it's being directed that way or if it's just the result of the confusion. And frankly, agency officials who are stepping in now with this new administration who are scared to step out of line.

I will say that that with all of this there's lots of confusion that's kind of where we stand right now.

Seth Berenzweig
I would also just drop a footnote to that and say that the confusion is heightened by the fact that every day, stuff changes. So, yesterday or thereabouts, Judge Chutkan in DC issued a ruling supporting the administration in refusing a continuation of an injunction with regard to DOGE’s access to seven agencies in Washington for a review of their employment and payment records as well as continuation of removal of jobs.

So, that was a big win for the administration. And then any day now, there's another hearing that's going to be happening in federal court in Manhattan with regard to whether DOGE has access to the central repository for payment records in Washington. So, I agree there's a lot of confusion. And you feel from a day-to-day basis that sometimes you feel a little bit whipsawed.

Declan Leonard
You’re not going to see a ton of contracting activity right now in this environment where people are wondering if programs are even going to exist. It's a very frustrating and I would say very concerning time for contractors.

But there are some opportunities and we'll talk about that a little bit today.

Joe Young
As I shared with you guys, I was in New Orleans last week for the National 8(a) Small Business Conference. And uncertainty was a theme that obviously hung over that for a few days. And as I shared, there is normally agency representatives who are a part of that. That attendance seemed to be down too. There's so much uncertainty they probably don't have answers. So yeah, definitely is a cloud.

Declan Leonard
You mentioned on the plus side that attendance was one of the largest that you would ever been to.

Joe Young
Yeah, it was good. It was well-represented. Contractors were there, there's still the excitement and all, just that uncertainty that tends to be hanging over everything.

Declan Leonard
You know, it's interesting. You don't want to be always thinking silver lining, silver lining, you know. But I will say this much: I think a lot of these - and I'm seeing anecdotally little examples of this - I think a lot of this stuff could present opportunities for federal contractors to grow their companies.

I heard recently about a situation where somebody took the resignation that the Trump administration offered to federal employees and then pretty much stepped right into a contractor’s role and of course, doesn't save anybody money, so it's counterintuitive, obviously. But we see this happen time and time again.

And remember, one of the biggest pet peeves of the Trump administration is they don't like the fact that it's very hard to get rid of federal employees for poor performance. They much prefer the private sector default rule of at-will employment. Well, federal contractors out there, we all know your employees are basically all at-will employees.

And so, the fact that some of this would move over to the private sector, I think that's something that the Trump administration would like. So don't think that this is all doom and gloom. There may be opportunities here for the federal contracting sector to grow, even if the government is really decreasing.

Joe Young
So Seth, Declan brought up obviously USAID, which everybody's been talking about and what's been going on there. But what are some of the other agencies where we expect cuts will be the deepest? Which ones will escape Elon Musk and his chainsaw? What are we seeing there?

Seth Berenzweig
Well, I think the easiest way to look at it in terms of a framework initially is the defense agencies versus the civilian agencies. The administration’s priorities in terms of status quo right now relate to elements of national security, law enforcement, first responders, and ICE. Those are things that are probably going to have less staffing volatility as compared to other non-priority agencies regarding education, EPA, agriculture, the Internal Revenue Service.

Unfortunately, they always get a tough rap. Although, I should probably shut up before I get audited.

Declan Leonard
Somebody give me a box of tissues here.

Seth Berenzweig
Yeah, I can't further comment until my audit is finished.

Joe Young
We’re on a ten second delay.

Seth Berenzweig
Exactly. Energy interior and so forth. If you actually foot that with Judge Chutkan’s order this week, letting the doors open to DOGE with respect to the civilian agencies, which includes, among other things, letting those cuts continue. That was kind of an interesting window that proves that dichotomy. There are always going to be exceptions that kind of float in the middle.

There are still questions of whether everybody's still safe at Homeland Security and things like FEMA. There's an interesting question that is arising as to, well, “What are we going to know? What's really happening?”

I think that there will probably be some clarity in a couple of weeks when you look at the rulings that are happening, especially the one from DC this week and then we're going to get this ruling in New York, I think there'll be some clarity sooner rather than later.

But right now, we already know that there are things that are happening. The so-called probationary employees are being let go and even if it ends up going to the Supreme Court, quite frankly, I think the Supreme Court will probably look at this as a dichotomy of responsibilities and a separation of powers issue.

I don't want to lean too far ahead of my skis, but there's a lot of uncertainty and volatility right now. We'll probably end up getting a little bit more clarity in the next couple of weeks.

Declan Leonard
And even with some of these cuts like we saw yesterday or the day before in the news, dismissing the folks that monitor and analyze the bird flu, which is something that people are concerned about right now. That was probably at HHS, Health and Human Services. And so they fired them, and now they've asked them to come back.

I know that there were situations where this happened before with the nuclear code. They actually didn't have their personal email addresses to invite them back. I think the more we see this, the more the public relations aspect might cause them to take a step back. And by the way, if you were one of those people who were fired working on the bird flu, would you go back, or would you perhaps look to work in a contractor role for a federal contractor?

Seth Berenzweig
Yeah, I think that DOGE's unnecessarily committing some unforced errors. I think that ultimately what they're doing is really important because they're finally pulling over some elements of the gravy train and deciding what money is necessary, especially as it relates to things like USAID. But I agree with Declan that sometimes when they go fast and break things, they they're not turning square corners.

And there are some unforced errors that are involved. But overall, we're starting to see some decisions coming out that are supporting DOGE. So, it'll be interesting to see what happens over the coming weeks.

Joe Young
Well, and speaking of things happening over the coming weeks, as if there were not enough financial pressure on contractors, the government is only funded for a couple more weeks—until March 14th, which is only a few weeks away. That leaves a very real possibility of an actual shutdown. So, what should our contractors out there be thinking about taking that into account with the other moving parts?

Declan Leonard
Yeah, we hate to be such the bearer of not the most positive news, but I do think that this is a sleeper issue, this government shutdown potentially. And the reason why is it almost feels like Groundhog Day. It feels like we always have one of these. But in the past, most of the time, what happens is cooler heads prevail. Parties get together.

Last time, the Democrats bailed out Mike Johnson when some of the hardline Republicans did not want to do this. I think this one is a little bit more of a perfect storm that could be a problem. In fact, there's a betting site called Poly Market that has it at 60% that there's going to be a government shutdown.

Now, for how long that is, who knows? And the reason why I say that is the Democrats are in no mood as a result of what's going on with Elon Musk and DOGE to bail anyone out on the Republican side. And so, Mike Johnson's going to find himself without those allies on the on the left to band together and do another Band-Aid approach of continuing resolution.

And then you've got Trump at the helm who really doesn't like these continuing resolutions at all. He would much rather do away with the debt ceiling so that he doesn't have this come up. He doesn't like leverage against him. And I think that that's why this could be a bit of a perfect storm.

Seth Berenzweig
Yeah, you're talking about less than a month away, and there's a very thin margin, if you could even call it that in the house. So, yeah, I agree. There's going to be a lot of uncertainty. Ultimately, they will work it out because they do have to work it out. But even if there is a shutdown for even a couple of days, that's really going to cause a lot of disruption.

Joe Young
Yeah. And as we were talking earlier, I mean, last time, yeah, they got to kind of get done, but they always figure it out two days before Christmas. Everybody wants to go.

Seth Berenzweig
No one's in the mood.

Declan Leonard
And if you think about it, right now, the Trump administration, there’s definitely an attack on the federal government basically saying waste, fraud, and abuse. And you know what we can do without a lot of this stuff. So, if you're a Democratic lawmaker, why wouldn't you say, fine, we'll call your bluff, let's shut down the government, and let's see how it impacts people's lives on a daily basis?

Seth Berenzweig
That’s a great point.

Declan Leonard
And that will stem the tide of public relations, I think, against DOGE. So, just if anyone's out there listening, I said it first. So you heard it here.

Joe Young
You heard it here first on the Round-Up.

Declan Leonard
Yes, yes, yes, yes.

Joe Young
With a lot of these pending cuts that we're looking at here in the near future, in the upcoming years, Seth, let's say your company does get a stop work order. What are the steps they should take?

Seth Berenzweig
I think that it's all about communication, communication, communication. You need to be in constant contact with the customer, with the contracting officials, to really understand what's happening, how it's happening, when it's happening, what's the duration, what's the likelihood of reversal of the status? So, you really need to be in touch with the customer. You need to get it in writing.

I know that that sounds so inherent that it's sounding like Captain Obvious, but you have to be able to demonstrate something in the file to be able to rely upon.

Declan Leonard
Think about all the misinformation that's going on right now. And remember, in government contracting, no one official at the government can bind the government. Everything's done through modifications. You know, we've got Stephanie and Rachel and Charles here in the GovCon group. They'll tell us, “don't listen to a contracting officer repeating things that they may have heard as coming down the pike. Get that in writing.”

Seth Berenzweig
Exactly. And if you do have a shutdown and someone tells you to continue to work regardless of what it is, you need to get it into writing. You know, you have these issues under the Deficiency Act about the fact that contracting officers cannot authorize unfunded work. The contracting officers and the government contracts community may somehow end up on page one of the Washington Post or The New York Times.

So communicate. Get it in writing. Communicate with your employees. Let them know that you're on it. Let them know that you're in constant contact with the customer. Let them know that this is critical to you and that you want to let them know that you're not going to have people whipsawed by the rumor mill but that you're going to be able to stay grounded in the day-to-day reality of what's happening.

Take stock of your employees and you can keep people on the bench for a little bit of time if you want to, then perhaps see if they can be deployed in other contracts. So really, just take it literally one day at a time.

Joe Young
And as these conversations are going on, you hear the word furlough thrown around a lot these days. What's the difference between a furlough versus a regular layoff, assuming a company needs to take folks off contract?

Declan Leonard
Yeah, no, it's a good question. We usually have heard furlough in the context of these government shutdowns. But now, with these cuts, I think they're also coming into play a lot more. So, a furlough implies that it's more of a temporary, not layoff, but a temporary work stoppage for an employee. The employee's not working.

I've always said like, “Okay, the employee's not working, and the employee's not getting paid. Is that really an employment relationship?”

I will say there really is no legal connotation for furlough but it has taken on a meeting of being a more temporary measure. The employee is still considered an employee at the company. They remain employees.

They can continue to get benefits. It’s almost like a tactical decision by the company. If you think that this stop work order, when the dust settles, maybe later on in the year or whatever, if you think you're going to get back on this contract, furlough is probably a better way to go. There's financial aspects of that that we'll want to talk about.

I know we'll talk about this next. But, layoffs are very permanent. But again, a layoff of an at-will employee means you can reemploy them the next day. So, these are sometimes a little bit of a distinction without a difference in my book.

Joe Young
Is there certain things you should be thinking about if you think these are coming as an HR Department when you should start having these conversations with your employees?

Declan Leonard
Yeah. It gets back to this point about communication and trying to head off rumor, innuendo, things of that nature. Because remember, your employees are mostly going to be working - especially now with return to office directives - they're going to be working front and center with people and the rumors are going to be running rampant. They need to continue to really stay in close contact with their employees.

There are legal considerations also. You can't hold on to this information for a long time. If this becomes a mass layoff, you have issues such as WARN Act that comes into play that basically says, “Look, if you know that you're going to be letting go a large percentage of your workforce, then you have to give a certain amount of notice, usually 60 days.

It's got all kinds of like technical requirements that we don't have time for today. But you should be aware of those. And also states have their own mini WARN Act things. While you may want to bury it and keep it close to the vest, there may be legal reasons why you need to be a little bit more proactive in those communications.

Seth Berenzweig
And I think that you need to be ready sooner rather than later, even if you believe that there's not going to be a work stoppage for whatever reason on your contract. Just have your HR folks standing at the ready because like Declan has said, there are a lot of issues just on the federal level alone, even putting aside the state questions.

Make sure that you understand where people are deployed. What's their contact information? Have a copy of their employment agreements and offer letters handy so that when things are going to be moving, you have everything at the ready. Hopefully, it will be a smooth transition, but we'll have to see how the next weeks play out.

Joe Young
And a question came in related to this: Can you require employees to use PTO instead of furloughing them?

Declan Leonard
Yeah. I would argue potentially that you do a contemporaneous but yes the short answer is yes, you can because furloughs are not really contractual. They're not really a legal status. Like when you're on a FMLA leave, you're on legally protected status. And that actually has a different connotation about being required to use PTO.

For furlough, you could say, “You know what, here's what we're going to do.” You're going to use the rest of your PTO. Let's continue to ride this out. And then after that, you're going to be on furlough status and furlough status is generally an unpaid status. And by the way, it's going to be very important if somebody is on furlough status not to allow them to work. Don't have them answering emails. Don't have them doing things like business development or anything like that.

Seth Berenzweig
Or you'll have a pay statute issue.

Declan Leonard
Exactly. If they're furloughed, they are not working. Now, if they are partially working, just make sure that you pay them.

Seth Berenzweig
Yeah.

Joe Young
Declan mentioned briefly about benefits in this situation, but why don't we dive into more as far as furloughed employee benefits, health insurance, and unemployment, and those types of benefits?

Seth Berenzweig
Really the predicate document for all of that is the insurance policy. The role of the company is to be helpful in communication and to connect to the employee with regard to the availability of benefits under certain insurance plans. So, for example, health insurance. Look to the plan with regard to eligibility. I agree: The general rule is that if somebody is furloughed, and they may front-load it with PTO, but while they are an employee, generally speaking, they're probably eligible for health insurance, subject to the terms and conditions of the carrier's plan. Whether furloughed or laid off, they may also be eligible for unemployment insurance that could give them additional benefits.

And they also may be covered by a worker's comp or short-term disability coverage. And again, short-term disability, like long-term disability, is something that's governed by the operative insurance policy. So that's something that ultimately is going to really be more in the hands of the carrier. However, what HR can do is to continue to maintain communications, communicate status, share a copy of, for example, the short-term disability policy.

We had an issue earlier this week of having STD be an option and the suggestion was to not only let the employee know that but to share a copy of the policy. Do everything that you can to be helpful. And then that way they'll continue to feel more supported during these uncertain times.

Declan Leonard
Yeah. So while doing that, while putting somebody on furlough status and giving them the benefits, assuming that the plans allow that, there are risks. There are risks. If somebody does have a disabling situation, let's just say they're in a car crash or anything like that, God forbid. But they're still considered an employee of the company.

So, they are still eligible to go on that company's short-term and potentially long-term disability policy. By keeping somebody as a legal status of an employee, it's a great thing to do, if you can do it for a short period of time. It's not without its risks.

Joe Young
And we and we do have an audience question that came in related to this. As we mention, you have them not answer emails, not do work. How do we communicate with them? So are we allowed to as an administrator?

Declan Leonard
On X. You just go on and that's how we do everything nowadays. That's how the president… They probably got fired on X so might as well just rehire them on X.

Let me just clarify. You would probably also have their personal email or something like that. There can be some de minimis communications. Like for instance, if you're saying, “Hey, we think the contracts are coming back. Get ready,” and stuff like that. What I was really getting at is if they're performing services for the company, they need to get paid for that. And if you've got them on furloughed unpaid status, that becomes, as Seth just mentioned, just a wage and hour issue that, in today's day and age when people are getting desperate for pay and losing money, things are not great.

They will pursue those claims. I think more so than when the economy is really doing well.

Seth Berenzweig
I think worker's comp is something that is worth mentioning just one additional time because the general rule across the states - it's an animal of state law. The general rule of worker's comp is that as long as the separation of employment occurs for reasons that are unconnected to some kind of misconduct, then they could be entitled to be paid out of that social program as well.

So, you know, at that point, you really want to make sure that you put all your chips on the table to cover people as best as possible.

Declan Leonard
Should we jump into the last one?

Joe Young
In our remaining few minutes we have here, there's obviously just a handful of other hot topics out there. So maybe getting off of our main theme for today. What are, if we were going to touch on two or three of those in our remaining time, what do you guys think are the main ones to address?

Declan Leonard
You can't get away from it: DEI. It was a hot topic when we talked about it last month, and it's even hotter than that now because with each passing day and week and month, we're getting closer to where the government says federal contractors are going to have to certify that they don't engage in any illegal DEI programs, and by that we mean programs that would favor one group over another.

This is not, as I've said before, in many of these, discrimination is still very much illegal. The Trump administration's view is you are engaging in discrimination if you give somebody preferential treatment based on a protected class at the detriment of another person. So, you should be doing your DEI risk audits now. You should be lifting up that hood and doing a DEI risk audit.

Seth Berenzweig
Yeah, I agree. And that is a process that is not hard to do. But the risks of not doing it are really interesting. For example, I've noticed that there is a hotline. There's a DEI hotline where, where people can the only word that I can think of at the moment is tattletale.

Declan Leonard
No, disgruntled employees are going to be calling that.

Seth Berenzweig
No, no. People are very satisfied. There's no turbulence at all.

And there are calls. There are hotlines where companies can get turned in for violating this dictate. And it doesn't, by the way, it can still have the calories of a DEI policy without calling it a DEI policy, Right? So, getting a quick review of your handbook, of your employment-related materials, is something that could be really helpful because if it's not cleaned up, given the new regulatory environment, which again is changing week to week, if not day to day, you could even literally get reported and not even realize that the issue is up until you're being contacted by the government.

Declan Leonard
And the new theme this year should be equal employment opportunity. That's never going to get you in trouble. So, you do not have to take any of that out of your job postings, your handbook, or anything like that. The words that are problematic are DEI and affirmative action. Now, with one caveat: You still, as a government contractor, can engage in affirmative action when it comes to veterans and hiring the disabled because those emanate from Congress.

And there's no indication so far that those are going to be disturbed. Let's see.

Joe Young
Remaining moments. If we can get this in our remaining time, but return to office.

Declan Leonard
That's another big one. I mean, I can't tell you how many how much I've been dealing with this issue of return to office, a lot of it in the ADA accommodations context, because up until now, the Americans with Disabilities Act, for those who have a medical condition that they are requesting - and they have a doctor's note, usually, that would try to back this up - they're requesting to be allowed to probably continue working either remotely or flex work, whatever, telework, because they probably have been doing it since 2020 when COVID started.

But with that directive by the federal government for federal employees to come back to the office, that's just flowing right down to contractors at this point, whether it's been on paper or not.

Remember, for a lot of these, there was not actually a modification to the contract to actually allow flex work or remote work. When you look at these contracts, they still say onsite work. But the problem is during COVID, we just had to allow that. And so I don't think a lot of these contracts ever got modified. It's a big issue. I mean, return to the office, I think is one of the bigger issues.

Joe Young
Anything to close on here, Seth?

Seth Berenzweig
Go eagles.

Declan Leonard
That ship has sailed. They won.

Joe Young
Throwing a bone to the big Eagles fan here surrounded by commander's fans, so I will throw out a celebratory “go birds” since the last time we were together.

Seth Berenzweig
He’s wearing the right color.

Declan Leonard
No, this is Berenzweig Leonard maroon, I think.

Seth Berenzweig
More importantly. Yes.

Joe Young
But thank you again, everybody, for joining us. Like last month, we have not put out an agenda for next month's topic. Again, we're going to try and stay topical, so we'll get something out a little closer to that time. Also, an announcement with regards to our schedule, we are going to be changing our normal third Thursday date in March to the last Thursday in March, which would be March 22^nd, or excuse me, March 27^th. And we'll be doing the same thing in May, so the 22nd.

New registration invites will be coming out that will update for you those for those who are subscribers. But thank you again for joining us. Enjoy the rest of your week, and we look forward to seeing you next month.