Trump administration settles with unions over shutdown mass-layoff policy

The Trump administration settled a major lawsuit with federal employee unions on September 25, 2026, officially rescinding its policy authorizing mass layoffs during government shutdowns. The agreement halts litigation over reduction in force (RIF) notices sent to over 4,000 workers during last year's 43-day shutdown. Under the terms, agencies have 30 days to strip RIF provisions from shutdown contingency plans, and any affected employees have been reinstated, marking a significant victory for union leaders like AFGE President Everett Kelley.

Union legal challenge

• ▪The federal unions' lawsuit challenged the Trump administration's requirement that federal employees conduct reduction in force work during a government shutdown.
• ▪On September 25, 2026, federal employee unions settled with the Trump administration, holding their lawsuit challenging 43-day shutdown layoffs in abeyance until the end of 2026, with the option to reopen it if another shutdown occurs.

Settlement mandates for federal agencies

• ▪Under the September 25, 2026 settlement with federal unions, the Trump administration agreed to withdraw its authorization of widespread layoffs across the federal workforce during a government shutdown and officially rescind all related guidance
• ▪Federal agencies have 30 days under the September 25, 2026 settlement to remove any language authorizing or administering reductions in force during a funding lapse from their operative shutdown contingency plans, unless expressly authorized by statute
• ▪The Office of Personnel Management and the Office of Management and Budget have 30 days under a settlement with federal unions to notify federal agencies that earlier guidance making reductions in force a shutdown-exempt activity has been rescinded
• ▪Under the settlement, federal agencies must provide a 30-day advance notice to plaintiff unions and publicly post updated plans if they intend to modify future shutdown plans to exempt initiating or administering reductions in force.

Impact on affected employees

• ▪Approximately 4,000 to 4,200 federal employees at agencies including the departments of Commerce, Education, Health and Human Services, Homeland Security, Housing and Urban Development, and Treasury, and the Environmental Protection Agency, received layoff notices.
• ▪Reduction in force notices issued to thousands of federal employees during the 43-day government shutdown in 2025 have been rescinded, and separated employees have been reinstated to their positions

Pre-shutdown layoff directives

• ▪The Office of Personnel Management updated its guidance in 2025, exempting agency reduction in force procedures from government shutdown restrictions.
• ▪The Office of Management and Budget directed federal agencies to draft mass firing plans for programs lacking alternative funding sources and not aligned with President Trump's priorities ahead of the 2025 shutdown

Prior legal challenges to the policy

• ▪A federal judge in San Francisco issued a preliminary injunction in October 2025 blocking federal agencies from issuing or enforcing reduction in force layoffs, which was later expanded in December 2025.
• ▪Federal unions filed a lawsuit against the Trump administration on September 30, 2025, contending that OMB's directives and agency reduction in force plans violated the Antideficiency Act and the Administrative Procedure Act

Congressional funding measures

• ▪Congress passed a spending package to end the shutdown and a subsequent funding bill that legally prohibited federal agencies from carrying out reduction in force layoffs through mid-February 2026.
• ▪Congress passed a continuing resolution keeping the federal government funded through December 11, 2026, postponing the threat of a government shutdown until after the midterm elections.

Debatable claims

• ▪Congress should permanently prohibit federal workforce layoffs during shutdowns
• ▪The Trump administration was justified in authorizing federal employee layoffs during the shutdown
• ▪Using the threat of federal layoffs as leverage during budget negotiations is acceptable