WASHINGTON — The White House budget office and the federal government’s personnel agency have formally withdrawn the guidance that told agencies they could consider laying off federal workers during a government shutdown, closing — at least for now — one of the most contested personnel policies to emerge from last year’s record-long funding lapse. The withdrawal was set out in a joint memorandum dated 23 October 2026 and reported publicly on 2 November by the National Active and Retired Federal Employees Association, which represents current and retired federal workers. Its timing is hard to miss: the government is funded only until 11 December 2026, so the question of what agencies may and may not do in a future shutdown is about to become live again.
The memorandum, numbered M-27-01 and signed by Office of Management and Budget Director Russell Vought and Office of Personnel Management Director Scott Kupor, states that three documents issued during the 2025 shutdown have been rescinded in full and are no longer operative. The documents are an OMB email sent to executive-branch officials on 24 September 2025, which instructed agencies to consider issuing layoff notices to employees in programmes, projects or activities whose funding would lapse, and two OPM documents from late September 2025: guidance for shutdown furloughs, and special instructions for agencies affected by a possible lapse in appropriations starting on 1 October 2025. According to the employee association’s account, the OPM documents said agencies could direct employees to carry out work needed to administer layoffs as excepted activities during a shutdown — that is, as work allowed to continue even while most of the government was closed.
The withdrawal follows a settlement in a lawsuit brought by a coalition of federal employee unions, led by the American Federation of Government Employees, the largest federal employee union. The case, AFGE and others against the Office of Management and Budget and others, was filed on 30 September 2025 in the US District Court for the Northern District of California, and the parties settled it in September 2026. The settlement required the agencies to put the rescission in writing within thirty days, which is what memorandum M-27-01 does. It is important to be precise about what kind of document this is: it is not a court judgement declaring the old policy unlawful, and the settlement is not described in the reporting as an admission by the government that the policy was illegal. It is a negotiated agreement, recorded in a joint agency memorandum, that the guidance is withdrawn and that agencies must remove it from their shutdown plans.
That precision matters because the story is often told in shorthand — as the government simply giving up, or as the unions simply winning — and neither shorthand captures what was actually agreed. The unions secured a formal, written rescission and a set of procedural protections around any attempt to revive the policy. The government, for its part, avoided a final court ruling on the merits and preserved the ability, after notice, to revisit its shutdown plans in future. Both of those things can be true at once, and the remainder of this article explains how they fit together.
What the Withdrawn Federal Shutdown Layoff Policy Actually Said
To understand why the guidance caused such a fight, it helps to separate three different things that happen to federal workers when funding lapses, because they are often confused with one another. A furlough sends employees home without pay for the duration of the lapse, with the expectation — now written into law — that they will receive back pay once funding is restored. Excepted work is work that continues during a lapse because it is needed to protect life or property, or because it is funded from another source. A reduction in force, universally shortened to RIF, is something else again: it is a permanent layoff, ending the employment relationship, not a temporary pause in it.
The 2025 guidance blurred the line between the second and third of those categories in a way that unions and many federal employment lawyers regarded as novel and dangerous. The OMB email told agencies to consider issuing RIF notices to employees in unfunded functions, regardless of whether those employees had been furloughed or kept working without pay, and — crucially — to keep only the minimum number of employees required to perform the legally required mission once funding was restored. In plain terms, the guidance treated a temporary funding lapse as an occasion to shrink the workforce permanently, rather than as a pause after which the workforce would return intact. The OPM documents then supplied the machinery: they said agencies could assign staff to administer those layoffs as excepted work, so the layoff process itself could proceed while the government was otherwise shut.
That combination is what made the policy different from anything in previous shutdowns. Furloughs had been the standard response to a lapse for decades, and reductions in force had historically been carried out for reasons such as reorganisation or budget cuts decided through the normal appropriations process — not as a consequence of a lapse itself. By linking the two, the guidance gave agencies a route to permanent job cuts that bypassed the usual debate about which programmes should exist at all. Supporters of the approach within the administration argued, at the time, that agencies should use a lapse to shed functions that lacked funding; critics, including the unions that sued, argued that a lapse is a failure to appropriate, not a decision to abolish a programme, and that using it to cut jobs permanently exceeded the authority Congress had given the executive branch.
How the 2025 Shutdown Layoffs Were Blocked and Reversed
The policy did not remain theoretical for long. In the early weeks of the 43-day shutdown that began in October 2025 — the longest in American history — about half a dozen agencies moved to lay off roughly 4,000 to 4,200 employees, with many more said to be under threat. The agencies involved included the departments of Commerce, Education, Health and Human Services, Homeland Security, Housing and Urban Development, and Treasury, as well as the Environmental Protection Agency. Notices went out, and for the workers who received them, the distinction between a furlough and a layoff was not academic: one meant a temporary loss of pay, the other meant losing a job.
The courts intervened quickly. The unions’ lawsuit produced a temporary restraining order in October 2025 blocking shutdown-related layoffs, and Federal Judge Susan Illston later issued a preliminary injunction barring agencies from issuing or implementing them. A preliminary injunction is not a final judgement, but it is a judge’s assessment, made after hearing both sides, that the side seeking protection is likely to succeed and would suffer harm that could not easily be undone if the action were allowed to continue. That assessment carried the day in practical terms: the layoff notices were halted before they could take full effect, and the spending legislation that eventually ended the shutdown required agencies to rescind the notices and reinstate the affected employees. By the time the case settled in September 2026, the workers concerned were already back in their jobs, and the settlement’s job was to make sure the guidance behind the notices could not quietly be reused.
That sequence explains a point that can otherwise look puzzling: why a settlement reached in September 2026 is only being reported as a formal agency memorandum in late October and early November. Much of what the settlement records had already happened — the notices had been rescinded, the employees reinstated, and, according to the government’s own earlier court filings, the guidance had already been formally rescinded months before the settlement was signed. What the settlement added was a binding, public commitment with teeth: agencies had thirty days to remove shutdown RIF language from their websites and contingency plans, and any attempt to put it back would require thirty days’ advance notice to the unions and publication of the change. In other words, the settlement converted a fact — the guidance was no longer being used — into a procedure that makes its quiet return difficult.
Federal Shutdown Layoff Settlement: What Protection Lasts, and What Does Not
The limits of that protection are as important as its existence, and they are the part of the story most likely to be overstated. First, the case itself is not closed outright. It is being held in abeyance — paused, but not dismissed — until the end of the calendar year, so that the unions can ask the court to reopen it if another shutdown occurs and the administration attempts to use a shutdown to lay off employees. That window matters because current funding expires on 11 December 2026, twenty days before the protection lapses. If Congress fails to pass full-year spending bills or another stopgap before then, and a lapse begins on 12 December, the unions would still be able to return to court during that window. After 31 December, that particular route closes, unless full-year appropriations have by then been enacted, which would also end the abeyance on its own terms.
Second, the thirty-day notice requirement is a delay and a warning system, not a permanent ban. After giving the unions thirty days’ notice and publishing the change, an agency could in principle restore shutdown RIF language to its contingency plans. The notice period gives unions time to seek a court order and gives Congress time to react, but it does not by itself make such a policy unlawful. Anyone who reads the settlement as permanently forbidding shutdown layoffs in all circumstances is reading more into it than the documents support.
Third, and most importantly for the wider workforce, the settlement does not stop furloughs, and it does not stop reductions in force carried out for other reasons. If funding lapses in December, agencies will still furlough unfunded employees and keep excepted employees working without pay, as they have in every shutdown. And if Congress enacts spending bills that cut a programme, or an agency undertakes a reorganisation through the normal process, layoffs for those reasons remain possible under the usual rules. The settlement is narrow: it removes the shutdown itself as a stated basis for permanent layoffs, and it requires transparency before that basis can be reintroduced. It does not insulate any federal job from every kind of workforce reduction.
Why December 11 Changes the Stakes for Federal Workers
The calendar gives the memorandum a significance it would not have had in a quieter year. The continuing resolution that currently funds the government runs through 11 December 2026, and none of the twelve full-year spending bills for the current fiscal year had been enacted as of late October. Congress returns from its post-election recess with limited time to negotiate either those bills or another stopgap, and the December deadline falls in the week before the holiday pay period — a period when a lapse would be felt quickly in household budgets. The same calendar that makes the settlement’s abeyance window relevant also makes it fragile: the protection and the funding cliff expire within weeks of each other, and the order in which they are resolved will shape how much comfort federal workers can take from either.
For the roughly two million federal civilian employees, most of whom were never personally threatened with a shutdown layoff, the practical effect of the memorandum is indirect but real. Shutdown contingency plans are the documents agencies consult when a lapse begins: they determine who is furloughed, who works without pay, and which functions continue. Removing RIF language from those plans means that, if a lapse does occur in December, the first document an agency manager reaches for will no longer point towards permanent layoffs as an option. That does not guarantee how any individual manager will act, and it does not resolve the underlying political dispute about the size of the federal workforce, but it changes the default setting at the moment of greatest pressure — which is, after all, when defaults matter most.
For the unions, the memorandum is also a lesson in how litigation can produce results that legislation alone did not. Congress had already required reinstatement of the affected workers in the law that reopened the government, and it had already blocked some related administration policies in that same law. What the lawsuit added was a forward-looking procedure: a written rescission, a clean-up of contingency plans, and a notice requirement that forces any reversal into the open. Whether that procedure proves durable will depend less on the memorandum itself than on what Congress does before 11 December, and on whether any agency tests the notice requirement in the new year. For now, the position is clear enough to state plainly: the 2025 shutdown layoff guidance has been withdrawn, in writing, by the agencies that issued it, and any attempt to bring it back must first be announced.
Sources
USN reviewed reporting from multiple outlets for this story. Read more from FEDweek, FEDmanager and NJToday.