At midnight, the government in Washington, DC, shut down for the first time since 2019. As of this writing, the potential duration of the shutdown is unknown. In the last 30 years, shutdowns have lasted anywhere from a few hours (2018) to more than a month (2019).
While most headlines will focus on the politics in Washington, an extended shutdown will have real consequences for companies and market participants in the U.S. and abroad. On one hand, entities facing federal investigations or enforcement actions may get a temporary reprieve – at least for deadlines not driven by court orders. On the other hand, businesses and individuals waiting for government approvals, filings, or decisions may find a shutdown disruptive.
Whether short or long, companies should take steps to incorporate the shutdown into their planning. Especially for companies less familiar with dynamics in the United States, it will be important to translate the headlines into actionable intelligence. For now:
- Plan for deeper disruptions. Expect the shutdown to go on for at least days, and expect federal agencies to terminate staff permanently, with an enduring impact.
- Expect a lack of agency guidance. Unlike past shutdowns, the Office of Management and Budget (OMB) is not maintaining a central website for contingency plans; each agency is publishing its own. This means updates will be scattered and uneven across the government.
- Watch the courts. The federal judiciary has said it can only sustain full operations until October 3. After that, staff furloughs and civil case delays are likely, creating downstream impacts for litigation and regulatory enforcement.
- Stay flexible. Monitor developments daily and be ready to pivot as the situation evolves.
And no matter when the shutdown ends, companies should take stock of any long-term impacts in the U.S. The White House’s OMB has instructed agencies to plan for large-scale layoffs in the event of a shutdown. The effects of even more federal layoffs could be significant for agencies already struggling to meet their obligations.
Impact on Federal Agencies
The term “shutdown” can be a misnomer. Yes, many parts of the federal government cease operating, but others continue, either unaffected or on limited staffing. To understand how the shutdown will affect a company, it is important to look at the specific function of the agency at issue.
During a government shutdown, federal agencies narrow their focus to essential services. However, some of the government’s most consequential work happens in its day-to-day administrative and enforcement operations – and most of that grinds to a halt unless it is “essential,” which is determined based on whether their work is necessary to protect human life, property, and national security—traditionally a high bar.
The moment the shutdown impacts an agency may vary based on each agency’s funding streams. For example, the Securities and Exchange Commission (SEC) can temporarily operate using leftover funds from the prior fiscal year, but once those are exhausted, the agency’s core functions slow dramatically and even cease when they fail to meet the excepted standard. We have a separate post outlining the extremely limited functions of the SEC that will continue during a shutdown.
In contrast, the Department of Justice (DOJ) has a high percentage of activities that are excepted from a shutdown. Approximately 102,000 of DOJ’s 115,000 employees are excepted from furlough during a shutdown. Clients should expect DOJ to keep operating, especially in its criminal enforcement and national security missions. Civil litigation, however, may be postponed unless it involves safety or property risks. The DOJ will direct its attorneys to seek continuances or stays in most civil and appellate cases. Immigration courts are particularly vulnerable: tens of thousands of hearings were canceled during the last shutdown, adding years to already backlogged dockets.
Other agencies will fall somewhere between these two poles. For example:
- Federal Trade Commission (FTC): Expect significant portions of staff to be furloughed, which will impact operations even if they are not formally paused. Hart-Scott-Rodino filings will be accepted, but no early terminations will be issued, and waiting periods will continue to run, but reviews will likely be slower due to limited staff. Staff limitations may also cause the agency to ask parties to pull and refile HSR filings. Second requests and ongoing reviews will continue.
- Consumer Product Safety Commission (CPSC): The shutdown is expected to dramatically reduce staffing during a shutdown by as much as 95%. Reviews of severe incidents with an imminent threat to human life will be reviewed, but regular reviews, more detailed analyses of incident data, product testing, and most recalls will cease.
- Department of Treasury (DoT): Certain activities will continue, such operations to address cyber attacks in the financial system, sanctions enforcement, and certain funded IRS oversight responsibilities. But others will suspend, such as routine oversight of non-excepted agency functions, processing CFIUS cases, and OFAC licensing.
- Department of Commerce (DOC): Litigation support will continue for anti-dumping/countervailing duty cases. The EU-U.S. Data Privacy Framework Program will continue due to fee-based funding. The U.S. Patent and Trademark Office (USPTO), the Economic Development Administration (EDA), and portions of the National Telecommunications and Information Administration (NTIA) and National Institute of Standards and Technology (NIST) will continue due to funding from sources other than annual appropriations, such as fees or multi-year funds. Specific functions critical to national security will also continue, primarily within the Bureau of Industry and Security (BIS) and the International Trade Administration (ITA).
- Environmental Protection Agency (EPA): Issuance of new grants, interagency agreements, permits, guidance, regulations and policies will cease unless necessary, and non-emergency inspections are paused. Some activities will continue, including preserving ongoing experiments, law enforcement and criminal investigations and legal counseling and litigation.
- Department of Health and Human Services (HHS): HHS indicates the shutdown will force it to cease oversight of extramural research contracts and grants, being able to process FOIA requests or public inquiries, data collection, validation, and analysis. Center for Disease Control and Prevention (CDC) communication to the public about health-related information will be limited, CMS will be unable to provide oversight to major contractors. HHS uses its authorities to continue some important operations. For example, the National Institutes of Health (NIH) will continue research and clinical activities necessary for the protection of human life or government property, while the Food and Drug Administration (FDA) will continue exempt activities to support drug and medical device reviews. HHS will also continue other activities protecting human life and property, such as monitoring for disease outbreaks conducted by the CDC.
If you or your clients have questions about how an agency’s operations are impacted by the shutdown, please reach out to your Freshfields contacts.
