The federal fiscal year begins on October 1st and runs until September 30th. When Congress fails to pass a spending bill by September 30th to keep federally funded programs operational, the government is shutdown. Unlike in previous shutdowns, the Trump Administration is calling for agencies to execute Reductions in Force (RIF) to separate furloughed employees.
Agency RIF plans have already faced many legal challenges, including multiple challenges spearheaded by Federal Practice Group. On September 30, 2025, American Federation of Government Employees (AFGE) and the American Federation of State, County and Municipal Employees (AFSCME) initiated a new challenge—a lawsuit in the U.S. District Court for the Northern District of California challenging these most recent threats by the Trump administration.
Key Takeaways
- Government Shutdown Impact: When Congress fails to pass a budget, most federal employees are furloughed or required to work without pay until funding is restored.
- OMB and OPM Guidance: For the 2025 shutdown, the Office of Management and Budget (OMB) and the Office of Personnel Management (OPM) told agencies they could move forward with Reductions in Force (RIFs) — essentially permanent layoffs — during the shutdown. This is a major change from past government shutdowns.
- Union Lawsuit: AFGE and AFSCME filed suit against OMB and OPM, arguing that agencies cannot legally conduct RIFs during a shutdown. They say these directives are unlawful and ignore employee protections
- Why It Matters: A RIF during a shutdown would strip employees of guaranteed back pay, conflict with federal law, and go against long-standing OPM guidance that RIF rules don’t apply to shutdown furloughs.
- Next Steps: The case, AFGE v. OMB, is moving through federal court and may decide whether agencies can permanently lay off employees during a shutdown.
What Usually Occurs During a Government Shutdown?
Government Functions
During a shutdown, federal agencies must cease the majority of their operations pursuant to the Antideficiency Act (31 U.S.C. § 1341). The only government functions allowed to continue are those with multi-year/indefinite programs such as Social Security and certain Department of Defense contracts, those that may be necessary to conduct other activities required by Congress or to discharge the President’s constitutional powers, and services for “emergencies involving the safety of human life or the protection of property,” such as law enforcement.
Federal Employees
Federal employees are assigned to one of the following categories during a government shutdown:
- Excepted: Those who continue working during a shutdown but are not paid until the government agrees on a new spending bill.
- Non-excepted: Those who are furloughed during a shutdown, meaning they are not permitted to work and do not get paid.
Once the shutdown ends, Government Employee Fair Treatment Act of 2019, passed during Trump’s first term, ensures that all federal employees (but not contractors) receive back pay as soon as funding is restored.
OMB and OPM Guidance for this Shutdown
Prior to government shutdowns, including this one, the Office of Management and Budget (OMB) and Office of Personnel Management (OPM) issue guidance about how agencies should structure themselves during a shutdown.
Office of Management and Budget (OMB)
On September 24, 2025, OMB issued a memorandum advising agencies to issue reduction in force (RIF) notices for employees in federal programs whose “discretionary funding lapses on October 1, 2025,” did not currently have “another source of funding” available, and “is not consistent with the President’s priorities.”
Once a new spending bill has been passed, OMB directed federal agencies to amend their RIF plans “as needed to retain the minimal number of employees necessary to carry out statutory functions.”
Office of Personnel Management (OPM)
On September 28, 2025, OPM updated their shutdown furlough guidance to state, “an agency can run a RIF and may issue RIF notices … when preparing for a shutdown furlough. OMB has determined that agencies are authorized to direct employees to perform work necessary to administer the RIF process during the lapse in appropriations as excepted activities.”
The Specifics: AFGE v. OMB
The complaint lists two main claims:
1. There is no statutory authority for agencies to execute RIFs during a government shutdown.
2. OMB and OPM’s actions were “arbitrary and capricious” (i.e., the agencies did not provide a satisfactory explanation for their actions and/or did not consider
Legality of RIFs During a Government Shutdown
AFGE alleged that OMB and OPM could not legally tell agencies to continue implementing RIF plans during the shutdown or issue new RIF notices to furloughed employees during this time for several reasons:
- Having personnel prepare and execute RIFs does not fall into any of the categories of government functions permitted during a shutdown and thus violates the Antideficiency Act.
- RIF procedures do not apply to furloughs that arise under the Antideficiency Act in the event of a shutdown. Instead, the Antideficiency Act expressly provides that all employees who are not paid during a shutdown—whether furloughed or excepted—must receive back pay for that time period once funding is reinstated.
- RIF’ing entire departments/programs would require agencies to contradict their statutory mandates and would potentially deny required benefits to furloughed employees. For instance, if furloughed federal employees receive RIF notices and the shutdown continues for longer than the required RIF notice period, those employees would not receive federally mandated backpay.
- OPM reaffirmed in its just-updated Guidance that, “Reductions in force (RIF) furlough regulations … are not applicable to emergency shutdown furloughs because the ultimate duration of an emergency shutdown furlough is unknown at the outset and is dependent entirely on Congressional action, rather than agency action.”
Sufficiency of the Administration’s Explanation
The complaint highlights many reasons why OPM and OMB did not provide sufficient explanation for their actions and did not consider important aspects of this issue.
First, it alleges that OMB and OPM’s guidance rested on a misinterpretation of relevant federal laws, contradicts prior guidance by OPM, and contradicts prior practices of federal agencies.
Further, the complaint highlights the illegality of pressuring congressional Democrats into voting a certain way on appropriations demands by threatening mass terminations.
Finally, and very importantly, the complaint lays many of the considerations that OMB and OPM failed to take into account, such as the interests of federal employees and members of the public who would be impacted by actions taken pursuant to their guidance.
Next Steps
On October 1, 2025, the Honorable Nice Chhabria issued an order setting initial deadlines for parties, with a joint case management statement due by December 26, 2025.
The labor organizations have requested that the court vacate OPM and OMB’s guidance and invalidate any action taken pursuant to such guidance. The plaintiffs may also file motions for temporary relief while the case is pending, such as a temporary restraining order (TRO) or preliminary injunction.
All updates can be found on the docket.
The Bigger Picture: Legal Challenges During The Government Shutdown
Federal courts will remain open and fully functional through October 17, 2025. If a case involves a federal agency party that is not working due to the shutdown, relevant deadlines may be rescheduled. Once Judiciary funds are exhausted, courts will continue to work in a limited capacity under the Antideficiency Act.
All appeals processing at the Merit Systems Protection Board (MSPB) has been suspended. The MSPB recently issued guidance stating that all deadlines will be automatically extended by the number of calendar days the MSPB is shut down.
Federal Practice Group is closely tracking all of the news related to the government shutdown to ensure that clients’ rights are protected.