OMB and OPM Withdraw Shutdown Layoff Guidance Under a Union Settlement Ahead of the December 11 Deadline

OMB and OPM have formally withdrawn the 2025 guidance that let federal agencies start layoffs during a government shutdown. Memo M-27-01, dated October 23, 2026, is the notice a union settlement required, with funding set to lapse after December 11.

The memo is short. OMB Director Russell Vought and OPM Director Scott Kupor tell agency heads and chief human capital officers that three documents are rescinded in full and no longer operative: OMB’s September 24, 2025 email on the possible lapse in appropriations starting October 1, 2025, and OPM’s two shutdown documents from the same week, its “Guidance for Shutdown Furloughs” and its “Special Instructions for Agencies Affected by a Possible Lapse in Appropriations Starting on October 1, 2025.” Those documents had told agencies to consider reduction-in-force notices for employees in programs without funding, and treated the work of running layoffs as an excepted activity that could go on while most staff were furloughed.

What the unions won

The memo exists because of a lawsuit. A coalition of federal unions led by the American Federation of Government Employees sued OMB, OPM and a long list of agencies in the Northern District of California in 2025. The case is AFGE v. OMB, No. 3:25-cv-08302, before Judge Susan Illston, who had blocked the shutdown layoffs with a preliminary injunction.

The parties signed a settlement dated September 23, 2026, and its terms are specific. The lapse memorandum and the OPM guidance are rescinded, and OMB and OPM had 30 days to tell agency heads. M-27-01 is that notice. Agencies had the same 30 days to take links to the old guidance off their websites and to strip from their shutdown contingency plans any language that starts layoffs during a lapse, or that makes layoff paperwork excepted work, unless a statute expressly authorizes that work during a lapse.

Agencies can put that language back. But first they have to notify the unions and publish the proposed change, and it takes effect only 30 days after both. That rule covers contingency plans in force through December 31, 2026.

The case is on hold until December 31 or until full-year fiscal 2027 appropriations are enacted for all the agencies named, whichever comes first. If no agency has given notice of a plan change by then, the parties file to dismiss it with prejudice. If one has, the unions can ask the court to bring the case back.

The government also told the court that all layoff notices issued between October 1 and November 12, 2025 had been rescinded and the employees reinstated. More than 4,000 notices went out during that 43-day shutdown, at Commerce, Education, Health and Human Services, Homeland Security, HUD, Treasury and EPA among others. The State Department, GSA and SBA said they paid separated employees back pay for the weeks between separation and reinstatement.

Why the timing matters

The government is funded by a stopgap that runs to December 11. Congress returns after the November 3 midterms with several deadlines landing on the same day and most of the twelve regular spending bills unfinished. If funding lapses on December 12, agencies will be working from contingency plans with the layoff language removed.

To restore it for a December shutdown, an agency would have to give notice and publish the change by about November 12 to clear the 30-day wait. Any agency that did so would also be handing the unions grounds to reopen the case.

The settlement doesn’t stop layoffs in general. Agencies can still run reductions in force with appropriated money, under OPM’s new performance-first layoff rules. What it ends, for now, is the use of a funding lapse as the occasion and the legal cover for them.

What each side says

AFGE President Everett Kelley said the administration “tried to turn a shutdown into an excuse to fire the public servants” and that it backed down. The administration’s position in 2025 was that programs without appropriations had no claim to their staff, and that the Antideficiency Act let agencies prepare layoffs during a lapse. It didn’t concede that point in the settlement. It agreed to withdraw the guidance and change the plans, and the case stays open until the year ends.

Congress has dealt with the question before. The bill that ended the 2025 shutdown reversed the layoffs and barred more through January 30, 2026, and a later funding law carried similar protection into February. The settlement adds its own limits on top, through December 31.