In a significant setback to President Donald Trump’s efforts to downsize the federal workforce, a federal judge has ordered six U.S. agencies to reinstate thousands of recently dismissed employees. The ruling, issued on Thursday, March 13, 2025, by U.S. District Judge William Alsup in San Francisco, affects the Departments of Veterans Affairs, Defense, Agriculture, Energy, Interior, and Treasury.
The judge’s decision comes in response to a lawsuit filed by labor unions and nonprofit organizations challenging the mass firings that began last month. Judge Alsup, appointed by former President Bill Clinton, declared that the Office of Personnel Management (OPM) had overstepped its authority by instructing agencies to terminate probationary employees.
“It is unfortunate when our government chooses to let go of capable employees under the guise of performance issues, knowing full well that this is not true,” Alsup remarked, calling the administration’s justification for the firings a “sham”.
The ruling specifically targets the dismissal of probationary workers, typically those with less than a year of service, who have fewer employment protections than their more tenured colleagues. At least 24,000 employees have been terminated since Trump returned to office, according to estimates from Democratic-led states involved in the lawsuit.
The Trump administration’s strategy to rapidly shrink the federal workforce has caused significant unrest across various agencies. Some departments had already begun reinstating certain employees before the court’s decision.
Danielle Leonard, an attorney representing the plaintiffs, argued that the government was intentionally targeting probationary employees for dismissal. “This has been the strategy from the outset. Dismiss them all because they cannot appeal,” she stated.
The immediate impact of this ruling on the stock market remains to be seen. However, companies that provide services to federal agencies or rely heavily on government contracts may experience fluctuations in their stock prices as the situation develops.
For instance, defense contractors like Lockheed Martin Corporation (NYSE: LMT) and Northrop Grumman Corporation (NYSE: NOC) could be affected by the reinstatement of employees in the Department of Defense. Similarly, companies that work closely with the Department of Veterans Affairs, such as UnitedHealth Group Inc. (NYSE: UNH), might see changes in their market performance.
The broader implications of Trump’s efforts to reduce the size of the federal government are still unfolding. Thursday also marked the deadline for agencies to present their plans for a new round of significant layoffs and budget reductions.
As the administration grapples with this legal setback, investors and market analysts will be closely watching for any shifts in government spending patterns or policy changes that could impact various sectors of the economy. It remains to be seen whether the administration will appeal the decision or how it will adjust its strategy for downsizing the federal workforce in light of this judicial intervention. This development underscores the complex interplay between government policies, legal challenges, and their potential impact on the business landscape.
