Time Running Out on Sequestration, Yet Admin Stands by WARN Act Defiance
Less than two weeks before devastating defense cuts are set to go into effect without a congressional rescue, the administration is standing behind its pre-election guidance to defense contractors to not issue WARN Act notices of potential layoffs.
“[Department of Labor] concluded that it is neither necessary nor appropriate for Federal contractors to provide WARN Act notice to employees 60 days in advance of the potential sequestration because of uncertainty about whether sequestration will occur and, if it did, what effect it would have on particular contracts, among other factors,” said the memo from the Office of Management and Budget last year.
Lockheed Martin Corp., the world’s largest defense contractor, rescinded plans to issue layoff notices after “careful review” of the guidance and other contractors were similarly cautious.
If notices under the law had been issued for the Jan. 2 sequestration, they would have been required to go out just before Election Day. The can was kicked on sequestration to March 1 in the New Year's Eve fiscal cliff deal, but no solution is near to avert the $1.2 trillion in cuts.
The OMB also made clear in that memo that those companies who decide not to issue WARN Act notices, yet get hit with legal recourse under the law if sequestration layoffs occur, could send the “reasonable and allocable” bill to the contracting agency — thus sticking taxpayers with the tab.
"Our analysis and guidance regarding the WARN Act's application to sequestration was and is correct," Jane Oates, assistant secretary of Labor for Employment and Training Administration, said late last week at a hearing of a subcommittee of the House Committee on Education and the Workforce.
"Funds were not sequestered on January 2, 2013, nor were contracts terminated, plants shut, or to our knowledge, unnecessary advanced notices sent. Just as important, lives and businesses were not disrupted unnecessarily, and resources were not wasted," Oates continued.
Subcommittee on Workforce Protections Chairman Tim Walberg (R-Mich.) noted that for half a year the committee was requesting documentation and communication related to that guidance -- and finally received a response slipped under the committee's door, more than 400 pages on CD, at 9 p.m. the night before the hearing.
"Do you know if it does contain that information that we requested?" Walberg asked Oates.
"The direct answer would be no, sir," she replied. "But I need to tell you that the department takes seriously all of the questions that Congress puts up there."
"We will undertake looking at these 400 pages. And on the basis of what we find out, I guess, we'll decide where we go from here," Walberg said. "But I'm disappointed that it took a committee hearing to be called for us to get that."
Kerry Notestine, a shareholder in Littler Mendelson, which represents management in employment matters, reminded the committee that as a senator President Obama wanted to broaden WARN to prevent employers from using what he called "loopholes" in the act to withhold notice.
"While the Department of Labor and OMB guidance appear to benefit employers by potentially relieving them of obligations under WARN, I would note that they appear to do so at the expense of thousands of employees who, as President Obama put it, deserve to know when their jobs are in jeopardy," Notestine said.
"Additionally, circumstances have changed since the DOL issued its opinion six months ago. Sequestration appears more likely to occur this time around. And new information's coming out every day regarding where the government will be implementing these cuts. The chances of employers successfully claiming that layoffs and plant closings are unforeseeable are diminishing every day."
He also clarified that, while the administration's guidance seemed to assure contractors that they would be shielded from liability, "three critical omissions" in the guidance show that's not even the case.
"They fail to disclose that the DOL's guidance is not binding on federal courts, those entities that are responsible for enforcing the act," Notestine said. "They failed to mention that employers must give as much notice as possible once the layoff or closure becomes reasonably foreseeable…without this additional statement, the statutory exception relied upon by the DOL becomes unavailable."
"They failed to mention that, notwithstanding federal WARN, there are numerous other potential areas of liability that a contractor may be subjecting itself to by failing to provide notice," such as state laws, he added.
Diana Furchtgott-Roth, a senior fellow at the Manhattan Institute, pulled no punches in her written testimony to the committee. "I am not privy to internal White House discussions, but it is likely that the White House asked contractors to break the law in the interest of the reelection of President Obama," Furchtgott-Roth wrote.
"I think it's likely that your statement is motivated by political malice against the administration -- not being a fact, I didn't say certainly, I said likely as well," shot back Rep. Robert Andrews (D-N.J.).
Virginia, Florida, and Pennsylvania — all swing states — would take the hardest hit with more than 365,000 job losses combined thanks to sequestration, according to a George Mason University & Chmura Economics and Analytics report before the election. No notices of impending layoffs went out, and Obama won all three.
"Workers in America are hurting. That's why it's so important that if there's a chance that they're being laid off, they need to be given their WARN notices," Furchtgott-Roth said before the panel. "We're now at February 14th. The sequester is due March 1st. Even though you passed two bills to avoid the sequestration, it doesn't look like the Senate and President Obama are following suit."
She suggested simple cuts that could be made to save defense readiness include ditching the military push toward green fuels -- which cost about $27 a gallon compared to $3.50 a gallon for regular fuels.
"I would suggest instead of eliminating the submarines or cutting back on submarines, instead of stopping to refuel the Lincoln, they should be thinking about how to make the military more efficient rather than less efficient by going green," Furchtgott-Roth said.
She calculated that if workers weren't properly WARNed, and 20 percent percent of workers at the seven major defense plants were laid off, taxpayers would be stuck with a price tag of about $1 billion in penalties for back pay and benefits.
"It's unconscionable for the Office of Management and Budget, for our government, to be telling companies that they should break the law and that they will pick up the penalties for doing this. This is the kind of thing we read about happening in countries such as Russia and Venezuela. We should be very shocked that it is happening here," said Furchtgott-Roth.
"And defense companies are being put in a very awkward position since the federal government is their major employer. And if someone comes to them and asks them to do this, they are caught between a rock and a hard place."
Rep. Larry Bucshon (R-Ind.) noted Obama, supporting the WARN Act in 2008, said, "American workers who have committed themselves to their employers expect in return to be treated with a modicum of respect and fairness. Failing to give workers fair warning ignores their need to prepare for the transition. It adds insult to injury to close a plant without warning employees. Workers and their communities have a right to know when they are facing a serious risk of a plant closing."
"This is just a long list of things where the administration subverts Congress," Bucshon said. "And I can list -- it's a long list -- immigration, welfare, NLRB appointments that were proven to be unconstitutional, and they've even attempted to tell Congress when or when we are not in session."
Lockheed Martin said in a company statement after the New Year's Eve fiscal cliff deal to avert sequestration that the cuts "threaten to weaken virtually all government programs and operations, damage our national security, and adversely affect our industry."
"Until sequestration is permanently eliminated, there will be an overhang on our industry that stifles investment in plant, equipment, people, and future research and development essential to the future health of our industry."
"Although it remains uncertain if sequestration will be implemented, it could have a significant impact on the U.S. Military, the Aerospace and Defense Industry and Federal spending," Raytheon said in its 2012 results released at the end of January. "Several industry associations estimate that sequestration, if implemented, could have a severe impact on U.S. Aerospace and Defense Industry employment nationwide. We believe that Raytheon's large international market presence, portfolio of programs, technology and focus on high priority areas should help to mitigate some of the potential overall impact."
Other contractors have been announcing new deals with the government in recent days, such as a $28 million order to BAE Systems from the Marine Corps to produce lightweight combat helmets. “This order allows us to continue production well into 2014," said Eric Gavelda, director of Warfighter Protection at BAE Systems Protection Systems.
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