To WARN or Not? Contractors Get Financial Cover to Withhold Layoff Notices

With a little over a month left to be in WARN Act compliance -- and with no Congress in town to broker a deal to avert the Jan. 2 sequestration -- Republicans are lashing out at the administration for advising noncompliance with the law that gives workers 60 days' notice of layoffs.

Defense contractors, though, have had mixed reactions to Friday's guidance from the Office of Management and Budget, which the OMB said was provided to “minimize the potential for waste and disruption associated with the issuance of unwarranted layoff notices.”

“DOL 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.

The OMB also made clear that those companies who decide not to issue WARN Act notices, yet get hit with costs related to sequestration, could send the "reasonable and allocable" bill to the contracting agency -- thus sticking taxpayers with the tab.

“As a result of the OMB guidance, the Department of Defense will have to allow companies to claim repayment for the salaries of workers who are laid off but did not receive the required WARN notices – a cost to the taxpayer that could be as much as $4 billion. In addition, DOD will have to reimburse companies for any legal damages paid to workers who are laid off but did not receive the required WARN notices – a cost that is inestimable," Sens. John McCain (R-Ariz.), Lindsey Graham (R-S.C.) and Kelly Ayotte (R-N.H.) said in a joint statement Friday.

“Facing intense lobbying by defense companies and other government contractors for financial protection if they agreed not to issue WARN notices, the Obama Administration is giving contractors a free pass and will have potentially stuck the taxpayers with a multi-billion dollar campaign contribution," they added.

Lockheed Martin Corp., the world's largest defense contractor, rescinded plans to issue layoff notices after "careful review" of the guidance and determining that their 60-day notice costs would be covered by the government should sequestration go into effect.

Other contracting giants were more guarded in their reaction to the memo that would keep layoff notices from going out just before Election Day.

“We do not comment publicly on our future planning relative to employee matters," said Margaret Mitchell-Jones, corporate director of media relations for Northrop Grumman Corp. "We appreciate the guidance provided by the OMB and the Pentagon last week regarding their approach to certain potential WARN act costs that may result should sequestration occur.”

And yet others needed more guidance from the contracting agency on how their business might actually be affected before making hard-and-fast decisions.

"General Dynamics has not determined whether we will issue WARN notices to employees as a result of sequestration, because the Defense Department has not informed us of how our programs will be impacted," Rob Doolittle, staff vice president for communications, told PJM.

"In the absence of that information, we can’t predict whether employees will be affected," Doolittle said. "Friday’s OMB memo did not affect our plans."

The defense biggies wouldn't be the only ones affected in the projection of more than two million lost jobs if the $1.2 trillion in cuts mandated by the failure of the deficit-reduction super committee go into effect.

An analysis released two weeks ago by the Aerospace Industries Association found that about 45 percent of the sequestration job losses in the first year from cuts to both defense and non-Pentagon programs would come from small businesses with 500 or fewer employees.

"It is outrageous that the White House is calling on companies to ignore federal law requiring them to alert their employees of possible layoffs due to potential budget cuts, then offering up taxpayer dollars to pay for legal fees and fines that result," said Rep. Renee Ellmers (R-N.C.). "The aerospace and defense industry trade association recently estimated that the cuts from this sequestration will result in the loss of over 29,000 jobs in North Carolina alone."

Virginia, Florida, and Pennsylvania -- all swing states -- would take the hardest hit with more than 365,000 job losses combined, according to a George Mason University & Chmura Economics and Analytics report.