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Lockheed Martin Corp., the world's largest defense contractor, rescinded plans to issue layoff notices after "careful review" of the guidance and determining that their 60-day notice costs would be covered by the government should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.
House Armed Services Committee Chairman Buck McKeon (R-Calif.) said yesterday that he believed Lockheed Martin's decision was "motivated by the same concern for their workers’ security as was their initial contemplation of WARN notices."
"It appears companies will bow to the threat implicit in last week's OMB guidance; withhold notices today or the government might not cover your court costs down the road," McKeon said. "Let me be clear, neither the OMB guidance nor the Lockheed decision will protect a single defense industry job if sequestration occurs in January."
GOP House leaders today went after the administration for the memo, especially as the cuts loom with no resolution in sight.
"For an administration that talks a lot about transparency, it is disappointing that they apparently think it is more important to protect their political interests than give hard working families any indication that they might in fact lose their job in 60 to 90 days due to inaction by the President and Senate Democrats," said Majority Leader Eric Cantor (R-Va.).
House Speaker John Boehner (R-Ohio) blasted the "Friday evening news dump" that demonstrated "this is a White House in denial about the consequences of its own irresponsible actions."
“As Commander-in-Chief, President Obama owes our troops a plan that ensures they have the resources to carry out their mission," Boehner said. "If neither the president nor his Democratic majority in the Senate are prepared to offer an alternative, they should have the courage to act on the House-passed plan immediately and remove the threat of the looming cuts facing our armed services at this critical time.”
The Worker Adjustment and Retraining Notification (WARN) Act requires most employers with 100 or more workers to give 60 days' notice of plant closings and mass layoffs. Graham noted Monday that as a senator, Obama wanted that lengthened to 90 days in the interest of workers' rights.
White House press secretary Jay Carney said the prospect of political embarrassment days before the election was "absolutely not" the impetus for the OMB guidance.
"I think the WARN Act action has been thoroughly explained and described, and individual companies like Lockheed make the decisions according to their own interests," Carney said at today's news briefing.
In response to Boehner and Cantor, Carney reminded all that the repeal of sequestration is explicitly tied by Democrats to letting the Bush-era tax cuts expire for upper-income brackets.
"That has been the singular obstacle to a comprehensive deficit reduction plan passing Congress, resolving the fiscal -- so-called fiscal cliff," he said. "If Speaker Boehner is as concerned as he seems to be in this statement about the fiscal cliff, then he, as leader of the House of Representatives, should bring back the House and pass the bill that the Senate passed extending the Bush-era tax cuts for 98 percent of the American people."
Campaign spokeswoman Jen Psaki added "it shouldn't be lost that this is all happening during the backdrop of a presidential election happening in 34 days."
"And those statements sound remarkably similar to the comments that are being made by Mitt Romney and Paul Ryan out on the campaign trail accusing the President of having a lack of details," Psaki said. "And that's a piece of it that certainly plays in -- is a factor in the back-and-forth at this stage."
McKeon accused Obama of issuing "politically motivated memos with dubious grounding in the law."
"In so doing, the President eliminated the very reason for having the WARN act in the first place. Notifications will not be sent to those at risk, even though we have heard directly from CEOs in hearings this summer that layoffs will occur," the chairman continued. "Further, even though the OMB directive purports to protect the defense industry against the costs of not complying with the WARN Act, they cannot guarantee how the courts would rule in such an action. Thus the President has pledged to compound the impact of sequestration by dedicating already scarce resources to cover needless court costs."
“These directives have not enhanced our national security and they haven't helped anyone's job security," McKeon said. "The only thing the President seems interested in securing is his own re-election."