Defense industry planning pre-sequestration layoff warnings

By Eric Katz

September 11, 2012

Several of the nation’s largest defense contractors have threatened to issue layoff notices ahead of planned budget cuts despite Obama administration guidance to the contrary, according to correspondence released by Sen. John McCain, R-Ariz.

The 1988 Worker Adjustment and Retraining Notification Act requires employers to provide employees 60 days’ notice in advance of mass layoffs. The Obama administration has said Defense Department contractors should not issue WARN Act notices ahead of slated cuts to the federal budget. Still, Lockheed Martin Corp., EADS North America and BAE said they are strongly considering sending the notifications to their employees while other contractors said they have not ruled it out.

The contractors were responding to seven senators, including McCain, who had asked about the impact sequestration would have on the defense industry -- referring to automatic, across-the-board cuts weighted heavily toward Defense’s budget and set to go into effect on Jan. 2, 2013.

“I do not look forward to sending these notifications,” said Robert Stevens, Lockheed Martin’s chairman and CEO, “but in the absence of more clarity and certainty in how sequestration will be implemented, we have an obligation to tell them that their jobs are potentially at risk.”

The Obama administration last week missed the deadline set by Congress to provide details about how sequestration would affect departments.

Sean O’Keefe, EADS’ chairman and CEO, said, “in the absence of definitive guidance from DoD, OMB and the Defense Contract Management Agency, we feel compelled to act in the spirit of this law and in all likelihood will issue WARN notices to those employees engaged in ongoing federal contract activities. It's not something we want to do. But it appears the law requires us to do it.”

A July Labor Department memo to contractors said WARN notifications were unnecessary.

“The WARN Act is designed to require employers to provide notice to those employees who are reasonably likely to lose their jobs, or suffer other serious employment consequences,” Jane Oates, Labor’s assistant secretary, wrote in the memo, “but not to those workers who suffer no such consequences, or only have a speculative chance of suffering them.”

Republicans have argued the guidance is merely an act of campaign politics to avoid the news of potential layoffs only four days before the election -- as WARN Act regulations would place the deadline for issuing the notifications at Nov. 2.

One expert in WARN Act regulations said the threats of notices are premature.

“In my judgment, there is no reasonable basis for anyone to claim that the possibility of a sequestration beginning in 2013 triggers a legal requirement under any federal law for contractors to send notices to employees in November,” said Daniel Gordon, associate dean for government procurement law at The George Washington University Law School.  

In calling for an alternative solution to avoid sequestration, McCain said the potential layoffs would come at a time when the nation’s economy can least afford them.

“The looming threat of sequestration cuts is forcing companies to delay hiring and capital investments, which, in turn, contribute to the sluggishness of the economy and continuing high unemployment rates,” said the Senate Armed Forces Committee’s ranking member. 

One report, commissioned by the defense industry, found sequestration would cause more than 2 million layoffs. Some studies have called the industry’s concerns exaggerated. 

By Eric Katz

September 11, 2012