Sequestration Layoff Notice Debate Roils

WASHINGTON -- The Obama administration is taking criticism from Republican lawmakers for encouraging defense contractors not to give out layoff notices this year to prepare employees for the possibility of massive sequestration-spurred layoffs in January.

Lockheed Martin, BAE Systems and EADS North America both said this week they wouldn’t be sending out sequestration-related notices after the Office of Management and Budget and the Defense Department’s released guidance Friday telling contractors it would be unnecessary.

The guidance cited “uncertainty about whether sequestration would take place at all,” and noted that even if sequestration happened, contract changes would not occur immediately. Changes would not come until months after the Jan. 2 enactment of sequestration, which calls for $1.2 trillion in across-the-board automatic cuts, divided between defense and nondefense accounts over 10 years. Under the guidance, the government also assumed liability for compensation and litigation costs related to sudden layoffs.

The Worker Adjustment and Retraining Notification (WARN) Act requires employers with 100 or more employees send written notice 60 days before layoffs occur. Failure to notify the employees leaves companies open to lawsuits.

To send notices 60 days before Jan. 2 would lead to employees receiving them just days before the November elections.

Sen. John McCain, R-Ariz., and Sen. Lindsay Graham, R-S.C., called the move “politically motivated” and said they’d block any contractor payments by the Pentagon to cover failure of issuing WARN Act notices.

And Sens. Charles Grassley, R-Iowa, and Kelly Ayotte, R-N.H., announced jointly that they had sent a letter of inquiry “asking under what authority the administration is using to say it is okay to disregard the law,” and then promise contractors “a taxpayer funded bailout for their legal expenses if they do so.”

However, Todd Harrison, a senior fellow at the nonpartisan Center for Strategic and Budgetary Assessments, said WARN Act notices would not be necessary this year, calling it little more than political theater. He believes there will be no defense contractor layoffs due to sequestration in January.

“From a defense industry perspective, whatever [contractors] were working on before Jan.2, they will be working on after Jan. 2,” he said, since that work has “already been funded.”

Defense Department comptroller Robert Hale testified during congressional hearing last month that no signed contracts would be canceled as a result of sequestration on Jan. 2.

Sequestration would have “a delayed effect on the defense industry,” Harrison said.

It would first hit unobligated funds, likely hitting the ordering of equipment first. That could happen within months after sequestration starts, leading to layoffs and reduced hiring later in the year. More layoffs would be expected in future years, he said.

As a result, the recent Republican uproar over the government’s potential liability for lawsuits resulting from a failure to issue WARN Act notices this year, from the guidance, is “kind of a nonissue,” he said.

Nor should the guidance leave the government open to picking up the tab on the cost of future WARN Act-associated lawsuits, as Republican lawmakers have implied. The guidance is specifically for potential Jan. 2 layoffs, he said, and the administration would likely send out revised guidance if the situation changes.

However, sequestration, in addition to resulting in across-the-board cuts of about 10 percent would also prompt the furlough of 100,000 civilian defense employees, likely beginning within weeks of the new calendar year and lasting through Sept. 30, the end of the fiscal year, he said.

With the election nearing and voters to be courted, Harrison does not expect the uproar over contractor layoffs to die down soon.

“We’ll continue to see this political fight now until the election,” he said.

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