Top Pentagon contractor Lockheed Martin [LMT] said yesterday it will not send employees warnings about potential layoffs resulting from “sequestration” cuts to the defense budget, pointing to White House guidance that has exasperated Republican lawmakers.
President Barack Obama’s Office of Management and Budget (OMB) late last Friday reaffirmed July guidance from the Labor Department saying it would be inappropriate for government contractors to issue layoff warnings in line with the Worker Adjustment and Retraining Notification] WARN Act. That law requires companies to warn employees 60 days before foreseeable layoffs. Republicans want companies to issue WARN notices in advance of sequestration cuts that could start Jan. 2, in order to increase pressure on lawmakers to agree on a plan to prevent the defense-spending reductions.
The OMB memo also says if contractors follow the Labor Department guidance and don’t issue WARN notices, but the sequestration cuts occur, then the government will reimburse the contractors for any “resulting employee compensation costs for WARN Act liability as determined by a court, as well as attorney’s fees and other litigation costs.”
Lockheed Martin said yesterday it decided, after reviewing the OMB memo and Department of Defense (DoD) guidance from last week, that it “will not issue sequestration-related WARN notices this year.”
“The additional guidance offered important new information about the potential timing of DoD actions under sequestration, indicating that DoD anticipates no contract actions on or about 2 January, 2013, and that any action to adjust funding levels on contracts as a result of sequestration would likely not occur for several months after 2 January,” Lockheed Martin spokeswoman Jennifer Allen said via e-mail. “The additional guidance further ensures that, if contract actions due to sequestration were to occur, our employees would be provided the protection of the WARN Act and that the costs of this protection would be allowable and recoverable.”
Lockheed Martin Chairman and Chief Executive Officer Robert Stevens said over the summer, before receiving the latest administration guidance, that his firm might send WARN notices to a substantial chunk of its 123,000 employees this fall. Other major defense firms previously told lawmakers they were struggling to determine if they should issue layoff warnings to employees in advance of the potential sequestration cuts (Defense Daily, Sept. 11).
The $500 billion in decade-long reductions to planned defense spending will start in January if congressional Democrats and Republicans cannot agree on a plan to replace sequestration with other government savings. Many lawmakers and Obama oppose sequestration, but cannot agree on an alternate plan.
House Armed Services Committee Chairman Howard “Buck” McKeon (R-Calif.) and SASC member Lindsey Graham (R-S.C.) both reacted with frustration to Lockheed Martin’s announcement yesterday.
McKeon charged Obama has placed defense companies in a “no-win situation.”
“I am sure that Lockheed Martin’s decision today was motivated by the same concern for their workers’ security as was their initial contemplation of WARN notices,” the HASC chairman said yesterday in a statement. “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. Let me be clear, neither the OMB guidance nor the Lockheed decision will protect a single defense industry job if sequestration occurs in January.”
After Lockheed Martin said yesterday it wouldn’t issue the layoff notices, Graham said on his Twitter page that he is “deeply disappointed in the defense contractor community.”
“Companies that make the decision to ignore the WARN Act do so at their own peril,” he wrote in one of a series of tweets. Graham further wrote that he believes “not one cent of taxpayer dollars should be used to reimburse companies failing to live up to their obligations under WARN Act,” and the OMB memo on the WARN Act “is an outrageous bastardization of the law and clearly illegal.”
Other lawmakers who reacted angrily to the OMB’s memo last Friday on WARN notices include McCain, SASC member Kelly Ayotte (R-N.H.), and House Majority Leader Eric Cantor (R-Va.).
McCain, Ayotte, and Graham charged in a statement last Friday that the OMB’s guidance on WARN notices could result in the Pentagon having to pay billions of dollars in reimbursement to defense firms if the sequestration cuts do occur.
They argued the Obama administration “is cynically trying to skirt the WARN Act to keep the American people in the dark about this looming national security and fiscal crisis.”
Obama has called for congressional Democrats and Republicans to further compromise and agree on a plan to stop sequestration.