Sens. John McCain (R-Ariz.) and Lindsey Graham (R-S.C.) want Lockheed Martin [LMT] and other defense contractors to ignore the White House’s guidance and instead notify employees about potential layoffs spurred by possible “sequestration” budget cuts next year.
The senators are upset by a Sept. 28 White House memo saying government contractors should not issue layoff warnings in line with the Worker Adjustment and Retraining Notification (WARN) Act, but that if the companies don’t send the notices and sequestration occurs the government will reimburse them for resulting employee compensation and legal costs.
“Despite (President Barack Obama’s) administration’s guidance not to issue WARN notices now, it is our fear that, should you rely on that guidance and fail to comply with the WARN Act requirements, you will be setting your company up for serious legal and financial repercussions,” McCain and Graham, senior members of the Senate Armed Services Committee, said on an Oct. 5 letter to the nation’s 15 largest defense contractors. “The Congress should not put the taxpayers on the hook if a private company fails to follow the law.”
The two senators said they “plan to block any effort by the administration to reimburse contractors who fail to provide the required WARN Act notifications.”
“We will oppose any requested funding increase in the budget process, any reprogramming action, including transfers that fall below the level requiring congressional notification, or the use of any program funds to reimburse contractors for any expenses resulting from failure to comply with the law,” they said.
Republicans want companies to issue WARN notices in advance of sequestration cuts that could start Jan. 2 to increase political pressure on lawmakers to agree on a plan to prevent the defense-spending reductions of $500 billion over a decade. The White House as well as many congressional Democrats and Republicans oppose the sequestration cuts, but cannot agree on an alternate deficit-cutting plan to replace them.
Lockheed Martin and BAE Systems said they wouldn’t issue notices described by the WARN Act after receiving the White House Office of Management and Budget memo, and related guidance from the Pentagon. The WARN Act requires companies to notify employees 60 days before foreseeable layoffs.
McCain and Graham told the 15 defense contractors that in “light of the lack of progress in avoiding sequestration and the recent guidance from the administration on the allowability of certain Worker Adjustment and Retraining Notification (WARN) compliance costs, we feel it is important to advise that we do not believe compliance with the WARN Act is optional.”
“The law clearly states that workers must be notified at least 60 days in advance of a potential mass layoff or plant closure,” they said. They argued it is “unclear” to them, in light of what they deem the administration’s lack of planning for sequestration, “how the administration can guarantee that no sequester-related budget cuts or contract actions will occur on January 2 or shortly thereafter that would have that result.”
They said if such notices are withheld until obvious contract terminations and job losses are identified, post-sequestration, that taxpayers could be on the hook for billions of dollars.
“We wholeheartedly believe that it is in no one’s best interest to create unnecessary anxiety in your workforce, and it is our hope that Congress and the administration act as soon as possible to avoid the severe consequences of the sequester,” McCain and Graham wrote. Yet they noted Congress won’t be back in session until the week of Nov. 13, and Democrats and Republicans have not agreed on an anti-sequestration plan. They argued that the WARN Act, like sequestration, currently is “the law of the land.”
McCain and Graham sent their letter to Lockheed Martin, Raytheon ]RTN], L-3 Communications [LLL], Northrop Grumman NOC], Huntington Ingalls Industries [HII], Boeing [BA], General Dynamics [GD], Honeywell International [HON], CSC [CSC], SAIC [SAI], BAE, ATK [ATK], ITT Exelis [XLS], EADS North America, and United Technologies Corporation [UTX].