Bloomberg News

Firms Facing Federal Cuts Shouldn’t Send Layoff Notices

July 30, 2012

The federal law requiring worker notification of mass layoffs doesn’t apply to defense companies and other government contractors affected by the possibility of across-the-board budget cuts beginning early next year, the U.S. Department of Labor said.

In guidance posted today on its website, the Labor Department said it would be “inappropriate” for companies to send 60-day notices to their employees given the uncertainty about whether the reductions will occur or which jobs will be cut.

Legal notice “to employees of federal contractors, including in the defense industry, is not required 60 days in advance of Jan. 2, 2013, and would be inappropriate, given the lack of certainty about how the budget cuts will be implemented and the possibility that the sequester will be avoided before January,” the department said.

Companies led by Lockheed Martin Corp., the world’s largest defense contractor, have said federal and state laws may require them to issue notifications of potential job cuts days before the Nov. 6 election unless President Barack Obama and Congress act to avert automatic defense reductions of $500 billion over a decade that would start on Jan. 2.

The department was clarifying requirements under the Worker Adjustment and Retraining Notification Act, also known as the WARN Act.

Partisan Fight Brewing

The Labor Department guidance, prepared for state agencies that aid laid-off workers under the law, comes as a partisan fight is building over the defense reductions, with Democrats insisting that Republicans agree to some tax increases to avert the cuts. The cuts stem from last year’s clash over raising the debt limit, with the automatic cuts employed as a fallback if both parties couldn’t agree on a broad debt-reduction package.

Companies and industry groups, such as the Aerospace Industries Association, are also demanding more clarity from the White House and Pentagon over how the cuts will be implemented. The defense cuts amount to about a 10 percent reduction.

In a statement, House Armed Services Committee Chairman Howard P. “Buck” McKeon accused Labor Secretary Hilda Solis of participating in a political gambit, and said Obama should focus on ending the budget impasse with Congress.

‘Politically Motivated’

“As it stands, the only certainty we are dealing with is that dramatic cuts will force huge job losses,” McKeon said in a statement. “And as a result of Secretary Solis’ politically motivated guidance, people will still get laid off because of the president’s irresponsibility, but they won’t have the notice to protect themselves and their families.”

Republican Senators John McCain of Arizona, Lindsey Graham of South Carolina and Kelly Ayotte of New Hampshire, in a joint statement, likewise criticized the Labor Department’s action as a “deliberate political effort from the White House to skirt the law” and use national security as “a partisan bargaining chip.”

Disputing that, Representative Adam Smith of Washington, the ranking Democrat on the House Armed Services Committee, commended the Labor Department for “an important and correct interpretation of the law” that avoids actions that would “needlessly alarm hundreds of thousands of workers when there is no way to know what will happen with sequestration.”

The Labor Department’s move could boost prospects the cuts will occur, Byron Callan, a defense industry analyst with Capital Alpha Partners LLC, said in a note to clients.

“The guidance could marginally increase the probability of sequestration as an absence of layoff notices might entail less constituent pressure for Congress to act,” he said.

WARN Act

The federal WARN Act, which became law in 1988, requires most employers with 100 or more workers to give 60 days’ notice of plant closings or “mass layoffs” -- labor cutbacks affecting 500 or more workers, or at least 33 percent of the workforce for companies with fewer than 500 employees.

Industry trade groups have predicted the automatic cuts may cost 1 million U.S. jobs, and Robert Stevens, chairman and chief executive officer of Bethesda, Maryland-based Lockheed, has led the way in discussing the possibility of mass WARN Act notices.

“It is quite possible that we will need to notify employees in the September and October time frame that they may or may not have a job in January depending upon whether sequestration does or does not take effect,” Stevens said at an investor’s conference in New York on May 31. “Because the level of planning detail really isn’t available, we may have to notify every one of our employees, and all of our suppliers and subcontractors that they may or may not have a subcontract.”

10,000 Jobs

Stevens on July 18 testified before the House Armed Services Committee that his “back of the envelope” estimate is that Lockheed would have to cut 10,000 jobs if the spending reductions go forward.

Other defense firms, including Northrop Grumman Corp. (NOC:US) and United Technologies Corp. (UTX:US), have not indicated they may send notices widely. Top officials at the aerospace trade group, which represents them and other firms, have raised the possibility that member companies may have to send the notices due to the uncertainty of the so-called sequestration.

Cord Sterling, the top lobbyist for the AIA, said the guidance appears at odds with a Labor Department fact sheet about the law stating that the agency can’t provide “specific advice or guidance with respect to individual situations” because it doesn’t have enforcement responsibility for the law. It will be up to each contractor and its lawyers to decide how to proceed, he said.

Help for States

Elizabeth Alexander, a Labor Department spokeswoman, said the guidance today didn’t relate to any “individual situation” but was intended generally to help state workforce agencies.

A spokesman for Lockheed Martin, Christopher Williams, said the company is “reviewing today’s Department of Labor guidance to assess its impacts on our obligations with respect to the WARN Act and potential sequestration.”

In its guidance, the Labor Department said it would be “inconsistent” with the purpose of the WARN Act to send the notices as the sequestration looms. The purpose is to help workers who will lose their jobs get training or find other jobs, and the notices are very specific about exactly which jobs and plants are affected, the guidance said. Which contracts might be affected and where cutbacks might occur is “speculative and unforeseeable” at this time, it said.

The preamble of the WARN Act regulations state outright that “it is not appropriate for an employer to provide blanket notice to workers,” the Labor Department said.

To contact the reporter on this story: Laura Litvan in Washington at llitvan@bloomberg.net

To contact the editor responsible for this story: John Walcott at jwalcott9@bloomberg.net


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