Lockheed Martin and other defense contractors backed down from issuing layoff notices to employees on Monday after the Obama administration promised to pick up the tab for severance costs resulting from sequestration.
The news provided welcome relief for President Obama, who faced the prospect of mass layoff notices in battleground states just days before the election, and outraged Republicans, who accused the administration of bending the law to hide job losses from the public.
The White House issued guidance on Friday that said the government would cover the costs if contracts are canceled and layoffs occur due to the automatic
spending cuts set for 2013. But that offer would be null and void for any contractor that issues job-loss warnings before sequestration begins.
Republicans, who have been arguing the notices should be sent, blasted the Obama administration for strong-arming defense firms.
Sen. Lindsey Graham (R-S.C.) called the administration’s actions illegal and said he would work to prevent taxpayer dollars from being used to pay for severance.
“I will do everything in my power to make sure not one taxpayer dollar is spent reimbursing companies for failure to comply with WARN Act,” Graham told The Hill in a phone interview Monday. “That is so beyond the pale — I think it’s patently illegal.”
The fight over layoff warnings under the Worker Adjustment and Retraining Notification Act is just the latest skirmish in a multi-front war over sequestration, which would cut $500 billion from the Pentagon budget over the next decade.
Sequestration has become a potent political issue in Virginia, a swing state both Obama and GOP nominee Mitt Romney are desperate to win. Thousands of defense-industry employees live in Virginia’s northern suburbs, and the cuts from sequestration could hit the state especially hard.
Romney has forcefully attacked Obama over sequestration during visits to Virginia, saying the president is standing idly by as the nation’s military force is hollowed out.
The administration and Democrats have argued the layoff-notice threat was a political ploy because there was never going to be a need to fire employees en masse on Jan. 2. They pointed to guidance from the Pentagon that said contracts would not be canceled on the day the cuts begin.
Bob Stevens, Lockheed’s CEO, created a firestorm in June when he threatened to send out notices of potential layoffs to all 123,000 of his employees on Nov. 2 — four days before the election — due to the WARN Act requiring companies to give 60 days’ notice of mass layoffs.
The Obama administration pushed back in July, telling contractors it was “inappropriate” to issue the notices tied to sequestration, but Lockheed and a handful of other contractors said they were likely to do so anyway.
The latest guidance changed Lockheed’s mind, however, and other defense contractors that had indicated they might send the notices quickly followed suit.
“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 spokeswoman Jennifer Allen said in a statement.
Loren Thompson, a defense analyst at the Lexington Institute who consults with many defense firms, said that as the notice threat became more political, Lockheed had become “a little lonely” as the chief advocate for issuing them.
“I think Lockheed had become concerned that some people might interpret issuing WARN notices as favoring one presidential campaign over the other, and so they really were not very happy about being in this position,” Thompson told The Hill.
“Nobody in the company, the senior management, thought that issuing WARN notices was going to become part of the presidential campaign.”
BAE Systems, which had said in a letter to Sen. John McCain (R-Ariz.) last month that it might also warn its employees about layoffs, said Monday it “has determined it will not issue conditional WARN notifications to all of its employees following the guidance issued by OMB and DOD last week.”
House Armed Services Committee Chairman Buck McKeon (R-Calif.) told The Hill that the administration was “twisting arms” to get the defense contractors to relent before the election, but said he was surprised that Lockheed went along with it.
“I’m just disappointed in them, but I understand the situation and process they’re under,” McKeon said in a phone interview. “Their whole business is dealing with the government, and the government is threatening them to not follow the law.”
Republicans who argue that the administration is not following the law say that the sequester is not an excuse to skirt the requirements of the WARN Act, which requires 60 days’ notice for plant closings or layoffs of more than 100 employees for large companies.
Companies that don’t send the notices on time can face legal action and severance costs — something that happened to Lockheed Martin when the new presidential helicopter was canceled in 2009.
The Department of Labor guidance issued in July, however, says that the WARN Act would not apply to immediate job losses due to sequestration because those cuts would be an “unforeseeable business circumstance.”
Todd Harrison, a budget analyst at the Center for Strategic and Budgetary Assessments, issued a report this summer that said contractors would not feel the effects of sequestration immediately, casting doubt on the need for mass layoff notices in November.
He said the WARN Act fight is another example of “hyperbole” that’s taken over the debate on sequestration.
“So far the debate has focused on red herrings, like immediate jobs losses in industry, base closures and pink slips for troops returning from Afghanistan,” Harrison said. “Once people read the law and understand what it really says, they can look past the hyperbole and see sequestration for what it really is — bad policy that will have long-lasting effects. It doesn’t need any exaggeration.”
—This story was posted at 10:01 a.m. and last updated at 8:22 p.m.