Lockheed, BAE say they won't issue layoff notices if sequestration takes effect

Tuesday - 10/2/2012, 8:40am EDT

This story was updated at 10:30 a.m. to include comments from Rep. Howard P. "Buck" McKeon (R-CA) and 10:55 a.m. to include comments from BAE.

Lockheed Martin will not issue layoff notices in advance of the potential automatic, across-the-board cuts known as sequestration, set to take effect Jan. 2, 2013.

In July, Lockheed, the government's largest contractor, said it might issue conditional Worker Adjustment and Retraining Notification (WARN) notices "to a substantial number of employees."

However, additional guidance last week from the Defense Department and the Office of Management and Budget convinced the company that any changes in funding would not take effect for several months after Jan. 2, according to the Lockheed memo.

BAE Systems, another large defense contractor, also stated it would not issue these warnings unless "specific information becomes available that certain company facilities may suffer mass layoffs due to sequestration," said a company spokesperson in an email to Federal News Radio.

OMB and DoD stated that agencies would be liable for sequestration-related costs, including legal fees and employee compensation costs, if contracts are terminated — as long as vendors do not issue the layoff notices.

The OMB and DoD memos echo a July guidance letter from the Labor Department stating federal contractors would not have to issue these notices because the potential layoffs from sequestration were still speculative.

The Worker Adjustment and Retraining Notification Act requires employers of companies with 100 workers or more to give employees 60 days' notice before a plant closing or mass layoffs.

Sequestration is set to take effect Jan. 2 under the Budget Control Act passed last year, unless Congress can reach a deficit reduction deal. Half of the $1.2 trillion in automatic cuts over the next decade would hit DoD.

Congressional Republicans question guidance

House Armed Services Chairman Rep. Howard P. "Buck" McKeon (R-CA) said withholding the layoff notices would not prevent actual layoffs down the road.

"Notifications will not be sent to those at risk, even though we have heard directly from CEOs in hearings this summer that layoffs will occur," McKeon said in a statement. He also said, "[E]ven though the OMB directive purports to protect the defense industry against the costs of not complying with the WARN Act, they cannot guarantee how the courts would rule in such an action. Thus the President has pledged to compound the impact of sequestration by dedicating already scarce resources to cover needless court costs."

Sens. Chuck Grassley (R-Iowa) and Kelly Ayotte (R-N.H.) wrote to Acting OMB Director Jeff Zients, questioning the administration's legal authority to issue the latest guidance.

"In particular, we are concerned about the authority of the executive branch to instruct private employers not to comply with federal law and to promise to pay the monetary judgments and litigation costs that arise out of the lawsuits that may follow," Grassley and Ayotte wrote in the letter. "Although the precise amounts of the judgments and costs are unknown, they could potentially reach tens or hundreds of millions of dollars, if not billions of dollars, all of which would be paid for with taxpayers' dollars.

Lockheed stated it would continue to work with government leaders to avoid sequestration.

"We remain firm in our conviction that the automatic and across-the-board budget reductions under sequestration are ineffective and inefficient public policy that will weaken our civil government operations, damage our national security, and adversely impact our industry," the Lockheed memo stated.

Federal News Radio's Jason Miller contributed to this story.

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