New Federal Guidance on WARN Act Draws Fire

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Because a scheduled federal budget “sequestration” is approaching in January 2013, the Office of Management and Budget (OMB) and the U.S. Department of Defense (DOD) issued separate guidance notices on Sept. 28, 2012, to address questions about whether Worker Adjustment and Retraining Notification (WARN) Act notices needed to be issued just before the presidential election.

On July 30, 2012, the U.S. Department of Labor provided guidance that said the WARN notices did not need to be issued, and recently, the OMB and DOD promised to reimburse expenses that might result from the failure to send out the notifications to workers in compliance with the WARN Act.

Republican lawmakers were livid. “In 2007, Sen. Obama wanted to extend the WARN Act notices to 90 days, up from 60, to ensure workers were treated fairly. Now, President Obama is trying to suppress the issuance of WARN notices, which will hit mailboxes right before the election. The Obama administration’s legal advice is dubious at best,” Sen. Lindsey Graham, R-S.C., stated Oct. 1, 2012.

Bipartisan Opposition to Sequestration

Approximately 2 million jobs might be axed if Congress does nothing to prevent sequestration’s mandatory budget cuts from taking effect Jan. 2, 2013, according to a Sept. 24, 2012, letter to U.S. Senate Majority Leader Harry Reid, D-Nev., and U.S. Senate Minority Leader Mitch McConnell, R-Ky., from a bipartisan group of senators. Sen. Carl Levin, D-Mich., Sen. John McCain, R-Ariz., Sen. Jeanne Shaheen, D-N.H., Sen. Sheldon Whitehouse, D-R.I., Sen. Kelly Ayotte, R-N.H., and Graham noted that a million of these jobs—many of which would be with federal contractors—would be due to DOD cuts.

“We believe it is important to send a strong signal of our bipartisan determination to avoid or delay sequestration and the resulting major damage to our national security, vital domestic priorities and our economy,” the senators stated. There are rumors of other bipartisan steps to prevent sequestration.

The uncertainty surrounding sequestration, which many consider unlikely to occur, is having an effect on business planning, according to Lockheed Martin Chairman and CEO Robert Stevens. With over 10,000 contracts, his company is the nation’s largest federal contractor.

OMB, DOD Guidance Notices

The OMB and DOD guidance notices were issued to assuage the defense industry’s concerns about sequestration and head off Stevens’ threat to issue WARN Act notices to the company’s 120,000 employees just before Election Day.

The OMB noted in a memo that the WARN Act requires employers with at least 100 employees to provide written notice to affected employees 60 days before ordering plant closings or mass layoffs if they are reasonably foreseeable.

“Despite DOL’s guidance, some contractors have indicated they are still considering issuing WARN Act notices, and some have inquired about whether federal contracting agencies would cover WARN Act-related costs in connection with the potential sequestration,” the OMB stated.

If sequestration occurs and results in plant closings or mass layoffs, then any resulting costs for WARN Act liability, as well as attorney’s fees and litigation costs would qualify as costs covered by the contracting agency, the OMB specified.

According to a letter to the National Defense Industrial Association from Richard Ginman, DOD director of defense procurement and acquisition policy, “The department does not anticipate having to terminate or significantly modify any contracts on or about Jan. 2, 2013, as a result of sequestration.”

He explained that “sequestration reduces budget authority for the department’s unobligated funds for fiscal year (FY) 2012 and prior years and for all nonexempt appropriated funds for FY 2013. Most department contracts are fully funded; because they are obligated from FY 2012 and prior year funding, they would not be affected by sequestration.”

He added that, “For contracts in place that are incrementally funded, any action to adjust funding levels would likely occur, if it occurred at all, several months after sequestration.”

Ginman also noted that WARN Act liability and litigation costs would be covered by the department.

Republican Reaction

A joint statement from Republican senators Graham, McCain and Ayotte said: “As a result of the OMB guidance, the DOD will have to allow companies to claim repayment for the salaries of workers who are laid off but did not receive the required WARN notices—a cost to the taxpayer that could be as much as $4 billion. In addition, DOD will have to reimburse companies for any legal damages paid to workers who are laid off but did not receive the required WARN notices—a cost that is inestimable.”

They also stated, “Facing intense lobbying by defense companies and other government contractors for financial protection if they agreed not to issue WARN notices, the Obama administration is giving contractors a free pass.”

The senators doubted whether the OMB had the legal authority to interpret the WARN Act in a way that made the federal government obligated to pay billions of dollars of potential claims from private contractors.

“The WARN Act is crystal clear when it comes to defense contractors having to issue notices of impending layoffs,” Graham added in a separate statement. “I hope defense contractors will follow the law and warn their employees about the devastating impacts of sequestration.”

Lockheed Won’t Send Notices

In a statement, Lockheed Martin said that “after careful review of the additional guidance provided by the OMB and the DOD, we 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.”

In July 18, 2012, testimony before the House Armed Services Committee, however, Stevens said, “Despite assurances by some that sequestration is not likely to happen, it is the law of the land and we have no choice but to do our best in planning for its execution.”

He remarked, “The very prospect of sequestration is already having a chilling effect on the industry. Our ability to hire the best and brightest is being hurt. We’re not making as many discretionary investments. We’re not leaning forward. We’re reducing our training programs. All because of the uncertainty associated with sequestration’s sudden and arbitrary additional cuts in next year’s defense budget. It’s a huge disruption to our business.”

Allen Smith, J.D., is manager, workplace law content, for SHRM.  To read the original article, please click here.