Friday, October 5, 2012

Obama Administration Tells Contractors Facing Sequestration to Not Warn Employees About Potential Layoffs - Forbes

Obama Administration Tells Contractors Facing Sequestration to Not Warn Employees About Potential Layoffs - Forbes

Obama Administration Tells Contractors Facing Sequestration to Not Warn Employees About Potential Layoffs


The Obama Administration issued a memorandum (White House link) late Friday, instructing Federal contractors that they should not provide WARN Act notice to employees facing sequestration.  The WARN Act  is designed to protect “workers, their families, and communities by requiring most employers with 100 or more employees to provide notification 60 calendar days in advance of plant closings and mass layoffs.”  This White House directive follows a July 30, 2012 guidance letter from Jane Oates an Assistant Secretary at the Department of Labor, who concluded that no notice was necessary, specifically stating “As long as the likelihood and timing of contract cancellations remains speculative, an employer is not obligated to provide WARN notifications.”
While the Department of Labor guidance was consistent with existing precedent, it seems to be inconsistent with The WARN Act Guide for Employers, issued by the Department of Labor.  That guidance provides only three exceptions to a WARN Act notification.  The exceptions are: 1) a faltering company that is actively seeking capital or business and believes notification would prevent it from obtaining such capital, 2) a natural disaster and 3) unforeseeable business circumstances.  Unforeseeable business circumstances are defined as “a business circumstance that is caused by some sudden, dramatic, and unexpected action or conditions outside the employer’s control, like the unexpected cancellation of a major order.”  None of these three exceptions seem to apply to sequestration. Therefore, at least according to the Department of Labor’s guidance for employers, WARN notifications would be appropriate in light of sequestration.  Of course, the Guide is merely best practices, and is not a statement of the law.
If defense contractors were to issue WARN notifications, they would need to be issued just days before the election as the sequestration cuts would occur on January 1st (and the law requires at least 60 days notice).  Any notifications would create a huge political risk for the Obama administration.  According to a report in The Hill, this recent White House memorandum “raised the stakes” by telling “telling contractors that they would be compensated for legal costs if layoffs occur due to contract cancellations under sequestration — but only if the contractors follow the Labor guidance.”
Republicans complained,
“The Obama Administration is cynically trying to skirt the WARN Act to keep the American people in the dark about this looming national security and fiscal crisis,” Sens. John McCain (R-Ariz.), Lindsey Graham (R-S.C.) and Kelly Ayotte (R-N.H.) said in a statement. “The president should insist that companies act in accordance with the clearly stated law and move forward with the layoff notices.”
Republicans further argued that the White House guidance was merely pushing the cost of layoffs onto taxpayers.  It’s not clear whether contractors will comply with the White House’s guidance, or if they will take a more cautious route and notify employees of potential layoffs.  Lockheed Martin, which employs 103,000 people and has 40,000 suppliers has not made a decision about whether they will send WARN notifications.
Gregory S. McNeal is a professor specializing in law and public policy.  You can follow him on Twitter @GregoryMcNeal.

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