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White House aims to suppress contractor layoff notices

Oct. 1, 2012 - 11:15AM   |  
By SARAH CHACKO   |   Comments
In a Sept. 28 memo, office of Management and Budget Controller Danny Werfel said  litigation costs would be covered for agencies if employees challenge layoffs caused by sequestration.
In a Sept. 28 memo, office of Management and Budget Controller Danny Werfel said litigation costs would be covered for agencies if employees challenge layoffs caused by sequestration. (Rob Curtis / Staff file photo)

The government will foot the bill for contractors’ litigation fees if employees challenge layoffs caused by sequestration, White House officials said last week.

The guidance, which was issued to senior finance and procurement officials at agencies, addressed questions that arose after the Labor Department told contractors in July to refrain from warning their employees about potential layoffs due to the possibility of severe automatic budget cuts — known as sequestration — that could take effect Jan. 2.

Lockheed Martin officials said Monday they would not issue layoff notices in light of the government’s assurances.

The additional guidance from the Office of Management and Budget “offered important new information about the potential timing of [Defense Department] actions under sequestration, indicating that DoD anticipates no contract actions on or about [Jan. 2] and that any action to adjust funding levels on contracts as a result of sequestration would likely not occur for several months after [Jan. 2],” Lockheed Martin CEO Bob Stevens and COO Chris Kubasik, said in a memo to employees Monday.

Before the Labor Department instruction, some contractors said they felt compelled to issue sequestration-related layoff notices to their workforces in early November to comply with the 1988 Worker Adjustment and Retraining Notification Act (WARN), which requires contractors to give employees 60 days’ notice before mass layoffs or facility closings.

If sequestration occurs, it is expected to result in the loss of possibly millions of contractor jobs beginning Jan. 2 in the defense and non-defense sectors. A report by the Center for Regional Analysis at George Mason University puts the contractor job loss figure at 2 million.

Since agencies have not identified what programs would be cut under sequestration or how deeply, companies do not know what plants would be closed or how many people would have to be laid off, Assistant Labor Secretary Jane Oates said in a July memo to state workforce oversight officials.

“To give notice to workers who will not suffer an employment loss both wastes the states’ resources in providing rapid response activities where none are needed and creates unnecessary uncertainty and anxiety in workers,” Oates said in the memo.

Instead, plant closings or mass layoffs before or in the wake of sequestration would be considered an “unforeseeable business circumstance,” one of the exceptions to the 60-day advance notice requirement, the memo said.

However, contractors have raised concern that some states have different notification requirements and may not interpret the law the same way. An employer who violates the WARN Act provisions is liable to each employee for back pay and benefits, for up to 60 days.

If agencies terminate or modify contracts because of sequestration and that results in layoffs that trigger WARN Act requirements, “then any resulting employee compensation costs for WARN Act liability as determined by a court, as well as attorneys’ fees and other litigation costs (irrespective of litigation outcome), would qualify as allowable costs and be covered by the contracting agency,” Office of Management and Budget Controller Danny Werfel and Joseph Jordan, head of the Office of Federal Procurement Policy, said in the Sept. 28 memo.

The contractor must have followed the Labor Department’s guidance, the memo said.

Agencies may also allow “other costs potentially associated with sequestration,” if they are based on the usual cost principles allowed for in federal regulations, the guidance said.

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