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Defense Firms Say Layoff Warnings Loom

Politico - September 9, 2012, By Austin Wright

Dismayed at a returning Congress still struggling to avert automatic budget cuts, defense contractors could soon alert thousands of employees their jobs are at risk.

The defense industry is gambling that neither Congress nor the White House wants headlines about potential layoffs so close to Election Day — and that the threat of layoff warnings could push lawmakers and President Barack Obama into resolving a budget standoff that has dragged on for more than a year.

Under the terms of last year’s agreement to raise the debt ceiling, Congress passed, and Obama signed into law, legislation that would automatically “sequester” nearly $500 billion in defense spending over the next decade.

The Pentagon and its vendors have warned that would be catastrophic, but the problem is tied up with the larger deadlock over taxes and spending cuts. And with time running out before the Jan. 2 onset of the sequester, the defense industry is eager to jump-start action by Congress.

The strategy, first broached by defense giant Lockheed Martin, was to argue that sequestration would amount to immediate job cuts, and as such the company had an obligation to notify its employees of the danger under the 1988 WARN Act. Other defense vendors also took notice.

“Unless we receive additional guidance or there’s a solution to sequestration, we feel that we will have to issue WARN notices to some or most of our employees 60 or 90 days before Jan. 2,” said Brian Roehrkasse, vice president of public relations for BAE Systems.

If Congress fails to avert the looming, across-the-board cuts, BAE estimates it could have to eliminate about 10 percent of its U.S. workforce — or about 4,000 jobs, Roehrkasse said.

The notices could go out despite guidance issued in July by the Department of Labor, which said it would be “inappropriate” for vendors to issue layoff warnings given that Congress still had months to avert the onset of the sequester. But the guidance did not say it would be illegal or threaten any penalties — effectively leaving the matter open.

Republican defense advocates, who hope the layoff warnings would amount to a salvo against Obama in the crucial days before the election, blasted the Labor Department guidance.

“To think that one of the agencies of the Obama administration would give guidance not to follow the law of the land — a judge would laugh at that,” said Rep. Buck McKeon (R-Calif.), chairman of the Armed Services Committee.

Meanwhile, Rep. John Kline (R-Minn.), chairman of the Education and the Workforce Committee, sent a letter to the Labor Department, saying its memo was “misleading and incomplete” and requesting documents backing up the decision.

And Sen. Lindsey Graham (R-S.C.) pushed for an amendment to next year’s Pentagon budget that would have required defense contractors to issue WARN notices before the Nov. 6 elections, but the amendment was rejected by the Senate Appropriations Committee.

For its part, Northrop Grumman is “watching the situation closely,” said Randy Belote, a company spokesman.

“We’ll be following the requirements laid out in the law,” he said. “But we’ve made no decisions and have not made any public comments on the issue.”

Raytheon is also taking a wait-and-see approach. “Because we don’t know when, if or how sequestration will be implemented, we can’t speculate on aspects of it, including WARN,” said Dave Desilets, a company spokesman.

And the world’s largest defense contractor, Lockheed Martin, has changed its tune. The company, which led the original charge in threatening widespread pre-election layoff notices, has taken a more deferential stance ever since the Labor Department issued its guidance.

Lockheed spokeswoman Kelli Raulerson said the company hopes a forthcoming White House report will explain how the administration would carry out sequestration — and allow the company to target its layoff warnings to specific employees, as opposed to putting the majority of its U.S. workers on alert. The White House said the report, due last Thursday, is now expected to be sent to Congress later this week.

“The Sequestration Transparency Act is intended to provide clarification on the impact of sequestration on our employees, suppliers, business and customers,” Raulerson said in a statement. “We hope the guidance … will provide useful information to inform our future plans and actions.”

The company had previously said it planned to notify the “vast majority” of its U.S. employees that their jobs were at risk, despite the fact that only about 10 percent — roughly 10,000 workers — would ultimately be laid off as a result of sequestration.

In late July, however, the Labor Department moved to stave off the pre-election layoff warnings, issuing its memo, which said widespread notices would be a violation of the WARN Act. The law, according to the department, explicitly discourages overbroad notices and allows for exemptions in cases of “unforeseen business circumstances.”

Sequestration qualifies as an unforeseen circumstance because there’s still a chance lawmakers will reach a deal to prevent the automatic cuts, the memo says.

One of the big questions is whether defense contractors would have a legitimate need to reduce their workforces soon after Jan. 2 — or if their layoff threats are a political ploy meant to spur Congress to act to prevent sequestration.

Todd Harrison, a senior fellow at the Center for Strategic and Budgetary Assessments, said it’s the latter.

In August, Harrison released a report that said it would be three to four years before contractors felt the full effects of sequestration. In the next fiscal year, the reduction in Pentagon outlays, or expenditures, would be about 4.6 percent.

“There’s actually some cushion there for the defense industry,” Harrison told reporters. “When [contractors] tell you their labor force will have to be cut by 10 percent — it’s true. It just won’t happen in January.”

Defense contractors, of course, are free to communicate with their employees about the automatic cuts, regardless of the political standoff over the WARN Act. And Lockheed Martin has already done so.

In July, CEO Bob Stevens and Chief Operating Officer Chris Kubasik sent a letter to the company’s U.S. employees, notifying them their jobs would be on the line if Congress fails to stave off the looming cuts.

“With little guidance from the government on the specifics of sequestration, it is difficult to determine the impact of these cuts on our employees, programs and suppliers,” the two defense executives told their workers. “We know this is unsettling information and you are probably asking, ‘Will I be affected?’”

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