White House Says Workers Shouldn't Get Budget-Cut Notices

President Barack Obama’s administration said government contractors affected by looming across-the-board budget cuts shouldn’t issue blanket 60-day notices to workers who might lose their jobs.

The Office of Management and Budget said today that the government will cover legal and compensation costs if $109 billion in defense and domestic cuts take effect in January and contractors are held liable in court for not giving enough notice under the Worker Adjustment and Retraining Notification Act.

“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, if otherwise reasonable and allocable,” the budget office said in the guidance to federal agencies.

Companies led by Lockheed Martin Corp., the world’s largest defense contractor, have said federal and state laws may require them to issue notifications of potential job cuts before the Nov. 6 election unless Obama and Congress act to avert automatic defense reductions of $500 billion over a decade that would start on Jan. 2.

Three Republicans on the Senate Armed Services Committee said today’s directive puts “politics ahead of American workers” by denying them the notifications, while also opening the possibility that taxpayers will pay the tab if there are WARN Act violations.

‘Free Pass’

“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 and will have potentially stuck the taxpayers with a multi-billion dollar campaign contribution,” said the senators, John McCain of Arizona, Lindsey Graham of South Carolina and Kelly Ayotte of New Hampshire.

The federal WARN Act, which became law in 1988, requires most employers with 100 or more workers to give 60 days notice of plant closings or “mass layoffs” -- labor cutbacks affecting 500 or more workers, or at least 33 percent of the workforce for companies with fewer than 500 employees.

The budget office’s directive effectively endorses guidance by the U.S. Department of Labor, which in July told state agencies that it would be “inappropriate” for companies to send 60-day notices to their employees given the uncertainty about whether the reductions will occur or which jobs will be cut.

A partisan fight is building over the defense reductions. Republicans say the cuts should be reversed, while Democrats say added tax revenue should be part of any compromise. The cuts known as sequestration stem from last year’s clash over raising the debt limit. The automatic cuts were set in motion after Congress and Obama failed to agree on a broad debt-reduction package.

To contact the reporter on this story: Laura Litvan in Washington at llitvan@bloomberg.net

To contact the editor responsible for this story: John Walcott at jwalcott9@bloomberg.net

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