Issa Presses Defense Companies on Budget Layoff Notices

The Republican chairman of a House panel asked defense contractors if they discussed with the Obama administration whether to issue layoff notices to workers days before the Nov. 6 election because of pending defense-spending cuts.

House Oversight and Government Reform Committee Chairman Darrell Issa sent letters to executives of Lockheed Martin Corp. (LMT), Northrop Grumman Corp. (NOC), Boeing Co. (BA) and seven other defense companies.

At issue is a directive from the White House Office of Management and Budget on Sept. 28 that said contractors shouldn’t issue 60-day layoff notices that Lockheed and other defense companies had said they were considering for thousands of workers. The budget office said the federal government will absorb the costs if $109 billion in defense and domestic cuts take effect in January and companies are held liable for not giving sufficient notice of worker dismissals under a federal law.

“The guidance seems intended to invite federal contractors to flout the law, and in so doing places a large contingent financial liability on the shoulders of American taxpayers in order to indemnify those contractors who follow the administration’s direction,” Issa of California wrote in the letters dated Oct. 11 and released today.

Issa asked the companies to disclose whether White House or agency officials contacted them about their compliance with the law, and also to divulge any legal advice they received from lawyers about whether to send the 60-day notices under the Worker Adjustment and Retraining Notification Act.

Lockheed’s About-Face

Lockheed, the world’s largest defense contractor, on Oct. 1 dropped plans to issue notices “after careful review” of guidance issued by the budget office and the Defense Department. Defense contractors led by Bethesda, Maryland-based Lockheed had said they might be compelled to warn thousands of workers their jobs could disappear unless President Barack Obama and Congress acted before January to avert the spending cuts.

The automatic cuts, known as sequestration, will slice $1.2 trillion over a decade from planned spending, including more than $500 billion from defense. The cuts stem from last year’s clash over raising the debt limit, and were set in motion after Congress and Obama failed to agree on a broad debt-reduction package.

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.

Nothing Immediate

The Labor Department said in July that blanket layoff notices would be “inappropriate” for sequestration given the uncertainty of the spending cuts and how they would affect federal contracts.

Richard Ginman, the Defense Department’s director of defense procurement and acquisition policy, wrote an industry group on Sept. 28, saying that no immediate moves affecting defense contractors are probable if the cuts take effect in January. “Any action to adjust funding levels would likely occur, if it occurred at all, several months after sequestration,” he said.

Republicans in Congress say the defense cuts should be reversed, while Democrats say added tax revenue should be part of any compromise to avert the spending cuts and tax increases known as the fiscal cliff. Republicans, including House Majority Leader Eric Cantor, also have expressed anger over the administration’s promise of a taxpayer-subsidized shield against liability in the event companies are sued for not complying with the WARN Act.

Lockheed once before clashed with the Pentagon over WARN Act notices, a dispute that helped shape the company’s earlier contention it would send blanket notices to many of its workers. Pentagon auditors said Lockheed waited too long before informing workers in 2009 that they might lose their jobs after the Defense Department scrapped plans for a new fleet of presidential helicopters. The auditors declined to reimburse $29.4 million in worker expenses the company claimed.

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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