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Warning Shot

Claim:   Lockheed Martin is going to lay off 123,000 workers due to military downsizing but is not sending out layoff notices at the behest of the Obama administration.

MIXTURE OF TRUE AND FALSE INFORMATION

Example:   [Collected via e-mail, October 2012]

My son-in-law works at Lockheed Martin and we just found out that Lockheed is going to lay off 123,000 defense workers due to Obama's downsizing of the military. This hit the Drudge report yesterday. We are livid. This is true!

The law requires Lockheed to give 60-day notice to all to-be-fired employees within 60 days. That drop dead date would be November 1st. Since this would be bad for the election, Obama has promised that our government would cover all Lockheed severance packages to fired employees if Lockheed would not release the names and locations of those losing their jobs until after the election!
 

Origins:   In August 2011 Congress passed, and President Obama signed, the Budget Control Act of 2011 in order to resolve the U.S. debt-ceiling crisis and prevent the federal government from heading into default over its debt. That piece of legislation identified $1.2 trillion in budget cuts to be made over 10 years and called upon Congress, through the Joint Select Committee on Deficit Reduction (also known as the "super-committee"), to come up with a plan to cut the budget deficit by another $1.5 trillion (through revenue increases and/or spending reductions) by 23 November 2011. If that committee failed to come up with a viable deficit reduction plan by the deadline, or if Congress failed to approve the committee's plan, then the legislation called for automatic, across-the-board cuts (known as "sequestration") to go into effect.

The super-committee did not agree on a deficit reduction plan, stating that "After months of hard work and intense deliberations, we have come to the conclusion that it will not be possible to make any bipartisan agreement available to the public before the committee's deadline," so unless and until lawmakers can agree on a solution to the budget impasse, the sequestration budget cuts are set to take effect
with the 2013 budget. Since those cuts, if they take place, may include large reductions in Pentagon spending, some defense contractors are anticipating that they may have to engage in significant layoffs of personnel in the upcoming year, and under the Worker Adjustment and Retraining Notification (WARN) Act, enacted in 1989, most employers with 100 or more employees are required to issue 60-day advance notification of mass layoffs.

When one such defense contractor, Lockheed Martin, announced on 1 October 2012 that it would abide by White House guidance not to issue WARN Act-mandated layoff notices to thousands of employees just before the November presidential election, Republican critics contended that President Obama was engaging in a partisan political ploy to protect votes in a key battleground state (Lockheed Martin has a large business presence in Virginia) at the expense of workers who might soon find themselves without jobs:
U.S. Senators John McCain, Lindsey Graham and Kelly Ayotte released the following statement on Obama Administration guidance issued instructing defense companies and other government contractors not to issue mass layoff notices to their employees, as is required under the WARN Act, in anticipation of the $109 billion in across-the-board budget cuts scheduled to occur under sequestration on January 2, 2013:

Today, President Obama put his own reelection ahead of the interests of working Americans and our national security by promising government contractors that their salary and liability costs will be covered at taxpayer expense if they do not follow the law that requires advance warning to employees of jobs that may be lost due to sequestration.

The WARN Act exists to protect workers by providing at least 60 days' notice of layoffs from government contracting work. But today, the Office of Management and Budget published guidance for the defense industry and other government contractors that they do not have to provide that notice now even though, under current law, $109 billion in across-the-board budget cuts scheduled to occur on January 2 are estimated to result in as many as 1 million lost defense jobs.

Apparently, President Obama puts politics ahead of American workers by denying them adequate time to plan their finances and take care of their families. The people who work in the defense industry and other government contracting companies deserve as much notice as possible that they are on track to lose their jobs.
At issue is a Training and Employment Guidance letter issued by the Department of Labor (DOL) on 30 July 2012, and reiterated in a 28 September 2012 memo from the Office of Management and Budget (OMB), advising employers that the issuance of WARN Act notifications in anticipation of sequestration was not required by law and would be a waste of resources because it is currently unknown which contracts might be affected by potential budget cuts and when the effects of those budget cuts might take place. The DOL's letter also informed employers that if they followed the DOL's advice and refrained from issuing WARN Act notifications in anticipation of sequestration, and they later had to engage in mass layoffs due to sequestration, the government would cover any legal costs they incurred as a result:
Although it is currently known that sequestration may occur, it is also known that efforts are being made to avoid sequestration. Thus, even the occurrence of sequestration is not necessarily foreseeable. In addition, the sequester's impact on particular accounts will depend at least in part on Fiscal Year (FY) 2013 funding that Congress has not yet enacted. Perhaps more importantly, Federal agencies also have some discretion in how to implement the required reductions if sequestration were to occur. Given that Federal agencies, including DOD, have not announced which contracts will be affected by sequestration were it to occur, and that many contracts may be completely unaffected, the actual contract terminations or cutbacks that will occur in the event of sequestration are unknown. Thus, in the absence of any additional information, potential plant closings or layoffs resulting from such contract terminations or cutbacks are speculative and unforeseeable.

The Worker Adjustment and Retraining Notification generally requires employers with at least 100 employees to provide written notice to affected employees 60 days before ordering certain plant closings or mass layoffs if they are reasonably foreseeable. DOL concluded that it is neither necessary nor appropriate for Federal contractors to provide WARN Act notice to employees 60 days in advance of the potential sequestration because of uncertainty about whether sequestration will occur and, if it did, what effect it would have on particular contracts, among other factors: In reaching this conclusion, DOL explained that giving notice in these circumstances would waste States' resources in undertaking employment assistance activities where none are needed and create unnecessary anxiety and uncertainty for workers.

Despite DOL's guidance, some contractors have indicated they are still considering issuing WARN Act notices, and some have inquired about whether Federal contracting agencies would cover WARN Act-related costs in connection with the potential sequestration. To further minimize the potential for waste and disruption associated with the issuance of unwarranted layoff notices; this memorandum provides guidance regarding the allowability of certain liability and litigation costs associated with WARN Act compliance. Specifically, if (1) sequestration occurs and an agency terminates or modifies a contract that necessitates that the contractor order a plant closing or mass layoff of a type subject to WARN Act requirements, and (2) that contractor has followed a course of action consistent with DOL guidance; 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, if otherwise reasonable and allocable.
GOP critics maintain the legality of the DOL's advice is questionable and amounts to "giving contractors a free pass" in exchange for a "multi-billion dollar campaign contribution":
As a result of the OMB guidance, the Department of Defense will have to allow companies to claim repayment for the salaries of workers who are laid off but did not receive the required WARN notices — a cost to the taxpayer that could be as much as $4 billion. In addition, DOD will have to reimburse companies for any legal damages paid to workers who are laid off but did not receive the required WARN notices — a cost that is inestimable.

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.

We also have questions regarding the legal authority of OMB to interpret the WARN Act as it has, and to obligate the Federal government to pay billions of dollars of potential claims from private contractors arising as a result of this interpretation.

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. The president should insist that companies act in accordance with the clearly stated law and move forward with the layoff notices. Republicans and Democrats in Congress, as recently as three days ago, called on the president to work with us to avert the looming threat of sequestration to our national security.
Other labor officials contended that the DOL's advice to employers about implementation of the WARN Act was consistent with the law:
William Gould, a Stanford Law School professor emeritus specializing in labor law and a former chair of the National Labor Relations Board appointed by President Bill Clinton, said the Labor Department was correct when it said the possibility of sequestration-induced layoffs did not warrant Warn notices. "The courts have been very clear that mere conjecture does not trigger the obligation," he said.

Rick McHugh, an attorney with the National Employment Law Project, agreed. "The obligation to give notice arises once the employer believes or should have known that a mass layoff or plant closing is going to happen at a particular worksite. At this point, no one knows with any certainty [whether] layoffs will be taking place or not at a particular worksite," he said.
Lockheed Martin never announced that it was planning to lay off 123,000 workers (a number which represents the entirety of the company's workforce). What happened was that in June 2012 a Lockheed Martin official expressed frustration with the uncertainty of the sequestration issue and stated that if it weren't resolved soon, the company would have to send WARN Act notices to the "vast majority" of their workers because they had received no guidance on the issue from the government and thus had no idea who might be affected:
Right before Election Day, the company is likely to notify the "vast majority" of its 123,000 workers that they're at risk of being laid off, said Greg Walters, the company's vice president of legislative affairs.

Walters's comments are some of the most specific threats yet from an industry that's trying to head off the $500 billion in automatic cuts in defense spending set to begin taking effect Jan. 2. Called sequestration, the cuts are being phased in over 10 years, with about $55 billion slated for 2013.

Unless Congress reaches a deal to stave off the cuts, "we will find it necessary to issue these [layoff] notices probably to the vast majority of our employee base," Walters [said].

The company has little choice, he explained, because federal law requires large employers to provide two months' notice to workers facing layoffs. "We would see a requirement, an obligation, to issue [layoff] notices 60 days prior to sequestration taking effect," he said.

The layoffs, of course, won't all happen on Jan. 2, as it would likely take months for sequestration to begin affecting contractors' bottom lines. But the timing of the cuts — along with the requirement of 60-day notice — provides an opportunity for the defense industry to ratchet up the pressure on President Barack Obama and congressional leaders to tackle the issue before November.

Only a fraction of Lockheed's workers ultimately would be let go as a result of the cuts. But the company plans to send out mass notifications because it is unsure exactly which employees would be affected. The White House Office of Management and Budget has not yet provided guidance for how sequestration would be carried out.

"We've wanted a dialog about what sequestration could look like," Walters said. "But as of right now, no, we have no answers from OMB."
(In a July 2012 memo, Lockheed Martin projected a much lower figure of potential layoffs, stating that "Our very rough estimate of the number of employees who could be affected [by sequestration], based on the limited information available to us from the government, is about 10,000.")

Ultimately, Lockheed Martin announced on 1 October 2012 that after "careful review of the additional guidance" provided by the government, they would not be issuing sequestration-related WARN notices this year:
For the better part of this year, we and others in industry and government have worked to raise awareness in Congress as to the devastating effects of sequestration — the federal law passed last year through the Budget Control Act that forces automatic across-the-board cuts in government spending. In July, we informed you that, without clear direction from the government about how these cuts would be implemented, the corporation could issue conditional Worker Adjustment and Retraining Notification (WARN) notices to a substantial number of employees.

We have been working closely with the government to understand our obligations under the WARN Act and to ensure our employees are provided fair treatment and appropriate notice, if their jobs are impacted by sequestration. On Friday afternoon the U.S. Office of Management and Budget (OMB) and the Department of Defense (DOD) released guidance clarifying responsibilities under the WARN Act and outlining their timeline for making sequestration-related program decisions.

After careful review of the additional guidance provided by the Office of Management and Budget and the Department of Defense, we will not issue sequestration-related WARN notices this year. The additional guidance offered important new information about the potential timing of DOD actions under sequestration, indicating that DOD anticipates no contract actions on or about 2 January, 2013, and that any action to adjust funding levels on contracts as a result of sequestration would likely not occur for several months after 2 Jan. The additional guidance further ensures that, if contract actions due to sequestration were to occur, our employees would be provided the protection of the WARN Act and that the costs of this protection would be allowable and recoverable.

We remain firm in our conviction that the automatic and across-the-board budget reductions under sequestration are ineffective and inefficient public policy that will weaken our civil government operations, damage our national security, and adversely impact our industry. We will continue to work with leaders in our government to stop sequestration and find more thoughtful, balanced, and effective solutions to our nation's challenges.

If sequestration were to happen, we are compelled to comply with the law and will do so as respectfully and as ably as we can. While we work to stop sequestration we will also continue to petition the government to outline exactly how sequestration will be implemented so that we can responsibly prepare for the impact to our employees and our business.
Finally, as political reporter Bob Woodward noted, the sequester in the Budget Control Act that could result in automatic defense spending cuts in 2013 was put there not as part of an Obama administration policy to "downsize the military," but as means of prodding Congress into coming up with a concrete plan for addressing the deficit issue:
No one thought [sequestration] would happen. The idea was to design something ... that was so onerous that no one would ever let it happen. Of course, it did, because [Congress] couldn't reach agreement. They all believed that the supercommittee was going to come up with a $1.2 trillion deficit-reduction plan, so there would be no sequestration. Of course, the supercommittee failed and so the trigger went off, which has all of these very Draconian [budget] cuts.
Last updated:   27 October 2012

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Sources:

    Bruce, Mary.   "At White House Request, Lockheed Martin Drops Plan to Issue Layoff Notices."
    ABC News.   1 October 2012.

    Munsil, Leigh.   "Bob Woodward: Obama 'Mistaken' on Sequester."
    Politico.   23 October 2012.

    Pender, Kathleen.   "U.S. to Contractors: No Layoff Notices."
    San Francisco Chronicle.   1 October 2012.

    Wright, Austin.   "Lockheed Martin Eyes Layoffs This Fall."
    Politico.   24 June 2012.