Lockheed Martin Chairman and CEO Robert Stevens has repeatedly warned that automatic budget cuts effective Jan. 2 would be devastating to the defense industry. (Lockheed Martin)
After months of political wrangling over layoff notices that the world’s largest defense contractor has threatened to send to employees days before Americans go to the polls, Lockheed Martin has said it will not issue the notices this year, according to a company statement issued Oct. 1.
Citing guidance from the White House released Sept. 28 that the government would shoulder the cost of potential lawsuits if broad factory closings are required, the company has decided not to issue notices that it previously said would be required under the Worker Adjustment and Retraining Notification (WARN) Act, Lockheed Martin spokeswoman Jennifer Allen wrote in an email.
“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,” Allen wrote.
Allen also noted the guidance’s mention that contract cancellations are not anticipated.
“The additional guidance offered important new information about the potential timing of DoD [Department of Defense] 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,” she wrote. “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.”
DoD officials have repeatedly said they did not anticipate many contract cancellations even if the automatic budget cuts known as sequestration take effect. The sequestration procedure as legislated in the Budget Control Act does not target funds that have already been obligated to contracts, instead requiring a percentage cut that would impact future contract actions and new contracts.
In late July the Department of Labor (DoL) issued a notice telling companies that no WARN Act notices were needed, citing the unpredictable nature of sequestration. The White House guidance from Sept. 28 noted that contractors have been skeptical of that direction.
“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,” the Sept. 28 guidance said. “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.”
Some defense executives have questioned whether issuing WARN notices makes sense given the lack of available talent, saying that they would look to pick-off prime talent from competitors if the notices were issued.
In her statement, Allen reiterated Lockheed’s concerns about sequestration.
“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,” she wrote. “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.”