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Labor and Personnel Issues, Legal

Defense Contractor WARN Act Obligations and Sequestration

The Department of Labor has issued new guidance for Defense Contractors who face losses as a consequence of anticipated sequestration.

Most Americans have been following the sequestration discussions.  Congress decided to impose automatic defense cuts if it could not balance the budget.  500 billion dollars worth.  At the time that the decision was made to do this, the thought was that this was so terrible an idea and would have such a devastating effect on our economy (not to mention military readiness) that it was a poison pill that Congress would never allow to be implemented.  It would force Congress to balance the budget.

Unless it doesn’t.

There appear to be no serious plans being discussed to forestall sequestration.  There is a lot of rhetoric about why it is not desirable and why it should not happen; but no one is floating any serious plans in public for how to have a positive effect on the budget by using another mechanism.

What does this mean for defense contractors?  If sequestration goes into effect then it means that the Department of Defense will need to cut procurements and other contracts in order to meet the sequestration requirements.  This means that billions of dollars in contracts – contracts that mean American jobs – will have to be terminated.

What does this mean for employees of defense contractors?  If billions of dollars in contracts are being terminated, then a tremendous number of American jobs will have to be cut.

An interesting wrinkle is that most Defense Contractors are subject to the WARN Act because they have 100 or more full-time workers and will need to lay off at least 50 people.  AIA President Marion Blakey has suggested that businesses will need to lay off employees as of January 2.  The WARN Act requires 60 days notice, which means that workers will be entitled to lay-off notices immediately before the November elections.  Failure to provide the notices means that the employer owes the affected workers back pay and may owe the government civil penalties as well.

Lay-off notices immediately before the November elections would NOT be good for the President’s re-election hopes, so the Department of Labor has issued new guidance.

The guidance notes that there are three exceptions to the full 60-day notice requirement. In each of these cases notice must be provided as soon as is practicable even when these exceptions apply.  The exceptions are:

  • Faltering company: When a company is faltering, seeking capital, and reasonably believes that advance notice would preclude its ability to obtain such capital;
  • Unforeseeable business circumstances: When the closing or mass layoff is caused by business circumstances that were not reasonably foreseeable, notice may be given when it is foreseeable; or
  • Natural disaster: When a plant closing or mass layoff is the direct result of a natural disaster, notice may be given after the event.

The Labor Department guidance specifies that the specific consequences of sequestration are unknown until such time as the specific contract terminations are announced, and therefore the specific cuts are unforeseeable.  Businesses are specifically permitted to wait until the contract cuts are announced before they have to issue the WARN Act letters.  And of course, the Administration will wait until after election day to announce these cuts, so that lay-off notices can be deferred until after the election.

This is a fraud on the American people by the Administration.  It is absurd to believe that the government has failed to establish plans that identify the contracts that would be affected by sequestration (indeed, such a failure to plan for what is currently the existing state of the law would be negligent on the part of the government).  The Administration is merely hiding these plans from the American people.

For aircraft parts manufacturers who have defense contracts, and are also subject to the WARN Act, this means that you can wait until specific cuts are announced before issuing WARN Act notices.  And it also means that you will have to wait to make your own plans until after the election.

The real losers in this guidance are the employees who will be let go as a consequence of sequestration.  Under the WARN Act, they are entitled to 60 days notice in order to prepare for the layoffs and seek out other employment or training.  Sometimes businesses are accused of playing fast and loose with this notice for their own purposes.  But it seems unprecedented for the U.S. Government to play fast and loose with the notice requirements that protect employees, in a clumsy effort to achieve a political advantage.

Ordinarily, you would expect the Administration to have a budgetary plan to forestall sequestration; but not in this case – the Administration’s 2012 budget did not take into account any plan to reduce spending to offset sequestration, and no amendment was ever offered.  There is still a chance that sequestration could be set aside by a Congressional budget deal that finds other cuts, but it appears clear that the Administration has no interest in providing any leadership to achieve such a result.

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About Jason Dickstein

Mr. Dickstein is the President of the Washington Aviation Group, a Washington, DC-based aviation law firm. He represents several aviation trade associations, including the Aviation Suppliers Association, the Aircraft Electronics Association, the Aircraft Fleet Recycling Association and the Modification and Replacement Parts Association.

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