San Francisco Chronicle
Mon, 01 Oct 2012 00:00 CDT
US, California - The White House took another big step Friday to discourage government contractors from warning employees - just before the November elections - that they could be laid off next year if Congress can't reach a compromise to prevent automatic across-the-board spending cuts known as sequestration.
In a memo, the Office of Management and Budget said the government - i.e. taxpayers - would foot the bill if contractors lay off workers as a result of sequestration and get sued for failing to provide the layoff notices required by the federal Worker Adjustment and Retraining Notification Act.
William Gould, a Stanford Law School professor emeritus specializing in labor law, says the government's offer to pay for violations of the so-called Warn Act "so far as I'm aware is unprecedented."
The offer applies only to government contractors - not to employers who lay off workers because they lose other types of federal funding such as research grants, according to the OMB.
The Warn Act generally requires private-sector employers with 100 or more full-time employees to give workers at least 60 days' notice of plant closings and layoffs that exceed a certain threshold. If they don't, employees can sue to collect up to 60 days of back pay. There are exceptions, such as if the business can prove the layoff was the result of an "unforeseen business circumstance."
Many states have similar laws - California's applies to more employers and layoffs and does not have the unforeseen circumstance exclusion - but the memo referred only to the federal act.
Government contractors have been grappling with whether to warn employees they could lose their jobs if Congress can't find an alternative to automatic cuts scheduled to take effect Jan. 2. The notices could come out in early November, just before the elections.
In July, the Labor Department said the Warn Act does not require companies whose federal contracts may be terminated or reduced in case of sequestration to provide Warn Act notices. It said such notices "would be inappropriate, given the lack of certainty about how the budget cuts will be implemented and the possibility that the sequester will be avoided before January."
But some employers were still afraid they could get sued for failing to provide notice. Lockheed Martin had been considering sending notices to all of its employees.
In its Friday memo, the OMB said that if sequestration occurs and a federal agency terminates or modifies a contract that requires a contractor to order a plant closing or mass layoff subject to Warn Act requirements, "then any resulting employee-compensation costs for Warn Act liability as determined by a court, as well as attorney's fees and other litigation costs (irrespective of litigation outcome), would qualify as allowable costs and be covered by the contracting agency," if reasonable.
To charge these costs to the government, the contractor must have "followed a course of action consistent with DOL guidance," meaning it didn't issue a Warn notice.
In a letter dated Friday, a Department of Defense procurement director said that any change to existing defense contracts as a result of sequestration "would likely occur, if it occurred at all, several months after" Jan. 2.
On Monday, Lockheed said that "after careful review" of additional guidance from OMB and Defense, it decided not to issue sequestration-related layoff notices this year.
Gould, 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 that layoffs will be taking place or not at a particular worksite," he said.
Gary Allen, a general vice president with the International Association of Machinists and Aerospace Workers, said the memo will alleviate some of the "undue stress" the threat of sequestration is putting on some workers. "What I find tragic is the government rushes to console employers and forgets that if this goes into effect it will raise unemployment (according to some estimates) by 1 percent."
What's not clear is whether the government's offer to cover Warn-related costs applies to suits brought under state laws.
"The memo specifically references only the federal Warn Act, so there is no commitment to indemnify California employers who are sued under the California analogous mass layoff/termination law," said John Mullan, an employment attorney with Rudy, Exelrod, Zieff & Lowe.
An OMB spokeswoman said, "Any contractor costs that might arise in context of actions under state law would be analyzed by the contracting agency under established cost principles and would be covered to the extent they are determined to be allocable, allowable and reasonable, and consistent with the specific terms and conditions of the contract."