Congressional Republicans Thursday stepped up their criticism of the Obama administration over what they say is a free pass being given to defense companies facing major layoffs from looming federal spending cuts.
Republicans charged that the Obama administration is advising government contractors to "break the law" by telling them they do not need to follow mandates of the "WARN Act," which requires employers to give prior notice to workers when they know that layoffs are in the offing. The issue first emerged during last year's presidential race, when Republicans maintained the waiver was given to avoid headlines about big job cuts in the weeks before the election.
The issue has come to the forefront again as the Pentagon faces major budget reductions in the "sequester" spending cuts that have come back around and go into effect March 1, which would like produce more layoffs for contractors, military suppliers and others who do business with the Defense Department. The prospect of such cuts would ordinarily trigger the two-month layoff notification requirements of the Worker Adjustment and Retraining Notification Act.
But the Labor Department continues to advise defense contractors that they do not need to observe the law, and the White House Office of Management and Budget has said it would reimburse companies that are sued by employees for breaking the law.
"That's right: the Obama administration is telling employers to ignore the law and forcing taxpayers to pick up the tab," Rep. Tim Walberg, the Michigan Republican who chairs the House Education and the Workforce subcommittee on workforce protections, said Thursday during a hearing to examine the issue.
Diana Furchtgott-Roth, a senior fellow and the Manhattan Institute and a former chief economist at the Labor Department under the Bush administration, told the committee it appeared the Obama administration eased the WARN Act requirements for political considerations.
"I am not privy to internal White House discussions, but it is likely that the White House asked contractors to break the law in the interests of the re-election of President Obama," she said. "The White House has told some of the largest corporations in America to break the law in order to help re-elect a sitting president, and offered to pick up the penalties and court costs."
The Labor Department responded to Republican complaints for the first time Thursday.
Jane Oates, assistant secretary for employment and training at the Labor Department, said that rather than sending out a generic warning to everyone about potential layoffs, companies should wait until they know which specific employees will be affected and only give layoff warnings then. This will help defense contractors avoid company-wide panics and "unnecessary anxiety," she said.
"A blanket notice is neither appropriate nor legally sufficient under the WARN Act," she said.
But she said that doesn't mean the Labor Department is advising defense contractors to break the law. Instead, companies are being advised to wait until they know more about the specifics of how sequestration will affect them to make an informed announcement.
The specific information should include the name and address of each employment site where the plant will be closing or layoff will occur, the expected date of the layoffs, the job titles of the positions affected, and the number of affected employees, Ms. Oates suggested.
The sequester cuts could have major impacts on the payrolls of some of the country's best-known defense firms, according to Ms. Furchtgott-Roth's estimates.
Lockheed Martin, one of the largest defense contractors, could layoff as many as 10,000 employees in the event of a sequestration. That would cost Lockheed Martin $76 million in back pay under WARN Act provisions, based on the Bureau of Labor Statistics average earnings of $951 per week for the industry, she said.
Boeing would lose 17,000 employees, which would lead to $129 million in penalties from two months' back pay.
General Dynamics would have to cut 9,500 employees, which would cost the company $72 million.
The White House has said each government agency will pay the penalties and legal fees for any contractor who are sued.
That means the Defense Department could be looking at a $412 million bill for back pay, according to Ms. Furchtgott-Roth, plus more than $100 million in benefits — and that's using a conservative estimate. A higher estimate has the federal government's tab up closer to $1 billion.
This leaves defense contractors with a tough decision: "They can break the law and keep the White House happy, or follow the law and annoy their major customer," Ms. Furchtgott-Roth said.
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