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October 9, 2012

Violating the WARN Act

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Refusing to follow federal law has become the hallmark of this administration, but the White House’s latest arrogant, unlawful ploy goes even further and may end up costing the American taxpayer a great deal of money.

On September 28, the Office of Management and Budget issued a “guidance” letter that assures defense contractors that the federal government will pay for any legal damages incurred for failing to issue layoff notices (as required by federal law) related to sequester-induced job losses. In other words, the White House is telling defense contractors that the American taxpayer will compensate them for any liability incurred for violating federal law.

This guidance is the second notice issued by the government after defense contractors such as Lockheed Martin and EADS warned of impending layoffs because of automatic spending cuts to the defense budget. As a growing number of concerned congressmen have noted, such a guarantee is unprecedented, and the guidance is completely silent as to where the administration finds the legal authority to make such a guarantee. The guidance letter is silent on this latter issue for a good reason: There is no legal authority to allow the president to direct contractors not to comply with federal law or to promise them that the government will cover their financial liability for such a violation.

Sending employees layoff notices 60 days prior to their being laid off is required under the federal Worker Adjustment and Retraining Notification (WARN) Act, a law Obama supported when he was a senator. In 2007 when he wanted to amend the WARN Act to force employers to give 90 days’ notice instead of just 60, Obama said that “the least employers can do when they’re anticipating layoffs is to let workers know they’re going to be out of a job and a paycheck with enough time to plan for their future.”

Being shielded from this notice requirement no doubt provides comfort to defense contractors who, according to the law, would otherwise have to issue the notice letters by November 2 (four days before the election) in order to meet the January 2 start date for the spending cuts.

Lawsuits by fired employees related to improper dismissal and a failure to meet the 60-day deadline can be very expensive — especially when those suits are multiplied by tens of thousands of affected employees, such as the 123,000 employees whom Lockheed CEO Bob Stevens said would receive such notices. Many of the defense-contractor employees who would receive WARN notices are located in Virginia, a key battleground state.

This isn’t the first action the White House has taken to prevent companies from issuing layoff notices before the election. The September 28 letter of guarantee refers to a guidance letter released by the Department of Labor (DOL) a few months ago, on July 30, well into Obama’s reelection campaign. This guidance set out the government’s interpretation of the WARN Act and DOL regulations, concluding that it would be “neither necessary nor appropriate” for defense contractors to issue such layoff notices. That guidance claimed that the cuts due for January 2 were technically “uncertain.” WARN regulations require employers to send out letters if the employer believes that layoffs are “foreseeable.” The guidance letter on July 30 didn’t appear to ease Lockheed’s lawyers, who apparently advised Stevens that issuing the layoff notices by November 2 was entirely “necessary and appropriate.” Based on DOL’s regulations, this was sound legal advice.

The government’s summer guidance letter specified that in order to avoid any “anxiety” on the part of employees, notices must not be “overbroad.” In other words, there must be “specific contract terminations” by the government before layoff notices can be deemed “consistent with the WARN Act.” However, the regulations cited in the summer guidance actually state that these notices must be issued to employees “who may reasonably be expected to experience an employment loss” [emphasis added] and that even if “the employer cannot identify the employee who may reasonably be expected to experience an employment loss . . . the employer must provide notice.”

The summer guidance also instructed defense contractors that they would be exempted from the 60-day notice requirement because the jobs they will axe cannot yet be known. Although the guidance refers in part to the regulation’s definition of “reasonably foreseeable,” that interpretation does not stand up to scrutiny. As it turns out, contractors such as Lockheed didn’t think so either. According to the regulations, the circumstances that make such mass layoffs “foreseeable” are determined in part by the “employer’s business judgment,” of the kind that a “similarly situated employer” would make. Moreover, what is “reasonably foreseeable” does not include “accurately predicting general economic conditions.” The fact that billions of dollars in impending defense-spending cuts would lead to layoffs is certainly “reasonably foreseeable,” a conclusion Lockheed and other employers reached. Further, making such a cause-and-effect analysis is not tantamount to divining general economic conditions in the future, so that exemption also does not apply.

Those clear and unambiguous regulations explain Lockheed’s reluctance to follow the government’s initial guidance letter that urged the company not to issue the required WARN Act notices. It also explains why Lockheed and the other contractors needed an additional taxpayer-funded guarantee from the White House: The administration wished to counter their fears of massive litigation costs.

One may wonder why the White House has decided to dramatically change its interpretation of the WARN Act now. It appears that the layoffs, which are likely to occur in the wrong places (key battleground states) at the wrong time (days before an election), have prompted this change. Whatever the reason, the administration has issued an interpretation of the WARN Act that is contrary to the law. And it has told contractors that if a court finds that they violated the WARN Act, then the American taxpayers will pay all “WARN Act liability as determined by a court, as well as attorneys’ fees and other litigation costs (irrespective of litigation outcome).”

This is the ultimate abuse of the president’s executive authority: inducing federal contractors to violate federal law in order to protect the president’s reelection, and promising taxpayer funds to pay for any liability that comes from breaking the law.

— Hans A. von Spakovsky, a former Justice Department official and former member of the Federal Election Commission, is a senior legal fellow at the Heritage Foundation.

First appeared in National Review Online.

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