The White House has taken the unprecedented step of asking defense contractors to break the law by not sending required layoff notices to their employees just before Election Day. Moreover, if defense contractors follow this illegal advice, the Obama administration is offering to pay the penalties and court costs they will incur -- potentially $500 million or more -- out of the Pentagon budget. This is all being done without congressional approval.
Layoff notices are required by Nov. 1, according to the 1988 Workers Adjustment and Notification Act, or WARN, because deep cuts in military spending, known as sequestration, are currently scheduled to take effect on Jan. 1. If cuts occur, they will lead to mass layoffs.
If firms don't file WARN notices, and they close plants or lay off more than 500 workers, employers are liable for penalties of 60 days' back pay and benefits paid to workers.
Nevertheless, defense companies have announced that they will bow to White House pressure and refrain from sending the notices to tens of thousands of workers.
Darrell Issa, chairman of the House Oversight and Government Reform Committee, has written to 10 companies asking about layoff plans. He also wants to know whether administration officials have contacted firms about the timing of layoff notices. Answers are due Oct. 25, and Issa seeks all correspondence between contractors and the administration. Issa expects to hear from W. James McNerney Jr., chairman, president and CEO of Boeing, among others.
The Obama administration is concerned that layoff notices could cost the Obama-Biden ticket votes. In a memorandum dated Sept. 28, the White House Office of Management and Budget assured employers that if they did not send out layoff notices and layoffs occurred, the "contracting agency," namely the Pentagon, would pay companies' penalties and attorneys' fees -- a significant cost to taxpayers.
It's not clear that the White House has the authority to make this offer. Moreover, a new administration could rescind the offer. Hence, the net effect is an offer to pay firms only if Obama is re-elected. The benefit will disappear if the president loses the election.
Some senators, including John McCain, R-Ariz., and Lindsay Graham, R-S.C., have said they will not allow government funds to be spent on penalties and costs.
WARN is meant to allow workers to prepare themselves in the event of layoffs and to allow states to help with job-search activities. With adequate warning, alerted workers can begin looking for other jobs and might put off discretionary expenditures.
In a July 30 guidance letter, the Labor Department discouraged firms from issuing WARN notices. But the letter did not have the desired effect. Hence the Office of Management and Budget memorandum. It states, "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 reasonable and allowable."
I calculate that if the sequester resulted in a 10 percent reduction in employment at the top five defense contractors, namely Boeing, Lockheed Martin, General Dynamics, Northrup Grumman and Raytheon, the Defense Department would be liable for $400 million in back pay, plus benefits. If 20 percent of employees were laid off, the bill would run to $800 million plus benefits.
These amounts do not account for legal costs, which might add additional tens of millions.
The presidential campaigns and associated political action committees are spending hundreds of millions of dollars this election cycle. By asking companies to break the law, and promising to pay their penalties, the White House is giving a major gift to its current tenant.