If you’re like me you may have missed a story a couple weeks ago that has broader ramifications than you may have originally thought.
You may recall that “sequestration” is the collection of automatic budget cuts proposed by the White House and agreed to under duress by Congress as part of the debt ceiling negotiations. The cuts go into effect on January 2 unless Congress and the President act. Kind of like a spending cut time bomb: the White House extracted this concession in exchange for its agreement to increase the debt ceiling, with the hope it could get Congress to accept other less terrible cuts and tax increases later. That plan has backfired, however, and we’re left with the real possibility of the president’s sequestration time bomb going off. Defense Secretary Leon Panetta has said these cuts would have a “catastrophic” effect on national security, “like shooting ourselves in the head.”
As a result, businesses, especially defense contractors, are now preparing to lay off up to one million workers. A friend I spoke with yesterday told me at his company no one knows if they’ll have a job come January 2. Usually these workers would not have to wait until the day the layoffs occur to know their fate. Under a Federal law called the “WARN Act,” companies with 100 or more employees must give workers 60 days notice before a layoff of the lesser of 1/3 or 500 people. Failure to provide the notice can result in significant exposure to employee lawsuits. To avoid these costs, companies would need to notify workers of a pending layoff by November 2, 2012.
Well, that’s terribly inconvenient timing for the president. Friday November 2 is the Friday before the election. It’d be a real bummer for a million voters to get pink slips four days before voting. Not wanting to let a good law get in the way of re-election, the Obama administration on July 30, through Jane Oates, assistant secretary in the Labor Department, issued “guidance” advising companies they need not comply with the WARN Act if they’re contemplating sequestration layoffs. Effectively the administration advised defense contractors to not tell employees they’re about to get fired. Never mind the reason behind the Act that employees should be given a fair heads’ up. According to Obama, that law “shouldn’t” apply if the Department of Labor says it doesn’t.
But it gets worse. Many companies saw the advice from the Department of Labor and said they were going to provide the notices anyway, since ultimately whether they violated the law, and had to pay related penalties, would be determined not by the Department of Labor, but the courts. These companies’ exposure was estimated to be as much as $4 billion, plus inestimable other expenses (see below). So, having not been convincing enough, on September 28, on the letterhead of the “Executive Office of the President, Office of Management and Budget” the Obama administration went even further and agreed to pick up the tab for these companies’ failing to comply with the law. In other words, if these companies rely on the DOL’s advice, fail to timely provide WARN Act notices, and lay off employees with no warning whatsoever on January 2, Obama has volunteered to pay, at taxpayer expense, all resulting costs, including penalties, judgements and legal fees. Did I say this was at taxpayer expense?
And even further, not only has the original sequestration time bomb now resulted in (i) possible huge cuts in defense, (ii) the president advising companies to ignore another law he doesn’t like, and (iii) his agreeing to use our money to pay for it, now, can you imagine a plaintiff’s lawyer not suing a company for this violation when the government has agreed to stand behind them? What is the real exposure here? Only time will tell.
Here’s Fox News’ report on this issue:
Upon reading the administration’s letter, Kelly Ayotte and John McCain immediately released the following statement:
Today, President Obama put his own reelection ahead of the interests of working Americans and our national security by promising government contractors that their salary and liability costs will be covered at taxpayer expense if they do not follow the law that requires advance warning to employees of jobs that may be lost due to sequestration.
The WARN Act exists to protect workers by providing at least 60 days’ notice of layoffs from government contracting work. But today, the Office of Management and Budget published guidance for the defense industry and other government contractors that they do not have to provide that notice now even though, under current law, $109 billion in across-the-board budget cuts scheduled to occur on January 2 are estimated to result in as many as 1 million lost defense jobs.
Apparently, President Obama puts politics ahead of American workers by denying them adequate time to plan their finances and take care of their families. The people who work in the defense industry and other government contracting companies deserve as much notice as possible that they are on track to lose their jobs.
As a result of the OMB guidance, the Department of Defense will have to allow companies to claim repayment for the salaries of workers who are laid off but did not receive the required WARN notices – a cost to the taxpayer that could be as much as $4 billion. In addition, DOD will have to reimburse companies for any legal damages paid to workers who are laid off but did not receive the required WARN notices – a cost that is inestimable.
Facing intense lobbying by defense companies and other government contractors for financial protection if they agreed not to issue WARN notices, the Obama Administration is giving contractors a free pass and will have potentially stuck the taxpayers with a multi-billion dollar campaign contribution.
We also have questions regarding the legal authority of OMB to interpret the WARN Act as it has, and to obligate the Federal government to pay billions of dollars of potential claims from private contractors arising as a result of this interpretation.
The Obama Administration is cynically trying to skirt the WARN Act to keep the American people in the dark about this looming national security and fiscal crisis. The president should insist that companies act in accordance with the clearly stated law and move forward with the layoff notices. Republicans and Democrats in Congress, as recently as three days ago, called on the president to work with us to avert the looming threat of sequestration to our national security.
This is not the first time the president has simply ignored the law, and not the first time it will cost the taxpayers. But this is the first time I’m aware of that he’s affirmatively committed the taxpayers to clean up his mess for political purposes. No, wait. I’d say with $25 billion still at risk for bailing out GM, rather than following Mitt’s legal plan to prepare GM to be competitive, that counts, too.
The New York Daily News described this maneuver as follows:
This is utter lawlessness. Obama is asking these companies to break the law and obligating the taxpayers to foot the bill. Ironically, the WARN Act is just the sort of employee protection that Democrats have traditionally championed. But that went right out the window the minute it complicated a Democrat’s reelection effort.
National Review pointed out that this kick the can approach to delaying the impact of bad budget decisions also adversely affects our national security:
But this drawn-out game of budgetary “chicken” does have some definite losers. Defense readiness and capabilities are already being undermined by the “soft” sequestration — the armed forces have already pulled back on activities, operations, and contracts in anticipation of the budget crunch. Further, small and medium companies without the deep pockets to weather the months of uncertainty ahead are facing very tough choices.
Regardless of how the budget battles play out, damage has already been done to our defense industrial base and to troop training and readiness. All of the political jockeying about the WARN Act has done nothing to preserve, much less promote, a strong national defense.
Just last Friday in Real Clear Politics, Michael Barone pointed out one of the most insidious elements of this political move. It undermines the rule of law:
The campaign — as my former boss, pollster Peter Hart, likes to say — always reflects the candidate. A campaign willing to skirt the law or abet violations of it reflects a candidate who, as president, has been doing the same thing.
Examples abound. Take the WARN Act, which requires employers to give a 60-day notice of layoffs. It was sponsored and passed by Democrats.
The WARN Act requires defense contractors to give notice on Nov. 2 of layoffs that will be necessary on Jan. 3, when the sequestration law requires big cutbacks in defense spending.
The administration has asked companies not to send out the notices. And it has promised to pay companies’ WARN Act fines. Why the solicitude? The warnings could cost Obama Virginia’s 13 electoral votes.
When did Congress give presidents the power to suspend operation of this law? What law authorizes the government to pay the fines of those who violate the law?
It was one thing to tell companies blithely to disobey the law, or that it doesn’t seem to apply. But it adds insult to injury to promise taxpayer money to help Obama avoid the political fallout from his policies. President Obama just made a potentially multi-billion contribution of our dollars to his re-election bid, all to keep employees whose jobs are on the chopping block in the dark just long enough. But alas, isn’t that what the Democrats’ plan is anyway? Buy votes with taxpayer money? I’m with Mitt. We can’t afford four more years of this.