Government Puts Defense Industry In Bind Over Whether To Issue WARN Notices

If the second round of Budget Control Act cuts occurs, there will be serious job loss in the defense industry. According to the Worker Adjustment and Retraining Notification (WARN) act, employers are obligated to notify employees of potential job loss at least 60 days in advance. Since budget cuts are broad and nonspecific, defense contractors are currently unable to pinpoint exactly which jobs will be lost. This means defense contractors are in a position where essentially everyone must be notified of potential job loss.

The mass notification of potential job loss is a major threat to the Obama campaign because Fairfax, Virginia, the area that will take the biggest hit from the defense budget cuts, is crucial to winning the state. Earlier this week, the Department of Labor announced that due to the ambiguous nature of the budget cuts, defense contractors are not obligated to send out WARN announcements to employees. However, the Department of Labor is not the sole entity in charge of making this determination.

In the case of national budget cuts, the government is largely responsible for covering the costs of downsizing. That is, the government pays for the costs, such as severance packages, that are associated with termination. The Defense Contract Audit Agency (DCAA) determines whether or not the government will cover these costs for defense contractors. Traditionally, if the contractors fail to send out WARN announcements, the DCAA rules that contractors must cover their own costs.

Regardless of the Department of Labor’s stance on the necessity of WARN announcements, defense contractors must prepare to notify employees because the DCAA has yet to make a statement regarding their stance on the issue. Until the DCAA gets involved, contractors are better off sending out WARN announcements so they aren’t left high and dry by the government when it comes time to lay off employees. The involvement of the DCAA is critical for the upcoming election because they determine whether or not WARN announcements will be sent out, and by extension, the potential electoral impact in Virginia.

Kimberly Suttle, Research Analyst