SequestrationDefense firms growing anxious about sequestration-related defense cuts

Published 9 October 2012

Defense contractors are growing anxious as they still do not know whether $500 billion in defense cuts will take place on 1 January 2013 as a result of sequestration; many firms are hoping that the administration and Congress will come to a budget agreement once the election is over, but at the same time, it is something contractors cannot rely on; what complicates the issue is the Worker Adjustment and Retraining Notification Act (WARN), which requires employers with more than 100 employees to give employees a 60-day notice before mass lay-offs or plant closure

Defense contractors are growing anxious as they still do not know whether $500 billion in defense cuts will take place on 1 January 2013.

Many firms are hoping that the administration and Congress will come to a budget agreement once the election is over, but at the same time, it is something contractors cannot rely on.

“It’s kind of like preparing for a hurricane,” Barbara Duncombe, an attorney who represents government contractors, told the Dayton Daily News. “You never know what the next one is going to be like, but you know there’s certain things you have to do to prepare. A lot of what we’re doing right now is helping companies prepare for their version of a hurricane.”

The looming cuts, which are in addition to $487 billion the military agreed to accept over ten years, have left many unanswered questions for local defense firms, Duncombe told the Daily News.

The primary concern for several contractors is the issue of complying with the Worker Adjustment and Retraining Notification Act (WARN) if mass layoffs ensue as a result of the cuts. The act requires companies with at least 100 employees to issue layoff notices sixty days prior to a round of mass layoffs or a plant closing. Employees of a company can file a lawsuit requesting up to sixty days back pay if companies do not comply with the act.

U.S. Representative Mike Turner (R-Ohio) has estimated that the number of employees who could lose their jobs in the Miami Valley area could reach 4,000 to 5,000 people.

The state of Ohio could be the most affected as many defense firms have factories and offices set up there.

The Wright-Patterson Air Force Basecould face massive cuts as it employs more than 27,000 civilian, contractor,and military employees. Wright-Patterson indirectly supports 35,800 jobs off-base with a payroll estimated at $1.5 billion, base spokesman Daryl Mayer told the Daily News

“The ramification to this industry and to our region (if sequestration happens) is just absolutely staggering,” Deborah Gross, executive director of the Dayton Area Defense Contractors Association,told the Daily News.

The White House Office of Management and Budget said in a memo last month that the federal government would cover the liabilities if companies run into legal issues.

Senator John McCain (R-Arizona) told theAPthat he will block any defense department attempt to pay the cost of companies liabilities for failure to follow the WARN Act.

Senator Rob Portman (R-Ohio) is not happy with the advice the Obama administration has given defense contractors. “At a time when our economy continues to suffer, the president is failing to lead on this issue and encouraging contractors to ignore an important protection for Americans who may lose their jobs as a result of sequestration,” Portman said in an e-mail sent to the Daily News. “Rather than working with Congress to find a responsible solution to avert sequestration, the president is promising defense contractors that taxpayers will pick up the tab for lawsuit costs if contractors disregard the WARN Act.”

The White House quickly responded to Portman’s statements.

“Instead of having a discussion about how to get a balanced deficit reduction deal, Republicans in Washington are trying to distract from the fact that the only thing putting us at risk for these devastating cuts is their demands for more budget-busting tax cuts for the wealthiest few,” White House spokesman Keith Maley said in an e-mail to the Daily News. “The president has laid out a plan for a balanced approach to deficit reduction that cuts wasteful spending and asks the wealthy and big corporations to pay their fair share so we don’t gut investments the middle class relies on. It’s time for Congress to act in a balanced way to avoid these devastating cuts.”

Lockheed Martin, which has 800 workers in Ohio, warned its employees earlier this year that they might receive layoff notices, but now thecompanyexpectsto have enough time to comply with the WARN Act.

The defense firm recently cited a Department of Defense memo that any contract adjustments due to the budget cuts “would likely not happen for several months after 2 January 2013.”

GE Aviationalso has no intention tolayoffany of the employees ofthe 2,600 employees in the Dayton region as a result of the cuts according to spokesman Matthew Benvie.

“We’re not pulling back in Dayton, we’re ramping up,” Benvie wrote in an e-mail.

General Dynamicsand the University of Dayton Research Institutehave said they do not plan on making any cuts as well,whileMacAulay-Brownhad no comment on the issue.