The Hill's Congress Blog: The Height of Corruption

Oct 5, 2012

Last week, I discovered one of the most corrupt acts I have seen while serving in public office: The Office of Management and Budget (OMB) issued a memorandum, advising defense contractors that if they failed to comply with existing law, taxpayers would pay any resulting employee compensation costs and attorneys’ fees incurred. Instead of notifying defense contractors that they must abide by the laws set in place to protect American families, the administration has advised and encouraged these companies to break the law without penalty. Does that sound unbelievable to you? It sounded unbelievable to me when I first heard about it. Let me explain how it works:

On August 2, 2011, the president signed The Budget Control Act (BCA) of 2011 into law, increasing our national debt ceiling and establishing at least $1.5 trillion in spending reduction over the next ten years. To achieve these cuts, the Joint Select Committee on Deficit Reduction, commonly referred to as the “super committee,” was created and tasked with reaching an agreement on spending cuts by November 23, 2011. Because the committee failed to reach an agreement, automatic across-the-board cuts of $1.2 trillion, also know as “sequestration”, are on schedule to occur beginning on January 2, 2013.

Roughly half of the $1.2 trillion in cuts will come from the Department of Defense (DOD) and the other half from a variety of domestic programs, to include Medicare. Sequestration represents roughly $600 billion in cuts to DOD’s budget. Every military program, project and activity would see a cut of approximately 8-10%. 

With sequestration looming ever closer, many members of our defense industry have begun planning for these cuts to impact DOD contracts. Part of this planning is determining how many employees will have to be laid off and how to comply with the applicable labor laws. The particular law in question is the Worker Adjustment and Retraining Notification (WARN) Act.

The WARN Act requires employers with more than 100 employees to provide written notice 60 days before a plant closing or mass layoff if such an event is “reasonably foreseeable.” On July 30, 2012, the Department of Labor (DOL) issued guidance to employers, stating that sequestration is not reasonably foreseeable and advising employers not to send out WARN Act notices. This political “guidance,” was issued despite the fact that sequestration has been looming since November 23, 2011. Despite the fact that there has been no leadership from the president to avoid sequestration even though the irresponsible idea originated from the White House. Despite the fact that the House has passed five bills to stop sequestration, while the Senate steadfastly refuses to address the situation. It certainly appears reasonably foreseeable to members of the Defense Industry and myself.

Defense contractors disagreed with DOL’s legal advice and decided to move forward with issuing layoff notices in accordance with the WARN Act. The administration, fearing the impact of such notices this close to an election, took the extraordinary step of having the OMB assure industry that if they do not issue notices, the federal contracting authority responsible for the relevant contract will categorize any resulting legal fees as “allowable costs,” and pay those costs with taxpayer money. Defense companies were given guidance on how to qualify for the government to cover their legal fees. OMB’s memo says that industry must meet a two-prong test to qualify: First, sequestration must occur and affect a contract so that a plant closing or mass layoff is required. Second, the company affected must have previously complied with the DOL’s guidance and not issued WARN Act notices. 

So you might be asking yourself, “why would these companies have to worry about liability when they are following the advice of the government?” That is because the DOL and OMB guidance letters have no legally binding affect. The WARN Act is still the law and if a defense company has to conduct a plant closing or mass layoff and fails to comply with the Act, they have exposed themselves to liability. Workers who do not receive proper notice can sue the company and a federal court will then determine if the company violated the act. The law is all that should matter.

Regardless of whether the litigation is successful, the government contracting agency would now cover all legal costs. This raises serious questions because now the defense companies have no incentive to treat their employees fairly under the WARN Act because the taxpayers will pick up the tab regardless of the outcome. As a result, American taxpayers could potentially be liable for millions in legal fees for the sole purpose of re-electing the President.

This is the outrageous abuse of taxpayers for political gain! It is clear that this administration, out of fear of bad news before an upcoming election, has inappropriately used its authority to bribe private companies. Using taxpayer money to allow private companies to break the law, all in effort to make sure that President Obama gets reelected, should not be tolerated. Senator Lindsey Graham was absolutely correct when he called these actions, “patently illegal.”

Wilson is a member of the House Armed Services Committee.