Lockheed’s You-May-Be-Fired Notices Called Scare Tactic

By Laura Litvan

It’s enough to make a member of Congress take notice: the prospect that hundreds of thousands of U.S. defense workers will receive you-may-be-fired warnings in the mail shortly before the Nov. 6 election.

Companies led by Lockheed Martin Corp. (LMT), the world’s largest defense contractor, say federal and state laws may require them to send out blanket notifications of potential job cuts before the election unless President Barack Obama and Congress act by October to avert automatic defense reductions of $500 billion over a decade that would start on Jan. 2.

To employment-law attorney Margaret Keane, giving mass dismissal warnings in such uncertain conditions looks more like a lobbying tactic by corporations trying to ward off the cuts than an effort to follow the letter of the Worker Adjustment and Retraining Notification Act.

“I just don’t think you need to do that,” said Keane, a partner with Littler Mendelson PC who advises employers on meeting the notification law’s requirements. “Are we really talking about complying with the WARN Act, or are we talking about political pressure being applied?”

If the budget cuts known as sequestration take effect, defense contractors wouldn’t see changes in revenue abrupt enough to require broad distribution of pink-slip warnings in advance, said Byron Callan, a defense analyst with Capital Alpha Partners in Washington.

“That’s more a scare tactic than something that aligns with the underlying reality of how sequestration works,” Callan said.

‘Mass Layoffs’

The federal WARN Act, which became law in 1988, requires most employers with 100 or more workers to give 60 days’ notice of plant closings or “mass layoffs” — labor cutbacks affecting 500 or more workers, or at least 33 percent of the workforce for companies with fewer than 500 employees.

Some employers also must comply with labor contracts that may require more notice, and some states including New York have their own laws requiring 90 days’ notice, said Keane, who is based in San Francisco and has represented companies such as Alcoa Inc. (AA) and Accretive LLC on WARN Act compliance.

If notices are required, they would have to go out days before the election because of the 60-day notice required by federal law and in early October if a company operates in states requiring 90 days’ warning.

Lockheed’s Stevens

Industry trade groups have predicted the automatic cuts may cost 1 million U.S. jobs, and Robert Stevens, chairman and chief executive officer of Bethesda, Maryland-based Lockheed, has led the way in promoting the prospect of mass WARN Act notices.

“It is quite possible that we will need to notify employees in the September and October time frame that they may or may not have a job in January depending upon whether sequestration does or does not take effect,” Stevens said at an investor’s conference in New York on May 31. “Because the level of planning detail really isn’t available, we may have to notify every one of our employees, and all of our suppliers and subcontractors that they may or may not have a subcontract.”

Jennifer Allen, a Lockheed spokeswoman, said in an e-mail that the company, which has facilities in 46 states, has “no way of knowing where specific cuts will be applied at this time.” The company had about 117,000 U.S. employees as of March, according to a filing with securities regulators.

Asked about critics who question whether WARN Act notifications are legally required, Allen cited the remarks by Stevens.

‘Freight Train’

The notices may be necessary because corporations are expected by investors, workers and suppliers to plan ahead in case Congress can’t agree to avert the cuts, said Marion Blakey, president and CEO of the Aerospace Industries Association. Northrop Grumman Corp. (NOC), General Dynamics Corp. and Lockheed are among members of the trade group based in Arlington, Virginia.

“It’s coming at us like a freight train,” Blakey said in an interview. “We’re not talking about theoreticals. We’re talking about laws that are on the books.”

The defense cuts are part of $1.2 trillion in automatic, across-the-board reductions to domestic and national-security programs. The cuts were imposed after talks failed last year on a bipartisan plan to curb the U.S. debt. Some lawmakers in both parties want to seek a debt-reduction deal paring back defense cuts after the election in a so-called lame-duck session of Congress.

The prospect of budget cuts hasn’t deterred investors. Bloomberg Government’s Aero-Defense Primes Index of the biggest U.S. contractors has risen 12 percent this year, exceeding a 7.5 percent increase in the broader Standard & Poor’s 500 Index.

Virginia’s Dependence

Virginia is the state most dependent on federal defense spending through its contractors and military bases, collecting $56.9 billion in 2009, according to a Bloomberg Government study. It was followed by California and Texas.

Blakey’s group says 1 million U.S. jobs would be lost because of the defense sequester, along with $480 billion in reductions already being put in place over a decade. The estimates are based on a study it helped to fund by Stephen Fuller, director of the Center for Regional Analysis at George Mason University in Fairfax, Virginia.

The study projected 164,150 jobs would be eliminated in companies that make aircraft, ships, guns and other weapons, and 188,600 would be lost from suppliers.

Ripple Effects

The estimate that an additional 653,570 non-defense jobs “would be lost through ripple effects is unreasonably high,” according to Kevin Brancato, an analyst for Bloomberg Government who previously analyzed the cost of weapons systems for the RAND Corp. Companies that issued blanket WARN Act letters would “risk looking weak and look as if their contracts are really targets” for cuts, he said.

Defense-industry lobbyists raising the prospect of pink- slip notices have a partner in the International Association of Machinists and Aerospace Workers, the industry’s biggest labor union.

Bruce Olsson, the union’s assistant director of legislative and political action, said at a conference in Washington on June 27 that when he lobbies lawmakers on the defense sequester, many say they think it’s an issue for after the election.

‘Your Election’

Olsson said he tells them about the WARN Act notices and adds, “It’s about your election.”

Echoing that message, Senator Kelly Ayotte, a New Hampshire Republican who serves on the Senate Armed Services Committee, said at a Washington conference on June 26, “There are potentially hundreds of thousands of WARN Act notices that could be issued before the November election.”

Some lawmakers, particularly Democrats, bristle at the idea of workers receiving letters shortly before an election that will determine which party controls the White House and both chambers of Congress.

“To send notices right before the elections is very suspicious to me,” Representative James Clyburn of South Carolina, the No. 3 Democratic leader in the House, said in an interview.

The U.S. Labor Department says in a list of frequently asked questions about the WARN Act on its website that “it is not appropriate for an employer to provide a blanket notice to all of its employees.”

Such notices sometimes come up in bankruptcy proceedings. Hostess Brands Inc., the baker of Wonder Bread and Twinkies that is in bankruptcy reorganization, sent all 18,000 of its workers WARN Act notifications in May. The letters were “sent to alert employees that a sale or wind down of the company is possible in the future,” Hostess spokesman Lance Ignon said in an e-mailed statement.

‘Political Brinkmanship’

Rather than sending warnings to all workers, defense “companies would have to estimate which facilities would be affected and which would be likely to be affected,” Charles Craver, a professor of law at George Washington University in Washington, said in an interview.

Whether defense contractors will need to send WARN Act notices is “certainly not a decision that needs to be made now,” said James Brudney, a professor of law at Fordham University in New York City. “It looks more like political brinkmanship.”

The willingness of defense companies to consider job-cut notices months before they might be sent is telling in light of company resistance to the WARN Act before its passage, said Brudney, who advised lawmakers writing the legislation when he was Democratic staff director of the Senate subcommittee on labor.

Back then, companies said advance talk of firings would sap employee morale, create the risk that workers would sabotage manufacturing facilities and hurt the ability of companies to raise capital, Brudney said in an interview.

General Dynamics

Some defense contractors aren’t ready to join Lockheed and their trade group in brandishing the prospect of WARN act notices, saying they are determining the possible effects.

“We’re right now assessing the requirements that apply at each of our locations to understand where we would have to issue notices if we determine that notices will be required,” Rob Doolittle, a spokesman for Falls Church, Virginia-based General Dynamics (GD), said in an interview. “But we haven’t made any determinations yet about issuing any notices to our employees.”

Randy Belote, a spokesman for Falls Church, Virginia-based Northrop Grumman, would say only that the across-the-board cuts would have a “serious, negative” impact on the company, which has “contingency plans” if they occur.  Φ

Laura Litvan reports for Bloomberg News in Washington. You can reach her at llitvan@bloomberg.net.