Just as every fall we are warned about powerful hurricanes that could devastate coastal areas, every four years we hear warnings about an "October surprise" that could upheave the political landscape on the eve of the election. This year, the "surprise" threatens to hit land on November 2: it is the prospect that a million workers could receive a layoff notice on the Friday before the election.
The potential November surprise is the result of the confluence of the fiscal cliff and a worker protection statute called Worker Adjustment and Retraining Notification Act, or "WARN." Under the Congressional budget compromise last year, if no budget deal is reached by January 2, there will be a mandatory cut in the budgets of all federal agencies, including a 10 percent cut in the Defense Department budget. This across-the-board cut is called "sequestration," or the "fiscal cliff." It could provide a last-minute election boost for Republicans due to the operation of WARN. WARN requires companies employing over 100 workers who intend to close a plant or institute a mass layoff to notify the affected workers 60 days in advance. The notice is required if, in the exercise of the employer's "commercially reasonable business judgment," employment loss will ensue.
For the past four months there has been an escalating argument between business groups, Democrats and Republicans over whether defense contractors are required to issue WARN notices 60 days before sequestration -- i.e., on November 2. Last spring, business groups informed defense contractors that in preparation for sequestration, they were required to issue layoff notices to their workers in early November if no budget deal had been reached. In June, Lockheed Martin stated that they intended to send layoff notices to all 123,000 of their workers on the eve of the election. Shortly afterwards, four other major defense contractors testified to the Armed Services Committee that sequestration-related layoffs were reasonably likely and would provide grounds for issuing layoff notices in November.
On July 30, the Department of Labor published a letter advising companies not to issue WARN notices on November 2, stating that any potential layoffs resulting from sequestration were speculative and the particular workers who might be affected was unknown. The DOL letter explained that the WARN Act contained an exception to the notice requirement for layoffs that result from "business circumstances that were not reasonably foreseeable as of the time that notice would have been required." It went on to explain that the exception would apply in this case because it is not yet known whether sequestration would occur, and even if it did, it was not yet known which contracts would be affected by it. The DOL letter also pointed out that the WARN Act prohibits over broad or blanket warnings. It said, "To give notice to workers who will not suffer an employment loss both wastes the states' resources in providing rapid response activities where none are needed and creates unnecessary uncertainty and anxiety in workers. "
Despite the DOL letter, some business groups continue to advise defense contractors to issue WARN notices on November 2. They were fortified by Kirkand & Ellis lawyer John Irving, a former member of the National Labor Relations Board, who stated that the courts, not the Labor Department "determine whether a company has failed to give the WARN notices." Irving warned that WARN violations can be expensive for companies and advised companies not to disregard the law.
On September 28, the Office of Management and Budget weighed in. It issued a memorandum reiterating the DOL position that WARN notices were not required in preparation for sequestration, and promising that the government would reimburse any contractor for costs incurred, including legal fees, if they failed to issue a notice and were later found to be in violation.
The OMB Memo intensified the gathering storm. On October 2, Republican Senators Chuck Grassley and Kelly Ayotte wrote to the OMB questioning their authority to advise private companies to violate the law and expressing shock that the government had offered to pay the legal costs of any company that did so. And last Friday, Senators John McCain and Lindsey Graham wrote to the largest 15 defense contractors, including Lockheed Martin Corporation, Raytheon Company, Northrop Grumman Corp., Huntington Ingalls Industries, the Boeing Company, General Dynamics Corp., Honeywell International Inc., and United Technologies Corporation -- urging them to issue WARN notices to their workers on November 2. McCain and Graham derided efforts by the Obama administration to prevent the issuance of WARN notices, and vowed to block any promise by the administration to hold harmless any companies who fail to issue them.
Thus the WARN-storm keeps gaining strength. It could pose a serious danger for Democrats in November because Obama is likely to bear the brunt of the blame if nearly one million workers receive layoff notices. If WARN notices are widely issued, it could provide Romney with concrete evidence of the precariousness of any asserted jobs recovery and the dangers of another Obama term.
Democrats need a strategy to stop this storm. They need to explain the facts to the American people and make it clear that any company that issues a WARNing is engaged in unwarranted scare-mongering and political manipulation. They need to explain that the sequestration was a bipartisan compromise and that the administration has advised companies not to issue the notices. Indeed, because over-broad warnings are prohibited by the WARN Act, the Administration should announce that they intend to take steps to deter unwarranted, politically-motivated, notifications. They need to bring the issue out into the open if they are to counter any last minute political advantage that the Republicans are hoping to gain. They need to take the surprise out of this year's "October surprise."