Others argue that companies will conclude that the law compels them to send out notices.
“Whether it’s bluster or serious, unfortunately the contractors have to take it seriously,” Michael Hordell, a contracting lawyer in Washington, said in an interview before the Labor Department guidance. “What’s sad about this is they’re not sure what programs are going to be cut if there are automatic cuts, so they have to do broad general notification.”
Behind the potential layoff notices is the 1988 Worker Adjustment and Retraining Notification, or WARN, Act.
The law requires companies with more than 100 employees to alert workers that they may be laid off if there is a foreseeable event in the next 60 days that is likely to require the dismissals.
Some states, such as New York and California, require notifications as early as 90 days in advance. Failure to do so can lead to hundreds of dollars in penalties, per employee per day, but there are a number of caveats in the statute. The statute says companies are not to issue “blanket” notices.
Shai Akabas, a senior policy analyst at the Bipartisan Policy Center who has studied the issue, said the Labor Department’s advisory — that there’s no need for dismissal notices — would not be definitive. The WARN Act can be adjudicated in court only.
“Contractors’ legal representatives have stated they need to issue notices to comply with the act,” he said. “They may not feel comfortable failing to issue the notices simply in light of this guidance.”
Akabas and other analysts wrote in a recent research note that millions of employees could receive such notices in the most dramatic case.
“Businesses will want to maintain flexibility by issuing to all their employees who could get laid off, and the precise decisions may depend on which contracts are affected by the spending cuts,” they wrote. “Employers wishing to pressure policymakers to overturn the [cuts] have an incentive to exaggerate the impact by including as many workers as possible.”
Economists say the looming cuts and tax hikes are already making businesses uneasy.
“If I’m being warned about my job, then I’m going to start acting as though there’s a real chance that I won’t be employed coming forward,” said Bank of America economist Ethan Harris. “It’s fear. It’ll have a freezing-up effect.”
Republicans, led by presidential contender Mitt Romney, have called for delaying the automatic cuts, which were put in place last year to close the nation’s budget gap. He also wants to stop the tax increases, which would occur when tax cuts adopted under President George W. Bush expire.
Democrats, including Obama, insist that they will postpone the spending cuts only if Republicans agree to increase taxes on the wealthy to help reduce federal borrowing.
The issue is also a dividing line in Virginia, which is reliant on the federal government’s largesse more than any other state.
Republican Senate candidate George Allen says the reductions could be devastating.
Though he does not want deep cuts to occur, Democrat Senate candidate Timothy M. Kaine said the deal that led to the proposed cuts — forged last summer by Republicans and Democrats to force budget savings — was the right thing to do.
“If pieces of the economy or people’s jobs start going over the cliff before the election, and the Republicans are responsible for that because they were defending tax cuts for millionaires, that’s a bad place for them to be politically,” said Craig Varoga, a Democratic political strategist.
Terry Holt, a Republican strategist, said the administration is acting to protect itself by releasing guidance to companies not to issue notices.
“President Obama is willing to use all the powers of the incumbency to defend his reelection,” Holt said. “People associate job loss and economic stagnation with the president far more than their individual member of Congress.”