The across-the-board cuts set to go into effect under the impending sequestration and the uncertainty about how the cuts will be implemented could soon force defense industries to cut hiring and start issuing layoff warning notices.
Defense industry leaders have “serious concerns” about the effect of sequestration on the nation’s security as well as their companies and employees, according to Sen. John McCain (R-AZ). McCain cited responses from thirteen defense industry leaders to a letter he and several other senators sent asking them about the impact of the pending sequestration. In a statement on the industry letters McCain warned “the looming threat of sequestration cuts is forcing companies to delay hiring and capital investments.”
Robert J. Stevens, Chairman and CEO of Lockheed Martin Corporation said sequestration will cause “dramatic program and personnel dislocation within our industry.” Jay Johnson, Chairman and CEO of General Dynamics warned that “the uncertainty surrounding the ultimate nature of sequestration is already affecting our investment and hiring activities and this will accelerate as the months pass.”
In July, before a hearing held by the House Armed Services Committee, heads of several major defense contractors testified that if the across-the-board cuts are implemented, significant layoffs will occur, costs will go up, and contracts will be challenged and may be terminated.
Some industry leaders warn they may soon have to send layoff notices to employees. They cite both the obligation they have to their employees and the Worker Adjustment and Retraining Notification Act requirement that companies provide employees with 60 days notice before they make mass layoffs.
However, it is unclear whether such notices are necessary at this time. For one thing, implementation of sequestration is not a done deal. Congress and the administration may yet reach agreement on an alternative.
Also, long contract lead times mean that the full impact of the across-the-board cuts will not be felt immediately in early January. A report issued by the Center for Strategic and Budgetary Assessments (CSBA), found that “it will be three or four years before defense companies feel the full impact of sequestration.” This could give companies more time to adjust, the CSBA report implied.
The Labor Department has issued a letter stating that notification months before a possible sequestration “would be inappropriate, given the lack of certainty about how the budget cuts will be implemented and the possibility that the sequester will be avoided before January.”