Is Obama to blame for Lockheed’s 123,000 ‘layoffs’?

Since Election Day, there have been waves of emails claiming that President Obama's re-election is resulting in tens of thousands of layoffs. But is there any truth to these claims?

Q: Is Lockheed Martin going to lay off 123,000 workers because of President Obama’s downsizing of the military?

A: No. Lockheed gave a “very rough” estimate of 10,000 potential layoffs (not 123,000) due to automatic spending cuts triggered by a 2011 bipartisan deficit-reduction bill. Obama and Congress are negotiating to avoid the cuts.

FULL QUESTION

Is there any truth at all to this article?

    FW: Lockheed Martin laying off 123,000

    Lockheed Martin is laying off 123,000 workers just weeks before Christmas.

    This needs to go far and wide before Early Voting starts.

    The President is trying to hold off any Announcement until after the election. This will make a significant increase to the questionable 7.8 % Unemployment number.

    Lockheed is going to lay off 123,000 defense workers due to Obama’s downsizing of the military. This hit the Drudge report yesterday. This is true! I checked it on Google.

FULL ANSWER

We’ve received hundreds of emails like this. The first wave of emails said, “Lockheed Martin is going to lay off 123,000 defense workers due to Obama’s downsizing of the military.” The next wave, represented above, said the 123,000 workers would be laid off after the election and Obama “is trying to hold off any Announcement until after the election.”

Such viral emails grossly distort the facts. First, there will not be 123,000 layoffs, which is Lockheed Martin’s entire workforce. The company estimated about 10,000 employees could be affected. Second, any layoffs — if they happen — would be due to automatic spending cuts scheduled to begin in January under the Budget Control Act of 2011 — a bipartisan agreement that raised the debt ceiling and cut spending. The Obama administration and congressional leaders are expected to try to negotiate an agreement that would prevent the automatic cuts from taking effect.

Defense Budget Cuts Looming

The threat of deep defense cuts is real. It dates to the summer of 2011, when the federal government was approaching its borrowing limit. Congress needed to act or the government would run out of money and the ability to borrow more money. Republicans insisted on spending cuts in exchange for raising the debt ceiling.

The result of the bipartisan negotiations was the Budget Control Act of 2011 — which the Republican-controlled House passed 269-161 on Aug. 1 and the Democratic-controlled Senate easily passed the next day, 74-26. President Obama signed the law Aug. 2.

The law imposed spending caps on discretionary spending through 2021 that are supposed to save $917 billion over 10 years, including $21 billion this year and $42 billion next year, according to an August 2011 analysis (Table 3) by the nonpartisan Congressional Budget Office.

The law also created a special bipartisan congressional committee charged with finding at least $1.5 trillion in additional savings over 10 years. If, however, the so-called super committee could not agree on a deficit-reduction plan, then the law required $1.2 trillion in automatic budget cuts, beginning in January. The automatic cuts would be roughly evenly divided between defense and domestic spending.

No agreement was reached, and now $492 billion in automatic cuts in defense spending authority over the next 10 years are looming, beginning with $55 billion in January.

The White House and the Congress hope to negotiate a new agreement to prevent the automatic cuts from taking place, although such an agreement may still result in some defense cuts.

123,000 Lockheed Layoffs?

Lockheed Martin is a defense and aerospace company based in Bethesda, Md. It receives “more than 80 percent of its revenue from the U.S. government,” according to Reuters. In its quarterly report filed with the Securities and Exchange Commission in October, the company said that “82% of our $46.5 billion in net sales were from the U.S. Government.” It employs about 123,000 employees worldwide.

So, any cuts in defense spending most likely will hurt such a company — but, obviously, not enough to force the elimination of its entire workforce. Why did emails start to surface claiming that Lockheed would lay off so many of its workers?

In June, Lockheed warned that it would likely issue layoff notices to comply with federal Worker Adjustment and Retraining Notification (WARN) Act — which requires employers to notify employees 60 days in advance of “mass layoffs.” Assuming the automatic spending cuts imposed by the Budget Control Act would take effect as scheduled, Lockheed was anticipating officially notifying its employees before Election Day.

Politico quoted the company’s top in-house lobbyist Greg Walters as saying the “vast majority” of its 123,000 workers would receive layoff notices. But the political website later in the story said: “Only a fraction of Lockheed’s workers ultimately would be let go as a result of the cuts. But the company plans to send out mass notifications because it is unsure exactly which employees would be affected.”

Lockheed CEO Robert J. Stevens told a House committee on July 18 that “a very rough ‘seat of the pants’ estimate is that we might be required to lay off about 10,000 employees.” Notices, however, would go out to a “substantially higher number of our employees” because the company cannot be certain which employees could lose their jobs.

In late July, the Department of Labor concluded that such notices are not necessary in this case because of the amount of uncertainty:

    Department of Labor, July 30: Questions have recently been raised as to whether the WARN Act requires Federal contractors — including, in particular, contractors of the Department of Defense (DOD)– whose contracts may be terminated or reduced in the event of sequestration on January 2, 2013, to provide WARN Act notices 60 days before that date to their workers employed under government contracts funded from sequestrable accounts. The answer to this question is “no.” In fact, to provide such notice would be inconsistent with the purpose of the WARN Act….

    Although it is currently known that sequestration may occur, it is also known that efforts are being made to avoid sequestration. Thus, even the occurrence of sequestration is not necessarily foreseeable. In addition, the sequester’s impact on particular accounts will depend at least in part on Fiscal Year (FY) 2013 funding that Congress has not yet enacted. Perhaps more importantly, Federal agencies also have some discretion in how to implement the required reductions if sequestration were to occur. Given that Federal agencies, including DOD, have not announced which contracts will be affected by sequestration were it to occur, and that many contracts may be completely unaffected the actual contract terminations or cutbacks that will occur in the event of sequestration are unknown. Thus, in the absence of any additional information, potential plant closings or layoffs resulting from such contract terminations or cutbacks are speculative and unforeseeable.

Lockheed Martin was still not completely reassured. It was concerned about the potential for lawsuits should the automatic budget cuts go into effect and layoffs are required. So, the Office of Management and Budget in late September sent out a memo saying that “any resulting employee compensation costs for WARN Act liability as determined by a court, as well as attorneys’ fees and other litigation costs (irrespective of litigation outcome), would qualify as allowable costs and be covered by the contracting agency.”

Lockheed then issued a statement saying it would not issue layoff notices: “After careful review of the additional guidance provided by the Office of Management and Budget and the Department of Defense, we will not issue sequestration-related WARN notices this year.” The statement said the company felt reassured that there was no need to issue layoff notices before the election because “any action to adjust funding levels on contracts as a result of sequestration would likely not occur for several months after 2 Jan.”

Republicans, including Sen. Lindsey Graham, criticized the Obama administration for promising to cover the costs of not complying with the WARN Act. The most recent emails contain a link to an Oct. 1 article that appeared in The Hill that quotes Graham as saying, “I will do everything in my power to make sure not one taxpayer dollar is spent reimbursing companies for failure to comply with WARN Act.”

But days later, Lockheed Martin clarified that it would comply with the WARN Act and that it would give affected employees “the full notice period required” — indicating that it would not need federal reimbursement for expenses related to failing to comply with the law.

    The Hill, Oct. 7: “Our decision to delay sending sequestration-related WARN notices to our employees was based on new information that clarified the timeline for implementing sequestration budget cuts,” Lockheed spokeswoman Jennifer Allen said.

    “If sequestration occurs, we will adhere to the law and provide affected employees the full notice period required by the WARN Act at the appropriate time.”

Who’s to Blame if Layoffs Occur?

If Congress and the administration do not do something to avoid the automatic defense cuts, there will be cuts in the defense budget and likely layoffs in the defense industry. But who’s to blame for that? Both parties.

The emails blame Obama and, during the campaign, so did Mitt Romney. Obama insisted in the Oct. 22 debate that it wasn’t his idea to include a provision in the Budget Control Act that would trigger automatic defense cuts if the super committee failed to reach an deficit-reduction agreement. And he promised that sequestration — Washington jargon for automatic budget cuts — would not happen.

    Obama, Oct. 22: First of all, the sequester is not something that I’ve proposed. It is something that Congress has proposed. It will not happen.

Veteran journalist and author Bob Woodward said Obama was wrong. Woodward wrote in his book “The Price of Politics” that Obama’s OMB Director Jacob Lew brought the idea of automatic cuts in defense (or sequestration, as it is known in Capitol Hill parlance) to Congress. Woodward told Politico that it was designed to force the super committee to act and not intended to take effect.

    Politico, Oct. 23: “No one thought it would happen. The idea was to design something … that was so onerous that no one would ever let it happen. Of course, it did, because they couldn’t reach agreement,” he said. “They all believed that the supercommittee was going to come up with a $1.2 trillion deficit-reduction plan, so there would be no sequestration. Of course, the supercommittee failed and so the trigger went off, which has all of these very Draconian cuts.”

Regardless of who proposed the idea, the Budget Control Act was passed with bipartisan support. And the super committee — made up equally of Democrats and Republicans — failed to avoid the automatic cuts when it failed to develop a deficit-reduction plan.

The looming defense cuts and potential Lockheed layoffs are not “due to Obama’s downsizing of the military,” as the viral emails contend. In fact, Lockheed projected in its third-quarter SEC report (page 21) that under the president’s proposed budget for fiscal year 2013 “operating profit margin will remain above 11%.

This article can also be read at FactCheck.org.

FactCheck.org is a nonpartisan, nonprofit “consumer advocate” for voters that aims to reduce the level of deception and confusion in U.S. politics.

Sources

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