White House budget office made an effort to stave off layoff notices from companies worried about 2013 automatic spending cuts.
The government said it would cover legal costs if contractors are forced to slash their payrolls because of the looming $109 billion in automatic cuts next year and are alleged to have violated the WARN Act.
The federal WARN Act requires businesses with more than 100 employees to notify workers at least 60 days in advance of a mass layoff or plant closing. Some states require more notice.
"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, if otherwise reasonable and allocable," the Office of Management and Budget said in its guidance.
Defense contractors in particular have warned for months that the upcoming sequester would cost jobs in their industry. And Lockheed Martin's CEO has said publicly he may be forced to issue notice this fall of possible layoffs in 2013.
If other contractors follow suit, there could be a rash of layoff notices spooking employees right before Election Day.
Both parties in Congress created the sequester -- a series of thoughtless, automatic, across-the-board cuts -- as a way to force their hand to agree on a more gradual bipartisan debt-reduction plan.
Well, that hasn't happened yet. And if lawmakers can't agree on how to replace the sequester soon, the cuts become effective on Jan. 2.
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