Savings from Sequester Could Be Eroded by Legal Compensation

Without a deal in place yet to avoid Friday’s sequester — the start of mandatory cuts in defense and discretionary spending — companies with U.S. government contracts must figure out which workers will likely be laid off as the funds to keep them on the payroll will disappear.

The federal government spends more than $500 billion a year—- or roughly 14 percent of the federal budget —- on private-sector contractors, and an estimated 7.5 million people are employed through government contracts.

Hundred of thousands of workers face being let go after Friday in order to reach reductions in defense by $500 billion and nondefense by $700 billion to reduce the deficit this year and over the next decade by at least $1.2 trillion.

In many cases, it won’t be easy, said Connie Bertram, a labor and employment lawyer at Proskauer, as firms have to consider issues like benefit packages, accrued leave pay and possible legal action from laid-off workers.

“Sequestration can’t be used as a tool to lay people off. Firms have to follow state and federal laws when it comes to letting people go,” Bertram said. “That means they have to justify the layoff beyond sequestration in many cases. A worker would have to be told why he or she is being let go.”


This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.