Lockheed Martin is not planning to notify its employees of layoffs related to the potential $1 trillion in federal spending cuts due to take effect Jan. 2.

The company’s decision is in response to the White House Office of Management and Budget (OMB) telling contractors the government will assume liability for businesses that do not warn employees of layoffs related to massive potential budget cuts known as sequestration.

Businesses employing more than 100 workers are required by a law called the Worker Adjustment and Retraining Notification (WARN) Act to provide at least 60 days notice to employees whose jobs could be cut by mass layoffs or plant closings. Earlier this year, the Department of Labor (DOL), which administers but does not enforce the act, issued guidance that said because of the uncertainty surrounding sequestration, notifying workers of sequester-related job losses was not required and “not appropriate.”

That did not satisfy contractors including Lockheed, which originally told Sen. John McCain (R-Ariz.) in a July 30 letter that it was likely to send layoff notices. OMB responded with a Sept. 28 memo. “Despite DOL’s guidance, some contractors have indicated they are still considering issuing WARN Act notices, and some have inquired about whether federal contracting agencies would cover WARN Act-related costs in connection with the potential sequestration,” says Daniel Werfel, controller for the Office of Federal Financial Management and Joseph Jordan, administrator for federal procurement policy, in the memo.

If, under sequestration, an agency would alter a contract leading to layoffs and the contractor has abided by Labor’s guidance, “then 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.”

After taking a look at guidance from OMB and the Pentagon, “we will not issue sequestration-related WARN notices this year,” says Lockheed spokeswoman Jennifer Allen in an email. “The additional guidance offered important new information about the potential timing of DOD actions under sequestration, indicating that DOD anticipates no contract actions on or about 2 January, 2013, and that any action to adjust funding levels on contracts as a result of sequestration would likely not occur for several months after 2 Jan.”

Plus, Allen adds, the guidance also provides WARN Act protection to employees and allows Lockheed to recover costs.

Lockheed’s decision does not solve the political complications of sequester-related job losses. If defense companies choose to issue WARN Act notices, they are likely to land in the mailboxes of defense employees days before the November elections.

Republicans say that is why the Obama administration is working hard to make sure the notices do not need to be sent.

“It appears companies will bow to the threat implicit in last week’s OMB guidance; withhold notices today or the government might not cover your court costs down the road,” says Rep. Buck McKeon (R-Calif.). “Let me be clear, neither the OMB guidance nor the Lockheed decision will protect a single defense industry job if sequestration occurs in January.”

On Sept. 28, Republican Sens. John McCain (Ariz.), Lindsey Graham (S.C.) and Kelly Ayotte (N.H.) were quick to characterize the OMB notice as a costly political ploy.

“President Obama put his own re-election ahead of the interests of working Americans and our national security by promising government contractors that their salary and liability costs will be covered at taxpayer expense if they do not follow the law that requires advance warning to employees of jobs that may be lost due to sequestration,” the senators write. “As a result of the OMB guidance, the Department of Defense will have to allow companies to claim repayment for the salaries of workers who are laid off but did not receive the required WARN notices — a cost to the taxpayer that could be as much as $4 billion. In addition, DOD will have to reimburse companies for any legal damages paid to workers who are laid off but did not receive the required WARN notices — a cost that is inestimable.”