Federal contractors have been warning that uncertainty about the outcome of the fiscal cliff will likely result in job cuts. Friday, the White House budget office asked companies to hold off on issuing layoff warnings to employees and said government would foot the bill for resulting legal damages should they arise.

If the nation is hit with spending cuts on Jan. 2 associated with the fiscal cliff, it is widely expected that one result will be a deep reduction of spending on federal contracts. In fact, $500 billion in sequestration cuts are expected for the Pentagon alone, according to Fox News.

Companies have warned that they have a legal obligation to inform their employees that there is a likelihood that many will be out of jobs.

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The federal Worker Adjustment and Retraining Notification (WARN) Act requires businesses with more than 100 employees to notify workers at least 60 days in advance before a mass layoff or plant closing, explains CNNMoney. Some states require more notice.

However, this latest guidance from the budget office encourages companies to be less hasty by placing the financial risk burden on the government.

"[A]ny 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," a memorandum from the Office of Management and Budget states.

According to Fox News, this latest appeal restates a Labor Department position publicized in July.

“The guidance issued by the Labor Department said 'it is neither necessary nor appropriate' for federal contractors to issue the warnings,” Fox News reported.

Since the legal obligation to issue the notices was one of the strongest arguments for doing so, it now seems that contractors would have less impetus to shake up their staffs. But, this latest move by Washington has not gone without reproach and some vying for companies to move forward with the warnings.

Fox News says, a number of Republican lawmakers have already issued a statement saying, in part, “The president should insist that companies act in accordance with the clearly stated law and move forward with the layoff notices.”

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