Affirmative Action Alert Oh, No! Another Executive Order For Federal Contractors

by Constangy, Brooks, Smith & Prophete, LLP
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For the fifth time in seven months, President Obama has signed an Executive Order directed solely toward federal contractors and their employees. Yesterday, he signed the "Fair Play and Safe Workplaces" Executive Order to "crack[] down on federal contractors who put workers' safety and hard-earned pay at risk." Although the Federal Acquisition Regulation Council will propose regulations to implement it, the Executive Order contains detailed substantive provisions that add to the already heavy burdens on companies that do business with the federal government.

Most notably, the latest EO requires contractors to periodically disclose their labor-related violations, as well as those of their subcontractors, and says that "repeat offenders" may be suspended or debarred. The EO also places stringent restrictions on arbitration agreements with employees.

Mandatory Disclosure of Labor Law Violations

The first provision in the Executive Order requires federal agencies to ensure that they are not doing business with companies that repeatedly violate employment and labor laws. Solicitations for new contracts worth more than $500,000 must include a provision requiring the bidder to represent whether there has been "any administrative merits determination, arbitral award or decision, or civil judgment" rendered against the bidder during the prior three years for violations of any of the following:

• Fair Labor Standards Act
• Occupational Safety and Health Act
• Migrant and Seasonal Agricultural Worker Protection Act
• National Labor Relations Act
• Davis-Bacon Act
• Service Contract Act
• Executive Order 11246
• Section 503 of the Rehabilitation Act
• Vietnam Era Veterans' Readjustment Assistance Act
• Family and Medical Leave Act
• Title VII of the Civil Rights Act
• Americans with Disabilities Act
• Age Discrimination in Employment Act
• Executive Order 13658 (Establishing Minimum Wage for Contractors)
• Equivalent state laws (as defined in guidance to be issued by DOL)

Each federal agency will be required to designate a Labor Compliance Advisor, who will be responsible for assessing whether the bidder "is a reliable source that has a satisfactory record of integrity and business ethics. . . ." The Labor Compliance Advisor will also consult regarding whether it is appropriate to refer a contractor to the agency's "suspending and debarring official."

After being awarded a contract, federal contractors will be obligated to update the information on their labor law violations every six months. Based on this information, the contracting agency will determine whether any action is necessary, including "agreements requiring appropriate remedial measures, compliance assistance, and resolving issues to avoid further violations, as well as remedies such as decisions not to exercise an option on a contract, contract termination, or referral to the agency suspending and debarring official."

In addition, federal contractors will be responsible for obtaining similar assurances from their subcontractors. For each subcontract worth more than $500,000 that is not for commercially available off-the-shelf items, contractors must require that their subcontractors disclose the same type of labor law violations and update the information every six months. Before awarding a subcontract, contractors must determine whether the subcontractor "is a responsible source that has a satisfactory record of integrity and business ethics. . . ." Contractors may consult with their contracting officer, the Labor Compliance Advisor, or the DOL for assistance in making this determination. The agency itself may also decide to take action regarding subcontractors.

Based on the language in the Executive Order, it is unlikely that "violations" will include voluntary settlements. Indeed, according to the White House's Fact Sheet on the Executive Order, one purpose of the President's action is "to encourage companies to settle existing disputes, like paying back wages." Thus, federal contractors may feel more pressure than other companies to resolve lawsuits and administrative actions, due to concerns that an adverse result might place their federal contracts in jeopardy. For the same reason, individual employment disputes will potentially have greater significance for federal contractors.

The Executive Order also provides specific criteria "for determining whether serious, repeated, willful, or pervasive violations of the labor laws . . . demonstrate a lack of integrity or business ethics." For example, "in most cases," a single violation "may not necessarily" be sufficient, "depending on the nature of the violation." (That's what we call wiggle room, folks!) Agencies should also consider remedial measures or mitigating factors to address violations.

The DOL will also develop guidance to assess whether violations are serious, repeated, willful, or pervasive. Where no relevant statutory standards exist, the Executive Order directs the DOL to develop standards that take into account such items as

• the number of employees affected;
• the degree of risk posed or actual harm done;
• the amount of damages incurred or fines or penalties assessed;
• whether the contractor has had one or more additional violations of the same or a substantially similar requirement in the past three years;
• whether the contractor knew of, showed reckless disregard for, or acted with plain indifference; and
• the number of violations in relation to the size of the contractor.

Paycheck Transparency

Contracts worth more than $500,000 must also include a provision requiring contractors to provide employees covered by the Fair Labor Standards Act, the Davis-Bacon Act, the Service Contract Act, or similar state laws, with a document each pay period showing hours worked, overtime hours, pay, and any additions or deductions made to pay. This provision must also be included in subcontracts worth more than $500,000 that are not for commercially available off-the-shelf items. The Order states that individuals exempt from the overtime provisions of the FLSA do not have to receive a record of hours worked if the contractor informs the employees of their exempt status. Similarly, contractors must advise independent contractors of their status as such.

Prohibition on Arbitration Agreements

This one is big, especially in light of recent court decisions taking a very liberal view of arbitration agreements in the employment context. Contracts and subcontracts that exceed $1 million (except those for commercial items or commercially available off-the-shelf items) must include a provision requiring contractors to "agree that the decision to arbitrate claims arising under Title VII of the Civil Rights Act of 1964 or any tort related to or arising out of sexual assault or harassment may only be made with the voluntary consent of employees or independent contractors after such dispute arises." (Emphasis added). This provision will not apply to employees covered by a collective bargaining agreement or to valid arbitration agreements entered into prior to the contractor's bid on a covered contract.

Effective Date

The Executive Order is effective immediately, but it will not apply to new solicitations until after the FAR Council issues a Final Rule to implement the Order. This is not expected to occur until 2016.

Impact on Federal Contractors

Although the White House touts this Executive Order as a means to promote "efficient federal contracting" and to save taxpayer money, the additional administrative burdens this places on federal contractors may drive away those very reliable and ethical businesses the government seeks to attract. The obligation to survey an entire company and all of its subcontractors on a six-month basis is extremely onerous – especially for larger organizations that may have hundreds of subcontractors. It is unclear how such a task can be effectively carried out. Moreover, the Executive Order creates yet another government worker, the Labor Compliance Advisor, in every federal agency, adding even more bureaucracy to a process already overburdened with red tape.

As soon as a Notice of Proposed Rulemaking on this Executive Order is issued, we will provide an update on this topic.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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