To avoid displacement of current service employees, the final rule will require contractors and their subcontractors to offer qualified employees a right of first refusal of employment under successor contracts.

TAKEAWAYS

• President Biden’s Executive Order 14055 reinstates the Right of First Refusal for Service Employees which was implemented under President Obama’s Executive Order 13495, but then rescinded by President Trump’s Executive Order 13897.
• Contractors and subcontractors performing on covered federal government service contracts must in good faith offer service employees employed under the predecessor contract a right of first refusal of employment.
• This final rule requires agencies to consider whether performance of a successor contract is reasonably necessary to ensure economic and efficient provision of services and, if so, include a preference or requirement for performance in the current location.

On December 4, 2023, the Department of Labor (DOL) published a final rule highlighting the federal government’s procurement interest in economy and efficiency which requires successor contractors or subcontractors to hire the predecessor’s employees, for the same or similar services, thus avoiding displacement of these employees. On July 19, 2022, we advised on this proposed rule in a client alert addressing the implementation of Executive Order 14055, Nondisplacement of Qualified Workers Under Service Contracts. The proposed rule required service contracts which succeed contracts for the same or similar services, and solicitations for such contracts, to include a nondisplacement clause to offer right of first refusal of employment under the successor contract.

However, a successor contractor or subcontractor would not be required to offer employment to any employee on the predecessor contract if: (1) the predecessor contractor will retain the employee, (2) the employee performs in an executive, administrative or professional capacity and is not a service employee, (3) there is reliable evidence of a particular employee’s past performance which would justify not hiring the employee, (4) the employee performs a single job under the predecessor’s federal service contract (or a nonfederal service contract), or (5) the successor contractor has staffing requirement changes. The parameters of the latter exception remain to be determined and could be the subject of future disputes.

The final rule explains some notable differences between Executive Order 13495 and Executive Order 14055. The time limit for an employee to accept an employment offer changed from 10 calendar days to 10 business days. Unlike the previous rule, this rule applies even if the successor contract is not performed at the same location as the predecessor contract. This rule requires agencies to publish descriptions of each exception on a centralized public website and report exceptions to the Office of Management and Budget (OMB) on a quarterly basis.

Contractors subject to Executive Order 14055 should carefully review this rule to determine if they are subject to the rule’s requirements.

[View source.]