On July 31, 2014, President Obama signed the Fair Pay and Safe Workplaces Executive Order in an effort to crack down on federal contractors with a history of violating employee rights. Beginning in 2016, both the government’s contracting officers and government contractors will be required to track and coordinate contractor and subcontractor compliance with federal and certain state labor laws. As a result, contractors that have already completed adjudication or other determination, or even fully resolved compliance issues, may now face additional scrutiny and remedial requirements.
The White House indicated that its goal is not to prevent contractors from receiving federal contracts, but to help bring contractors into compliance with workplace protections. To do so, new contractors will be required to (1) disclose any recent violations of various workplace laws before being awarded federal contracts; and (2) provide employees with wage notifications and inform independent contractors of their non-employee status. Contractors are also barred from requiring employees to sign pre-dispute arbitration agreements.
The Executive Order applies to all federal contracts for goods and services, including construction contracts, valued at $500,000 or more. It also requires prime contractors to flow down or pass through this requirement to all subcontracts of $500,000 or more that are not for commercially available off-the-shelf items.
Contractors must disclose whether they have incurred any violations of certain federal and state discrimination, wage and hour, leave, and safety laws in the three years prior to the bid. Those with past violations will have an opportunity to disclose steps taken to correct violations or improve compliance. If awarded a contract, contractors must update disclosures every six months for the duration of the contract.
For each pay period, contractors must provide all individuals performing work under a federal contract with the number of regular and overtime hours they worked, and any changes made to their pay. Contractors will not have to provide such information to exempt employees if they have previously advised the employees of their exempt status. Contractors must also provide written notification to individuals they consider independent contractors working on contracts covered by the Executive Order that the contractor considers the worker to be an independent contractor.
Mandatory Arbitration Agreements Prohibited
Contractors may not require that employees or independent contractors enter pre-dispute arbitration agreements for the settlement of claims under Title VII of the Civil Rights Act or any tort related to or arising out of sexual assault or sexual harassment claims when working on federal contracts valued at $1 million or more. This does not apply if —
The employee voluntarily consents to the arbitration agreement after a dispute has arisen between the employee and the contractor;
The contract is for commercial items or commercially off-the-shelf items; or
The arbitration agreement was entered into prior to the contractor bidding on a contract covered by the Executive Order.
Subcontractor Flow-Down Requirements
Primary contractors must also ensure that all subcontracts of $500,000 or more comply with all of the above-mentioned requirements. Additionally, they must require their subcontractors to disclose labor-law violations and update such information every six months. Prime contractors are also responsible for taking action, where needed, when subcontractors bring violations to their attention.
Before awarding any contract of $500,000 or more, federal contracting officers are required to consider any violation disclosures when determining whether a contractor is a "responsible source that has a satisfactory record of integrity and business ethics." Upcoming regulations will outline what labor law-violations would "demonstrate a lack of integrity or business ethics" because they are "serious, repeated, willful, or pervasive violations." In the meantime, the Executive Order offers the following guidance:
A "single violation of law may not necessarily give rise to a determination of a lack of responsibility," although it will depend on the violation;
To the extent existing labor-law standards do not provide guidance on the types of violations considered "serious, repeated, willful, or pervasive,” the following standards will apply:
Violations are considered "serious" depending on, among other considerations: (1) the number of employees affected; (2) the degree of risk posed or actual harm done by the violation to the well-being of the worker; and (3) the amount of damages incurred or fines or penalties assessed for the violation;
Violations are "repeated" if the contractor has had “one or more additional violations of the same or a substantially similar requirement in the past three years;"
Violations are "willful" if the contractor "knew of, showed reckless disregard for, or acted with plain indifference" to whether it was in compliance with these labor laws; and
Violations will be considered "pervasive" by comparing the "number of violations" of these labor laws in relation to the size of the contractor.
Contracting officers must also consider "any remedial measures or mitigating factors," such as any corrective actions taken by the contractor. For serious violations, contracting officers should forward information to the proper government agency when appropriate. The U.S. Department of Labor's Office of Federal Contract Compliance Programs (OFCCP) will be keeping a close eye on contractor compliance. Contractors should keep meticulous records of all labor-law charges filed with relevant federal or state agencies — and how those charges are resolved. Performing additional due-diligence measures on subcontractors to ensure their compliance is another proactive step to take.
Contractors can facilitate the contracting process and minimize their costs and compliance obligations by providing human resource professionals with the appropriate federal contracting training.