As part of President Obama's "Year of Action," President Obama recently announced the Fair Pay and Safe Workplaces Executive Order (the "Executive Order").

The Executive Order will require prospective federal contractors to disclose labor law violations and prohibits federal contractors from entering into mandatory arbitration agreements with employees for certain civil rights violations.

Reporting Labor Law Violations

The requirement of reporting labor law violations applies to federal procurement contracts valued at more than $500,000.00.

The requirement to disclose labor law violations applies for any violations within the prior three years and covers 14 federal statutes and executive orders as well as equivalent state laws. The violations include violations of the FLSA, the FMLA, OSHA, the National Labor Relations Act, Title VII of the Civil Rights Act of 1964, the ADEA, the ADA, the Davis-Bacon Act, the Service Contract Act, their state equivalents, and potentially state workers' compensation and retaliatory discharge statutes.

Agencies also will require contractors to collect similar information from their subcontractors with contracts that exceed $500,000.00.

A labor law violation includes administrative merit determinations, arbitration awards, or civil judgments, as defined by the Department of Labor.

Prohibited Arbitration Agreements

The provision prohibiting mandatory arbitration agreements applies to federal procurement contracts valued at more than $1,000,000.00.

The prohibition on mandatory arbitration is limited to cases under Title VII and state law torts for sexual assault or harassment and appears to apply to all employees not just the ones working on federal contracts.

Implications

The Executive Order will require contracting officers to take into account labor law violations in awarding federal contracts, although the White House states that only the most egregious violations will be taken into account.

The White House indicated that the new process will encourage contractors to settle existing disputes through paying back wages, but the details of that part of the process were not disclosed.

Requiring federal contractors to report judicial determinations will certainly encourage settlement of employment cases for reason apart from the merits of the matter.

Finally, the White House stated that the Executive Order also is designed to assist companies to comply with applicable employment laws and will offer opportunities to companies with employment law violations to obtain guidance in determining whether the violations are problematic and remedy any problems.

The Executive Order is expected to be implemented during 2016.

Federal contractors should audit their pay practices because if they are sued this puts pressure on them to settle all cases.