Overview

On July 31, 2014, without much public attention, President Obama issued a far-reaching Executive Order, No. 13673, which requires bidders on federal contracts to disclose adverse labor law decisions under more than a dozen federal statutes and equivalent state laws, and requires the federal agency to take this labor relations history in account when making “responsibility” determinations.

On August 25, 2016, federal agencies adopted lengthy modifications to the Federal Acquisition Regulations ("FAR") which begin to phase in as early as October 25, 2016. An equally lengthy companion Small Entity Compliance Guide (“SECG”) was issued the same day by the U.S. Department of Labor (“USDOL”).

As explained in E.O. No 13673 and repeated in the FAR announcement, the justifications for the new regulations are that:

[C]ompliance with labor laws drives economy and efficiency by promoting ‘‘safe, healthy, fair, and effective workplaces. Contractors that consistently adhere to labor laws are more likely to have workplace practices that enhance productivity and increase the likelihood of timely, predictable, and satisfactory delivery of goods and services to the Federal Government.

According to the USDOL press release: “Taxpayer dollars should not reward companies that break the law, and contractors who meet their legal responsibilities should not have to compete with those who do not.”

The core components of these new federal initiatives are as follows:

1. Contractors and subcontractors that provide goods or services to the federal government must disclose labor and employment administrative and civil merits decisions at the time of bid submittal. Initially the disclosure obligation only applies to procurements with contracts values in excess of $50 million. After April 24, 2017, that threshold drops to $500,000. Disclosures must be updated every 6 months.
2. Contractors must provide employees with wage statements that report hours worked, overtime hours, pay, and any additions to or deductions from their pay.
3. Workers classified as independent contractors must be informed in writing of their status.
4. With limited exceptions discussed below, contractors engaged in contracts which exceed $1 million must agree that they will not compel employees to arbitrate Title VII claims or torts relating to sexual assault or harassment unless such agreements are entered into voluntarily after such disputes arise.

Compliance with Labor and Employment Laws

The most significant part of the new regulations is the requirement that prospective federal contractors self-disclose whether there has been any administrative merits determination, arbitral award or decision, or civil judgment (“decisions’) rendered against them within the preceding 3-year period for violations of any of the following labor laws and Executive Orders:

1. Fair Labor Standards Act;
2. Occupational Safety and Health Act of 1970;
3. Migrant and Seasonal Agricultural Worker Protection Act;
4. National Labor Relations Act;
5. Davis-Bacon Act;
6. Service Contract Act;
7. Executive Order 11246 of September 24, 1965 (Equal Employment Opportunity);
8. Rehabilitation Act of 1973;
9. Vietnam Era Veterans' Readjustment Assistance Act of 1974;
10. Family and Medical Leave Act;
11. Title VII of the Civil Rights Act of 1964;
12. Americans with Disabilities Act of 1990;
13. Age Discrimination in Employment Act of 1967;
14. Executive Order 13658 of February 12, 2014 (Establishing a Minimum Wage for Contractors); or
15. Equivalent State laws, as defined in guidance issued by the Department of Labor.

As mentioned above, initially the disclosure obligation only applies to procurements with contracts values in excess of $50 million. After April 24, 2017, that threshold drops to $500,000. The regulations require contractors to begin imposing the same obligations contractually upon subcontractors commencing October 25, 2017, where the subcontract value is $500,000 or more. The look-back period is three years, or October 25, 2015, whichever period is shorter.

After contract award, contractors and covered subcontractors must self-report any subsequent adverse employment or labor law decisions every 6 months.

At the agency level, new positions entitled “agency labor compliance advisors” (“ACLA”) are authorized. ACLAs will confer with contracting officers concerning responsibility determinations and the adequacy of any remedial measures.  ACLAs, in consultation with contracting officers may make referrals to an agencies’ suspension and debarment officials based on information disclosed by contractors both prior to and after contract awards. In addition , the GSA will establish a System for Award Management (“SAM”) which is a centralized federal website for contractor reporting purposes.

Finally, to provide standardization in the determination of the significance of employment and labor law violations, the regulations establish uniform definitions of terms such as serious, repeated, willful and pervasive. In general, the definitions are similar to those developed and used by OSHA.

1. A “serious” determination involves an assessment of the number of employees affected; the degree of risk imposed, or actual harm done by the violation; the amount of damages incurred or fines or penalties assessed; and/or other similar criteria.
2. A “repeated” determination considers whether the entity has had one or more additional violations of the same or a substantially similar requirement in the past 3 years;
3. A “willful” violation turns on whether the entity knew of, showed reckless disregard for, or acted with plain indifference to the matter of whether its conduct was prohibited by the requirements of the labor laws listed above; and
4. A “pervasive” determination considers the number of violations of a requirement or the aggregate number of violations of requirements in relation to the size of the entity.

Paycheck Transparency

For contracts and subcontracts exceeding $500,000 (excluding commercially available off-the-shelf products) contractors must provide employees with a wage statement document (e.g., pay stub) in every pay period showing the total number of hours worked in the pay period; the number of those hours that were overtime hours; the rate of pay; the gross pay; and any additions made to or deductions taken from gross pay. Those adjustments to pay must be itemized and list each item separately, as well as the specific amount added or deducted for each.

Where a worker is treated as an independent contractor, the contractor or subcontractor must provide them with a written notice of such status either at the time the independent contractor relationship is established or prior to the time that the individual begins to perform work.

Complaint and Dispute Transparency

For contracts exceeding $1,000,000, contractors must 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, be made only with the voluntary consent of employees or independent contractors after such disputes arise, subject to certain exceptions. This requirement also applies to subcontracts exceeding $1,000,000 other than for the acquisition of commercial items.

The exceptions include situations where the employees are covered by a collective bargaining agreement negotiated between the contractor and a labor organization representing the employees or where the employees or independent contractors have entered into a valid contract to arbitrate prior to the contractor bidding on the government contract. However, the latter exception will not apply if the contractor is permitted to unilaterally change the terms of the contract with the employee or independent contractor or when the contract with the employee or independent contractor is renegotiated or replaced.

Concluding Thoughts

These new regulations are important game changers in several regards, First, they put substantially greater teeth into the enforcement of existing statutory requirements, such as federal OSHA, that might have only resulted in modest fines in the past. Second, they open the door for much broader challenges to proposers in the federal acquisition process. Third, the mandatory self-reporting does not provide for a safe harbor from possible suspension and disbarment. That may have a chilling effect on prospective contractors.

Finally, the regulations require ACLAs to assign one of five rankings to each proposer within a three day time window. One is a green light, three require negotiation of labor compliance agreements at some point in time, the last is a no award recommendation.  Contracting officers need to consider the ACLA recommendations only if timely received. Those portions of the rule introduce risks of both gamesmanship by agencies and the potential for delay as labor compliance agreements are negotiated.