Nondisplacement of Qualified Workers is Back, But With Changes

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As predicted, another Obama Administration “oldie but goodie” has made a return in the Biden Administration.  On November 18, 2021, President Biden issued a new Executive Order entitled “Executive Order on Nondisplacement of Qualified Workers Under Service Contracts.” Many of the same concepts and requirements have returned, but there are also several notable changes.

President Obama issued Executive Order 13495 on January 30, 2009 creating the original nondisplacement requirement for federal contractors. President Trump revoked EO 13495 on October 31, 2019 through Executive Order 13897. In President Biden’s Executive Order issued last week, he revoked EO 13897 and kept EO 13495 revoked.

Last week’s Executive Order maintains all of the basic requirements from the original Obama Administration version.

  • Where a follow-on federal government service contract is awarded, a successor contractor must grant a right of first refusal to the predecessor contractor’s service employees before offering jobs to non-predecessor employees on the new federal service contract;
  • Predecessor contractors must provide a list of incumbent employees (with Service Contract Act anniversary dates) to the contracting officer prior to the end of the contract term. The contracting officer is required to provide a copy of this list to the successor contractor and may – upon request – provide a copy of the list “to employees or their representatives”;
  • Successor contractors will be required to make a written offer of employment to all covered incumbent employees to the extent there is a position available, and such incumbent employees will have at least 10 days to accept the offer;
  • The EO contains the full text of a proposed contract clause. Prime contractors must flow down the contract clause to subcontractors so as to require those subcontractors to provide lists of incumbent employees and other information as needed to comply with EO;
  • The Secretary of Labor will retain authority to enforce this EO; and
  • Enforcement includes “equitable” remedies such reinstatement of employees and back wages, as well as debarment.

As in its prior iteration, the new EO will not apply to contracts under the simplified acquisition threshold or to employees hired to work as part of a single job to the extent the hiring was not structured to avoid this EO.

While much has stayed the same, there are also several aspects of the new nondisplacement EO that are different and potentially portend more serious enforcement consequences for federal contractors and subcontractors. For instance:

  • The new EO applies to “any contract, contract-like instrument, or subcontract for services . . . that is covered by the Service Contract Act . . . and its implementing regulations.” The old EO only applied to “any contract or subcontract.”
  • The new EO allows successor contractors not “to offer a right of first refusal to any employee(s) of the predecessor contractor for whom the contractor . . . reasonably believes, based on reliable evidence of the particular employees’ past performance, that there would be just cause to discharge the employee.” The old version permitted successor contractors not to extend first refusal offers to predecessor employees who “failed to perform suitably on the job.”
  • The new EO contains an expressly preference/presumption that successor contractor work will be performed in the “same locality or localities in which the contract is currently being performed.” The old version had no such express requirement.
  • The new EO provides “noncomplying contractors” with only the “opportunity to present information and argument in opposition to the proposed debarment or inclusion on the list” and no right to a hearing. The old EO expressly granted “noncomplying contractors” with a right to a hearing and related due process.

All of the foregoing changes in the new EO suggest that the Biden Administration intends a more expansive and muscular enforcement regime further tilting the balance of power towards service employees and making it more difficult for contractors to defend themselves.

The Executive Order directs that the Department of Labor shall issue implementing regulations within 180 days of the EO.  And, the Federal Acquisition Regulatory Council is directed to add new regulations and FAR clauses implementing the EO and Labor’s regulations within 60 days after the Department of Labor issues its regulations. Given the changes in the new EO, it is likely that there could be several compliance and enforcement surprises in the proposed regulations.

The EO is “effective immediately” and applies to all solicitations issued on or after the date the FAR Council issues its regulations and FAR clauses. However, the EO goes on to say that “agencies are strongly encouraged” to start including the EO’s contract clause language without waiting for the FAR Council to act.

Federal service contractors and subcontractors should immediately begin planning for compliance with this new EO and not wait until after the Department of Labor and/or the FAR Council issue their regulations. It is likely that one or more federal agencies will start adding the EO’s contract clause to solicitations before final regulations are issued.

We will provide updates to this blog after final regulations are published.

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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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