Obama Issues Executive Order Scrutinizing Labor Practices of Federal Contractors

by Cozen O'Connor

President Obama does it again, issuing yet another Executive Order aimed at those seeking to do business with the federal government. On July 31, 2014, Obama issued the Fair Pay and Safe Workplaces Executive Order, which the White House expects to be implemented in stages on new federal contracts valued at more than $500,000, beginning in 2016. This new Executive Order targets three areas: (1) disclosure to the federal government of a prospective contractor’s labor law violations over the three years preceding the contract; (2) disclosure of information necessary for the employees of federal contractors and subcontractors to verify the accuracy of their paychecks; and (3) for those federal contracts or subcontracts with an estimated value exceeding $1 million, a prohibition against the imposition of pre-dispute arbitration agreements covering claims under Title VII of the Civil Rights Act of 1964, as amended (Title VII), or for torts related to or arising out of sexual assault or harassment.

Obama explained that this new Executive Order primarily is aimed at ensuring that those contracting with the federal government comply with labor laws. Earlier this year, Obama issued an Executive Order raising the minimum hourly wage to $10.10 for employees under new federal contracts. In recent months, President Obama also issued Executive Orders barring federal contractors from discriminating against individuals based on their sexual orientation or gender identity and from retaliating against individuals for disclosing their compensation information.

Requiring Disclosure of Labor Law Violations

Companies seeking new contracts with the federal government, in which the estimated value of the contract exceeds $500,000, will be required to disclose any administrative merits determination, arbitral award or decision, or civil judgment rendered against the company in the preceding three years for violations of specified federal statutes and Executive Orders, and equivalent state laws, covering civil rights, safety and health, collective bargaining, wage and hour, and family and medical leave obligations.1 The Executive Order does not provide additional guidance on the scope of what must be disclosed and instead requires the Department of Labor to provide guidance on this issue.

When a new contract is executed, and it involves a subcontract with an estimated value exceeding $500,000 (that is not for commercially available off-the-shelf items), the contractor also will be required to make the following representations to the contracting agency: (1) that the contractor will require each covered subcontractor to disclose any labor law violations in the preceding three years of the statutes and Executive Orders described above and update the information every six months; (2) that the contractor will consider the information submitted by the subcontractor to determine whether the subcontractor is a responsible source with a satisfactory record of integrity and business ethics before awarding a subcontract or within 30 days thereafter if the subcontract is awarded or effective within five days of the contract execution; and (3) that the contractor will incorporate these obligations into its subcontracts.

The Executive Order indicates that each executive branch agency shall designate a senior agency official as a Labor Compliance Advisor. This designated official will be directed to, among other things, “assess the serious, repeated, willful or pervasive nature of any violation” and evaluate a contractor’s steps to correct violations and improve compliance. The Labor Compliance Advisor will make determinations based on guidance to be issued by the Department of Labor and any amendments to be made to the Federal Acquisition Regulation (FAR). Companies reporting labor law violations generally will be given the opportunity to remedy any problems and receive guidance on whether the violations could negatively impact their bids.

Significantly, contractors also have post-award obligations pursuant to this new Executive Order. Contractors must update their disclosures of any labor law violations every six months during the performance of the contract, and require their covered subcontractors to do the same. Contracting officers made aware of any disclosed labor law violations will consider whether any action including, but not limited to, agreements requiring remedial measures, compliance assistance or even termination of a contract are appropriate under the circumstances. Moreover, the Department of Labor is directed to, as appropriate, inform contracting agencies of its investigations of contractors and subcontractors on current federal contracts so that the agency can assist the contractor or subcontractor regarding appropriate steps to consider, such as remedial measures, compliance assistance and resolution of issues to avoid further violations.

Mandating Provision of Information Necessary to Verify Accuracy of Paychecks

To ensure that workers have the necessary information to verify the accuracy of their pay, federal contractors and subcontractors will be required, if they do not already do so, to provide their employees each pay period with information concerning the employee’s hours worked, overtime hours, pay, and additions to and/or deductions from pay. If an employee is exempt from overtime, the contractor or subcontractor does not need to provide hours worked so long as the individuals are advised of their exempt status. If a federal contractor or subcontractor is treating an individual performing work under a federal contract or subcontract as an independent contractor, the individual must be provided with a document informing the individual of his/her independent contractor status.

Prohibiting Pre-Dispute Arbitration Agreements of Title VII and Certain Tort Claims

Federal contractors or subcontractors with contracts estimated at a value exceeding $1 million (other than contracts or subcontracts for the acquisition of commercial items or commercially available off-the-shelf items) will be prohibited from requiring their employees or independent contractors to enter into pre-dispute arbitration agreements of claims arising under Title VII or for torts related to or arising out of sexual assault or harassment. Employees and independent contractors covered by this requirement only may arbitrate such claims if they voluntarily consent to do so after such disputes arise.

This requirement does not apply to employees covered by a collective bargaining agreement. It also does not apply to valid contracts to arbitrate that were entered into prior to the contractor bidding for a contract covered by this Executive Order, unless the contractor is permitted to change the terms of the contract with the employee or independent contractor or when the contract to arbitrate is renegotiated or replaced.

Impact of This Order on Federal Contractors and Subcontractors

This Executive Order is likely to have sweeping consequences for many federal contractors and subcontractors, potentially impacting their interactions with the Department of Labor and the executive branches of the agencies with which they do business. Agencies will have more power and resources to pressure federal contractors and subcontractors to take remedial actions to resolve pending labor law matters, and to determine who gets awarded  contracts in certain circumstances. The federal contracting community also may observe and/or experience inconsistent application of the standards set forth in the Executive Order, as it will be virtually impossible to regulate out all subjectivity in determining the seriousness or pervasiveness of certain labor law violations and how best to address them.

As for now, many of the details and workings outlined in the Executive Order need to be fleshed out in guidance and regulations. Recognizing this, the Obama administration has indicated that the Executive Order will not apply to contracts entered into before 2016. Nevertheless, current and prospective federal contractors and subcontractors have yet another reason to audit, and where necessary, improve compliance with the many labor laws covered by this Executive Order.

The covered federal statutes include: the Fair Labor Standards Act, the Occupational Safety and Health Act, the Migrant and Seasonal Agricultural Worker Protection Act, the National Labor Relations Act, the Davis-Bacon Act, the Service Contract Act, Executive Order 11246 (equal employment opportunity), Section 503 of the Rehabilitation Act, the Vietnam Era Veterans’ Readjustment Assistance Act of 1974, the Family and Medical Leave Act, Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act, the Age Discrimination in Employment Act and Executive Order 13657 (establishing a minimum wage for federal contractors). The equivalent state laws are to be defined in guidance issued by the Department of Labor.


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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