New Burdensome Federal Contracting Requirements

by Obermayer Rebmann Maxwell & Hippel LLP
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On July 31, 2014, President Obama signed the Fair Pay and Safe Workplaces Executive Order, which—for the first time—requires large federal contractors to disclose prior labor law violations, designate a Labor Compliance Advisor, and disclose wage and hour information to its workers. The provisions of the Executive Order take aim at federal contracts with a value of $500,000 or more.

According to the Fact Sheet, the Executive Order seeks to:

  • Hold contractors accountable by requiring them and their subcontractors to disclose labor law violations from the past three years before being able to receive a contract;
  • Crack down on repeat violators by designating a “Labor Compliance Advisor” to provide “consistent guidance on whether the contractors’ actions rise to the level of a lack of integrity or business ethics”;
  • Promote efficient federal contracting by not awarding contracts to the companies with significant workplace violations, which have been shown to be more likely to have performance problems during the performance of the contract;
  • Give employees a day in court by directing companies to not require their employees to enter into pre-dispute arbitration agreements for disputes arising out of Title VII of the Civil Rights Act or from sexual harassment claims; and
  • Give employees information about their pay checks, by requiring contractors to provide a summary of hours worked, overtime hours, pay, and any addition to or deductions from their pay.

The Executive Order places significant burdens on federal contractors and sub-contractors and is likely to create a complex application and supplementation process thereafter. The reporting requirement for contractors requires them to report any administrative merits determinations, arbitral awards, or civil judgments arising from violations of the Fair Labor Standards Act, the Occupational Safety and Health Act, the Migrant and Seasonable Agriculture Worker Protection Act, the National Labor Relations Act, the Davis-Bacon Act, the Service Contract Act, the Rehabilitation Act, the Vietnam Era Veterans Readjustment Assistance Act, the Family and Medical Leave Act, Title VII of the Civil Rights Act, the Americans with Disabilities Act, the Age Discrimination in Employment Act, Executive Order 11246, Executive Order 13568, and their state law counterparts for the past three years. Contractors must also report the same information for the subcontractors it intends to utilize on a project. The reporting requirement is ongoing—requiring contractors to disclose any new violations every six months during the performance of a contract. 

Any contractors that report violations as part of the application process or even during performance of the contract may find themselves in trouble with the agency. The Executive Order provides that any such violations could result in “remedial measures, compliance assistance . . . as well as remedies such as decision not to exercise an option on a contract, [or] contract termination. . . .” 

The Executive Order calls for contracting agencies to create Labor Compliance Advisors that will hold broad authority to deny contracts if they determine that a contractor is not “a responsible source that has a satisfactory record of integrity and business ethics.” While the Executive Order calls for the Federal Acquisition Regulatory Council to issue final rules and guidelines, none are available currently to determine what limits the Advisors will have. The Executive Order generally refers to an analysis of “serious, repeated, willful, or pervasive violations” of the various laws by the Advisors in making determinations about awarding contracts.

The requirement that prohibits contractors with contracts of over one million dollars from entering into binding arbitration agreements is a vast departure from recent Supreme Court decisions that looked favorably on arbitration agreements. Corporations entering into contracts that meet the monetary threshold will be unable to seek an employee’s agreement to arbitrate Title VII violations or sexual harassment claims. This provision will greatly diminish the utility of arbitration clauses for affected contractors.

Finally, with respect to the wage reporting requirements, the most notable provision requires affected companies to inform workers of their independent contractor status (if they are characterized as one). This notification could potentially create an influx of litigation relating to misclassification. Like the reporting requirements for violations, the wage and classification notification requirements apply to subcontractors as well.

While the Executive Order is already effective, its implementation will take time. The Executive Order requires the Federal Acquisition Regulatory Council to promulgate proposed regulations and allow time for notice and commenting before any procedures become final. The Executive Order is also likely to face legal challenges and significant criticism during the promulgation of the final rules, which may alter some of the asserted requirements. Nevertheless, companies that rely upon government contracts should start implementing procedures to mitigate the requirements in the event they are fully implemented. Maintaining organized records for an organization and its subcontracts will be paramount in navigating the application and reporting process. 

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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