Federal contractors and subcontractors soon will be required to report all federal “labor law violations” to the government, for review by contracting officers. Here’s what you need to know about this sweeping new requirement.

Background

On July 31, 2014 the president issued Executive Order 13673, Fair Pay and Safe Workplaces, requiring government contractors and subcontractors (jointly, contractors) to file reports with the U.S. Department of Labor of labor law violations. Those reports would then be provided to contracting officers to aid them in determining the “responsibility” of the contractors and their eligibility for federal contracts. The executive order instructed the Federal Acquisition Regulations (FAR) Council and the Department of Labor (DOL) to issue appropriate regulations and guidance to enforce the order.

The new FAR regulations and DOL guidance were published in the Federal Register on August 25, with an effective date of October, 25, 2016. The regulations and guidance are more than 500 pages and 300 pages in length, respectively, and spell out the basis and reasoning for the government’s decisions regarding the interpretation and enforcement of Executive Order 13673.

What You Need to Know Today

It is safe to say that covered contractors will have extensive new reporting and notification requirements. Even more importantly, because of the extremely expansive definition given to the term labor law violations, covered contractors might be forced into very tough decisions about whether and when to settle EEOC, NLRB, OSHA and Wage-Hour charges, among others, as all violations, including settled cases, must be reported. What impact those reports will have on the ability to receive contracts remains to be seen.

The good news: Only contracts of $500,000 or more are covered. The bad news: Subcontracts of $500,000 or more, except for contracts for Commercial Off The Shelf (COTS) items, are also covered.

If covered, the contractor must disclose all labor law violations for a period going back three years. Although there is a phase-in period with a shorter reporting period, contractors should be working now to implement systems that will track covered violations. Labor law violations include civil judgments and arbitrations, but also include “administrative merits determinations” that a violation of a federal labor law occurred.

Of particular note to employers, EEOC reasonable cause determinations, NLRB complaints, Wage-Hour WH-56 unpaid wages forms, OSHA citations and OFCCP show cause notices are all defined as administrative merits determinations that must be reported. Reports must also be made even if the matter is settled.

Virtually the only time reporting will not be required is when the matter is fought out at trial, and the employer emerges victorious. Thus, deciding whether to settle an EEOC or DOL Wage-Hour complaint will likely be a more complicated analysis than ever before, because it will not be clear what impact the settled violation report might have on contracting officers’ decision-making.

Additionally, the new regulations require contractors to notify employees of their hours, state whether they are exempt from overtime status, and provide independent contractors with notices of that status. In addition, contractors must include the new rules in contracts with covered subcontractors, and receive reports from them about how the DOL views their compliance status. These additional paperwork requirements will impose new burdens on employers. For now, state labor law violation reports are not required, except for reports of OSHA-State Plan violations. Reports on state law violations are very much a future possibility, however.

In spite of the broad reach of this order, the government tried to allay some concerns by pointing out that contracting officers do not need to give as much weight to non-final decisions, such as the examples above, as compared to fully adjudicated cases. The government also takes some pains to point out differences between minor and serious, repeated, or willful violations. However, the regulations only meagerly address the concerns that contractors should not be penalized for violations that have not been subjected to the full scrutiny of an adversarial proceeding.

During the Carter administration, there was an attempt to “pass over” bidding contractors with two or more pending complaints at OFCCP (Office of Federal Contract Compliance). That attempt was rejected in 17 injunction proceedings heard in federal courts, which unanimously held that effectively debarring a contractor without due process was unconstitutional. OFCCP then abandoned its pass over rules. The 2016 rules make an attempt to avoid the due process issue, by allowing contractors to tell their side of the story to “mitigate” their violations report to contracting officers. Regardless, it is likely that there will be litigation over the legality of these new rules.

What You Should Do Next

This writing is meant to highlight only the most fundamental aspects of the new rules, and does not cover the many details embedded in the more than 800 published pages. If you are a large contractor with the government, you will need to review these rules carefully, with an eye toward your particular circumstances.