Key Notes:

  • The Fair Pay and Safe Workplaces Final Rule requires disclosure of labor law violations by government contractors.
  • The rule’s provisions have been controversial since the related Executive Order was issued in 2014.
  • The Final Rule takes effect October 25, 2016, with a phased implementation schedule for contractors and subcontractors during the next year.

The much-anticipated Fair Pay and Safe Workplaces Final Rule is set to take effect October 25, 2016, amending the Federal Acquisition Regulation (FAR) to require the disclosure of certain labor law violations by covered government contractors and subcontractors.

The Final Rule, which implements Executive Order 13673 (issued by President Obama in 2014), requires contracting officers, in consultation with newly established “agency labor compliance advisors” (ALCAs), to consider disclosed violations, as well as mitigating factors and remedial measures, as part of a contracting officer’s responsibility determination and decision to award or extend a government contract. The Final Rule requires covered government contractors to disclose any administrative or judicial finding that a contractor violated any of fourteen specified federal labor laws, such as the Fair Labor Standards Act, Title VII of the Civil Rights Act of 1964, and Executive Order 11246 on Equal Employment Opportunity (as well as certain state law equivalents). Disclosures will be made through the System for Award Management and certain information will be publicly available.

When the Final Rule was issued in late August, the Department of Labor (DOL) simultaneously issued its own final guidance to assist federal contracting agencies with the implementation of the Final Rule. Both the Final Rule and DOL guidance are extensive and contain detailed background information on comments received, changes to the proposed rules, and the new FAR subpart 22.20, as well as new solicitation provisions and clauses that will apply to covered contracts and subcontracts. The Final Rule’s most significant (and controversial) provision remains the requirement that prospective and existing government contractors on covered contracts disclose information during the contract formation process, and during performance, relating to violations of the specified labor laws.

For subcontractors, the Final Rule includes a significant change from the proposed rules in that subcontractors will now be required to disclose details regarding labor law violations directly to the DOL, rather than to the prime contractor. A covered subcontractor must then provide information to the prime contractor regarding any DOL response to its disclosures.

The Final Rule also implements Executive Order 13673’s separate requirements for paycheck transparency, providing that covered contractors and subcontractors must provide wage statements every pay period to all workers on a covered contract. These wage statements must include certain information related to the hours worked, rates of pay and deductions for each worker. In addition, the Final Rule limits a covered contractor’s ability to utilize pre-dispute arbitration clauses in employment agreements for workers on covered government contracts or subcontracts.

For prime contractors, the disclosure and paycheck transparency requirements specifically include contracts for both commercial items and commercial off-the-shelf items (COTS). For covered subcontractors, these requirements apply to commercial items, but not to COTS. The Final Rule’s pre-dispute arbitration restrictions exclude commercial items (including COTS), for both contractors and subcontractors.

The Final Rule’s disclosure requirements have a phased introduction period based on certain contractual thresholds. The Department of Labor’s website highlights the following implementation schedule:

  • Week of September 12, 2016: Preassessment began, through which current or prospective contractors may ask the DOL for a voluntary assessment of their labor compliance history, in anticipation of bids on future contracts but independent of any specific acquisition.
  • October 25, 2016: The Final Rule takes effect. Mandatory disclosure and assessment of labor law compliance begins for all prime contractors under consideration for contracts with a total value greater than or equal to $50 million. The reporting disclosure period is initially limited to one year and will gradually increase to three years by October 25, 2018.
  • January 1, 2017: The Paycheck Transparency clause takes effect, requiring contractors to provide wage statements and notice of any independent contractor relationship to their covered workers.
  • April 25, 2017: The total contract value threshold for prime contracts requiring disclosure and assessment of labor law compliance is reduced to $500,000.
  • October 25, 2017: Mandatory assessment begins for all subcontractors under consideration for subcontracts with a total value greater than or equal to $500,000.

DOL also clarifies that the Preassessment phase is an ongoing period that does not end when the Final Rule takes effect on October 25, 2016. At any point in time, current and prospective government contractors can complete DOL’s Preassessment Request Intake form to initiate a voluntary review of their labor compliance history, independent of a specific acquisition.

In light of these expansive new regulatory requirements, government contractors and subcontractors will need to evaluate whether their potential contracts are subject to the Fair Pay and Safe Workplaces Final Rule. Covered contractors and subcontractors should begin to assess whether any labor law violations exist that must be disclosed, as well as what mitigation or remediation efforts can be documented. They should also review their existing labor and employment compliance programs and address any potential compliance issues. The disclosure requirements will be challenging to implement, and covered contractors and subcontractors, including those holding commercial item contracts, should take action now so that they are well-prepared to meet the Final Rule’s applicable phase-in timeframes.