Government Contracts Alert
Lateral thinking exercise: You are driving down the road in your car on a wild, stormy night, when you pass by a bus stop and you see three people waiting for the bus: (1) an old lady who looks as if she is about to die; (2) an old friend who once saved your life; and (3) the perfect partner you have been dreaming about. Knowing that there can only be one passenger in your car, whom would you choose?
Lateral thinkers instantly recognize the solution: give your car to your friend (already a proven commodity at saving lives) to drive the dying lady to the hospital while you sit in the rain, or on the bus, with that potential love interest. Regrettably, without the romance to spur thinking, too few keep pushing that creativity into analyzing solutions for compliance with the latest OFCCP obligations.
Let’s begin by outlining those obligations; then, let’s sit in the rain together.
The Final Rule implementing the Fair Pay and Safe Workplaces Executive Order (No. 13673) takes effect on October 25, 2016, with certain requirements and dollar thresholds to be phased in over time. There are a number of open questions as to the scope of specific requirements and practical challenges of implementation. In some cases, additional guidance from the Department of Labor (DOL) is anticipated, but it is clear that not all open questions will be resolved before the effective date. The compliance costs for contractors could be significant. Also, some companies will need to view these requirements through the lens of both a prime contractor and a subcontractor.
Federal contractors must disclose, through the System for Award Management (SAM.gov), adverse court, administrative agency, or arbitral rulings involving any of the following: Executive Order 11246; Executive Order 13658; Service Contract Act; Rehabilitation Act; FLSA; OSHA; NLRA; Title VII; Migrant and Seasonal Agricultural Worker Protection Act; Davis-Bacon Act; VEVRAA; FMLA; ADA; ADEA; or similar state law violations. See Executive Order 13673 §2. In many cases, this information will be publicly available in the Federal Awardee Performance and Integrity Information System (FAPIIS).
For many contractors, a practical challenge will be to assess all decisions/violations across the organization that are required to be reported. Notably, the Final Rule clarifies that reporting obligations are limited to the legal entity that submits a proposal or enters into a contract. Disclosure by parents, subsidiaries, and other affiliates is not required. In some cases, this could limit the compliance burden, but some diligence is appropriate to ensure that the reported information is complete and accurate. Also, the DOL’s responses to comments confirm that the disclosure requirement is not meant to be applied retroactively to existing contracts.
The Final Rule “encourages” contractors to engage with the DOL and receive a “pre-assessment” of labor law decisions. Under subsequent procurements, agencies can rely on the DOL’s assessment of the contractor’s record of labor law compliance. The DOL touts this process as a way to proactively evaluate compliance and help mitigate any issues. While the DOL frames this program as an opportunity that all contractors should take advantage of, some caution is appropriate. Of course, proactive measures can be beneficial, but contractors should be careful not to invite scrutiny, particularly where disclosures under a specific solicitation are unlikely to be problematic or result in further administrative action.
For contracts where the estimated value exceeds $1 million, contractors must agree that the decision to arbitrate certain claims − Title VII or sexual harassment related claims − may only be made with the voluntary consent of employees or independent contractors after such disputes arise. See 48 C.F.R. §52.222-61(a). This requirement must be flowed down to subcontracts above $1 million.
Notably, there are two exceptions to this requirement that will be applicable to many (but not all) contractors. First, there is an exemption for contracts for commercial items. See 48 C.F.R. §22.2007(e). Second, the requirement is not applicable to employees covered by a collective bargaining agreement negotiated between the contractor and a labor organization representing the employees. See 48 C.F.R. §52.222-61(b)(1).
Effective January 1, 2017, for each pay period, contractors must provide a “wage statement document” (e.g., pay stub) to “all individuals performing work under the contract” and subject to the FLSA and certain other wage rate statutes. See FAR 52.222-60. The new regulations require the following:
- Each nonexempt employee must be given a paystub showing hours worked, overtime hours, rate of pay, gross pay, and itemized additions/deductions to gross pay. See 48 C.F.R. §52.222-60(b)(1)
- Each exempt employee must be notified in writing of this status. See 48 C.F.R. §52.222-60(c)
- Each independent contractor be informed in writing of this status. See 48 C.F.R. §52.222-60(d)(1)
This requirement must be included in subcontracts that exceed $500,000.
Each of these new obligations under the Fair Play and Safe Workplaces Executive Order has a separate lateral thinking solution.
Disclosing violations: The conventional wisdom is “uh oh, time to settle everything under these 14 itemized laws so there is nothing to report.” That is the tragic flaw in relying only on linear thinking. All businesses face constant and myriad claims under the multitude of local, state, and federal employment laws; settling each not only encourages more but also misses what’s next. Look at what’s happening on equal pay with shareholders driving the bus with proposals for disclosures. Look at what global unions and their allies do in searching for and leveraging information. While what is reported by contractors is public, there are multiple constituencies who will want to know more and more. The key is learning crisis management from Olivia Pope.
Arbitration limits: The conventional wisdom is “uh oh, time to ditch arbitration.” Possibly, but before doing so consider other options. This Executive Order doesn’t ban employment arbitration across the board but only arbitration of specified claims (i.e., discrimination and discriminatory harassment). Thus, arbitration limited to all other claims (bespoke arbitration) is permitted. While doing so, this is also the time to finesse the current disarray in the enforcement of class/collective action waivers with (i) an opt-out provision solving the Ninth Circuit’s objection to such waivers and (ii) a forum selection clause for the arbitration (outside Illinois, Indiana, and Wisconsin) to sidestep the Seventh Circuit’s blanket ban.
Paycheck transparency: Close reading is a literary skill with collateral benefits in reading government regulations. There is an exception: “a Contractor may satisfy these requirements by complying with substantially similar reporting requirements under state law in a state where the contract is being performed.” Which states? The Department has separately announced that list: Alaska, California, Connecticut, District of Columbia, Hawaii, New York, and Oregon. So, consistent with the “work smarter, not harder” core of lateral thinking, the solution is to roll out nationwide a suitable pay disclosure that a contractor is already using in one or more of those states.
There are undoubtedly more solutions. These are merely quick illustrations − without even getting into the overlap between obligations under this Executive Order and potential triggers for FCA suits in light of UHS v. US ex rel Escobar, … U.S. … (2016) − to get you started.