Today, the Federal Acquisition Regulations Council (“FAR Council”) and the U.S. Department of Labor (“DOL”) issued its Final Rule and Guidance implementing the Fair Pay and Safe Workplaces Executive Order (the “Order”), commonly referred to as the “blacklisting” rule. In total, the Final Rule, Guidance, and accompanying commentary totaled nearly 900 pages, responding to nearly 20,000 comments on the Proposed Rule and Guidance released earlier this year. Some of our previous blog posts on the Order and the Proposed Rule and Guidance can be found here and here. This post will highlight the notable changes and clarifications made in the Final Rule and Guidance as well as key takeaways for federal government contractors.

Effective Date

The Final Rule is effective on October 25, 2016. This is earlier than anticipated and dramatically shortens the time for contractors to prepare to comply with the Order and its implementing regulations. That being said, as discussed below, the Final Rule also phases in a number of the disclosure and compliance obligations, lessening the initial burden of the implementation.

Phase-In of Labor Violation Disclosure Requirements

One of the overarching concerns raised during the notice and comment period was the enormous burden the Order would place on the contracting community. In an effort to lessen that burden, the Final Rule and Guidance announced a phased implementation of the disclosure obligations. The phase-in has two key components.

First, the Order and the Proposed Rule contain a three-year look back for covered violations. Recognizing that contractors have not been cataloging covered labor violations prior to the issuance of the Order, the Final Rule only requires contractors to look back one year for reportable violations when the rule becomes effective. The look-back period will increase each year by one year until October 2018, when it will become a three-year look back.

Second, the Final Rule also limits which contractors must make labor law violation disclosures in the first six months following the effective date. Contractors will not be required to disclose labor law violations until April 24, 2017, unless the contractor is responding to a solicitation for a contract valued at $50 million or more after the effective date of the Final Rule. For most contractors, this provides an additional six-month window to prepare for the implementation of the disclosure obligations.

The phase-in of disclosure obligations does not just impact prime contractors. The Final Rule also included a lengthier phase-in for subcontractor disclosure obligations. Subcontractors must begin disclosing labor violations for solicitations issued after October 25, 2017, one year after the effective date.

A Pause on The Disclosure of “State Law Equivalent” Violations

When the Proposed Rule was released, the Proposed Guidance stated that a supplement would follow containing a list of which state-law equivalents for the 14 enumerated federal laws require disclosures of violations under the Order. To date, no list has been released. The Final Rule and Guidance acknowledge this and state that the DOL will release a comprehensive list of state laws that are covered by the Order. This listing will be subject to notice and comment before it becomes effective. In the meantime, only the 14 federal labor laws listed in the Proposed Rule and in the Order, along with state OSHA plans, are covered by the rule.

Minor Clarifications on Scope of Violations

Overall, despite numerous comments and criticisms, the DOL declined to substantively modify its list of covered labor violations in the Final Guidance. Thus, the list of administrative merits determinations, arbitral awards, and civil judgments remain exceptionally broad and sweeping.

Although the DOL declined to narrow its definition of a violation, the Final Guidance does contain some minor modifications that broaden the definition of a violation. For example, the definition of administrative merits determination in the Proposed Guidance did not include violations of the anti-retaliation provisions of the Occupational Safety and Health Act (“OSHA”) or the Fair Labor Standards Act (“FLSA”). The final rule clarifies that these were unintentionally omitted from the Proposed Guidance and are now included in the Final Guidance. Additionally, the Proposed Guidance limited “determination letters” from the DOL Wage and Hour Division to letters outlining violations of Sections 6 and 7 of the FLSA (minimum wage and overtime). In the Final Guidance, the DOL has clarified that this was unintentionally narrow, and that the Final Guidance includes determination letters finding any FLSA violation.

Assessing A Subcontractor’s Responsibility – Removing The Burden From The Prime

One highly controversial aspect of the Proposed Rule was the burden placed on the prime contractor to perform the same type of responsibility determination of covered subcontractors’ labor violations that the government will perform on prime contractors. In response to numerous comments, the Final Rule has modified the process for assessing a subcontractor’s violations, largely removing the burden from the prime contractor.

Instead, starting October 25, 2017, under the Final Rule, covered subcontractors will submit their list of labor violations to the Agency Labor Compliance Advisor (“ALCA”). The ALCA will then perform an assessment of the disclosed violations and make a recommendation. The prime contractor must make the ultimate decision as to responsibility. If the subcontractor disagrees with the finding of the ALCA, it can raise the dispute with the prime contractor.

Clarification of Assessment Process of The Labor Compliance Advisors

The Proposed Rule and Guidance introduced a new government official into the contracting process, the ALCA. There was substantial controversy surrounding this new role, particularly the potential disparate application of the Order between agencies and perhaps even within agencies. The Final Rule and Guidance provides additional details regarding the process by which federal agencies and departments will assess a contractor’s labor violations. Moreover, the Final Rule and Guidance recognizes the need for guidelines and training for the ALCAs.

The Final Rule and Guidance states that the ALCA will have three days to assess labor violations disclosed by a contractor. Although the contracting officer is permitted to give the ALCA additional time, the contracting officer may make his or her own assessment of responsibility without the recommendation of the ALCA. The ultimate responsibility for making a responsibility determination will remain with the contracting officer, not the ALCA. The ALCA’s role is to “assesses the nature of the violations and provide[] analysis and advice.”

The Final Guidance also clarifies the process the ALCA will follow during his or her assessment. The ALCA will first review all of the violations to determine if any are “serious, repeated, willful, and/or pervasive.” Then, the ALCA “weighs any serious, repeated, willful, and/or pervasive violations in light of the totality of the circumstances, including the severity of the violation(s), the size of the contractor, and any mitigating factors that are present.” Finally, the ALCA provides written analysis to the contracting officer.

Public Dissemination of Disclosures

The Proposed Rule and Guidance noted that information submitted to the contracting agency would be publicly disseminated. Despite numerous comments criticizing this proposed provision, the Final Rule and Guidance declined to remove this requirement. However, the Final Rule and Guidance provided clarification as to how this public dissemination will work in practice. Pursuant to the Final Rule, the following information will be publicly disclosed based upon the contractor’s violation submissions: (1) the law violated; (2) the case identification number or docket number; (3) the date of the decision finding a violation; and (4) the name of the body issuing the judgment.

The contractor will input this information into the System for Award Management (“SAM”). From SAM, the information will be made available to the public through the Federal Awardee Performance and Integrity Information System (“FAPIIS”). The Final Rule clarified that while the four enumerated data points must be made public, the contractor has the choice as to whether any additional documents provided by the contractor to demonstrate its responsibility and mitigation efforts shall be made public.

Key Takeaways

With the Final Rules and Guidance published, it is more important than ever that contractors begin preparing for the implementation of the Order and its regulations. Contractors have two months before the effective date of the Final Rule, and while certain obligations will be phased-in, contractors will need time to prepare for compliance.

Contractors should start cataloging any violations during the past six months that constitute covered violations as well as any evidence of mitigation efforts taken as a consequence of the violations. Because complaints and charges alleging violations of the 14 federal laws covered by the Order, a central official of office should be designated to coordinate the collection of this information (concerning both past and future violations) and a central repository for it. Contractors should view the ability quickly to provide a comprehensive list to the contracting officer as a competitive advantage, as competitors may not be prepared to do so in a timely manner.

Additionally, if the ALCA makes an inquiry concerning the disclosed violations, contractors should be prepared to advocate, with appropriate evidence, why certain violations are not willful, repeated, pervasive or severe. For instance, the contractor could point to its size or the number of employees in the organization. It can also identify measures taken by the contractor to address the issues raised in the violation. It will be important that these disclosures be vetted by a central authority within the organization.

In addition to preparing to report labor violations, contractors should also work internally to reduce and mitigate the risk of future violations. This can be achieved by: (1) developing and implementing effective policies and training; (2) auditing compliance; (3) adopting a robust internal complaint mechanism; (4) developing alternative dispute resolution processes; and (5) undertaking early case assessment and management. Taking these proactive measures can help lessen the impact of future compliance by reducing the number of violations that must be reported.