On May 28, 2015, the Federal Acquisition Regulatory Council (FAR Council) published a Proposed Rule and the Department of Labor (DOL) issued a Proposed Guidance implementing President Obama’s July 31, 2014 “Fair Pay and Safe Workplaces” Executive Order (E.O. 13673). Under the Proposed Rule, current and prospective contractors will be required to disclose to the federal government information about their violations of certain labor and employment laws both prior to any contract award and during contract performance. An excessive number or violations, or the presence of severe violations, could preclude a contractor from being awarded government contracts in certain instances. Therefore, contractors should take great care to comply with applicable labor and employment laws by developing compliant policies, training managers and supervisors, and providing internal dispute resolution procedures to resolve workplace problems internally before a charge or lawsuit is filed.  Below is a discussion of some of the key provisions and obligations under the Proposed Rule and Guidance.

How will labor and employment law violations impact my company’s responsibility determination?

Federal agencies have long been required by statute to award contracts to parties that are a “responsible source.”1 To be determined responsible, a prospective contractor must “have a satisfactory record of integrity and business ethics.”2  The Proposed Rule builds upon the existing “responsibility determination” requirement by requiring contracting officers to assess a contractor’s compliance with fourteen identified federal labor laws and executive orders and equivalent state laws (Labor Laws) when determining whether the contractor is responsible and therefore eligible for contract award.

A contractor’s Labor Law violation(s) — depending on a number of factors including severity and willfulness — may result in a non-responsibility determination, making the contractor ineligible for award. Additionally, a contracting officer may also take adverse actions against the contractor post-award such as requiring the contractor to agree to remedial measures, declining to exercise a contract option, terminating a contract, or making a referral to an agency suspension and debarment official. Some industry groups have labeled the Proposed Rule as the “blacklisting rule” due to the potential effect of a disclosure on a contractor’s ability to win future federal contracts.

The relevant Labor Laws include the Fair Labor Standards Act; the Occupational Safety and Health Act; the Migrant and Seasonal Agricultural Worker Protection Act; the National Labor Relations Act; the Davis-Bacon Act; the Service Contract Act; Executive Orders 11246 (Equal Employment Opportunity) and 13658 (Establishing a Minimum Wage for Contractors); Section 503 of 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; and the Age Discrimination in Employment Act. 

Currently, only Occupational Safety and Health Administration (OSHA)-approved State plans fall under “equivalent State laws.” However, DOL will provide later guidance addressing which state laws are equivalent to the enumerated Labor Laws.

What are the new disclosure and reporting obligations?

Prospective and current government contractors will be required to disclose Labor Law violations to the federal government with respect to government contracts valued over US$500,000. Specifically, the Proposed Rule requires contractors to disclose whether they have received any “administrative merits determination,” “arbitral award or decision,” or “civil judgment” (defined in the Proposed Guidance) made against it within the preceding three years for the violation of a Labor Law. It is important to note the breadth of the term “administrative merits determination,” which includes preliminary determinations by agencies that are subject to appeal or further review. For example, an “administrative merits determination” includes: (1) a WH-56 “Summary of Unpaid Wages” form; (2) a letter from DOL indicating that an investigation disclosed a violation of certain employment laws; (3) a letter of determination from the Equal Employment Opportunity Commission that “reasonable cause exists to believe that an unlawful employment practice has occurred or is occurring;” and (4) a complaint issued by a Regional Director of the National Labor Relations Board.

These disclosures must be made at three separate stages. First, when a prospective contractor initially submits a bid or proposal, it must “represent to the best of its knowledge and belief whether it has or has not had [any Labor Law violations], without providing further information.” Second, after a prospective contractor has been selected as an apparent successful offeror of a contract, it must disclose more detailed information about each violation. This includes when the Labor Law was violated and other details about any determinations, judgments, and/or decisions rendered against it, and may include the name of agency or court, case number, or other information as requested by the contracting officer.

Once a contractor has been awarded the contract, its disclosure obligations continue during contract performance. On a semi-annual basis, contractors must report any new labor violations, decisions, and determinations to the contracting officer as well as any updates on previously provided information. When making these disclosures, contractors will have the opportunity to provide any relevant information to assist in the assessment, including any mitigating factors or remedial measures.

Additionally, under the Proposed Rule, prime contractors must assess the Labor Law violations of their subcontractors and report similar information about Labor Law violations of subcontractors on subcontracts valued over US$500,000 (except for commercially available off-the-shelf-items).

According to the Proposed Rule, contractors will report Labor Law violations on a single website portal hosted by the General Services Administration (GSA) that will be used for all reporting requirements. Also, basic information about contractor’s labor violations will be made publicly available in the Federal Awardee Performance and Integrity Information System (FAPIIS) ─ the online database of information that tracks contractor integrity and performance.

How will agencies assess reported Labor Law violations?

In making a responsibility determination, the contracting officer must assess the severity and number of reported Labor Law violations, in accordance with extensive direction set forth in the Proposed Guidance. In so doing, the contracting officer must consult with the agency’s Labor Compliance Advisor (LCA), a newly established position required under the Executive Order.

Each Labor Law violation must be assessed on a holistic basis, including whether it is serious, repeated, willful, and/or pervasive. The contracting officer must also consider any mitigating circumstances, labor compliance agreements, preventative programs and procedures, and remedial measures that demonstrate the contractor’s efforts to correct and prevent further Labor Law violations. The Proposed Guidance also directs the contracting officer to consider the size of the contractor in determining whether its violations are excessive. The Proposed Rule and Guidance make clear that in most cases a single violation of one of the Labor Laws will not give rise to a determination of lack of responsibility.

What to expect and how to prepare

The foregoing requirements are expected to be implemented in stages on a prioritized basis, beginning in 2016. In order to help contractors comply with these new requirements, the Proposed Rule provides that the DOL will set up a structure that will be available to assist contractors and subcontractors in carrying out their responsibilities under the Rule. Furthermore, the LCA for each agency will be tasked with facilitating contractor compliance with the relevant Labor Laws.

Due to the consequences for violation of the Labor Laws, compliance with such laws should be a high priority for all current and prospective government contractors. Contractors should take steps to improve compliance, such as auditing workplace policies and procedures, training supervisors to act in accordance with the law and best practices, and providing employees with internal dispute resolution procedures to allow them the opportunity to resolve problems internally. Moreover, in light of the Proposed Rule’s expansive reporting obligations, contractors should have in place adequate procedures to track and report Labor Law violations and all determinations, notices, findings, and proceedings that implicate Labor Law violations.

Public comments are invited on various aspects of the Proposed Rule and Guidance. Particularly, comments are requested on the appropriateness of the factors used to determine whether a violation is “serious,” “repeated,” “willful,” or “pervasive.” Also, the DOL seeks public comments on the definition of “equivalent state laws,” reducing the burden on small businesses, deciding whether disclosures of violations must be made public, managing subcontractor reporting, and best practices for recordkeeping.

Comments on the proposed rule are due on or before July 27, 2015, although this may be extended due to the requests of several prominent industry advocacy group.

Warren Bianchi and Megan Mason