EDITOR’S NOTE: Some or all of the bullet points below are taken verbatim from the government proposals, but to enhance readability, quotation marks are not being used.

The Federal Acquisition Regulatory Council and the U.S. Department of Labor issued simultaneous proposals to implement President Obama’s Fair Pay and Safe Workplaces Executive Order. The Executive Order, signed last July, requires certain federal contractors and subcontractors to report on their compliance with labor laws and provide paycheck transparency to employees; it also prohibits arbitration of certain employment claims.

The DOL issued proposed “guidance,” which means that the agency’s final publication will not be a final rule or regulation, and although public comment is solicited, the DOL does not have to address it when it finalizes its guidance. The FAR Council (comprised of the U.S. Department of Defense, the General Services Administration, and NASA), on the other hand, issued a proposed rule, which will become a regulation when finalized after the public comment period.

Reporting Violations of Labor Laws

The Executive Order requires contractors to report certain labor law violations when bidding on a procurement contract for goods and services, including construction, where the estimated value of the contract exceeds $500,000. (According to the FAR Council, this “excludes the vast majority of transactions.”) Contractors bidding on such solicitations must report to the contracting agency whether there has been any administrative merits determination, arbitral award or decision, or civil judgment (“violations”) within the preceding three years involving any of the following employment laws and orders (“Labor Laws”):

  • Fair Labor Standards Act
  • Occupational Safety and Health Act
  • Migrant and Seasonal Agricultural Worker Protection Act
  • National Labor Relations Act
  • Davis-Bacon Act
  • Service Contract Act
  • Executive Order 11246
  • Section 503 of the Rehabilitation Act
  • Vietnam Era Veterans’ Readjustment Assistance Act
  • Family and Medical Leave Act
  • Title VII of the Civil Rights Act
  • Americans with Disabilities Act
  • Age Discrimination in Employment Act
  • Executive Order 13658 (Establishing Minimum Wage for Contractors)
  • Equivalent state laws

The DOL was tasked with providing guidance defining “administrative merits determination, arbitral award or decision, and civil judgment” and identifying the equivalent state laws.

Administrative Merits Determination

The DOL proposes to define “administrative merits determination” as “any of the following notices or findings – whether final or subject to appeal or further review – issued by an enforcement agency following an investigation that indicates that the contractor or subcontractor violated any provision of the Labor Laws,” and lists various administrative determinations from the Wage and Hour Division, Occupational Safety and Health Administration, Office of Federal Contract Compliance Programs, Equal Employment Opportunity Commission, and National Labor Relations Board. The proposed list, which would be exhaustive, includes such items as a Show Cause Notice from the OFCCP for failure to comply with Executive Order 11246, Section 503 of the Rehabilitation Act, or VEVRAA, as well as a determination from the EEOC that reasonable cause exists to believe that an unlawful employment practice has occurred. An administrative merits determination would also include a complaint filed by an enforcement agency or an order from an administrative law judge. Employee complaints made to enforcement agencies, such as charges of discrimination, would not be administrative merits determinations.

Arbitral Award or Decision

The DOL proposes to define “arbitral award or decision” as “any award or order by an arbitrator or arbitral panel in which the arbitrator or arbitral panel determined that the contractor or subcontractor violated any provision of the Labor Laws, or enjoined or restrained the contractor or subcontractor from violating any provision of the Labor Laws.” This term would include “an award or order that is not final or is subject to being confirmed, modified, or vacated by a court,” and also applies to proceedings that were private or confidential.

Civil Judgment

The DOL proposes to define “civil judgment” as “any judgment or order entered by any federal or State court in which the court determined that the contractor or subcontractor violated any provision of the Labor Laws, or enjoined or restrained the contractor or subcontractor from violating any provision of the Labor Laws,” including preliminary injunctions and orders that are not final or are subject to appeal. Civil judgments would also include “consent judgments and default judgments to the extent that there is a determination in the judgment that any of the Labor Laws have been violated.” The DOL expressly proposes that private settlements, where no judgment is entered by the court, would not be considered civil judgments.

These “violations” would not have to be reported if the administrative merits determination, arbitral award or decision, or civil judgment has been reversed or vacated in its entirety at the time of the report.

Equivalent State Laws

The DOL states that it will issue future guidance identifying those state laws that are deemed to be equivalent to the Labor Laws.

Assessing Violations

The Executive Order provides that contracting officers (with respect to contractors) and contractors (with respect to their subcontractors – see "Subcontracting Reporting" section below) should consider whether serious, repeated, willful, or pervasive Labor Law violations demonstrate a lack of integrity or business ethics, such that the entity is not fit to do business with the federal government. The DOL was directed to provide guidance on the factors to considering in making this assessment.

As an initial matter, both the Executive Order and the DOL’s proposed guidance note that “in most cases a single violation of the law may not necessarily give rise to a determination of lack of responsibility,” though this depends on the nature of the violation and is subject to the agency’s determination. These assessments would be performed “on a case-by-case basis in light of the totality of the circumstances,” including the contractor’s efforts of remediation and agreements with enforcement agencies.

Serious

The DOL proposes the following exhaustive list of “serious” violations:

  • An OSHA or OSHA-approved State Plan citation designated as serious, a notice of failure to abate an OSHA violation, or an imminent danger notice under OSHA or an OSHA-approved State Plan
  • The affected workers comprise 25 percent or more of the workforce at the worksite
  • Fines and penalties of at least $5,000 were assessed, or back wages of at least $10,000 were due, or injunctive relief was imposed by an enforcement agency or a court
  • The contractor or subcontractor’s conduct violated Migrant and Seasonal Agricultural Workers Protection Act or the child labor provisions of the FLSA, and caused or contributed to the death or serious injury of one or more workers
  • Employment of a minor who was too young to be legally employed or in violation of a Hazardous Occupations Order
  • The contractor or subcontractor engaged in an adverse employment action (including discharge, refusal to hire, suspension, demotion, or threat) or is responsible for unlawful harassment against one or more workers for exercising any right protected by any of the Labor Laws
  • The findings of the relevant enforcement agency, court, arbitrator, or arbitral panel support a conclusion that the contractor or subcontractor engaged in a pattern or practice of discrimination or systemic discrimination
  • The findings of the relevant enforcement agency, court, arbitrator, or arbitral panel support a conclusion that the contractor or subcontractor interfered with the enforcement agency’s investigation
  • The contractor or subcontractor breached the material terms of any agreement or settlement entered into with an enforcement agency, or violated any court order, any administrative order by an enforcement agency, or any arbitral award.

Repeated

The DOL proposes that a violation is “repeated” if it is the same or substantially similar to one or more other violations. The determination regarding the violation must have occurred within the prior three years (even if the violation itself occurred more than three years ago), and the prior violation must be the subject or one or more separate investigations or proceedings. For a violation “to serve as a predicate violation that will render a subsequent violation repeated, it must have been adjudicated or be uncontested.”

The DOL would consider violations “substantially similar if they involve the same or an overlapping protected status . . . even if they do not involve the same employment practice.” For example, if a contractor violates the Americans with Disabilities Act or Section 503 of the Rehabilitation Act by discriminating on the basis of disability, two violations will be considered substantially similar even if one involved failure to hire and the other related to denial of reasonable accommodation.

Willful

The DOL proposes to define “willful” violation as follows:

  • For purposes of a citation issued pursuant to OSHA or an OSHA-approved State Plan, the citation was designated as willful or any equivalent State designation (i.e., “knowing”), and the designation was not subsequently vacated
  • For purposes of the FLSA (including the Equal Pay Act), the administrative merits determination sought or assessed back wages for greater than two years or sought or assessed civil monetary penalties for a willful violation, or there was a civil judgment or arbitral award or decision finding the contractor or subcontractor liable for back wages for greater than two years or affirming the assessment of civil monetary penalties for a willful violation
  • For purposes of the Age Discrimination in Employment Act, the enforcement agency, court, arbitrator, or arbitral panel assessed or awarded liquidated damages
  • For purposes of Title VII or the ADA, the enforcement agency, court, arbitrator, or arbitral panel assesses or awarded punitive damages for a violation where the contractor or subcontractor engaged in a discriminatory practice with malice or reckless indifference to the federally protected rights of an aggrieved individual
  • For purposes of any of the other Labor Laws, the findings of the relevant enforcement agency, court, arbitrator, or arbitral panel support a conclusion that the contractor or subcontractor knew that its conduct was prohibited by any of the Labor Laws or showed reckless disregard for, or acted with plain indifference to, whether its conduct was prohibited by one or more requirements of the Labor Laws.​

Pervasive

The DOL would define violations as pervasive “if they reflect a basic disregard by the contractor or subcontractor for the Labor Laws as demonstrated by a pattern of serious or willful violations, continuing violations, or numerous violations.” Although more than one violation is necessary, “[t]o be pervasive, the violations need not be of the same or similar requirements of the Labor Laws. Pervasive violations may exist where the contractor or subcontractor commits multiple violations of the same Labor Law, regardless of their similarity, or violations of more than one of the Labor Laws.”

The DOL proposed guidance includes tables with examples of each type of violation.

The DOL suggests that certain violations raise “particular concern” regarding a contractor’s compliance with Labor Laws, and thus whether it is sufficiently “responsible” to contract with the federal government. These violations include the following:

  • Pervasive violations
  • Violations that meet two or more of the categories discussed above (serious, repeated, willful, and pervasive)
  • Violations that are reflected in final orders
  • Violations of particular gravity, such as fatalities, retaliation, or where the damages awarded exceed $100,000

Contractors and subcontractors may present information to “mitigate the existence of a Labor Law violation.” The DOL lists several items that may be used as evidence of mitigation:

  • Remediation of violation, including a compliance agreement with the enforcement agency
  • Only one violation
  • Low number of violations relative to size
  • Safety and health programs or grievance procedures
  • Whether the violation is a result of a recent legal or regulatory change
  • Whether the contractor had a good faith basis and reasonable grounds
  • Significant period of compliance following violations

Solicitation Stage

At the initial bidding stage, contractors would only be required to report “whether” they have any of the above violations during the past three years.

Pre-Award Stage

When the contracting officer reaches the stage in the process where he must determine whether the contractor is “responsible,” and that contractor disclosed that it had a Labor Law violation during the bidding process, the contracting officer would be required to obtain additional information about each violation, such as (1) the Labor Law that was violated; (2) the case number or other identifier of the matter; (3) the date of the determination; and (4) the name of the court, arbitrator, or agency that rendered the decision. The contractor may also provide any additional information to “demonstrate its responsibility, such as mitigating circumstances, remedial measures (to include labor compliance agreements), and other steps taken to achieve compliance with the Labor Laws.”

The contracting officer would be required to consult with the agency’s Labor Compliance Advisor (“LCA”) in evaluating a contractor’s violations, but the final decision on responsibility would lie with the contracting officer. The LCA would be required to provide written advice and one of three recommendations: (1) the contracting officer could determine that the contractor has a satisfactory record of integrity and business ethics; (2) the contracting officer could determine that the contractor has a satisfactory record of integrity and business ethics if the process to enter into a compliance agreement is initiated; and (3) the contracting officer could determine that the contractor does not have a satisfactory record of integrity and business ethics and that the agency Suspending and Debarring Officials should be notified.

Post-Award Stage

Once awarded a contract, contractors would be obligated to update the information on their Labor Law violations semi-annually. Contractors would be required to report any new violations, as well as updates – such as affirmances, reversals, or other modifications – to the previously reported information.

Contracting officers would be responsible for evaluating this information and making one of the following determinations: (1) no action is required, and the contract should be continued; (2) the matter should be referred to DOL for action, which may include a new or enhanced compliance agreement; (3) the contract should be terminated pursuant to FAR procedures; or (4) the Suspending and Debarring Official should be notified if the violations indicate a lack of business ethics and integrity. If suspension or debarment is determined to be the appropriate course of action, “the contractor will be given notice and reasonable opportunity to present facts or arguments in support of its position. . . .”

Subcontracting Reporting

The Executive Order provides that contractors must require their subcontractors to report violations during the preceding three years, both before being awarded a covered subcontract and semi-annually during the performance of the subcontract. Contractors would then be obligated to determine the “responsibility” of the potential subcontractor and the appropriateness of awarding the subcontract and continuing the subcontract with that subcontractor. This provision applies only to subcontracts that are not for commercially available off-the-shelf items and that are valued at more than $500,000.

The proposed rule would give the contractor discretion in deciding how to manage the process of evaluating its subcontractors. For example, the contractor could evaluate all of the subcontractors, regardless of tier, or it could delegate the evaluation of lower tier subcontractors to higher tier subcontractors. Although the DOL, contracting officer, and the LCA are available to provide assistance to contractors in evaluating subcontractors, under the proposed rule, the contracting officer and LCA would be limited “to furnishing assistance such as access to the DOL Guidance and the appropriate contacts at DOL.”

Public Disclosure of Violations

Under the FAR Council’s proposed rule, “basic information” about a contractor and subcontractor’s Labor Law violations would be made publicly available through the Federal Awardee Performance and Integrity Information System, which is an online source that contracting officers use to assess whether a company has the “requisite integrity to do business with the Government.”

Paycheck Transparency

Covered contractors and subcontractors are also required by the Executive Order to provide each employee “with a document with information concerning that individual's hours worked, overtime hours, pay, and any additions made to or deductions made from pay.” If employees are exempt from the overtime provisions of the FLSA, the document does not need to include the number of hours worked “if the contractor informs the individuals of their overtime exempt status.” Further, if a contractor is treating an individual who performs work under the covered contract as an independent contractor, the contractor must provide a document to the independent contractor informing him of that status.

In its proposed guidance, the DOL would allow contractors to fulfill this requirement with an electronic wage statement “if the worker can access it through a computer, device, system, or network provided or made available by the contractor or subcontractor.” In addition, the DOL proposes that the notices required for exempt employees and independent contractors be in writing, and for independent contractors, the document must be provided before any work is performed on the contract and be separate from any contract entered into between the contractor and independent contractor. In addition, the contractor would have to provide the notice to an independent contractor for each covered contract on which that individual works.

Arbitration Prohibitions

The Executive Order prohibits contractors and subcontractors with a contract worth more than $1 million from requiring pre-dispute agreements to arbitrate claims arising under Title VII of the Civil Rights Act or any tort related to sexual assault or harassment. Such claims can be arbitrated only if the employee voluntarily agrees to do so after the dispute arises. This prohibition does not apply to employees covered by a collective bargaining agreement or those employees who entered into a valid arbitration agreement prior to the contractor bidding on a covered contract. The latter exception would not apply, however, if the contractor has the ability to change the terms of the contract or when the contract is renegotiated or replaced.

Comments

Comments to both the proposed rule and the proposed guidance are due July 27, 2015.

Conclusion

This Executive Order not only increases the administrative burdens on federal contractors and subcontractors, but it also requires them to think differently about their handling of all employment law matters. Is it easier and even more cost effective now to settle private lawsuits to avoid the risk that they could affect your ability to obtain federal contracting work? How can you become more proactive to avoid EEOC and OFCCP findings of discrimination? What will be the cumulative effect of various contested and uncontested compliance issues and lawsuits? Now more than ever, federal contractors must think strategically about each and every charge, compliance review, investigation, complaint, lawsuit, etc., etc.

The new procedures for implementing the Fair Pay and Safe Workplaces Executive Order will not become effective until publication of the FAR Council’s Final Rule, and we will provide updates when that occurs.