On March 19, 2010, the Department of Labor (DoL) proposed rules to limit displacement of employees who work on contracts covered by the McNamara-O'Hara Service Contract Act (SCA), 41 U.S.C. § 351 et seq. 71 Fed. Reg. 13382 (Mar. 19, 2010). Under the proposed order, with certain limitations, an employee of a service contractor who will lose his or her job because another company has been awarded a successor contract must be offered employment by the successor contractor. Only contracts and subcontracts that exceed the simplified acquisition threshold (currently set at $100,000) would be covered by the proposed rules.

The proposed rules impose specific obligations on firms performing SCA-covered contracts. An outgoing contractor must provide the contracting agency with a roster of all employees who have performed services on the predecessor contract during the contract's final month. The successor contractor, upon receiving this information from the agency, must offer jobs to the predecessor's employees who: (1) worked on the contract during its final month; (2) have sufficient skills to perform a job under the new contract; and (3) will lose their jobs because the incumbent lost the new contract. The successor need not offer displaced employees the exact same work that they had on the predecessor contract. Employees and jobs should instead be matched strategically in an effort to keep as many displaced workers employed on the new contract as is possible. Penalties for violating the order include required payments of back pay, mandated offers of employment to the predecessor employees, and contract debarment for aggravated violations.

Even when the non-displacement rules apply, the successor may elect not to offer employment in certain defined situations. For example, the proposed rules exempt "managerial and supervisory employees," who are defined as those employees similarly exempt under the Fair Labor Standards Act and the SCA. Also, a successor contractor who elects to perform the contract with fewer employees need only offer jobs to the predecessor's employees until it has filled its roster of available positions. Contractors also need not offer jobs to employees who failed to perform suitably on the predecessor contract, who work on both federal and non-federal contracts for the outgoing contractor, or who will not lose their jobs as a result of the outgoing contractor's loss of the new contract. The successor contractor must provide the specific reasons why an exception applies to a particular employee, and bears the burden of proof if that decision is eventually challenged.

The proposed rules expand and refine non-displacement obligations contained in an Executive Order issued by President Obama in January 2009, see Executive Order 13495, and are similar to obligations that the Clinton administration established for a more limited scope of federal contracts. See Executive Order 12,933, 59 Fed. Reg. 53,559 (Oct. 24, 1994). President Bush rescinded the Clinton executive order early in his first term. See Executive Order 13,204, 66 Fed. Reg. 11,228 (Feb. 22, 2001).

DoL seeks comments on several specific provisions in the proposed rules. Among them are requests for insight on:

  • Whether allowing agencies to notify employees of their non-displacement rights by email will provide greater efficiency and flexibility without sacrificing the quality of the notice given to employees.
  • Whether the proposed rules impose reasonable record-gathering and -keeping burdens and whether those records will provide agencies with useful information.

DoL will entertain comments submitted by May 18, 2010. Wiley Rein will actively participate in the comment period. Despite the promulgation of this proposed rule, many questions remain, including the ultimate scope of discretion afforded to the government in selecting and managing a contractor's workforce. The proposed rule also raises questions of employee privacy and access to proprietary personnel information. If implemented, the final rules will be located at 29 C.F.R. Part 9.