Under an Executive Order signed by President Obama on July 31, 2014, contractors and subcontractors are faced with a wave of new obligations concerning labor laws and pre-dispute arbitration agreements. The provisions of the Order mandate that contractors and subcontractors disclose administrative merits determinations, arbitral awards or decisions, civil judgments, or other violations of key employment and labor laws, as defined in guidance issued by the Department of Labor, before obtaining a federal contract and during performance of the contract. The Order also requires contractors to agree that certain employee disputes will not be arbitrated without the voluntary consent of employees and independent contractors after the dispute arises.
Additionally, contractors and subcontractors must provide certain wage information to their employees performing work under the federal contract. Since many state laws already cover this disclosure requirement, the Order indicates that compliance with comparable state laws will satisfy the federal requirement. This Order further affects contractors’ and subcontractors’ abilities to elect to arbitrate certain employee claims and the timing of such election. While the provisions of the Order are effective immediately, they will apply to all solicitations and contracts as provided in the final rules published in the Federal Acquisition Regulations (“FAR”).
The provisions of the Executive Order will ultimately be implemented through a number of amendments to the FAR. The Order directs the FAR Council to consult with the Department of Labor to propose amendments to the FAR and establish processes for implementing the new requirements. The fact sheet issued by the White House anticipates that the final rules will roll out in 2016.
The self-reporting requirements and paycheck disclosure requirements will apply to all contracts and subcontracts with an estimated value exceeding $500,000. Subcontracts for “commercially available off-the-shelf items” (“COTS”) are excluded from these requirements. The requirement of obtaining voluntary consent for arbitration after the dispute arises will apply to contracts and subcontracts with an estimated value exceeding $1 million. Subcontracts for commercial items and COTS are excluded from this requirement.
Prior to obtaining a new federal contract, contractors will have to report to the contracting officer any violations of key employment and labor laws occurring within the past three years. Contractors will also have an ongoing obligation to update their disclosure every six months during the performance of the contract. Similarly, subcontractors subject to the Order will have to report any violations of key employment and labor laws within the past three years to the prime contractor prior to an award of a subcontract. Subcontractors awarded a subcontract must update their disclosures every six months.
Contractors already have an obligation to disclose information pertaining to certain criminal conduct. Under FAR 52.203-13, contractors must disclose information involving fraud, conflict of interest, bribery, or gratuity violations and information involving violations of the False Claims Act. The Order now expands a contractor’s self-reporting obligation to violations of key employment and labor laws.
The contracting officer will be tasked with evaluating contractor disclosures to determine whether the contractor is a “responsible source that has a satisfactory track record of integrity and business ethics.” To assist with the evaluation of violations reported by contractors, contracting agencies must designate a senior agency official to act as the labor compliance advisor (“LCA”). The LCA is also tasked with consulting with the Department of Labor and other enforcement agencies regarding noncompliance issues, and assisting the contracting officer with determining the appropriate actions to be taken in response to violations identified prior to and after contract award.
Importantly, contractors should be aware that information disclosed during the pre-award offer period and the semiannual updates may be forwarded to the agency’s suspending and debarring official.
Labor Laws Applicable to Disclosure Requirements
Contractors and subcontractors must identify violations of the following labor laws and Executive Orders:
- the Fair Labor Standards Act;
- the Occupational Safety and Health Act of 1970;
- the Migrant and Seasonal Agricultural Worker Protection Act;
- the National Labor Relations Act;
- the Davis-Bacon Act;
- the Service Contract Act;
- Executive Order 11246 of September 24, 1965 (Equal Employment Opportunity);
- Section 503 of the Rehabilitation Act;
- the Vietnam Era Veterans’ Readjustment Assistance Act of 1974;
- the Family and Medical Leave Act;
- Title VII of the Civil Rights Act of 1964;
- the Americans with Disabilities Act of 1990;
- the Age Discrimination in Employment Act of 1967;
- Executive Order 13658 of February 12, 2014 (Establishing a Minimum Wage for Contractors); and
- any equivalent state laws.
Evaluation of Subcontractors
In all subcontracts that meet the reporting requirements, contractors will have to require their subcontractors to disclose any violations of the above laws prior to the subcontract award, and the subcontractors must agree to update their disclosures every six months. Contractors will have the administrative task of evaluating the information provided by each subcontractor to determine whether the subcontractor is a responsible source that has a satisfactory track record of integrity and business ethics. Based on the information disclosed, contractors must determine whether to take remedial action against the subcontractor. Contractors may consult with the contracting officer or the LCA in evaluating subcontractor disclosures. Information obtained by the contracting officer regarding subcontractor conduct may be forwarded to the agency suspending and debarring official.
Implementing Self-Reporting and Evaluation
The Order leaves several unanswered questions regarding implementation of the reporting requirements. For instance, the Order does not address the exact timing for the initial disclosures, the amount of information needed, or the content of the disclosures. However, the Order provides for the creation of a website for contractors to use in meeting their self-reporting requirements. Additionally, the Order charges the agencies, when developing regulations, to minimize, to the extent practicable, the burden imposed on contractors for complying with reporting requirements. Additionally, the Order provides for the development of processes for evaluating and collecting information from contractors, as well as processes for contractors to enter into agreements with enforcement agencies.
The Order does not provide guidance regarding what violations of the labor laws will constitute a lack of integrity or business ethics. Instead, it requests amendments to the FAR to identify factors for determining whether serious, repeated, willful, or pervasive violations demonstrate a lack of integrity or business ethics. The new regulations should provide the contracting agency a level of discretion in evaluating whether a contractor is a responsible source; however, the Order provides some guidance for the FAR drafters. In particular, the regulations should indicate that a single violation of law may not necessarily give rise to a lack of responsibility, depending on the nature of the violation. Additionally, the regulations should ensure that appropriate consideration is given to any remedial measures or mitigating factors, and that the contracting officer and LCA should forward information to the suspending and debarring official in accordance with agency procedures.
Mandatory Arbitration Elections
Contractors and subcontractors wishing to submit proposals or bids on contracts and subcontracts exceeding $1 million must agree not to arbitrate claims arising under Title VII of the Civil Rights Act of 1964, or tort claims relating to or arising out of sexual assault or harassment allegations without voluntary consent of the affected individual or independent contractor after the claim arises. However, the Order provides for some exceptions. The provision does not apply to employees covered by a collective bargaining agreement or prior contracts to arbitrate, unless the contract to arbitrate permits the contractor or subcontractor to change the terms of the contract. When a contract to arbitrate is renegotiated or replaced, the new contract will be subject to the post-dispute consent requirement.
In addition to disclosing labor law violations, contractors and subcontractors must disclose certain wage information to individuals performing work under a federal contract. Contractors and subcontractors must provide a document each pay period containing information concerning the individual’s hours worked, overtime hours, pay, and additions to and deductions from pay. The contractor or subcontractor must inform individuals if they are exempt from overtime pay or if they have independent contractor status.
The Executive Order outlines several significant changes for contractors and subcontractors. The exact scheme for addressing these changes is not laid out in the Order, and implementation will depend on the amendments to the FAR. However, contractors and subcontractors should note the new requirements imposed by the Order and evaluate their employment practices in light of its provisions. Various steps may be taken to help alleviate some of the burdens imposed by the Executive Order.
Additionally, the Order highlights the continued focus on federal contractor compliance, and the Administration’s efforts to use its buying power to regulate employment practices. In February 2014, President Obama signed Executive Order 13658 increasing the minimum wage paid by federal contractors. On July 21, 2014, President Obama signed Executive Order 13672 which amended the Equal Employment Opportunity Executive Order to include sexual orientation and gender identity as protected classes with respect to workplace discrimination of federal contractors