U.S. presidential administrations historically have sought to use the federal procurement system, and specifically the regulations that apply to contractors and subcontractors, as a means to implement policies that would require legislation to impose more broadly. The previous administration was particularly active in this way, focusing significant efforts on promulgating executive orders, regulations, and guidance intended to enhance protections of employee rights through the imposition of new compliance obligations on contractors and subcontractors. As a result of these efforts, the burdens placed on contractors and subcontractors in this area have expanded rapidly, especially during the final two years of the Obama administration.

It is still not exactly clear how President Trump’s administration will attempt to use the federal procurement system to impose its own policy goals. It is generally expected that in the interest of reducing the regulatory burden placed on federal contractors, the recent wave of new regulations focused on employment will recede under the new administration. But that is not to suggest the Trump administration will not impose new regulations reflecting its own priorities. For instance, many expect that the administration may introduce new “buy American” regulations that would expand the scope of procurements for which contractors are required to provide products and services sourced strictly from the United States.

The following presents recent developments related to the heightened Department of Labor (DOL) requirements that can apply to aerospace, defense, and government services (ADG) companies that hold U.S. government contracts and subcontracts and our projections for changes to some of these rules in 2017.

Fair Pay and Safe Workforces1

Perhaps the Obama administration’s procurement-related rulemaking that garnered the most attention was the DOL’s so-called “Fair Pay and Safe Workforces” rulemaking. But most of the resulting regulations, which were finalized in August 2016 and codified in a new Federal Acquisition Regulation (FAR) subpart 22.20, never took effect. The rules would have required contractors and subcontractors to disclose all violations of certain labor laws, including the Fair Labor Standards Act (FLSA), the Occupational Safety and Health Act of 1970 (OSHA), the Davis Bacon Act (DBA), the Service Contract Act (SCA), and the equal employment opportunity (EEO) and affirmative action requirements under Executive Order No. 11246,2 that have occurred in the preceding three years. Contractors would have been required to disclose violations even if not finally adjudicated and regardless of whether the underlying conduct occurred in connection with the award or performance of a government contract or subcontract. Agencies would have been expected to use these disclosures when assessing contractor responsibility. Concerned that the rule would result in companies being excluded from opportunities based on reporting of relatively minimal violations, the industry dubbed this the “blacklisting rule” and challenged it in federal district court, ultimately securing an injunction halting implementation of the reporting requirements.

Under a separate part of the rule, the “paycheck transparency” requirements, a new clause prescribed for contracts valued over US$500,000 required contractors to provide detailed wage statements to employees performing work under a covered contract subject to the wage records requirements under the FLSA, the DBA, and the SCA. This aspect of the rule, which took effect on 1 January 2017, was not stayed and thus did apply for several months.

Earlier this year, the House of Representatives and Senate passed resolutions under the Congressional Review Act (CRA) to quash the rule and proscribe any similar regulation without express Congressional authorization. On 27 March 2017, President Trump signed the resolution, formally invalidating the entire rule, including the "paycheck transparency" requirement, and imposing a major impediment to future rulemakings in the same vein. See HL Focus on Regulation alert here.

Contractor minimum wage3

On 7 October 2014, the DOL issued a final rule that implemented Executive Order No. 13658, Establishing a Minimum Wage for Contractors. This rule raised the minimum wage to US$10.10/hour for workers performing “on or in connection with” certain types of federal contracts and “contract-like instruments” resulting from solicitations issued on or after 1 January 2015 or awarded outside the solicitation process on or after 1 January 2015. The rule applies to four categories of prime and subcontractor agreements performed in the United States for the U.S. Government: (1) contracts for construction under the DBA valued at more than US$2,000; (2) service contracts under the SCA valued at more than US$2,500; (3) concessions contracts; and (4) contracts in connection with federal property or lands and related to offering services for federal employees, their dependents, or the general public. Executive Order No. 13658 and the DOL minimum wage final rule for acquisitions subject to the FAR are implemented in FAR Subpart 22.19 and FAR 52.222-55.

With some limitations, the minimum wage applies to all workers performing on or in connection with a covered contract or subcontract whose wages are governed by the FLSA, SCA, or DBA. If a worker is entitled to a higher wage rate under another federal, state, or local law, the contractor or subcontractor must pay the worker at the higher wage rate. The rule also imposes affirmative requirements on covered contractors and subcontractors related to posting of notices, minimum frequency of pay, and record retention.

Although the Trump administration has not commented directly on this rule, it is possible that it could revoke or significantly revise the current rule4. In the meantime, however, contractors will need to comply where the requirement is incorporated into contracts and subcontracts. To do so, it is critical for covered contractors and subcontractors to (1) be familiar with wage rates and escalations published by the Secretary of Labor, (2) identify any employees covered by the new minimum wage requirement, (3) adjust the wages of employees as necessary, (4) post the required notice concerning employee rights, and (5) adjust recordkeeping policies as necessary.

Prohibition of discrimination on the basis of sexual orientation and gender identity5

In 2015, the DOL implemented President Obama’s Executive Order No. 13672, which amended Executive Order No. 11246 to prohibit discrimination by federal contractors and subcontractors on the bases of sexual orientation and gender identity, in addition to the pre-existing protected categories of race, color, religion, sex, and national origin.6 To comply with the revised regulations, contractors and subcontractors, if they have not done so already, need to (1) update their EEO policy statements and internal handbooks and other documentation to include sexual orientation and gender identity, (2) update subcontract flowdown clauses to include the new requirements, (3) include the expanded nondiscrimination statement in job advertisements, (4) post the required workplace notices, and (5) add these categories to equal employment training.7

Sex discrimination guidelines for federal contractors8

In 2016, the DOL issued a final rule updating the Sex Discrimination Guidelines of the Office of Federal Contract Compliance Programs (OFCCP), which administers DOL’s nondiscrimination rules applicable to employers that do business with the federal government. The rule replaced outdated guidance (from the 1970s) with the DOL’s recent interpretations of Executive Order No. 11246 (as amended) and Title VII of the Civil Rights Act of 1964. The guidance is comprehensive, covering many topics related to sex discrimination, including discrimination against transgender employees, pregnancy discrimination and accommodation, sex stereotyping, and compensation disparities. The rule, which took effect on 15 August 2016, applies to employers with federal contracts or subcontracts totaling US$10,000 or more, unless otherwise exempt. The rule applies to all employees who work for a covered employer, and as such, it reaches employees who do not work on federal contracts.

Ban on pay secrecy9

Under the Obama administration, the DOL issued a rule prohibiting federal contractors and subcontractors from discharging or otherwise discriminating against employees and job applicants for inquiring about, discussing, and/or disclosing their compensation or the compensation of another employee or applicant, subject to certain limited defenses. The final rule, which implements Executive Order No. 13665, Non-Retaliation for Disclosure of Compensation Information, and took effect 11 January 2016, applies to contractors with covered federal contracts and subcontracts valued at more than $10,000 entered into after 11 January 2016. When it applies, the rule bans policies, practices, or rules that prohibit or tend to prohibit employees and applicants from discussing or disclosing compensation. To comply, contractors must incorporate the new nondiscrimination provision into their employee personnel policies; post the nondiscrimination provision electronically or physically in conspicuous places available to employees and job applicants; and review their policies and practices to remove any restrictions on disclosing compensation information that is protected.

Paid sick leave rule10

In September 2016, the DOL issued a final rule implementing Executive Order No. 13706, which requires that federal contractors provide employees with paid sick leave. The new rule applies to specified types of service contracts, including most covered by the DBA and the SCA.11 The rule, which applies to covered contracts solicited or entered into after 1 January 2017, encompasses employees who work on or in connection with a covered contract and that have wages governed by the FLSA, DBA, or SCA. To comply, contractors will need to consider, among other steps, preparing to update their employee policies and to modify their benefits systems consistent with the accrual of sick leave and other mandatory terms.

Use of background checks12

In January 2013, the OFCCP issued Directive 2013-02 establishing its enforcement position on employer use of criminal background checks. According to the OFCCP, taking adverse employment action (e.g., refusing to hire) based on criminal record information can constitute discrimination on the basis of race or national origin.

For most contractors, the following best practices, set forth in the OFCCP’s directive, may be instructive: (1) eliminating any per se exclusion policies and instead conducting an individualized assessment of whether criminal conduct warrants an adverse hiring or other employment decision; (2) refraining from inquiring about criminal conduct on job applications and limiting any inquiries about criminal conduct to information that is job-related for the position in question and consistent with business necessity; and (3) keeping all information about an applicant’s or employee’s criminal records confidential.

Conclusion

ADG companies that support the U.S. Government have long understood that certain strings attach to performing work for the government, either directly or through subcontracts. Those companies must comply with the terms and conditions of their current government contracts and subcontracts, including not only the longstanding EEO and affirmative action requirements, but also new terms that implement policies adopted under the prior administration. At the same time, ADG companies should recognize that the rules in this area are likely to continue to evolve over the course of the new administration and that those changes may necessitate yet another pivot. We will be monitoring developments from the Trump administration that could affect the compliance obligations imposed on ADG companies that serve as federal contractors and subcontractors. For now, however, it is critical for ADG companies that hold government contracts and subcontracts to understand and comply with the current rules.