On August 25, 2016, the Department of Labor (DOL) and the Federal Acquisition Regulatory Council (FAR Council) published Final Rules and Guidance implementing the two-year old Executive Order 13673, Fair Pay and Safe Workplaces Executive Order (EO 13673 or Order), which would give federal agencies greater latitude in denying federal contracts to companies with labor-law violations. Following wide-ranging public comment, the Final Rule and Guidance contain a few noteworthy provision changes from the proposed rule, including a phased-in period schedule. The final rule is scheduled to take effect for certain federal contractors on October 25, 2016.

Fair Pay and Safe Workplaces Executive Order

On July 31, 2014, President Obama signed EO 13673 requiring, among other things, that current and prospective federal contractors and subcontractors disclose labor violations and efforts to correct them--with the stated aim of ensuring that only responsible and compliant contractors are awarded taxpayer-funded contracts. See President Obama Issues Fair Pay and Safe Workplaces Executive Order. Under the Order, companies that apply for federal contracts will have to disclose “any administrative merits determination, arbitral award or decision, or civil judgment” involving labor law violations rendered against it within the three years prior to its application. The covered labor laws include 14 federal statutes and equivalent state laws addressing wage and hour, safety and health, collective bargaining, family and medical leave, and civil rights protections. In addition, EO 13673 directs that the FAR Council amend the Federal Acquisition Regulation to “identify considerations for determining whether serious, repeated, willful, or pervasive violations of labor laws… demonstrate a lack of integrity or business ethic.” Further, the Order mandates that the DOL’s Secretary of Labor develop guidance to assist agencies in determining whether labor law violations were issued for “serious, repeated, willful, or pervasive” violations.

Final Rule & Guidance

In June 2016, the Department of Labor (DOL) issued a lengthy proposed guidance providing a roadmap to contractors and contracting officers for compliance with the Order. See our client briefing, DOL Issues Proposed Guidance for the Fair Pay and Safe Workplaces Executive Order. Now, the FAR Council has issued its lengthy Final Rule and the DOL has published an extensive Guidance interpreting the rule.

The DOL’s Guidance provides detailed definitions for various terms used in the Order and the Final Rule to categorize and classify labor law violations. It also provides a summary of the processes through which contracting agencies will assess a contractor’s overall record of labor law compliance and carry out their other duties under the Order.

Phase-in Schedule

The most significant change for contractors and prospective contractors is the addition of a phase-in period, including a pre-assessment evaluation opportunity beginning next week. The phase-in schedule is as follows:

  • September 12, 2016: The DOL will begin conducting pre-assessments. Contractors and prospective contractors may obtain, on a voluntary basis, an assessment of their labor compliance history in anticipation of a bid on a future contract or acquisition. In conducting the pre-assessment, the DOL will utilize its own guidance to determine whether the requesting entity’s violations are “serious, repeated, willful, or pervasive” and to advise on whether a labor compliance agreement is warranted. (The DOL intends to update its website with further details regarding pre-assessments in the next few weeks). A contractor or prospective contractor may use the DOL’s finding of a record of labor law compliance when submitting a bid on a future acquisition, unless the contractor or prospective contractor discloses subsequent labor law violations. The pre-assessment may also be a mitigating factor in the event of a disclosure of labor law violations. For more information see Preassessment: Starting the Week of September 12.

  • October 25, 2016: The Final Rule is effective October 25, 2016. Mandatory disclosure and assessment of labor law compliance begins for all prime contractors under consideration for contracts with a total value greater than or equal to $50 million. New pre-dispute arbitration requirements for Title VII violations or torts related to sexual assault or harassment are prohibited for contractors with more than $1,000,000 in federal contracts. The reporting disclosure period is initially limited to one year and will gradually increase to three years by October 25, 2018.

  • January 1, 2017: The Paycheck Transparency clause takes effect. The transparency provision requires that contractors with procurement contracts, where the estimated value of the goods or services to be provided exceeds $500,000, provide their employees “a document with information concerning that individual’s hours worked, overtime hours, pay, and any additions made to or deductions made from pay.” The document may omit information concerning overtime hours worked for exempt employees, who have received notification of exempt status. Contractors are also required to incorporate the paycheck transparency requirement into qualifying subcontracts valued in excess of $500,000.

  • April 25, 2017: The total contract value threshold for prime contracts requiring disclosure and assessment of labor law compliance is reduced to $500,000.

  • October 25, 2017: Mandatory assessment begins for all subcontractors under consideration for subcontracts with a total value greater than or equal to $500,000.

  • To be determined: The FAR Council and the DOL will issue a second rule and corresponding guidance, concerning state law equivalents to the federal statutes identified in the Order, violations of which contractors and prospective contractors will also be required to disclose.

Additional changes from the proposed rules include the following provisions:

  • Subcontractors: The Final Rule requires subcontractors to make disclosures directly to the DOL, instead of to the prime contractor. The DOL will then conduct a review and assessment. In turn, the subcontractor will make representations concerning the results of the DOL review to the prime contractor. The prime contractor may consider the DOL review in its evaluation of the subcontractor.

  • Public Disclosures: The Final Rule requires contractors to publicly disclose information concerning “labor law decisions” including arbitral awards or decisions. The DOL defines such decisions as “any award or order made by an arbitrator or arbitral panel in which the arbitrator or arbitral panel determined that the contractor violated any provision of the Labor Laws, or enjoined or restrained the contractor from violating any provision of the Labor Laws.” Both final decisions and decisions not yet final and/or still subject to review are to be disclosed. Disclosed information includes: (1) the employment or labor law that was allegedly violated; (2) the case number; (3) the date of the decision or award; and (4) name of the court, arbitrator, agency, board or commission rendering the decision. Contractors have the option of making additional disclosures, of “other relevant” information; for example, information about mitigating factors, remedial actions, and appeals in progress.

  • Remedies: The Final Rule suggests the use of lower-level remedies for contractors or prospective contractors with labor law violations. In addition, the Final Rule encourages consideration of a contractor’s history of compliance, implementation of remedial actions, addressing of violations by its subcontractors, and a determination of the need for labor compliance agreements.

Pre-Dispute Arbitration: The Order and the implementing Final Rule prohibit entities with contracts valued in excess of $1 million from requiring that employees arbitrate Title VII disputes or torts arising out of or related to sexual harassment or sexual assault. Such disputes may be arbitrated only with voluntary consent obtained after the alleged incident occurs. The requirement extends to subcontracts, other than subcontracts for acquisition of commercial available off-the-shelf items, which are valued in excess of $1 million. The prohibition on mandatory pre-dispute arbitration agreements excludes negotiated collective bargaining agreements and existing agreements entered into before the contractor bids on a new contract covered by the Order, unless the arbitration agreement is subsequently renegotiated.

The Order and implementing regulations and guidance create numerous new obligations for contractors, prospective contractors, and other industry stakeholders. Covered contractors should consult with counsel to determine how these new requirements impact their reporting obligations, including evaluating and implementing policies, procedures, practices to track reportable violations under the Order. Significantly, GOP legislators and business groups opposing the Order are still determined to undertake legislative efforts and pursue court cases to block these rules. In particular, the Republican backed National Defense Authorization Act, which would exempt defense contractors from the Order, is headed to conference for consideration this fall.

Interested parties should also note that still forthcoming is the FAR Council and DOL’s second rule and guidance covering the Order’s application to the state law equivalent statutes. The second guidance will be subject to the same process of public commentary as the recently finalized guidance and regulations. Finally, the DOL states that it will post additional information regarding pre-assessment evaluations on its webpage next week, see Preassessment: Starting the Week of September 12.