It is no secret that the current political situation in Washington, D.C. has resulted in unprecedented gridlock. Given this state of affairs, President Barak Obama has resorted to implementing his policy initiatives, to the extent he can, by bypassing Congress and utilizing his executive powers. At his 2014 State of the Union address, he announced: "So wherever and whenever I can take steps without legislation to expand opportunity for more American families, that's what I'm going to do." He has followed through on his promise, and federal contractors have borne the brunt of his initiatives.
Indeed, in 2014 - which President Obama has dubbed "A Year of Action" - contractors have faced an onslaught of new and proposed requirements that increase the cost of compliance, threaten their ability to secure and retain contracts and set new traps for the unwary. In this article, we analyze a number of the key Executive Orders and other executive actions undertaken in 2014.
Executive Order 13673 - Fair Pay and Safe Workplaces
On July 31, 2014, President Obama signed the Fair Pay and Safe Workplaces Executive Order. The Order imposes a host of new disclosure and compliance obligations on federal government contractors with federal procurement contracts valued at more than $500,000. The White House expects that the Order will be implemented on new contracts "in stages on a prioritized basis, during 2016."
Among other things, the Order will require contractors to provide pre- and post-award disclosures of violations of specified labor law violations. Agencies will require prospective contractors and subcontractors to disclose violations of fourteen specified federal labor and employment laws, as well as their state analogues, during the prior three years in connection with their bids for government contracts. The contracting agency's Labor Compliance Advisor (LCA) and contracting officer (CO) will assess the bidder's disclosed violations and explanations to determine whether they are so egregious that they require the bidder to undertake remediation as a condition to receipt of the contact or disqualify the bidder from consideration.
The Order takes a broad view of what constitutes a violation. Companies will be required to disclose any "administrative merits determination, arbitral award or decision, or civil judgment" against the contractor for any of fourteen federal laws as well as "equivalent State laws." The Order suggests that contractors will not be required to disclose settlements. However, each of these phrases will be defined through the yet-to-be-proposed implementing regulations.
In addition, contractors will be required to update their violation disclosures every six months during contract performance. The CO and LCA will evaluate each additional disclosure by a contractor or subcontractor. The CO and LCA will have the authority to: (1) provide compliance assistance; (2) require the contractor to take remedial actions to address the violations or non- compliance; (3) decide not to exercise an option on or extend a contract; (4) terminate the contract; (5) refer the violation to the agency responsible for compliance; and/or (6) refer the contractor to the agency suspending and debarring official.
Even though contractors are not yet subject to the requirements set forth in the Order, they need to begin preparing now. Once the regulations are in place, contractors will be required to disclose violations from the prior three years, meaning that decisions made today will impact those disclosures and, potentially, whether the company wins or loses its bid for a government contract. As such, contractors need to factor the new disclosure requirements into their risk assessment analysis when facing claims or threatened claims.
On a more basic level, contractors need to begin thinking about processes with respect to their pre-award bid disclosures. Preparing bids for federal contracts often is a down-to-the-wire exercise. For this reason, contractors must establish a clearinghouse where they vet all violations to determine whether they are subject to disclosure and draft pre-approved language to be used for pre-award disclosures. This process should be controlled by in-house counsel, and constantly updated to assess new potential violations.
Other provisions of the Order include:
- Arbitration Agreements: Companies with federal contracts valued at $1 million or more cannot require employees to enter into pre-dispute arbitration agreements for disputes arising out of Title VII of the Civil Rights Act or from torts related to sexual assault or harassment. This prohibition expands the restriction that already applies to many defense contractors.
- Pay Check Information: Contractors must provide workers with specific information on their paycheck, including hours worked, overtime hours worked, total pay, and any additions or deductions made to employees' pay. Also, if a contractor is treating a worker as an independent contractor, the contractor must inform the individual of their status as an independent contractor.
Executive Order 13672 - Prohibition on Discrimination on the Basis of Sexual Orientation and Gender Identity
On July 21, 2014, President Obama issued an Executive Order that bans workplace discrimination against lesbian, gay, bisexual, and transgender ("LGBT") workers of federal contractors. The Order directs the Department of Labor to issue proposed regulations implementing the Order within 90 days. The Office of Federal Contract Compliance Programs ("OFCCP") will likely be charged with enforcing these new compliance obligations. Although the contours of OFCCP's enforcement plans are unclear, they could potentially include affirmative action obligations much like the well-established requirements for women and minorities. Contractors will be closely watching for clues about how the government will implement the Order.
On August 19, 2014, shortly after the issuance of the Order, the Office of Federal Contract Compliance Programs (OFCCP) issued a directive to "clarify that existing agency guidance on discrimination on the basis of sex . . . includes discrimination on the bases of gender identity and transgender status." In so doing, the OFCCP clarified that it already considers gender identity and transgender status to be covered by its existing authority.
The Order is unlikely to impact substantially the policies of larger government contractors. The top 50 federal contractors, which receive nearly half of all federal contracting dollars, prohibit the forms of discrimination banned by the order. However, smaller government contractors will have to examine their policies and ensure that they follow this new directive.
Executive Order 13655 - Non-Retaliation for Disclosure of Compensation Information
On April 8, 2014, President Obama issued an Executive Order that prohibits retaliation against any employee or applicant for inquiring about, disclosing, or discussing compensation information. The prohibition applies whether the applicant or employee discloses his own compensation information or that of another applicant or employee. However, the prohibition generally does not apply when an employee who has access to compensation information as part of his or her essential job functions discloses information to an individual who is not entitled to access to the information. Although the Order went into effect immediately, on September 15, 2014, the Secretary of Labor issued a Notice of Proposed Rulemaking proposing implementing regulations.
The proposed rule tracks the Order, barring federal contractors from firing or otherwise retaliating against employees or applicants for discussing their pay or the pay of their co- workers. The proposed rule also establishes two defenses that contractors may raise against allegations of violations of this prohibition. The first permits contractors to assert, as a general defense, that the allegedly discriminatory employment decision was based on a legitimate workplace rule that does not violate the regulation. The second, consistent with the text of the
Order, permits contractors to assert the defense that non-disclosure of compensation information was part of the employee's essential job functions.
The Order and proposed rule coincide with increased activity by the National Labor Relations Board (NLRB) on this issue. The NLRB views restrictions on employees' ability to share information about their compensation to constitute a violation of their right to engage in concerted activity under the National Labor Relations Act. All employers should therefore ensure that their employee handbooks, confidentiality agreements, stock and bonus plans, and other policies do not expressly prohibit employees from discussing their compensation with their colleagues. Managers should also be counseled about disciplining employees who share compensation information with their colleagues.
Presidential Memorandum - Annual Summary Compensation Data
On April 8, 2014, President Obama also issued a Presidential Memorandum directing the Secretary of Labor to propose rules requiring Federal contractors and subcontractors to submit to the DOL summary data on the compensation paid to their employees by sex and race. Those proposed rules were published on August 8, 2014.
Those rules, if adopted, will require federal contractors and subcontractors to provide the following summary information on what it calls an "Equal Pay Report":
- The total number of workers within a specific EEO-1 job category by race, ethnicity and sex;
- Total W-2 earnings, defined as the total individual W-2 earnings for all workers in the job category by race, ethnicity, and sex; and
- Total hours worked, defined as the total number of hours worked for all workers in the job category by race, ethnicity, and sex.
In the proposed rule, the OFCCP states that it plans to use the compensation disclosures "to establish objective industry standards for identifying potential discrimination in employee compensation." These standards will be published annually. The OFCCP will then "use these standards to determine which contractors it will prioritize and schedule for compliance evaluations." The OFCCP is accepting comments on the proposed rule through November 6, 2014.
The final rule is not expected to be published until mid-2015, at the earliest. Even so, government contractors should experiment with creating Equal Pay Reports - in a manner that ensures the process is subject to attorney-client privilege - to identify any discrepancies in their data or disparities in pay among employees within their EEO-1 job categories. Government contractors must also be prepared for the OFCCP's publication of industry standards with
respect to pay. Those contractors whose employees are paid less than the published "industry standards" may find themselves faced with disgruntled employees or the target of poaching by competitors. Now many be the time for contractors to review the competitiveness of their wages and make adjustments as necessary to ensure their employees' compensation reflects the market.
Executive Order 13648 - Minimum Wage for Contractors
On February 12, 2014, President Obama issued an Executive Order to increase the minimum wage for employees working on covered federal contracts and subcontracts to $10.10 an hour. The increase will apply to contracts issued for solicitations on or after January 1, 2015. The minimum wage will increase each year after 2015 in accordance with changes in the Consumer Price Index. The Order encourages agencies, prior to the effective date, to "take all steps that are reasonable and legally permissible to ensure that individuals working pursuant to those contracts" are paid $10.10 an hour.
The Order will apply to a wide range of federal government contracts, including (1) procurement contracts for services or construction; (2) contracts covered by the Service Contract Act; (3) contracts for concessions; and (4) contracts that are (a) entered into the with the Federal Government in connection with Federal property or lands and (b) covered by the Fair Labor Standards Act, Service Contract Act, or Davis-Bacon Act.
The Order specifies that covered federal contracts must include a clause increasing the minimum wage. Moreover, contractors must incorporate that clause into lower-tier subcontracts. The Secretary of Labor must issue regulations by October 1, 2014 to implement the Executive Order. The Secretary can provide "exclusions from the requirements set forth in this order where appropriate."
The breadth of the impact of the Order is unclear. The White House's press release accompanying the executive order estimates that there "are hundreds of thousands of people" subject to the executive order currently making less than $10.10 an hour. One study cited in press reports prior to issuance of the executive order estimated that up to 2 million employees working on federal contracts make less than $12.00 an hour. The Order is expected to have a larger impact on lower-skilled and entry-level jobs and jobs in rural areas, as those jobs are most likely to be under $10.10 an hour.
Contractors should evaluate their contracts and workforce to determine (1) which contracts subject to the Order are up for renewal during the remainder of this year and after January 1, 2015 and (2) which job classifications in those contracts currently make below $10.10 an hour. Contractors renegotiating contracts this year should be prepared to receive proposed amendments from contracting officers that increase the minimum wage immediately.
Contractors should also assess the extent to which wage increases will affect the pricing of their bids and may be considered a cost reimbursement under their respective contracts.
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As the survey above demonstrates, 2014 has brought a host of new requirements and compliance headaches for federal contractors and subcontractors - and there are still more than three months left in the "Year of Action." Contractors need to stay on top of the constantly-shifting requirements imposed on them. One way to do that is to subscribe to Proskauer's Government Contractor Compliance & Regulatory Update Blog (www.governmentcontractorcomplianceupdate.com), where we monitor and provide timely analysis of the latest developments of concern to government contractors.