On 31 July 2014, President Obama signed an executive order titled “Fair Pay and Safe Workspaces,” which will require that contractors applying for certain new contracts in 20161 disclose all violations of certain workplace laws over the past three years. The order also provides that the commission of workplace law violations may preclude contractors from being awarded contracts. Accordingly, it is more critical now than ever for federal contractors to avoid employee-related violations.

New requirements 

  1. Disclosure and reporting

The 31 July order requires that contractors report violations of specific workplace laws when applying for certain contracts. This is significant because contractors with a history of violations may be precluded from future contracts. The order requires that, for any contract for goods or services (including construction) where the estimated value of the supplies and services exceeds US$500,000, contractors must now self-report to the best of their knowledge whether there have been any administrative merit determinations, arbitral awards, or decisions or civil judgments (as defined in guidance issued by the Department of Labor) against the offeror within the preceding three-year period. Reporting applies to 14 different workplace laws, including the National Labor Relations Act, Title VII of the Civil Rights Act, and Executive Order 11246.2 These conditions must also be “flowed down” in subcontracts exceeding US$500,000.3

The order also requires that contractors provide bi-annual reports to the contracting officer regarding changes to their initial disclosures. A prime contractor must represent to the contracting agency that it will also require bi-annual reports from covered subcontractors and also must report any violations by subcontractors. Reported violations will be consolidated into a database to be run by the General Services Administration. 

A “paycheck transparency” requirement in the order requires contractors to provide, to their employees, detailed information about individual hours, overtime hours, and deductions and additions to pay. The paycheck transparency obligations also must be flowed down to subcontractors, thus creating additional compliance obligations. 

Violations of covered labor laws during contract performance may subject the contractor to contract termination or referral to the agency suspension and debarment official. However, it is unclear how many or what types of violations would preclude award of a contract. The order states that the proposed regulations shall provide that in “most cases a single violation may not necessarily give rise to a determination or lack of responsibility” (depending on the nature of the violation) (emphasis added). Consideration will be given to remedial measures and mitigating factors. The flexibility and discretion implied by these terms is reinforced by Section 7, which grants the Federal Acquisition Regulation (FAR) Council authority to “propose such rules and regulations and issue such orders as are deemed necessary and appropriate to carry out this order.” 

Although the White House has issued guidance in the form of a White House Fact Sheet indicating that implementation is expected in 2016, Section 10 of the order states that it is “effective immediately” and “shall apply to all solicitations for contracts as set forth in any final rule issued by the FAR.” This raises a question as to whether agencies have discretion to implement these requirements in advance of 2016; and, if so, what standards might apply to self-reported information in the context of responsibility determinations made prior to FAR Council’s final rule.

  1. Anti-arbitration clause

In addition to requiring the reporting of workplace law violations, the order also bans pre-dispute arbitration clauses in certain circumstances. Specifically, the order bans pre-dispute arbitration clauses in contracts exceeding US$1 million for any claims arising under Title VII of the Civil Rights Act of 1964 or any tort arising out of sexual assault or harassment. Such waiver of arbitration may now only be made with the voluntary consent of the employees or independent contractors after such disputes arise.4 

Contractor awareness

The 13 July order is just the latest of several new employment-related rules that have been applied to federal contractors via executive order and regulatory changes. In the past year, the Department of Labor expanded the equal opportunity and affirmative action obligations of federal contractors with respect to veterans and individuals with disabilities. The Obama administration also issued an executive order on 21 July prohibiting discrimination and authorizing Office of Federal Contracts Compliance Programs to promulgate new antidiscrimination obligations with respect to sexual orientation and gender identity. Over the past several years, the National Labor Relations Board (the Board) also has significantly stepped up its scrutiny of employers, by, among other things, meticulously reviewing employee handbooks and policies (including social media and code of conduct policies) to look for any language that might be construed to prohibit employees from engaging in protected, concerted activity. See, e.g., Fresh & Easy Neighborhood Market, 361 NLRB No. 8 (31 July 2014) (holding that employer committed unfair labor practice by requiring, in the “Confidentiality and Data Protection” section of a code of conduct policy, that workers keep employee information “secure” and to use it “fairly, lawfully, and only for its intended purpose” because the Board believed that employees might interpret such rule as prohibiting protected, concerted activity).

In view of the many changes discussed above, it is critical for federal contractors to place a high priority on compliance with workplace laws because violations of such laws are more likely than ever to result in loss of potential government contracts. A possibility exists that even a few relatively small infractions may result in a non-responsibility determination and loss of significant contracting opportunities. 

To minimize this risk, contractors should consider taking steps now, including auditing workplace policies and procedures, training supervisors to act in compliance with law and best practices, and providing employees with internal dispute resolution procedures to allow them to resolve problems internally before a charge or lawsuit is filed.