Executive Summary: On July 31, 2014, President Obama signed the "Fair Pay and Safe Workplaces" Executive Order ("EO"), requiring federal contractors and subcontractors bidding on contracts over $500,000 to disclose any violations that they have incurred under 14 different federal workplace laws (and their state-law equivalents) in the last three years. The EO also prohibits contractors and subcontractors with contracts exceeding $1 million from requiring employees to arbitrate their Title VII or sexual assault or harassment claims. Additionally, it requires contractors to provide employees with paycheck details regarding hours worked, overtime hours, and additions or deductions to their pay. The EO is expected to be implemented in phases through 2016, and is another milestone in the President's "Year of Action" according to the White House's Fact Sheet. The new EO comes right on the heels of President Obama's order prohibiting federal contractors from discriminating on the basis of sexual orientation and gender identity.

Required Disclosures of Labor Violations (Compliance with Labor Laws):

The most significant requirement of the EO is its attempt to "hold corporations accountable" by requiring federal contract bidders to state whether "any administrative merits determination, arbitral award or decision, or civil judgment" has been rendered against them in the preceding three years for any of the following 14 federal laws or their state-law equivalents:

  • Fair Labor Standards Act
  • Occupational Safety and Health Act of 1970
  • Migrant and Seasonal Agricultural Worker Protection Act
  • National Labor Relations Act
  • Davis-Bacon Act
  • Service Contract Act
  • Executive Order 11246 (equal employment opportunity)
  • Section 503 of the Rehabilitation Act of 1973
  • Vietnam Era Veterans' Readjustment Assistance Act of 1974
  • Family and Medical Leave Act
  • Title VII of the Civil Rights Act of 1964
  • Americans with Disabilities Act of 1990
  • Age Discrimination in Employment Act of 1967
  • Executive Order 12658 of February 12, 2014 (new minimum wage)

The disclosure requirement is triggered for any new contract for goods or services, including construction, valued at more than $500,000. The bidder making a disclosure of violations will have an opportunity to disclose what steps it has taken to correct the violations. The contracting officer will be required to consult with its agency's labor compliance advisor, a new position created by the EO, to determine whether a bidder is responsible, that is, "has a satisfactory record of integrity and business ethics." According to the White House Fact Sheet on this EO, while the EO "ensure[s] that the worst actors, who repeatedly violate" the laws "don't get contracts," the overall goal of the EO is not to deny contracts but to "help more contractors come into compliance with workplace protections." To that end, a bidder may seek "early guidance on whether [its] violations are potentially problematic" and remedy problems before an award is made.

The reporting requirements also flow down to subcontracts for supplies or services exceeding $500,000 that are not for commercially available off-the-shelf items. The contracting officer will require the contractor to state that it will require subcontractors to make similar disclosures and that the contractor will make a responsibility determination as to the subcontractor. The contracting officer will be made available for consultation with a contractor to determine the propriety of including the subcontractor.

During performance of the contract, both contractors and subcontractors must provide updates every six months. If a new violation is disclosed, the contracting officer may take responsive action, ranging from the provision of compliance assistance to termination of the federal contract.

The Federal Acquisition Regulations, which cover federal government acquisitions and contracting, will be amended to implement this EO. The EO also requires the Administrator of General Services to develop a website for federal contractors to use to report the information required under this order.

Voluntary Arbitration of Title VII Claims (Complaint and Dispute Transparency):

Although most of the EO focuses on the disclosure requirement, the prohibition on mandatory arbitration of certain discrimination and harassment claims could have a significant impact on contractors and subcontractors. Specifically, the EO requires that for all contracts exceeding $1 million, the decision to arbitrate Title VII or sexual harassment or sexual assault tort claims may only be made with the voluntary consent of the employee or independent contractor after such a dispute arises.

As with the rest of the EO, this requirement also applies to subcontracts (with the same $1 million threshold requirement). It will not apply to parties covered by collective bargaining agreements or other valid arbitration contracts entered into before the contractor or subcontractor bid on the covered federal contract, unless the contractor or subcontractor is permitted to change the terms of the contract with the employee or independent contractor, or when the contract is renegotiated or replaced. It also will not apply to contracts or subcontracts for the acquisition of commercial items or commercially available off-the-shelf items. A number of issues relating to this provision remain unclear, including whether the prohibition applies to all employees or only those working on the federal contract. The implementing regulations undoubtedly will clarify this issue.

Required Hours Worked and Pay Disclosures (Paycheck Transparency):

The EO also includes a provision relating to "paycheck transparency," requiring contractors to provide details relating to hours and pay, which most contractors already provide. This provision requires employers to provide their employees with information relating to the individual's hours worked, overtime hours, pay, and additions or deductions made to that pay. Employers must also provide formal notice to an individual if that individual is classified by the employer as an independent contractor. This aspect of the EO flows down to subcontractors as well. 

Employers' Bottom Line: This is a significant change to the existing landscape for reporting requirements for federal contractors and subcontractors as well as the use of mandatory arbitration provisions. Although the EO will take time to implement, and challenges will undoubtedly be raised as to the precise meaning of different provisions of the EO, it is clear that the Obama Administration has added teeth to its oversight and enforcement of workplace laws. Federal contractors should immediately begin considering the new consequences of any potential employment and labor law violations, as a violation incurred tomorrow may be a required disclosure when the EO takes effect in 2016.