A new executive order issued on July 31, 2014 by President Obama will require federal contractors to disclose past noncompliance with a series of labor laws. The  executive order also impacts federal contractors’ paycheck disclosure requirements and limits  arbitration of certain disputes. Regulations to implement the executive order are being drafted.  These compliance requirements are purportedly aimed at increasing efficiency and cost savings in federal government contracting.

Disclosure Requirements

The Executive Order directs the Department of Labor to issue regulations that will require  contractors proposing on a contract in excess of $500,000 to disclose any “administrative merits  determination, arbitral award or decision, or civil judgment”  within the preceding three year  period for violations of any of the following:

  • the Fair Labor Standards Act
  • the Occupational Safety and Health Act of 1970
  • the Migrant and Seasonal Agricultural Worker Protection Act
  • the National Labor Relations Act
  • 40 U.S.C. chapter 31, subchapter IV, also known as the Davis-Bacon Act
  • 41 U.S.C. chapter 67, also known as the Service Contract Act
  • Executive Order 11246 of September 24, 1965 (Equal Employment Opportunity)
  • section 503 of the Rehabilitation Act of 1973
  • 38 U.S.C. 3696, 3698, 3699, 4214, 4301-4306, also known as the Vietnam Era Veterans' Readjustment Assistance Act of 1974
  • the Family and Medical Leave Act
  • title VII of the Civil Rights Act of 1964 the Americans with Disabilities Act of 1990
  • the Age Discrimination in Employment Act of 1967
  • Executive Order 13658 of February 12, 2014 (Establishing a Minimum Wage for Contractors)
  • equivalent state laws, as defined in guidance issued by the Department of Labor.

When making responsibility determinations, contracting officers are to provide offerors who make a  disclosure with the opportunity to document the contractor’s actions to correct the violations and  improve compliance and to work the agency Labor Compliance Advisor to address appropriate remedial  actions by the contractor. Contractors are also obligated to update the information every six  months during contract performance. If a disclosure or other information indicates that there has  been a violation of labor law, the agency is expected to consider a range of actions ranging from  assistance to the contractor to avoid further violations to termination and referral to the agency  suspending and debarring official.

Subcontractor Flowdown

The scope of this order also reaches many subcontractors as contractors are required to include  provisions obligating any subcontractor on a subcontract exceeding $500,000, except subcontracts  for commercially available off-the shelf items, to make similar disclosures and updates of  information related to violations of the listed labor laws.  If information related to a violation  by a subcontractor is disclosed, the agency and the Department of Labor “can help” the contractor  to determine appropriate remedial actions related to the subcontractor. In addition the agency can  submit information on the violation to the agency suspending and debarring official.

Past Performance Impact

Information related to violations is to be stored in the Federal Awardee Performance and Integrity  Information System (FAPIIS). In addition, the FAR Council has been directed to amend the Federal  Acquisition Regulation to identify considerations when “serious, repeated, willful, or pervasive  violations” of the listed labor laws demonstrate a lack of integrity and business ethics.

Additional Requirements

In addition to the requirements related to the disclosure of violations of the listed labor laws,  this order also contained sections entitled: Paycheck Transparency and Complaint and Dispute  Transparency. Of the two additional sections, the latter may have significant implications for  contractors outside of the scope of their federal government contracts.

The Paycheck Transparency section requires the inclusion of a clause in federal contracts exceeding  $500,000 requiring contractors to furnish workers, in each pay period, with a document providing  that worker with information on the hours worked, overtime hours, pay, and any additions made to or deductions made from pay. Contractors are to include a similar clause in subcontracts  exceeding $500,000, except for subcontracts for commercially available off-the shelf items.

The Complaint and Dispute Transparency section directly addresses employment agreements and seeks  to void agreements to arbitrate claims arising under title VII of the Civil Rights Act of 1964 or  any tort related to or arising out of sexual assault or harassment absent the voluntary consent of  the employee or independent contractor given after such a dispute arises. This section applies to  any contract in excess of $1 million, but does not apply to contracts for the acquisition of  commercial items or commercially available off-the-shelf items. However, a pre-dispute arbitration  provision in a collective bargaining agreement is not voided by  this  executive order. Contractors  are required to incorporate these provisions in any subcontract in excess of $1 million.

Valid arbitration provisions in employment agreements or contracts with independent contractors  which pre-date the effective date of this executive order are not affected (not voided) with one  major exception. If the employment agreement or contract, which pre-dates Executive Order 13673,  allows the contractor or subcontractor to change the “terms of the contract” with the employee or  independent  contractor, then the otherwise valid arbitration agreement is void. Nothing in this  executive order indicates that the provisions addressing employment agreements applies only to  employees working on a covered federal government contract (subcontract) or defines what is meant  by the “terms of the contract” with the employee or independent contractor.

Future Developments

As the regulations implementing this Executive Order are issued and finalized, Smith Currie will  continue to share that news and any other developments related to federal contracting. We can also  assist your company with any of the issues that this Executive Order requires including determining  whether to and how to comply with the disclosure requirements, review of subcontracts to assure  proper flow-down language or whether employment  agreements  may  be  affected  by  the   arbitration  provisions described above.