President Obama recently signed the third of three Executive Orders (E.O.s) issued this year, which will significantly change the labor and employment compliance landscape for government contract prime contractors and subcontractors. These E.O.s are: “Fair Pay and Safe Workplaces” Executive Order (July 31, 2014); E.O. 11246 (Equal Employment Opportunity, Amended); and E.O. 13658 (Establishing a Minimum Wage for Contractors).
Collectively, the three E.O.s expand the current equal employment opportunity protections to include sexual orientation and gender identity; increase the minimum wage requirement; require the collection and reporting of wage data by sex and race; require the collection and reporting of 15 categories of federal and state labor law violations; and require government contracting officers and prime contractors to evaluate and consider disclosed labor law violations in making a responsibility determination for the award of prime contracts and subcontracts. These E.O.s and the required implementing regulations will create a complex web of new requirements and compliance issues, and increase costs in general for prime contractors and subcontractors. Additional information concerning each of the E.O.s is provided below.
Government contract prime contractors and subcontractors need to begin assessing the impact of the requirements of these E.O.s on their labor and employment compliance practices and procedures now. They should also carefully follow and consider participating in the notice and public comment process, either directly or through trade associations, as the implementing regulations are issued.
A. “Fair Pay and Safe Workplaces” Executive Order
On July 31, 2014, President Obama signed the “Fair Pay and Safe Workplaces” Executive Order. The stated purpose of this E.O. is to ensure that government contractors understand and comply with labor laws designed to promote safe, healthy, fair, and effective workplaces. The E.O. requires that all prime contracts for goods and services where the estimated value exceeds $500,000, along with subcontracts that exceed $500,000 except for commercially available off-the-shelf items, include provisions for the offeror to represent, to the best of its knowledge and belief, whether there has been any administrative merits determination, arbitral award or decision, or civil judgment, as defined in guidance issued by the Department of Labor, rendered against the offeror within the preceding three-year period for violations of the following federal and state labor laws or Executive Orders (collectively, “labor laws”):
- 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;
- the Davis-Bacon Act;
- the Service Contract Act;
- E.O. 11246;
- Section 503 of the Rehabilitation Act of 1973;
- 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;
- the Age Discrimination in Employment Act;
- E.O. 13658; or
- Any equivalent state law, as defined in guidance issued by the Department of Labor.
The impact of the “Fair Pay and Safe Workplaces E.O.” on government contractors’ compliance processes cannot be understated. Negative ramifications to contractors include increased administrative burdens, costs, delayed contract awards, and potential administrative actions, including suspension and debarment.
The President’s expectation is that the E.O. be implemented on new contracts in stages, on a prioritized basis, during 2016.
Additionally, this E.O. adds to agency contracting officers’ pre-award responsibility determinations. Any contractor who—according to its representations and certifications, indicated it has violated one of the above-specified labor laws during the preceding three-year period—will need to advise the contracting officer of any steps taken to correct those violations and improve compliance with the violated labor laws. Contractors should therefore expect to address remedial measures in response to these labor law violations prior to the receipt of any federal contract.
Moreover, the E.O. requires contractors to impose the same obligations on their subcontractors. Contractors should therefore expect to perform the additional compliance measure of evaluating whether a subcontractor is a responsible source based on the information it submitted to the prime contractor.
The administrative burden does not end there, as the E.O. also demands that every six months post-award, contractors update the information provided in their pre-award representations and certifications. Contractors should immediately take heed of this E.O. as contracting officers, in consultation with their (newly implemented) Labor Compliance Advisors, shall refer contractors who affirm a specified labor law violation to their agency’s suspending and debarring official (SDO). Open-ended questions remain as to the specifics of the role of the agency Labor Compliance Advisor, but the E.O. makes clear that the position will serve as a gateway to agency SDOs.
Finally, the E.O contains “Paycheck Transparency” and “Complaint and Dispute Transparency” provisions. Paycheck Transparency requires contractors to provide employees each pay period with information concerning the regular and overtime hours they worked, as well as any additions to or deductions from their pay. This provision has not been controversial and most contractors are already complying with the requirements. The Complaint and Dispute Transparency provision is highly controversial because contractors and subcontractors with contracts valued at $1 million or more, will not be allowed to include mandatory arbitration agreements in their employment contracts with respect to Title VII and certain workplace harassment tort actions. Instead, despite a history of pro-arbitration rulings by the U.S. Supreme Court, the E.O. provides that any agreement to arbitrate may only be made with the voluntary consent of employees or independent contractors after a dispute arises. The provision will not apply to contracts subcontracts for the acquisition of commercial items or to employees covered by any type of collective bargaining agreement. It will also not apply to valid contracts to arbitrate that were entered into with employees or independent contractors prior to the contractor or subcontractor bidding on a contract or subcontract covered by this E.O. However, this provision will have a big impact on large contractors and subcontractors that use mandatory arbitration provisions to prevent employees from bringing claims as class and collective actions.
B. Additional Executive Orders and Proposed Rulemakings
On July 21, 2014, the President increased protections for lesbian, gay, bisexual, and transgender employees from discrimination, by issuing an E.O. amending the prior E.O. 11246 (Equal Employment Opportunity) (link is to the pre-July 21, 2014 text). The amended E.O. applies to all federal contractors and subcontractors, as well as all federally-assisted construction contractors and subcontractors with contracts exceeding $10,000. It prohibits discrimination in employment decisions on the basis of race, color, religion, sex, sexual orientation, gender identity, or national origin.
The Secretary of Labor is required to issue regulations implementing the amendment within 90 days, and the new requirements will apply to contracts entered into on or after the effective date of those regulations. Although many contractors already prohibit discrimination in any form, contractors will need to document and ensure that their policies incorporate these additional categories as protected from discrimination or workplace harassment.
It is notable that the amendments did not affect the religious exemption stated in E.O. 13279, which allows religiously affiliated contractors to consider religion when hiring. Therefore, an applicant for a position with a particular religious organization may be rejected because he or she is not a member of that religion, but not due to his or her sexual orientation or gender identity.
In addition, on August 8, 2014, the Department of Labor followed-up by publishing a proposed rule that would require government contractors to provide information to the Department of Labor on how much they pay workers of different sexes and races, calling the data collection push a “critical tool” to eliminate pay bias. This proposed rule would require federal contractors and subcontractors to submit an annual “Equal Pay Report” on employee compensation to the Office of Federal Contract Compliance Programs (OFCCP). The reporting requirement would apply to companies that file EEO-1 reports, have more than 100 employees, and hold federal contracts or subcontracts worth $50,000 or more for at least 30 days.
The language in the proposed rule has already raised concerns among federal contractors. Under the proposed rule, OFCCP would be able to collect summary employee pay and demographic data with the aim of assisting OFCCP in directing its enforcement resources toward contractors whose summary compensation data suggest potential pay violations. Specifically, the proposed rule requires that contractors report the following data: (1) total number of workers within a specific EEO-1 job category by race, ethnicity, and sex; (2) 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 (3) total hours worked, defined as the total number of hours worked for all workers in the job category by race, ethnicity, and sex. It is also notable that the rule requires total W-2 earnings rather than the base compensation amounts often provided to OFCCP during audits.
The data that contractors would produce, and that OFCCP would collect, is far more detailed than in an EEO-1 report, which requires no data concerning compensation. This creates a distinct possibility that contractors, who are not discriminating, but may have pay statistics that catch OFCCP’s attention, could find themselves facing increased OFCCP audit scrutiny. Failure to comply with the proposed rule, or with OFCCP audits triggered by the proposed rule, could lead to wage and hour violations, delayed contract payments, and/or adverse administrative actions, including possible suspension and debarment.
Finally, President Obama previously issued E.O. 13658 (Establishing a Minimum Wage for Contractors) on February 12, 2014. The E.O. establishes $10.10 per hour as the minimum wage for federal contractors and subcontractors beginning January 1, 2015. Beginning January 1, 2016, and annually thereafter, the Secretary of Labor will determine the new amount of the minimum wage. The public comment period on the Department of Labor Notice of Proposed Rule-Making to implement this E.O. closed on July 28, 2014, and the Department’s final implementing regulations are to be issued by October 1, 2014. Additionally, the FAR Council, which oversees the regulation of many federal government contracts, is to issue regulations within 90 days of the final Department of Labor regulations, which will include a required clause for all federal procurement contracts that are subject to the E.O.
In conclusion, contractors should immediately begin assessing the impact of these new requirements, and begin adjusting their internal practices and processes to meet the new requirements when they are finalized and included in future contracts. There is no doubt the recent federal actions will increase administrative burdens and costs upon all those who contract with the government. However, those contractors who evaluate and begin planning to meet the increased burdens now will be better situated to compete for future contracts containing these requirements, manage their compliance risks, and avoid potential contractual or administrative sanctions.