On July 31, 2014, President Obama issued the latest in a series of executive orders impacting government contractors. This order, titled “Fair Pay and Safe Workplaces”, mandates contractors self-report any issues they may have had in complying with various labor laws. While the specifics of this new self-reporting requirement will be set out in forthcoming regulations, contractors can expect that their regulatory burdens have taken a substantial step up. In addition, the order impacts the enforceability of arbitration agreements contained in certain employment contracts. Each of these major changes is addressed below.

Applicability and Scope of Self-Reporting Obligations

The order’s self-reporting requirements apply to all contracts, including construction, “where the estimated value of the supplies acquired and services required exceed $500,000.” It also outlines reporting obligations for both before and after contract award. 

Pre-award Reporting Requirements

In applicable procurements, the contracting officer must ensure the solicitation requires a contractor to represent to the best of its knowledge and belief that, within the previous three years, it has not been the subject of an adverse “administrative merits determination, arbitral award or decision, or civil judgment” for violations of specified labor laws. Given the comprehensive nature of the list of labor laws, it may have been more efficient to simply indicate what, if any, laws are not the subject of self-reporting. Contractors must disclose any relevant violations of the following labor laws:

  • the Fair Labor Standards Act
  • the Occupational Safety and Health Act of 1970
  • the Migrant and Seasonal Agricultural Protection Act
  • the National Labor Relations Act
  • the Davis-Bacon Act
  • the Service Contract Act
  • Equal Opportunity Executive Order (EO 11246 of Sept. 24, 1965)
  • 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 of 1990
  • the Age Discrimination in Employment Act of 1967
  • Executive Order 13658 of Feb. 12, 2014 (Establishing a Minimum Wage for Contractors)
  • equivalent state laws as defined in guidance by the Department of Labor

If a contractor has any violations to report, the contracting officer must provide the contractor an opportunity to disclose any corrective actions taken to improve compliance with these laws. The contracting officer will then determine if the contractor is responsible and “has a satisfactory record of integrity and business ethics” based on the guidelines set forth in the final rules. 

It is important to note that the reporting obligations do not end with the prime contractor. For all subcontracts with an estimated value over $500,000 the contractor must require such subcontractors to make the same disclosures and that these disclosures will be updated every six months. Further, the contractor must represent that it will consider these disclosures in determining whether the subcontractor is responsible before awarding the subcontract. This does not apply to contracts for commercially available off-the-shelf items (COTS).

Finally, these pre-award disclosures shall result in the reporting of the contractor to the agency suspension or debarring official “as appropriate” and “in accordance with agency procedures.”  The order does not define what an “appropriate” circumstance is that would result in such a referral. Clearly, for contractors the devil will be in such details and they will need to wait to see how they are addressed in any propose regulations.

Post-Award Actions

The reporting requirements continue after the contract is awarded. Contractors must update its disclosures every six months during performance of the contract. It must also obtain similar updates from its subcontractors. If the contracting officer learns of violations through these additional disclosures or “through other sources” he must decide if he will take action against the contractor. The order suggests that such action may include remedial measures, compliance assistance or, alternatively, contract-related actions such as not exercising an option, contract termination or referral for suspension or debarment. 

The “other sources” anticipated by the order are likely public disclosures such as media reports or court filings. However, it would not be unexpected if “other sources” will include reports from competitors of the contractor. This could give rise to practices now seen in the realm of size and status challenges under SBA and related regulation.

Rule-Making Guidance

The order directs the FAR Council to identify considerations as to whether the reported event(s) represents a serious, willful or pervasive violation and, therefore, demonstrate “a lack of integrity or business ethics” by the contractor. These new regulations shall, in relevant part, indicate that a single violation will not necessarily result in finding a contractor not responsible. Further, the regulations shall ensure that “appropriate” consideration is given to any mitigating factors or remedial measures. 

In addition, the Secretary of Labor is instructed to issue regulations that will assist contracting officers determine if any reported event was for a “serious, repeated, willful or pervasive” violation. The secretary is to generally utilize existing statutory standards and outlines factors to consider if there are no such statutory standards.

Employee Dispute Requirements

In one of the most sweeping changes, the order addresses the manner in which contractors and their employees can address certain disputes. For contracts that have an estimated value of $1 million or more, contractors must agree that they will not arbitrate any claims of sexual discrimination, harassment or assault unless the employee voluntarily consents to such arbitration after such dispute arises. This requirement does not apply to (a) contracts for commercial or COTS items and (b) employees covered by a collective bargaining agreement.  Also exempt are arbitration agreements with employees or independent contractors executed before the bid is submitted. If, however, the contractor reserves the right to change the terms of the employment or independent contractor agreements, then the post-dispute consent requirement will apply. Similarly, the post-dispute consent requirement applies when the contract is renegotiated or replaced. 

Contractors must ensure that these post-dispute consent requirements are included in all subcontracts that exceed $1 million.

Paycheck Transparency

The order also requires contractors to disclose to their employees in their paychecks the hours, worked, overtime hours, pay and any additions or deductions made to their pay. For those employees exempt from overtime, the paycheck must disclose this exemption. Finally, the contractor must disclose that it is treating an individual as an independent contractor and not as an employee.

Conclusion

This order enacts sweeping changes for federal contractors and their reporting obligations under various labor laws. The reporting obligation may have an impact on how contractors elect to handle disputes involving alleged violations of such laws. As the regulatory process unfolds contractors must pay close attention so they may plan how they will address these new requirements in their business operations. 

A copy of the "Fair Pay and Safe Workplaces" executive order can be found here.