On July 31, 2014, President Obama signed an Executive Order, Fair Pay and Safe Workplaces (Order), requiring prospective federal contractors to disclose labor violations and efforts to correct them. The Order also prohibits certain contractors from requiring workers to sign pre-dispute arbitration agreements covering certain civil rights and tort claims. According to a U.S. Department of Labor estimate, there are roughly 24,000 businesses with federal contracts, employing about 28 million workers. The disclosure provisions in the President’s Order apply only to those employers with new federal procurement contracts for goods and services exceeding $500,000, and certain subcontractors. According to a White House Fact Sheet, the Order  will be implemented on new contracts in stages, on a prioritized basis, during 2016. The Order will not take effect until new implementing regulations are in place.

Disclosure of Labor Law Violations

Under the Order, companies that apply for federal contracts will have to disclose any administrative merits determination, arbitral award or decision, or civil judgment rendered against it within the last three years involving labor law violations. The covered  laws include 14 federal statutes and equivalent state laws (as determined by the Department of  Labor) addressing wage and hour, safety and health, collective bargaining, family and medical leave, and civil rights protections. Additionally, contractors must update their disclosures every six months during the performance of an awarded contract. Contactors must also agree to require their subcontractors (where the estimated value of supplies and services also exceeds $500,000) to disclose labor violations within the last three years and provide updated disclosures every six months. The subcontractor requirement does not apply to subcontracts for commercially available off- the-shelf items.

Reporting Process

The Order directs the General Services Administration to develop a single website for contractors to meet their reporting requirements—for this order and for other contractor reporting. Even if they hold multiple contracts across different agencies, covered contractors will only have to provide information to  the one location. Companies with labor law violations will be offered the opportunity to receive early guidance on whether those violations are potentially problematic and remedy any problems. Contracting officers will take these steps into account before awarding a contract and ensure the contractor is living up to the terms of its agreement.

Contracting officers will also take into account whether violations are “serious, repeated, willful or pervasive.” The Secretary of Labor will issue guidance on what constitutes a serious, repeated, willful or pervasive violation. Seriousness may be determined by the number of employees affected, the degree of risk posed or actual harm done by the violation to the health, safety, or well-being of a worker, the amount of damages incurred or fines or penalties assessed with regard to the violation, and other considerations. Whether a violation is repeated in nature may depend on whether the company has had one or more additional violations of the same or a substantially similar requirement in the past three years. Willfulness may be present where the company knew of, showed reckless disregard for, or acted with plain indifference to the matter of whether its conduct was prohibited. A violation may be considered pervasive where the number of violations of a requirement or the aggregate number of violations of requirements in relation to the size of the company. This guidance will also rely on statutory authority where available. Additionally, each government agency will designate a senior official as a “Labor Compliance Advisor” to provide consistent guidance on whether contractors’ actions rise to the level of a lack of integrity or business ethics. This advisor will support individual contracting officers in reviewing disclosures and consult with the Department of Labor.

Paycheck Transparency/Written Notice of Independent Contractor Status

The Order also requires that covered contractors and subcontractors provide workers with certain information each pay period to verify the accuracy  of their paychecks. Paychecks must include hours worked, overtime hours (unless the worker has been informed of his or her exempt status), pay, and any additions or deductions from pay. They must also provide a document to independent contractors notifying them of this status.

Complaint and Dispute Transparency/ Pre- Dispute Arbitration

The Order also prohibits companies with federal contracts valued at or above $1 million from entering into new employment agreements mandating the arbitration of claims under Title VII of the Civil Rights Act of 1964 and torts relating to or arising out of sexual harassment and assault. Military contractors already face this prohibition under what is known as the Franken Amendment to the Department of Defenses’ appropriations  bill.

Implementing  Regulations/  Federal Acquisitions Regulation (FAR) Council

The FAR Council, in consultation with other agencies including the Department of Labor, will propose regulations to carry out the Order.