Hunton Employment & Labor Perspectives

Today, on August 25, 2016, the Department of Labor issued final Guidance implementing Executive Order 13673, Fair Pay and Safe Workplaces, bleakly referred to by the contractor community as the “blacklisting” order.  The same day, a Final Rule  and Guidance was added to the Federal Acquisition Regulation (FAR) to implement that Executive Order, by the Department of Defense (DoD), General Services Administration (GSA) and National Aeronautics and Space Administration (NASA).

The “blacklisting” order places a new focus on labor and employment issues during the federal procurement process. Covered federal contractors and subcontractors must now disclose to the government previous violations of fourteen different federal labor and employment laws, plus equivalent state counterparts.  Pre-award disclosures must be made before a contract can be awarded to ensure the company is a “responsible” labor source.  Updated reports then are required every six months post-award.  The rule also imposes limits on the arbitration of certain employment claims, and requires specified paycheck disclosures and transparency.

Background

Executive Order 13673, signed by President Obama on July 31, 2014, was allegedly designed to increase efficiency in government contracting.  The federal administration says most companies that seriously violate labor and employment laws are government contractors.  And, a tendency towards legal violations ostensibly correlates to problems performing on government contracts.   So, President Obama issued the Order to help federal contracting agencies distinguish between “responsible” contractors, who are deserving of federal monies, and repeat offenders who are not.  Proposed regulations and guidance were issued on May 28, 2015.  After several notice and comment periods, the Final Rule has now been issued.

Phased-In Coverage

The disclosure obligation for prime contractors begins on October 25, 2016.  Violations from the previous one year must be disclosed when seeking contracts of $50 million or more.  On April 25, 2016, the contract threshold for reporting will drop to $500,000 or more.

The reporting requirement for subcontractors is phased in, and begins a year later, on October 25, 2017.

Effective October 25, 2018, contractors will need to disclose violations from the previous three years.

Most Notable Change – Subcontractor Reporting

A full comparison of the proposed and final rules will take some time, but one significant change is immediately apparent. Under the proposed guidance and regulations, covered subcontractors were required to report their own violations of the listed laws to the prime contractor for assessment, who in turn would certify compliance to the government. Under the final rules, however, subcontractors will make their reports directly to the Department of Labor (DOL).   The DOL then provides advice to the prime contractor to help it determine the subcontractor’s “responsible source” status.

The reporting change, in theory, reduces the burden on prime contractors, since it would be difficult to make an original and unaided assessment of possibly dozens of subcontractors.  But, under the revised approach, the prime contractor retains the obligation to determine its subcontractors are responsible employers. Commenters also question whether this raises a conflict of interest for the DOL and might encourage it to aid its own enforcement by more negatively assessing subcontractor actions to force settlement of active matters.

Impact On Employers

These are developments long dreaded by the federal contractor community. Objections to the reporting requirements have been frequent and vocal since the Order’s issuance two years ago.  Contractors worry the government will unreasonably and arbitrarily “blacklist” a company from eligibility for a particular federal contract. Businesses are understandably concerned with the burdens imposed, particularly large employers that currently have no central repository to track all employment claims, charges, lawsuits, and their outcomes.  Industry and legal groups believe the information is unnecessary and unhelpful, since the Federal government already has access to this information as well as the authority to deny a contract.  Due process concerns abound, since even unproven claims must be reported, sometimes even before a legal or administrative process has run its full course.

Contractors can no longer take a wait-and-see approach regarding the blacklisting order.  Companies should immediately determine whether they will be covered by these reporting requirements as a prime contractor, a subcontractor, or both.  If coverage applies, the company must put proactive measures in place to ensure it is capable of tracking and reporting the required violations.  And, the employer must assess its reportable violations to look for any patterns that could challenge its status as a “responsible source” of federal contracting labor.  In addition, in-house legal departments or outside counsel should be consulted earlier and more regularly when resolving labor and employment disputes, since such resolutions may be reportable for a three year-period.  Even a small single plaintiff action now has the potential for much larger financial consequences.

A more detailed Client Alert, distilling the 500+ page Federal Register publication, will be issued by our firm in the coming weeks to existing Labor & Employment Team clients.  If you are not a client but would like a copy, please contact Christy Kiely at ckiely@hunton.com.