Government Contracts Monitor

Fair Pay and Safe Workplaces Executive Order Creates New Compliance and Responsibility Issues for Federal Contractors and Subcontractors

August 12, 2014

On July 31, 2014, President Obama signed an Executive Order placing new restrictions and burdens on federal contractors directly related to labor and employment law compliance issues. The Executive Order became effective upon signing. Fair Pay and Safe Workplaces Executive Order. It applies to both prime contractors and subcontractors of all tiers, to the extent the applicable contract or subcontract exceeds certain threshold amounts. The Fair Pay and Safe Workplaces Executive Order has essentially three areas of concern for employers who are federal contractors or subcontractors:

1. Paycheck Transparency. For all federal contracts or subcontracts for goods, services, and construction with a value of greater than $500,000, employers will now be required to provide each employee, each pay period, “with a document with information concerning [the employee’s] hours worked, overtime hours, pay, and any additions made to or deduction made from pay.” This requirement is easily met for employers using sophisticated payroll companies or certain off-the-shelf accounting software. For all employers, a careful review of accounting and payroll procedures should be initiated to determine compliance with this provision of the Executive Order.

2. Complaint and Dispute Transparency. For all federal contracts and subcontracts exceeding $1 million in value, employers are prohibited from requiring workers 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” unless the worker (employee or independent contractor) voluntarily consents to take the claims to arbitration “after such disputes arise.” In other words, this provision of the Executive Order essentially places the decision to arbitrate in the hands of the worker, and the worker gets to decide the forum (court or arbitration) after the dispute arises. There are certain exemptions from this rule (for employees covered by collective bargaining agreements or where there is a valid contract in place between the employer and worker prior to the contractor bidding on the particular federal contract at issue). To the extent employers have arbitration policies or agreements in place, they should (to the extent they want to remain federal contractors) review such policies to determine what parts – if any – survive the requirements of this Executive Order and only enforce those portions which survive.

3. Compliance with Labor Laws. This is the most troubling and uncertain provision in the Executive Order. For all federal contracts or subcontracts for goods, services, and construction with a value of greater than $500,000, contractors will be required to report certain labor or employment law violations that occurred in the three years prior to bidding on the federal contract. When responding to government solicitations, employers will be required to disclose “any administrative merits determination, arbitral award or decision, or civil judgment” involving the following:

a.    Fair Labor Standards Act
b.    Occupational Safety and Health Act of 1970
c.    Migrant and Seasonal Agricultural Worker Protection Act
d.    National Labor Relations Act
e.    Davis Bacon Act
f.    Service Contract Act
g.    Executive Order 11246 (Equal Employment Opportunity)
h.    Section 503 of the Rehabilitation Act
i.    Portions of the Vietnam Era Veterans’ Readjustment Assistance
      Act of 1974
j.    Family and Medical Leave Act
k.    Title VII of the Civil Rights Act of 1964
l.    Americans with Disabilities Act of 1990
m.    Age Discrimination in Employment Act of 1967
n.    Executive Order 13658 (2014 minimum wages for federal
       contractors); and
o.    Equivalent state laws.

Employers are also directed to disclose all remedial measures they have taken to address any disclosed violations. Agency contracting officers (Cos) are directed to use these employer disclosures to determine whether “an offeror is a responsible source that has a satisfactory record of integrity and business ethics” to be a federal contractor or subcontractor. In other words, COs, in consultation with newly created agency Labor Compliance Advisors, will essentially be making FAR 9.1 related responsibility determinations based on employers’ disclosures of past labor and employment law violations.

After contract award, covered contractors and subcontractors will be required to provide updated disclosures regarding labor and employment law violations every six months during contract performance. If COs learn of labor and employment law violations – either from an employer’s now mandatory disclosure or through other sources – then the CO may take action against the contractor. Such action may include contract termination, refusal to exercise contract options, referral to suspending and debarring officials, or less drastic remedial or compliance measures. Prime contractors will also be required to take “appropriate remedial measures” against any of their subcontractors found to have committed violations of the labor and employment laws cited above.

The “Compliance With Labor Laws” provision of the new Executive Order is particularly troubling because of how broadly the provisions are written and how little guidance is given to COs or the newly created Labor Compliance Advisors to determine which alleged violations warrant action and which may be ignored. For example, it is unclear how one instance of “retaliation” involving one employee (or even two or three instances over time, involving different supervisors, or at different facilities) under the ADA, ADEA, or Title VII of the Civil Rights Act could suggest a lack of integrity or business ethics sufficient to deny a company future federal contracts. It is also unclear whether the alleged violations have to involve employees who work or will work on the federal contract, or whether the rule’s intended scope is companywide to encompass business units that have absolutely no involvement in the provision of goods or services to the Federal Government and hence have no potential to create any of the ills the Executive Order is allegedly designed to address. Some of the remedies and reporting requirements imposed by the Executive Order appear to be redundant, when compared to the requirements of statutes like the Service Contract Act or various OFCCP regulations implementing the Rehabilitation Act or VEVRAA. Hopefully, the Federal Acquisition Regulatory Council will provide clear guidance and concrete enforcement terms when it prepares the implementing regulations and FAR clauses it was ordered to create per the Executive Order.

The bottom line is that this new Executive Order will likely lead to much confusion, litigation, and uncertainty in the near and long term. Until the issues are fully resolved, employers with federal contracts or subcontracts should make special efforts – in consultation with experienced government contracts counsel - to attempt to comply with the Executive Order as written and to anticipate likely FAR Council regulations and contract clauses.