Government Contractors and Executive Order – Fair Pay and Safe Workplaces: New Federal Labor Law Compliance Issues

Justin A. Chiarodo, Deborah P. Kelly, and Lyndsay A. Gorton

Justin A. ChiarodoDeborah P. KellyLyndsay A. GortonDOD, FYSA, SITREP – government contractors are familiar with the alphabet soup that goes hand-in-hand with doing business with the federal government as well as most common labor laws and their acronyms: Federal Labor Standards Act, (“FLSA”), the Family and Medical Leave Act (“FMLA”), or Occupational Safety and Health Act of 1971 (“OSHA”). Now, the question is whether contractors comply with these laws and recent developments in government contractor employment law. On July 31, 2014 the White House issued the Executive Order – Fair Pay and Safe Workplaces (the “Executive Order”) which creates new requirements that will add pre and post-award reporting demands on many new government services and construction contracts. The purpose of this alert is to help government contractors sort through the dense language of the Executive Order and provide a roadmap for what to do going forward so that violations of labor laws don’t lead to suspension or debarment.

  1. What’s New? The Basics of Executive Order – Fair Pay and Safe WorkplacesThe Executive Order applies to all new “procurement contracts for goods and services” with an expected value exceeding $500,000. The new requirements do not apply to contracts for “commercially available off-the-shelf items,” or contracts presently being performed. According to the White House Fact Sheet for the Executive Order, the new requirements will be applied in stages, on a “prioritized basis” beginning in 2016. Neither the Executive Order nor the Fact Sheet define “prioritized basis,” but presumably, government contracts with the highest expected values and most hazardous contract conditions will be among the first to report under the new requirements. The 2016 date provides some time for both the Federal Acquisition Regulatory (“FAR”) Council and Department of Labor (“DOL”) to issue guidance for implementation as required by the Executive Order.

The Executive Order’s requirements for government contractors fall into two categories: (1) pre-award requirements, and (2) post-award requirements.

  1. Pre-award RequirementsThe Executive Order requires those who bid on government contracts to represent that they have not violated federal or state labor laws in the preceding three-year period. Violations can be “administrative merits determinations,” “arbitral awards,” or “civil judgments” against the contractor. If a bidder cannot represent that there have been no violations in the preceding three-year period, the contracting officer must provide an opportunity for the bidder to demonstrate steps it has taken to correct those violations, including entering into agreements with enforcement agencies. The new requirements also flow down to subcontracts where the expected value exceeds $500,000.

Once the contracting officer has the information from the bidder, the contracting officer will determine whether the bidder is a “responsible source” under soon-to-be-issued final rules issued by the FAR Council. The Executive Order requires the FAR Council to “propose to amend the Federal Acquisition Regulation to identify considerations for determining whether serious, repeated, willful, or pervasive violations. . .demonstrate a lack of integrity or business ethics.” The Executive Order also directs the DOL to issue guidance to assist agencies in “serious, repeated, willful, and pervasive” determinations and to incorporate current statutory standards into that guidance.

The Executive Order indicates that generally, a single violation will not lead to a “determination of lack of responsibility.” The Fact Sheet states that the Executive Order is intended only to negatively affect “egregious violations” and repeat offenders and to “protect responsible contractors.”

  1. Post-Award RequirementsOnce a contract has been awarded, the government contractor must report about labor law violations every six months throughout the term of the contract. Contractors must also obtain updated information from its subcontractors every six months, and will determine, with guidance from the DOL and Labor Compliance Advisor, whether any action is necessary. “Action” may include providing assistance to remedy the violations or comply going forward. In an attempt to ease some of the burden on contractors, the Executive Order requires a single website to be developed by the Administrator of General Agencies so that contractors report all information in one place. What that omnibus website will look like and when it will be completed is unknown.

The Executive Order also requires “paycheck transparency.” A government contractor must provide non-exempt employees with a paycheck that reflects “the individual’s hours worked, overtime hours, pay, and additions made to or deducted from pay.” Most employers already provide that information, but the Executive Order requires it so that employees can see what they are owed and what has been deducted. For those employees who are exempt from FLSA overtime requirements, paychecks need not include hours worked if the employee has been “inform[ed]” of the exempt status. The definition of who is non-exempt has not changed.

Finally, for contracts exceeding $1 million, the Executive Order prohibits pre-award arbitration clauses in employment agreements for violations of civil rights under Title VII of the Civil Rights Act of 1964 or torts arising from sexual assault or harassment. The Fact Sheet states that the Executive Order seeks to “give employees a day in court.”

C.   Labor Compliance Advisor

The Executive Order creates a new government position to help government contractors comply with the federal and state labor laws: a Labor Compliance Advisor (“LCA”). The LCA will be a designated senior agency official who has responsibilities that range from aiding agency officials in writing regulations, policy, and guidance, to potentially providing information about contractors’ violations of the labor laws to the appropriate suspension and debarment officials. It appears that the LCA will function as both an advisor to the contracting officer and a watchdog over the reported information.

  1. The Potential Effects of the Executive Order

The Executive Order creates many potential pitfalls for government contractors. One of the most important is that now, if an employer violates a labor law, in addition to penalties for that violation, they also face potential suspension or debarment. For example, if a contractor is sued in federal district court under the FLSA and a judgment is entered against the contractor, it must inform the contracting officer who can exercise judgment in whether to escalate that liability to include suspension and debarment.

Another potential pitfall is whether a violation is sufficient to be deemed repeated or egregious under each statute. For example, in FLSA cases, if an employer violates a provision of the statute for one employee, that employer is more than likely to violate the same provision for all other employees with the same job title and responsibilities. If a government contractor were to inappropriately determine that an employee was “exempt,” but should have been designated “non-exempt” and that employee was paid bi-weekly paychecks for a number of months, would each paycheck be considered a violation? Would each employee that was incorrectly designated be considered a separate violation? The relevant question is whether a government contractor found guilty of one violation that can apply to multiple employees will be considered a repeat offender under the Executive Order. Unfortunately, that question will not be answered until a government contractor runs afoul of the Executive Order and no government contractor wants to be the guinea pig.

     III.   What Contractors Should Do Now and How We Can Help

For large government contractors with many employees, the Executive Order creates nearly as many questions as it does requirements. First, until the FAR Council and DOL issue rules and guidance, the exact definition of numerous terms and therefore the effect of the regulations will remain unknown. Second, though the Executive Order provides some guidance, it is not yet clear in practice what will constitute “egregious” and repeated violations of the labor laws. Finally, it is not clear how contracting officers will exercise their new discretionary power to provide or withhold labor law violation information from suspension and debarment officials. For example, will the contracting officers be lenient and consider whether violations were unknown and unintentional, or will they have a strict two strikes and you’re out policy?

Although many questions will only be answered with time, the first step is to determine whether labor laws are being complied with. Though the reporting requirements will not begin until 2016, the three-year period will require that companies report violations going back to 2013. This means that the Executive Order has an immediate effect. What contractors decide to do now in 2014 will affect their ability to win government contracts in 2017.

To prevent any potential issues, contractors should remedy any violations they find as soon as possible and keep in mind that the longer violations exist, the longer the company will need to report them and risk losing a lucrative government contract. If a contractor is sued in 2014, and found guilty in 2015, the company will have to report that violation until 2018. That also means that to escape the “repeated” or “egregious” determination, the company must not have a second violation through 2018. For a large company with many employees, immediate compliance is paramount to avoid issues years in the future.