United States: President Obama Issues Executive Order Aimed At Federal Contractors That Violate Labor Laws

Last Updated: August 13 2014
Article by Adam Keating

The Fair Pay and Safe Workplaces Executive Order, signed by President Obama and released by the White House on July 31, 2014, is the latest in a series of recent directives on the employment obligations of federal contractors. It requires federal government contractors to disclose labor law violations from the past three years and gives agencies more guidance on how to consider labor violations when awarding federal contracts. The effective date of the Executive Order's new requirements will be driven by the regulations and guidance issued by the Federal Acquisition Regulation (FAR) Council and several other agencies, including the U.S. Department of Labor. The Obama administration anticipates the order to be implemented on new contracts in stages, on a prioritized basis, during 2016.

The Executive Order will govern new federal procurement contracts valued at more than $500,000 and require prospective federal contractors to disclose any violations, within the past three years, of various labor and employment laws. According to the Executive Order, "labor law violations" are violations of the 14 covered federal statutes and Executive Orders, as well as equivalent state laws, that address wage-and-hour, safety and health, collective bargaining, family and medical leave, and civil rights protections. The covered labor laws include the Fair Labor Standards Act (FLSA), Title VII of the Civil Rights Act of 1964 (Title VII), the National Labor Relations Act (NLRA), the Family and Medical Leave Act (FMLA), the Americans with Disabilities Act (ADA), the Age Discrimination in Employment Act (ADEA), the Occupational Safety and Health Act (OSHA), Section 503 of the Rehabilitation Act and the Vietnam Era Veterans' Readjustment Assistance Act of 1974 (VEVRAA).

Federal agencies will be required to take into account violations of these labor and employment laws when making contract awards decisions. Agencies will also require contractors to collect similar information from many of their subcontractors. The disclosures from both contractors and subcontractors will have to be updated every six months.

In addition to the reporting obligations, the Executive Order contains a "Paycheck Transparency" provision designed to ensure that workers are given the necessary information to verify the accuracy of their wages. According to the White House's Fact Sheet, "the Executive Order requires contractors to give their employees information [each pay period] concerning their hours worked, overtime hours, pay, and any additions to or deduction made from their pay, so workers can be sure they're getting paid what they're owed."

In a move that surprised many, the Executive Order also contains a provision that prevents large federal contractors from instituting mandatory arbitration agreements. Under the "Complaint and Dispute Transparency" provision, companies with federal contracts of $1 million or more are prevented from requiring employees to enter into pre-dispute arbitration agreements for disputes arising out of Title VII or from torts related to sexual assault or harassment. Since it is not uncommon for employers to require employees to sign arbitration agreements at the outset of employment, this provision will likely require government contractors and subcontractors to review and possibly revise their policies and procedures.

According to the White House's Fact Sheet, "the goal of the process created by the Executive Order is to help more contractors come into compliance with workplace protections, not to deny contracts to contractors." In furtherance of this goal, the General Services Administration is directed to create a website that contractors can use to meet their reporting requirements. In addition, companies with labor law violations will be offered the opportunity to receive early guidance on whether those violations are potentially problematic and to remedy any problems.

What This Means for Employers

The new Executive Order applies only to federal government contractors and subcontractors seeking federal procurement contracts valued at more than $500,000, and it does not apply to private employers. Employers who do not know whether or not they are considered a federal contractor or subcontractor should review this issue with legal counsel.

For covered contractors and subcontractors, however, the Fair Pay and Safe Workplaces Executive Order creates a number of additional reporting obligations and burdens that will likely require companies to review their internal policies and procedures. While a number of questions remain about how the Executive Order will be enforced, since the Department of Labor has to develop regulations to put its provisions into effect, President Obama's directive may have a significant impact on contractors and subcontractors and require companies to spend more money on compliance efforts. Although the Executive Order does not take effect until 2016, now is the time for federal contractors and subcontractors to consider reviewing their internal policies and practices to ensure they are in compliance.

If you have any questions about this Alert, please contact any of the attorneys in our Employment, Labor, Benefits and Immigration Practice Group or the attorney in the firm with whom you are regularly in contact.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.

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