United States: Executive Actions Continue To Complicate Contractor Compliance

Following through on a promise made in his State of the Union Address, President Obama has undertaken a series of unilateral measures this year creating new labor requirements for federal contractors. The third quarter was no different, with two new Executive Orders and new rules governing the implementation of existing Orders.

  • On July 21, President Obama signed Executive Order 13,672, "Further Amendments to Executive Order 11,478, Equal Employment Opportunity in the Federal Government, and Executive Order 11,246, Equal Employment Opportunity," extending nondiscrimination requirements to also prohibit discrimination on the basis of sexual orientation or gender identity, and charging the Secretary of Labor with responsibility to propose implementing regulations. One month later, the Office of Federal Contracting Compliance Programs ("OFCCP") issued a directive explaining that discrimination on the basis of gender identity or transgender status constitutes sex discrimination under applicable Equal Employment Opportunity Commission precedent, essentially rendering the requirements of Executive Order 11,246 immediately effective for federal contractors.

    Although the new requirements may not impose a significant burden on the many federal contractors who have already adopted nondiscrimination policies for lesbian, gay, bisexual and transgender ("LGBT") individuals, religious organizations receiving federal funding assistance must pay especially close attention to the development of the new rules. Executive Order 11,246 contains a limited exemption for such groups—the socalled ministerial exception that exempts religious organizations from the Order's requirements when hiring employees to serve the organization's religious ends. Although Executive Order 13,672 does not contain a similar exception, the Secretary of Labor potentially has the discretion to tailor exceptions in the implementing regulations. Organizations planning to participate in the rulemaking process should proactively develop a strategy now to address these requirements.
  • On August 8, the Department of Labor ("DOL") proposed additional new non-discrimination obligations under a Notice of Proposed Rulemaking requiring certain federal contractors to provide OFCCP categorized compensation data to aid the OFCCP's continuing efforts to ensure contractor compliance with the requirements of Executive Order 11,246. 79 Fed. Reg. 46,562. Under the proposed rule, employers with more than 100 employees who hold a federal contract, subcontract, or purchase order worth $50,000 or more that covers a period of at least 30 days will be required to expand the Employer Information Report (EEO-1 Report) that they currently submit. The expanded EEO-1 Report will contain two additional columns for employers to enter summary data on compensation paid to employees grouped by sex, race, ethnicity, and specified job categories, as well as the number of employees within each group and their hours worked. The DOL states that it plans to use the data to identify noncompliant contractors, while also increasing compliance incentives through voluntary self-assessments and by publishing aggregated data for industry and labor groups.

    The proposed rule, which has been in development over the past few years, has already drawn significant criticism from members of the business community. If implemented in its current form, the proposed rule would likely impose minimal reporting costs, but it could also expose contractors to serious business risk as OFCCP is able to more readily identify pay disparities; additionally, companies operating in industries where pay disparities are publicized may be subject to intense scrutiny as well. Contractors are encouraged to review the prospective impact on their business and submit comments to the DOL. Comments are due by November 6.
  • On July 31, just 10 days after signing Executive Order 13,672, (discussed above), President Obama signed Executive Order 13,673, "Fair Pay and Safe Workplaces," which imposes a variety of new labor compliance requirements on contractors competing for awards valued at $500,000 or more. Most prominently, the Executive Order requires agencies to develop solicitation clauses that require contractors to disclose all violations of certain labor laws that have occurred in the preceding three years. The Executive Order further requires agencies to designate a Labor Compliance Advisor to consult with contracting officers about factoring these disclosures into a determination about the offeror's present responsibility. Awardees must then be required to update their disclosures every six months and will be continually reassessed based on these updated disclosures. The relevant labor laws are:

    • Fair Labor Standards Act;
    • Occupational Safety and Health Act;
    • Migrant and Seasonal Agricultural Worker Protection Act;
    • National Labor Relations Act;
    • Davis-Bacon Act;
    • Service Contract Act;
    • Executive Order 11,246, regarding equal employment opportunity;
    • Section 503 of the Rehabilitation Act;
    • Vietnam Era Veterans' Readjustment Assistance Act;
    • Family and Medical Leave Act;
    • Title VII of the 1964 Civil Rights Act;
    • Americans with Disabilities Act;
    • Age Discrimination in Employment Act;
    • Executive Order 13,658, setting the minimum wage for contractors' employees; and
    • any state law determined by the DOL to be an equivalent to any of the above-listed laws.

For awards valued at $1 million or more, the Executive Order prohibits contractors from requiring employees to arbitrate claims of employment discrimination or sexual harassment— a requirement that must be flowed down to subcontractors. The Executive Order does not prohibit contractors from enforcing arbitration agreements signed prior to the award, however, and it does not prohibit submitting claims to arbitration by mutual consent.

The President has directed the Federal Acquisition Regulation ("FAR") Council and the DOL to issue guidelines and implementing regulations for the requirements outlined in the Executive Order. In 1999, the Clinton Administration proposed similar rules, requiring contracting officers to consider a prospective contractor's unsatisfactory compliance with federal labor law, as well as other federal laws including tax and antitrust laws, when making responsibility determinations. Noting this similarity, industry groups have already labeled the Order with the same epithet used in the campaign that ultimately defeated the 1999 proposal—a "blacklist"—and announced their intention to vigorously participate in the rulemaking process. Because there is no deadline by which the government must issue these clauses and guidance, contractors have ample opportunity to participate in the rulemaking process; in the interim, contractors should also assess their labor practices to determine how the new requirements may affect them. On top of the new $10.10 minimum wage rules proposed by the DOL pursuant to Executive Order 13,658, 79 Fed. Reg. 34,568, these executive actions, combined with other regulatory changes, such as the new hiring rules for veterans and individuals with disabilities discussed in our May 2014 Quarterly Update, impose upon federal contractors a vastly more complicated compliance landscape than existed just one year ago. Requirements can vary dramatically based on whether an employee works on public or private contracts, the value of the contract, or when the employee was assigned to the contract, and contractors must quickly adapt to manage these new challenges.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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