United States: Obama Administration Makes Significant Changes Requiring Revisions To Handbooks, Policies And Contracts For Federal Contractors

Federal contractors and subcontractors face significant challenges as the privilege of doing business with the federal government means more paperwork, more audits, and redrafting contract language and employment policies. Set forth below are summaries of some of the changes underway for federal contractors.

Before moving on to the highlights, you may question whether your company is a federal contractor or subcontractor subject to the Executive Orders. Generally, a federal contract (or a prime contract) is an agreement between a federal department or agency and any third party for the purchase, sale or use of goods or services. Contractors with federal contracts above $10,000 are covered by the equal employment opportunity obligations, such as those in Executive Order 11426, as are some more specific types of contracts such as bills of lading and contracts with depositories of Federal funds or financial institutions that are issuing and paying agents for U.S. savings bonds and savings notes.

A federal subcontract is an agreement or arrangement with a federal contractor for the furnishing of supplies or services or for the use of real or personal property, which is necessary to the performance of one or more federal contracts. If a business has a contract that is "necessary to" the performance of the federal contract or is part performance of the obligations under the federal contract, then it is considered a federal subcontractor if the monetary ($10,000) and other thresholds are met.

Executive Order 13672 –Discrimination Based on Sexual Orientation or Gender Identity Prohibited

Executive Order 11246 prohibits federal contractors from discriminating against applicants for employment and employees based on "race, color, religion, sex, or national origin." In 2014, President Obama amended the Executive Order and added sexual orientation and gender identity as protected categories. The OFCCP announced its final rule implementing the Order's requirements on December 3, 2014. The final rule becomes effective 120 days after its publication.

Generally, Executive Order 11246, as amended, applies to federal contractors and federally-assisted construction contractors and subcontractors who do over $10,000 in federal Government business in one year. Covered employers should immediately take steps to do the following:

  • Revise existing EEO policies to include sexual orientation and gender identity as protected categories.
  • Review handbooks, postings, websites, applications, and other sites stating the company's EEO policies to ensure that the language is updated.
  • Update the EOE tagline in job postings and solicitations to include the two new protected classes IF the other protected categories are specifically identified.
  • Update new or modified contracts and subcontracts to include the new EO     language.
  • Provide training to supervisors and managers regarding the new non-discrimination requirements.

The OFCCP did not impose additional affirmative action obligations such as the collection and analysis of data on the bases of sexual orientation or gender identity and there is no requirement to set hiring or placement goals.

Executive Order 13665 – The Pay Transparency Order

Executive Order 13665 prohibits government contractors from having policies preventing employees from disclosing their pay information to other employees. The order does not introduce a new concept for most employers, since the National Labor Relations Act limits an employer's ability to restrict employees from engaging in concerted activities related to the terms and conditions of employment, such as conversations about wages.

The DOL's proposed rule implementing this Order, issued on September 17, 2014, is expected to be released as a final rule in September, 2015. The proposed rule imposes three new obligations on employers:

  • Federal contractors and subcontractors cannot discriminate against employees or applicants, who inquire about, discuss, or disclose their compensation or the compensation of other employees or applicants.
  • Federal contractors and subcontractors must incorporate the nondiscrimination provision into their employee policies and handbooks and must disseminate the nondiscrimination provision to employees and applicants by posting it in a conspicuous place or by distributing it electronically.
  • Contractors must also include the amended equal employment opportunity clause in their subcontracts and purchase orders.

Employers have available two defenses to a claim of discrimination: 1) enforcing rules against disruptive behavior, and 2) preventing disclosure when the employee had access to the pay information based on the essential functions of the person's job.

More information is available at www.dol.gov/ofccp; and www.dol.gov/ofccp/PayTransparencyNPRM.

Executive Order – Fair Pay and Safe Workplaces

This Executive Order is designed to ensure that the federal government does business with contractors with a track record of compliance with labor and employment laws. It requires that companies bidding on a contract for goods and services valued at more than $500,000 "represent, to the best of the offeror's knowledge and belief, whether there has been any administrative merits determination, arbitral award or decision, or civil judgment . . . rendered against the offeror within the preceding 3-year period for violations of federal labor laws and equivalent state laws."

If violations are reported, the contracting agency's Labor Compliance Advisor has authority to explore whether the company has taken steps to correct any issues and to provide compliance assistance so that the company can avoid future violations. The Order provides that contractors must update the information every 6 months and must obtain the same types of information from its subcontractors.

Employers are also required to disclose to employees and independent contractors their employment status, hours and pay.

For contracts in excess of $1 million, the contractor must agree that the decision to arbitrate claims arising under Title VII or any tort related to sexual assault or harassment may only be made with the voluntary consent of employees or independent contractors after such a dispute arises, except in the case of a collective bargaining agreement or an agreement to arbitrate entered into prior to the contractor being awarded a contract covered by this Executive Order.

Executive Order 13658: The Minimum Wage Order

The Department of Labor's final rule implementing President Obama's Minimum Wage Order provides that employees performing on or in connection with a "covered contract" must be paid $10.10 per hour effective January 1, 2015, with the amount subject to change on January 1, 2016 and following years as determined by the Secretary of Labor pursuant to executive order. The minimum wage requirement flows down to subcontractors and must be posted in a prominent and accessible place at the worksite or electronically on a company website.

The $10.10 requirement applies to new and replacement contracts arising out of solicitations issued on or after January 1, 2015, that fall within one of the categories below:

  • Construction contracts covered by the Davis-Bacon Act;
  • Service contracts covered by the Service Contract Act;
  • Concessions contracts; and
  • Contracts in connection with federal property or lands related to offering services for federal employees, their dependents or the general public.

Workers covered include those working "on" covered contracts and those working "in connection with" covered contracts unless less than 20 percent of their work is in connection with the contract. Covered contractors must pay the minimum wage, post notice of the minimum wage at the work site or on its website, and must flow down the requirement to lower-tier subcontracts.

Proposed Rule in response to Presidential Memorandum Requiring Summary Data on Employee Compensation

A rule proposed by the Department of Labor would require certain contractors to submit annually an Equal Pay Report ("EPR") providing compensation information to the OFCCP. The exact information to be provided and the format required have not been disclosed but are expected to be issued by the OFCCP in August 2015. The rule would apply to prime contractors and first tier contractors who are required to file EEO-1 reports; have more than 100 employees; and have a federal contract, subcontract, or purchase order of $50,000 or more that covers a period of at least 30 days. It is anticipated that employers will be required to submit between January 1 and March 31, the following information for the prior year:

  • Total number of workers within each EEO-1 job category by race/ethnicity and sex;
  • Total W-2 wages for all workers in each EEO-1 job category broken down by race/ethnicity and gender; and
  • Total hours worked for all employees in each EEO-1 job category by race/ethnicity and gender.

The information provided will be used by the OFCCP in setting priorities for scheduling compliance evaluations, but the report itself will not result in sanctions or adverse actions.

What does this mean for federal contractors and subcontractors?

It is time to update policies, employee notices, job postings and advertisements, subcontracts and purchase orders. It is also a good time to do some "spring cleaning" and to conduct self-audits to make sure your workplace is clean and ready for a visit if DOL comes knocking on your door.

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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