United States: New Legal Landmines For Government Contractors

Buckle up: In his last term, President Obama has unleashed a flurry of Executive Orders and Presidential Memoranda that promise sweeping changes for government contractors and their employees. Below, we outline some of the major recent workplace initiatives that create new restrictions and requirements for government contractors, describe their effects, and suggest what to do about them.

I. The "Blacklisting" Order

What's New?

On July 31, 2014, President Obama signed Executive Order (E.O. 13673) "Fair Pay and Safe Workplaces," known as the "Blacklisting" Order, which instructs contracting officers to make responsibility determinations for procurements over $500,000 based on a subjective review of federal contractors' compliance with 14 federal and equivalent state labor, employment, and safety laws. The Department of Labor's proposed guidance and the FAR Council's proposed regulations would create an online database for agencies to track contractors' violations, which could provide a basis for suspension and debarment procedures.

Why Should I Care?

The Blacklisting Order applies to all federal solicitations worth more than $500,000 and requires contractors and subcontractors to report regularly on all types of workplace law violations. The Order could result in contractors being blacklisted from future contracts for minor violations of ever-changing workplace laws and regulations. Moreover, the proposed rules direct agencies to take necessary suspension and debarment actions based on these disclosures.

What Should I Do Differently?

While the proposed DOL guidance and FAR regulations are not final, contractors should consider an internal compliance plan sooner rather than later. All potential and actual labor violations should be tracked and maintained by one person or office. If you negotiate a settlement under the 14 identified laws, seek clear language in the agreement that there is no admission of liability, and request the government waive any prior position on suspension/debarment.

II. Mandatory Sick Leave

What's New?

On September 7, 2015, President Obama signed an Executive Order (not yet numbered) requiring federal contractors to provide covered employees with the ability to accrue at least seven days of paid sick leave per year. Starting in 2017, all contractors must guarantee covered employees one hour of paid sick leave for every 30 hours worked, up to a minimum of 56 hours a year. This Order applies to both full-time and part-time employees and requires that paid sick leave carry over from one year to the next and be reinstated for employees rehired within a year. The Order permits covered employees to use paid sick leave for a broad range of reasons, from caring for a child to recovering from sexual assault.

Why Should I Care?

Starting in 2017, hundreds of thousands of employees will be eligible for paid sick leave. To the extent you do not currently offer paid sick leave, these requirements will increase your cost of doing business.

What Should I Do Differently?

While the Order only applies to contracts entered into on or after January 1, 2017, it will increase costs and require a number of administrative changes. Planning how to track sick leave, amending policies to reflect these new changes, anticipating staffing decisions to account for sick leave, and reconciling cost increases in bid pricing procedures are all wise actions to take to prepare for these new requirements.

III. Human Trafficking Regulations

What's New?

The 2015 amendments to the anti-trafficking provisions in the FAR became effective on March 2, 2015, and apply to all federal contracts and subcontracts. These amendments to FAR 22.17 and 52.222-50, mandated by President Obama's December 2012 Executive Order (E.O. 13627), expand the list of prohibited conduct, and require contractors to implement trafficking compliance plans and to annually certify they have no trafficking activities. We first analyzed the scope of these changes in this alert (Feb. 2015).

Why Should I Care?

If your company does not comply with the new regulations, you could be fined, suspended, debarred, or have your government contract canceled.

What Should I Do Differently?

Update your employee handbooks to inform your employees of the government's anti-trafficking policy and the penalties for not complying. Develop a plan to comply with the regulations and certify that you have complied on an annual basis. Exercise due diligence to uncover violations within your company and subcontractors and report any misconduct immediately.

IV. Proposed Exemptions Under the Fair Labor Standards Act

What's New?

On September 4, 2015, the public comment period closed on the U.S. Department of Labor's (DOL) proposed revisions to the exemptions under the Fair Labor Standards Act (FLSA). DOL's proposed regulations, if enacted, will significantly change the law governing who is exempt from minimum wage and overtime pay requirements. Currently, employees who are paid at least $455 per week ($23,660 per year) and work in "executive," "administrative," and "professional" jobs are not entitled to overtime pay. DOL's proposed rules will more than double the current minimum salary to approximately $50,440, increase the minimum salary for "highly compensated employees" from $100,000 to $122,148 per year, and automatically adjust the minimum salary and compensation levels to account for cost of living on a yearly basis. We first analyzed the scope of the proposed changes in this alert (Mar. 2014).

Why Should I Care?

The Obama Administration says the proposed changes would affect an estimated 5 million workers nationwide. The new overtime regulations would cover about 40% of the country's full-time salaried workforce.

What Should I Do Differently?

Currently, DOL is reviewing the nearly 250,000 comments it received in response to its proposed regulations. Although a final rule may ultimately look different, conventional wisdom is that this is going to happen, so get ahead of the issue by auditing your workforce to see which currently exempt employees make between $23,660 and $50,440 per year (or, if exempt under the "highly compensated" test, under $122,148 per year). If proposed salary thresholds go into effect, these are the workers who will either need to be paid more (at least $50,440/$122,148 for "highly compensated" employees) to keep the exemption, or be made nonexempt and paid overtime.

V. Minimum Wage Requirements

What's New?

On January 1, 2015, the minimum wage for federal employees increased from $7.25 to $10.10, as required by President Obama's Executive Order 13658. We first analyzed the scope of this change in this alert (Mar. 2014).

Why Should I Care?

Workers performing on or in connection with covered federal contracts are generally entitled to receive the minimum wage for all time spent performing on or in connection with covered federal contracts. The recent increase in minimum wage will increase your cost of doing business.

What Should I Do Differently?

Ensure that all employees employed on covered federal contracts and subcontracts awarded on or after January 1, 2015, are compensated at least $10.10 per hour.

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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