United States: Substantial New Rules Implementing "Fair Pay And Safe Workplaces" E.O. Create Risks For Contractors And Subcontractors

On Thursday, August 25, 2016, the US government issued a final rule (81 Fed. Reg. 58562) amending the Federal Acquisition Regulation ("FAR") to implement Executive Order 13673, "Fair Pay and Safe Workplaces" (the "E.O."), which President Obama issued more than two years ago. In addition, the Department of Labor ("DOL") issued its final guidance (81 Fed. Reg. 58654) to assist the Federal Acquisition Regulatory Council ("FAR Council") and contracting agencies in the implementation of the E.O. These lengthy publications include extended discussions of the final rule and guidance, including assessments of the tidal wave of comments on the proposed rule and guidance published last year.1 The final rule and guidance represent significant new obligations and risks for contractors and subcontractors, who should start preparing now to address them.

Because the final rule and guidance include lengthy and sometimes complex provisions,2 this Legal Update cannot summarize or even list all of them. Instead we focus here on the FAR final rule because it imposes specific requirements on contractors and subcontractors.

Background—The Executive Order

On July 31, 2014, the President issued the E.O. According to the "Policy" section, the E.O. seeks to increase efficiency and cost savings in the work performed by Federal contractors by ensuring that they understand and comply with labor laws. The premise is that contractors who consistently adhere to labor laws are more likely to have workplace practices that enhance productivity and increase the likelihood of timely, predictable, and satisfactory delivery of goods and services to the Federal Government.

Pre-award Requirements. The E.O. specifies that for procurements estimated to exceed $500,000, the offeror must represent, to the best of its knowledge and belief, whether there has been any administrative merits determination, arbitral award or decision, or civil judgment – terms to be defined in guidance issued by DOL – rendered against the offeror within the preceding 3-year period for violations of any of the following "labor laws":

  1. the Fair Labor Standards Act;
  2. the Occupational Safety and Health Act of 1970;
  3. the Migrant and Seasonal Agricultural Worker Protection Act;
  4. the National Labor Relations Act;
  5. 40 U.S.C. chapter 31, subchapter IV, also known as the Davis-Bacon Act;
  6. 41 U.S.C. chapter 67, also known as the Service Contract Act;
  7. Executive Order 11246 of September 24, 1965 (Equal Employment Opportunity);
  8. section 503 of the Rehabilitation Act of 1973;
  9. 38 U.S.C. §§ 3696, 3698, 3699, 4214, 4301- 4306, also known as the Vietnam Era Veterans' Readjustment Assistance Act of 1974 (this citation was later amended to "the Vietnam Era Veterans' Readjustment Assistance Act of 1972 and the Vietnam Era Veterans' Readjustment Assistance Act of 1974" (Exec. Order No. 13,683 (Dec. 11, 2014));
  10. the Family and Medical Leave Act;
  11. title VII of the Civil Rights Act of 1964;
  12. the Americans with Disabilities Act of 1990;
  13. the Age Discrimination in Employment Act of 1967;
  14. Executive Order 13658 of February 12, 2014 (Establishing a Minimum Wage for Contractors); or
  15. equivalent State laws, as defined in guidance issued by the Department of Labor.

In response to a disclosure of any such violations, contracting officers ("COs") – as part of the determination of an offeror's responsibility – must give the offeror an opportunity to provide any steps taken to correct the violations of or improve compliance with the applicable labor law(s). The E.O. creates a new position – an agency Labor Compliance Advisor ("ALCA"). Each agency must designate a senior agency official to be an ALCA, who will have certain responsibilities. These responsibilities include providing advice to the CO, such as whether agreements are in place or are otherwise needed to address appropriate remedial measures. COs must determine whether an offeror is a responsible source, consistent with any final rules issued by the FAR Council and after reviewing guidelines to be issued by DOL. Also, for any subcontract with an estimated value over $500,000 that is not for commercially available off-the-shelf ("COTS") items, the contractor must represent at the time of contract execution that (1) the contractor will require the subcontractor to disclose the same evidence of violations of the same labor laws specified for prime contractors, and (2) before awarding a subcontract, the contractor will consider the information submitted by the subcontractor in determining the subcontractor's responsibility, except for subcontracts that are awarded or become effective within 5 days of contract execution, in which case the information may be reviewed within 30 days of subcontract award.3 Further, as appropriate, COs must refer matters related to labor law violations to the agency suspending and debarring official ("SDO").

Post-award Requirements. The E.O. also specifies certain post-award requirements, including the requirement that contractors update the labor law information originally disclosed every 6 months and obtain such information for covered subcontracts. Based on updated information regarding violations of labor laws – or similar information obtained through other sources – COs must consider whether action is necessary, including agreements requiring appropriate remedial measures, decisions not to exercise an option or referral to the SDO. Similarly, if a contractor learns information regarding violations of labor laws by a subcontractor, the contractor must consider whether action against the subcontractor is necessary. The CO, ALCA, and DOL will be available for consultation with the contractor.

Paycheck Transparency. Contracts estimated to exceed $500,000 must require that contractors provide certain employees with a document containing certain information, including overtime hours.

Complaint and Dispute Transparency. For contracts estimated to exceed $1 million, contractors must agree that the decision to arbitrate claims arising under Title VII of the Civil Rights Act of 1964 or any tort related to or arising out of sexual assault or harassment may only be made with the voluntary consent of employees or independent contractors. This requirement is subject to certain exceptions, including contracts for commercial items.

New FAR Rules. The FAR Council, in consultation with DOL, the Office of Management and Budget and certain agencies, must propose to amend the FAR to, for example, identify considerations for determining whether serious, repeated, willful, or pervasive violations of the listed labor laws demonstrate a lack of integrity or business ethics; such considerations apply to the integrity and business ethics determinations made by both COs and contractors.

New DOL Guidance. For purposes of implementation of any final rule issued by the FAR Council, the E.O. requires the Secretary of Labor to develop guidance to assist agencies in determining whether administrative merits determinations, arbitral awards or decisions or civil judgments were issued for serious, repeated, willful or pervasive violations of the listed labor laws. In addition, the Secretary must develop certain "processes," such as processes by which contractors may enter into agreements with DOL or other enforcement agencies prior to being considered for contracts.

The New Rules and Guidance Should Minimize the Burden on Contractors. Significantly, the E.O. states that in developing the guidance and proposing to amend the FAR, the Secretary of Labor and the FAR Council must minimize, to the extent practicable, the burden of complying with the E.O. for Federal contractors and subcontractors and in particular small entities. As discussed below, the final FAR rule nonetheless imposes substantial burdens and risks on contractors and subcontractors.

Background—Proposed FAR Rule and DOL Guidance

On May 28, 2015, DoD, GSA, and NASA published a proposed rule to amend the FAR to implement the E.O. 80 Fed. Reg. 30548. On that same date, DOL proposed guidance to assist agencies in implementing the E.O. 80 Fed. Reg. 30574. Both publications include extended discussions of the proposals, and both proposals requested comments by July 27, 2015 (later extended to August 26, 2015).

The Proposed FAR Rule. A summary near the start of the proposed FAR rule indicates that the proposed regulations were informed by DOL's proposed guidance. The summary indicates that the proposed FAR rule incorporated DOL's guidance and further delineated how, when, and to whom disclosures were to be made and the responsibilities of COs and contractors in addressing violations. The proposed FAR rule also addressed a significant issue – prime contractors' responsibility determinations of subcontractors. It specified that, before awarding a subcontract, contractors must consider the information submitted by subcontractors in determining whether the subcontractor is responsible. As an alternative approach, the proposal set forth a process in which the subcontractor would disclose violations to DOL instead of the prime contractor; the subcontractor would then make a representation back to the prime contractor regarding DOL's response.

The Proposed DOL Guidance. DOL's proposed guidance defined the terms "administrative merits determination," "civil judgment," "arbitral award or decision," "serious," "repeated," "willful," and "pervasive." It also provided guidance on how reported violations should be assessed and what mitigating factors should be considered. In addition, the proposed guidance indicated that at a future date, DOL would publish in the Federal Register a second proposed guidance addressing which State laws are equivalent to the 14 Federal labor laws identified in the E.O.

To read this Report in full, please click here.

Footnotes

1. There were 927 respondents that made comments on the proposed FAR rule and, including mass mailings, about 12,600 responses were received on that proposed rule. DOL received 7,924 comments (7,784 were in the nature of mass mailings expressing general support for the E.O., the proposed FAR rule and DOL's proposed guidance).

2. In addition, the commentary accompanying the DOL guidance states that although the guidance satisfies most of DOL's responsibilities for issuing the guidance, DOL will publish at a later date a second guidance that satisfies its remaining responsibilities, which will be accompanied by a proposed amendment to the FAR rule. 81 Fed. Reg. 58564, 58567 (Aug. 25, 2016).

3. The President amended the E.O. on August 23, 2016, and that amendment includes a change to this second obligation concerning the prime contractor's consideration of information submitted by a subcontractor. The change requires the contractor to consider the advice provided by the entity designated in the final FAR rule. 81 Fed. Reg. 58807 (Aug. 23, 2016). As discussed below, that entity is DOL.

Originally published September 8, 2016

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This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

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