Obama Continues to Issue Labor Friendly Executive Orders

On July 31, 2014, President Obama continued his administrative efforts to support organized labor when he signed another in a string of Executive Orders governing the employment practices of government contractors. The “Fair Pay and Safe Workplaces” Executive Order requires that federal contractors disclose any prior labor and employment law violations (in the preceding three years) in order to be considered for an award of a government contract. This comes after other recent executive orders raising the minimum wage, and equalizing wages between genders, of federal contractors, and forcing contractors to disclose to the Secretary of Labor the gender of employees and their relative compensation.

The stated purpose of the Fair Pay and Safe Workplaces Executive Order is to “increase efficiency and cost savings” in work performed by federal contractors by ensuring that those contractors comply with labor laws. Overall, the Executive Order:

1. Mandates disclosure to the government of a prospective contractor’s labor law violations during the three years preceding the contract, including violations by subcontractors, with updates every six months during performance of the contract.

2. Requires that contractors provide employees with documentation “concerning that individual’s hours worked, overtime hours, pay, and any additions made to or deductions made from pay.”

3. For contracts valued at over $1 million, it prohibits employers from requiring employees to enter into pre-dispute arbitration agreements for Title VII claims or for state law claims related to sexual assault or harassment.

The Mandated Disclosures

The disclosure requirement for new contracts is likely the most significant portion of the Order. Businesses seeking new federal contracts valued at $500,000 or more must disclose any violation of the 14 listed labor laws or “equivalent state laws,” including administrative merit determinations, arbitral awards or decisions, or civil judgments against the company during the preceding three years. This disclosure requirement is similar to that of Minnesota’s recently enacted Responsible Contractor Statute, which governs contractor eligibility for state contracts. The Order specifically requires the disclosure of violations of:

1. The Fair Labor Standards Act;
2. OSHA;
3. The Migrant and Seasonal Agricultural Worker Protection Act;
4. The National Labor Relations Act;
5. The Davis-Bacon Act;
6. The Service Contract Act;
7. The Equal Employment Opportunity Executive Order (No. 11246) of September 24, 1965;
8. Section 503 of the Rehabilitation Act of 1973;
9. The Vietnam Era Veterans’ Readjustment Assistance Act of 1974;
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; and
14. The Executive Order (No. 13658) of February 12, 2014, establishing a minimum wage for federal contractors.

If a company has violations, it must disclose those to the contracting agency, which will consider the violations when awarding a contract. After the award of a contract, the information must be updated every six months.

The Order also requires government contractors to require the same disclosures from any subcontractors awarded work on a government project, and to determine, based on those disclosures, “whether [the] subcontractor is a responsible source that has a satisfactory record of integrity and business ethics.” The Order thereby establishes that the contractor is ultimately responsible for subcontract compliance. Subcontractors must also provide six-month updates to the prime contractor during the contract period.

The Order requires also that government agencies designate a “Labor Compliance Advisor” (“LCA”) whose jobs are to assess the “serious, repeated, willful, or pervasive nature of any violation” disclosed by a contractor, and to assist in formulating and implementing the corrective measures of the contractor to address the violations. The Order also gives LCAs, as well as other agency officials, and the Department of Labor, authority to deny and terminate contracts, and to recommend the possible suspension or debarment of a contractor.

Paycheck Information Requirement

While most employers already provide their employees basic payroll information about their hours and wages, the Order now makes mandatory this practice for all federal contractors with contracts valued at $500,000 or more. This mandate also applies to subcontractors. Specifically, the Order requires contractors to provide workers covered by the Fair labor Standards Act with documentation of hours worked, overtime hours, pay, and deductions or additions to that pay.

Prohibition of Pre-Dispute Arbitration Agreements

The Order’s restriction on arbitration of certain employment disputes applies to all federal contractors with contracts worth over $1 million. This restriction does not apply to arbitration provisions contained in collective bargaining agreements, or to arbitration agreements executed before the contractor bid on a contract (unless the employer retains the right to unilaterally modify the agreement). However the limited scope of these exemptions suggest that at-will employers (including merit-shop contractors), or employers who have reserved the right to unilaterally amend arbitration agreements, will not be able to enforce those agreements once the final rule implementing the Order is in place.

What to Expect

The Order directs the Federal Acquisition Regulatory Council, and the Department of Labor, to develop regulations and guidance to implement the new requirements. The White House has said it expects the Order “to be implemented on new contracts in stages, on a prioritized basis, during 2016.”

This Executive Order and Minnesota’s Responsible Contractor law make it doubly important that state and federal contractors fully comply with labor and employment laws. Failure to do so may mean the loss of the government contract and/or inability to bid on future projects, in addition to liability for violations themselves. Moreover, potential government contractors should not only diligently track prior labor and employment law violations, but should implement remedies and necessary changes to their practices in order to protect their eligibility for such contracts. Finally, employers who do not issue standard payroll documents to employees should begin doing so, and employers with arbitration agreements should have them reviewed for compliance with the Order’s restrictions.

We strongly encourage contractors to proactively work with legal counsel and audit their policies and practices to minimize the potential for violations of state and federal laws which could render them ineligible for the award of government contracts, and create liability for the violations themselves.

Feel free to contact Jon Olson, or any other attorney at Peters, Revnew, Kappenman & Anderson, P.A. with any questions you may have about this new case, and how it may affect your business.

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