Executive Order Mandates Government Contractors and Subcontractors Disclose Labor Law Violations

On July 31, 2014, President Obama signed The Fair Pay and Safe Workplaces Executive Order (No. 13673) (EO), requiring federal contractors to disclose any labor law violations and giving agencies guidance on how to consider labor violations when awarding federal contracts. In addition, the EO requires that workers be given the necessary information each pay period to verify the accuracy of their paychecks and restricts the use of mandatory arbitration for delineated employment disputes.

This far-reaching executive order purports to “increase efficiency and cost savings in the work performed by parties who contract with the Federal Government by ensuring that they understand and comply with labor laws.” Opponents of the EO complain that, by imposing several new obligations on federal contractors and contracting agencies, covered contractors will have increased administrative burdens and risks and new uncertainties will be injected into the contact award process.

The EO directs the Federal Acquisition Regulatory (FAR) Council to issue implementing regulations. While no time frame is specified, a White House-issued Fact Sheet states that the EO is expected “to be implemented on new contracts in stages, on a prioritized basis, during 2016.” This gives the FAR Council and the Secretary of Labor time to promulgate regulations and guidance. Employers will have an opportunity to submit public comments regarding any proposed regulations implementing the EO.

Contractors Must Disclose Labor Laws Violations

The EO requires contractors bidding for federal procurement contracts for goods and services, expressly including construction contracts, with an estimated value of more than $500,000 for each contract, to disclose to the contracting agency “whether there has been any administrative merits determination, arbitral award or decision, or civil judgment” against the bidder within the past three-year period for violation of listed labor laws and executive orders (labor laws).  The specific labor laws are as follows:

Pursuant to the EO, prior to making an award, the contracting officer (CO), as part of the responsibility determination, shall provide bidders who make a disclosure “an opportunity to disclose any steps taken to correct the violations of or improve compliance with the labor laws.” Along with the agency’s Labor Compliance Officer, the COs must determine whether a bidding contractor is “a responsible source that has a satisfactory record of integrity and business ethics.”

Furthermore, during the performance of the contract, federal contractors must update the disclosures to the contracting agency every six months.

Contractors Must Disclose Subcontractors’ Labor Law Violations

Federal prime contractors are also responsible for reporting on their subcontractor’s labor law violations. For any federal subcontract where the estimated value of the supplies and services exceeds $500,000 and “that is not for commercially available off-the-shelf items,” the prime contractor must do the following:

Labor Compliance Advisors

The EO requires that each agency must designate a senior labor official to be a Labor Compliance Officer (LCO), who will work to, among other tasks: (1) assist COs in determining if a bidder is “responsible;” (2) assist agency contractors seeking help in addressing and preventing labor violations; and (3) provide assistance to COs regarding appropriate actions to be taken in response to labor law violations.

The EO requires the Administrator of General Services, to “develop a single website for Federal contractors to use for all Federal contract reporting requirements related to this order.”

Paycheck Transparency

In addition to labor law violations disclosure, the EO mandates “paycheck transparency” for all individuals performing work under a contract for whom the employer is required to maintain wage records under the Fair Labor Standards Act, the Davis-Bacon Act, and the Service Contract Act, or equivalent state law.

Specifically, the EO requires that contractors and subcontractors covered by the EO must provide workers, in each pay period, with a “document with information concerning that individual’s hours worked, overtime hours, pay, and any additions made to or deductions made from pay.” Exempt employees need not be given a record of hours worked “if the contractor informs the individuals of their overtime exempt status.” Contractors treating an individual “as an independent contractor, and not an employee” must provide a document informing the individual of this status.

Complaint and Dispute Transparency

In addition, the EO requires that, for all contracts where the estimated value exceeds $1 million (except for contracts or subcontracts for “commercially available off-the-shelf items”), each contractor and subcontractor shall include in provisions in solicitations and contracts that they “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 after such disputes arise.”

This restriction on mandatory contractual arbitration does not apply to employees covered by any type of collective bargaining agreements. It also does not apply to “employees or independent contractors who entered into a valid contract to arbitrate prior to the contractor or subcontractor bidding on a contract covered by this order,” unless the “contractor or subcontractor is permitted to change the terms of the contract with the employee or independent contractor, or when the contract is renegotiated or replaced.”

Heads Up, Federal Contractors and Subcontractors

There will likely be various challenges to this controversial executive order. Nonetheless, bond producers and their contractor and subcontractor clients who seek federal construction contracts should be aware of and prepare for compliance with the new reporting and other obligations set forth in the EO. Federal contractors and subcontractors should consult with their knowledgeable construction counsel and consider the following actions:

NASBP will keep Members, Affiliates, and Associates apprised of the status of the implementing regulations.

The author of this article is Martha Perkins, General Counsel at NASBP. Martha Perkins can be reached at mperkins@nasbp.org or (202) 686-3700.

This article is provided to NASBP members, affiliates, and associates solely for educational and informational purposes. It is not to be considered the rendering of legal advice in specific cases or to create a lawyer-client relationship. Readers are responsible for obtaining legal advice from their own counsels, and should not act upon any information contained in this article without such advice.