• FAR Council Proposes Rule Requiring Federal Service Contractors to Hire Contract Predecessor’s Employees
  • May 9, 2012 | Authors: Eric J. Felsberg; Thomas Walsh
  • Law Firms: Jackson Lewis LLP - Melville Office ; Jackson Lewis LLP - White Plains Office
  • The Federal Acquisition Regulatory Council (FAR Council) has proposed an amendment to the Federal Acquisition Regulations requiring federal government contractors (including subcontractors) performing services under a contract that succeeds a contract for performance of the same or similar services at the same location to offer the predecessor contractor’s employees a right of first refusal of employment under the contract. The proposed rule implements Executive Order 13495, “Nondisplacement of Qualified Workers Under Service Contracts,” and the U.S. Department of Labor (DOL) final rule on the Executive Order issued on August 29, 2011. 

    Effective Date of Rules
    In its final rule, the DOL stated that the effective date of the rule was pending and that the DOL would publish a notice in the Federal Register announcing the effective date once it was determined.  The DOL had been waiting for the FAR Council to issue its regulations, as is required by the Executive Order, before the Executive Order could go into effect.  The expectation was that the FAR Council would publish a final interim rule that would be effective 30 days or so after publication.  Instead, on May 3, the FAR Council issued a proposed rule with a 60-day comment period ending July 2, 2012. 

    It is unclear whether the DOL will publish an effective date while the proposed rule is pending. However, it is likely that DOL will wait until the FAR Council publishes its final rule, which, at this point, is not likely to occur until late-summer or fall.

    Highlights of FAR Council’s Proposed Rule
    The FAR Council’s proposed rule generally tracks the rule issued by the DOL.  However, there are three significant items of interest.

    First, the FAR Council is considering steps it might take as agencies transition to use of the new clause, once it takes effect, to ensure that employees receive prescribed notice of their rights and successor contractors receive lists of current employees from the predecessor contractor.  The FAR Council stated that it may “encourage agencies” to enter into bilateral contract modifications requiring these actions and has asked for comments on this proposal.  Based on the discussion in the proposed rule, contractors may expect modifications to current contracts imposing the right of first refusal requirements once the FAR rule becomes effective.

    Second, the Executive Order and the DOL rule provide that nothing in either mandate can excuse a contractor’s failure to comply with any other provision of law or other Executive Order.  The proposed FAR rule includes a paragraph about such compliance.  It states that the Executive Order and regulations permit compliance with (1) the HUBZone Program (Historically Underutilized Business Zones program helps small businesses in urban and rural communities gain referential access to federal procurement opportunities), (2) Executive Order 11246 (EEO), and (3) the Vietnam Era Veterans’ Readjustment Assistance Act of 1974.

    Third, the proposed rule alerts contracting officials that a failure to comply with the stringent requirements for waiving the right-of-first-refusal provision prior to the contract solicitation date not only makes a waiver determination inapplicable to the contract, but also will result in a resolicitation of the contract.  The DOL rule did not address resolicitation. It stated only that the right-of-first-refusal FAR clause would have to be inserted in the contract if an agency failed to follow the waiver process exactly, including deadlines.

    Review DOL and FAR Rules and Action Items
    The right-of-first-refusal requirement will impact affected contractors in two significant ways.  First, with certain exceptions, the contractor will be compelled to offer employment initially to the predecessor contractor's employees, regardless of whether those employees meet the contractor’s employment standards and qualifications.  Employers cannot apply their own hiring (e.g., college degree requirements) and screening criteria (e.g., background checks, drug tests, and security clearance checks) unless required by the contract or the contracting agency.  As a practical matter, the result will be that the contractor’s workforce will be comprised of the predecessor company’s employees rather than employees selected by the contractor.

    Second, if the predecessor's workforce is unionized, the successor contractor may be required to recognize the union under the National Labor Relations Act (NLRA) successorship rules.  Additionally, if the predecessor workforce was being organized by a union, then those organizational efforts will continue with the new employer.

    Affected contractors and other interested parties should consider filing comments on the proposed rule. 

    In addition, contractors subject to the Executive Order should start planning. Review the DOL’s final rule and consider:

    • the impact of the NLRA issues discussed above;
    • what changes may be needed with respect to hiring practices; and
    • how to achieve compliance with the new requirements while staying compliant with other laws and Executive Orders, including those identified in the proposed rule.