• "Fair Pay and Safe Workplaces" Executive Order Imposes New Burdens on Government Contractors
  • September 18, 2014
  • Law Firm: Shawe Rosenthal LLP - Baltimore Office
  • On July 31, 2014, the President issued an Executive Order entitled, “Fair Pay and Safe Workplaces,” which will make an employer’s record of compliance with federal and state labor laws a criterion for successful bidding on government contracts and subcontracts exceeding $500,000.  In a Fact Sheet accompanying the Executive Order, the White House described it as an effort to prevent contractors who obey the law from being underbid by unscrupulous contractors.  Even for scrupulous contractors, however, the Executive Order will add new burdens.

    Effective date deferred.  The Executive Order is not effective immediately.  It will become effective when final implementation rules are issued by the Federal Acquisition Regulatory Council, which, according to the White House Fact Sheet, is expected in 2016.  Once the Executive Order goes into effect, however, it may consider violations looking back three years from the execution of the government contact.

    Labor compliance made a qualification for federal contracts.  The Executive Order makes compliance with federal and state labor laws a criterion for federal agencies to consider in awarding contracts.  It applies to procurement contracts, including construction, where the estimated value exceeds $500,000.  Each contracting agency must establish a Labor Compliance Advisor who will advise contracting officers whether a contractor should be disqualified, based on its history of labor law violations in the last three years.

    Criteria to be established in regulations.  The Executive Order directs the Federal Acquisition Regulatory Council to identify considerations for determining whether serious, repeated, willful or pervasive violations of labor law are disqualifying.  The Executive Order further provides that in most cases a single violation of law will not be disqualifying and that remedial or mitigating factors should be considered.  The Fact Sheet states that the Executive Order targets “the most egregious violations” and “worst actors.”  Because settlements do not need to be reported, the Executive Order also puts additional pressure on employers to settle disputes.  Indeed, that is an announced purpose of the Executive Order.  The White House Fact Sheet states, “The new process is structured to encourage companies to settle existing disputes, like paying back wages.”

    Reporting of violations required.  To permit the government to assess a contractor’s record of compliance, the regulation requires covered contractors to report “administrative merits determinations,” arbitration decisions and court decisions involving federal labor laws or their state law counterparts.  The term “administrative merits determination” does not appear in federal law and it not clear whether or not it includes EEOC cause findings.  The 14 federal laws listed in the regulation are The Fair Labor Standards Act, The Occupational Safety and Health Act, The Migrant and Seasonal Agricultural Worker Protection Act, the National Labor Relations Act, the Davis-Bacon Act, The Service Contract Act, Executive Order 11246 (equal employment opportunity and affirmative action plans for government contractors), Section 503 of the Rehabilitation Act, The Vietnam Era Veterans Adjustment Assistance Act, the Family and Medical Leave Act, Title VII of the Civil Rights Act of 1964, The Age Discrimination in Employment Act, and Executive Order 13658 (establishing a minimum wage for contractors).   Notably missing from the list are immigration laws.

    Application to subcontractors.  The Executive Order applies to subcontractors with subcontracts in excess of $500,000, except for off the shelf items.  It directs prime contractors to collect information concerning their subcontractors’ violations, and to consider whether the subcontractor “is a responsible source that has a satisfactory record of integrity and business ethics,” in accordance with the criteria established in regulations.

    Reporting on a website.  The Executive Order instructs the Administrator of General Services to develop a website for federal contractors to meet their reporting requirements.  Under the Executive Order, contractors will be responsible for reporting their own violations and those of their subcontractors.

    Updating every six months.  After a federal contract or subcontract has been awarded, the contractor must update the list of violations every six months, for itself and its subcontractors.

    Anti-arbitration provision.  For contracts and subcontracts in excess of one million dollars (apart from commercial items or off-the-shelf items) the Executive Order bars predispute arbitration agreements covering discrimination claims under Title VII and torts arising out of assault and harassment.  This ban on arbitration does not apply to collective bargaining agreements, agreements to arbitrate voluntarily reached after the dispute arises, or arbitration agreements entered into before the contractor bids on a federal contract (except if the contractor has the right to change the arbitration agreement).

    Pay disclosure provisions.  The Executive Order requires contractors and subcontractors to provide employees, in each pay period, a statement of the employee’s hours worked, overtime hours, pay and additions to and deductions from pay.  This requirement appears to be largely duplicative, since state wage payment and collection laws normally require employers to issue pay stubs.  Under the Executive Order, the employer need not provide hours worked to employees who are exempt from overtime, if it informs them of their overtime exempt status.  If an individual is working as an independent contractor, the contractor or subcontractor must inform that individual in writing of his status.

    Our take.  If previous experience is a guide, implementation of the Executive Order is likely to be challenging.  Currently, various agencies each focus on enforcement of a particular labor law.  Even with specialized enforcement, the government has trouble completing timely and competent investigations of particular claims.  The investigations often suffer from inexperienced investigators, changing legal standards, and political motivations.  The Executive Order ups the ante, by putting an employer’s ability to bid on government contracts in the hands of agency staffers who will be expected to assess the quality of the employer’s compliance with 14 different laws, and their state law counterparts, over a three year period.  Even if the government can properly administer the Executive Order, it will impose, at the least, additional data collection and reporting requirements and another level of bureaucracy.