Another Hoop For Government Contractors: The Fair Pay and Safe Workplaces Executive Order

BY: LAURA D. WINDSOR AND JEFFREY MILLER*

On Thursday, July 31, 2014, President Obama signed another in a series of recent Executive Orders targeting employment practices of federal government contractors and subcontractors.  Under the “Fair Pay and Safe Workplaces” Executive Order (the “EO”), federal contractors and subcontractors must disclose their labor and employment law violations in order to be considered for an award of a government contract. 

What the EO Attempts to Do: The stated purpose of the EO is to “increase efficiency and cost savings” in work performed by federal contractors by ensuring that those contractors comply with labor laws.  It has been reported that President Obama hopes that a contractor’s fear of losing out on lucrative federal contracts will inspire that company to clean up its labor and employment practices.  The EO aims to achieve this goal in three central ways:

1. It 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. It 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.” In other words, it requires pay stubs.
    
3. In contracts 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 EO’s mandates will be implemented through a final rule to be issued by the Federal Acquisition Regulatory (FAR) Council at the conclusion of the rulemaking process (likely some time in 2016).

Disclosure Requirement – What It Actually Does:  The EO’s most significant piece is the new disclosure requirement for procurement contracts.  Companies seeking new federal contracts worth more than $500,000 must disclose any violation of the 14 listed labor laws[1] or “equivalent state laws,” including administrative merits determinations, arbitral awards or decisions, or civil judgments against the company during the preceding three years.  If a company has not had such a violation, then it will simply check a box stating so.  If a company has violations, it must disclose those, and the contracting agency will take the disclosed information into account when making its award decision. 

The EO requires each executive branch agency to designate a senior official as “Labor Compliance Advisor” (“LCA”), tasked with assessing the “serious, repeated, willful, or pervasive nature of any violation” disclosed by a contractor, as well as any corrective measures taken by the contractor to address the violations.  LCAs are able to provide assistance to contractors to formulate remedial measures for past violations.  The EO also gives LCAs, as well as the Department of Labor and other agency officials, the power to deny the award of a contract, terminate a contract, or refer a contractor for consideration of possible suspension or debarment.  Should a contract be awarded, all disclosure information needs to be updated every six months.

The EO also requires potential contractors to represent to the contracting agency that the contractor will require the same disclosures from any subcontractors working on the project and will consider information submitted by the subcontractor to determine “whether [the] subcontractor is a responsible source that has a satisfactory record of integrity and business ethics.”  While the LCAs are tasked with providing guidance to contractors in these scenarios, the contractor is ultimately the responsible party.  Finally, subcontractors must also provide six-month updates to the prime contractor during the contract period.

Paycheck Information Requirement – What It Actually Does:  Most employers already give their workers a pay stub that documents basic information about their hours and wages.  The EO now makes the practice mandatory for all federal contractors in contracts valued above $500,000.  This requirement flows down to subcontractors.  Independent contractors and employees not eligible for overtime are not covered by the mandate; however, an employer treating a worker as an independent contractor must provide that worker with formal written notice of this treatment.

Prohibition of Pre-Dispute Arbitration Agreements – What It Actually Does:  The EO’s arbitration restriction is built on a policy already implemented by the Department of Defense (the Franken Amendment), and extends it to all federal contractors with contracts worth over $1 million.  The EO exempts arbitration agreements contained in collective bargaining agreements and arbitration agreements entered into prior to the contractor bidding on a contract, except where the employer is permitted to change the terms of the contract with the employee.  These exemptions indicate that at-will employers, or employers who have reserved the right to unilaterally amend arbitration agreements, will not be able to enforce those agreements once the FAR final rule is in place.

Going Forward:  The White House expects the EO “to be implemented on new contracts in stages, on a prioritized basis, during 2016.”  This means that a potential contractor hoping to earn a federal contract in 2016 is already at least one year into the three-year disclosure period.  Thus, it is vital for potential federal contractors to start carefully tracking any labor law violations or judgments.  Contractors who have reportable violations should establish remedial measures to demonstrate “a satisfactory record of integrity and business ethics.”  Finally, employers who do not issue standard pay stubs should start doing so, and employers using arbitration clauses should have those examined in light of the EO’s new prohibitions.