Federal Contractors — Final Rule and Guidelines Issued for Controversial Fair Pay and Safe Workplaces Order

On August 25, 2016, the Federal Acquisition Regulatory (FAR) Council issued its long-anticipated final rule implementing the Fair Pay and Safe Workplaces Executive Order (Executive Order), along with accompanying guidelines from the U.S. Department of Labor (DOL). This controversial Executive Order imposes burdensome obligations on companies bidding for future federal contracts, including requiring that the companies:

• Disclose administrative determinations, civil judgments and arbitration awards where the company was found to have violated any of 14 identified labor laws
• Provide non-exempt employees with detailed salary and overtime information, and inform workers of their independent contractor status in writing
• Agree not to require workers to enter into to any mandatory pre-dispute arbitration agreements on Title VII discrimination claims or sexual harassment claims

Notably, the Executive Order is not retroactive and only applies to future bids and contracts. And, the reporting requirements will be phased in over time according to the following schedule:

• The regulations are effective for prime contractors beginning October 25, 2016. Subcontractors will not have to make disclosures until October 25, 2017.
• For the first six months, the regulations only apply to contracts worth $50 million or more. Beginning on April 25, 2017, the disclosure requirements will apply to contracts valued at $500,000 or more.
• The initial period for which labor law violations must be disclosed is one year, and it will gradually increase to three years by October 25, 2018.
• New paycheck transparency requirements become effective on January 1, 2017.

Labor Law Violation Disclosure

Companies bidding on federal contracts must disclose violations of the following 14 federal labor laws and Executive Orders and equivalent state laws:

• The Fair Labor Standards Act (FLSA)
• The Occupational Safety and Health Act of 1970 (OSHA) and state OSHA equivalents
• The Migrant and Seasonal Agricultural Worker Protection Act (MSPA)
• The National Labor Relations Act (NLRA)
• The Davis-Bacon Act (DBA)
• The Service Contract Act (SCA)
• Executive Order 11246 (Equal Employment Opportunity)
• Section 503 of the Rehabilitation Act of 1973
• The Vietnam Era Veterans’ Readjustment Assistance Act of 1974 (VEVRAA)
• The Family and Medical Leave Act (FMLA)
• Title VII of the Civil Rights Act of 1964 (Title VII)
• The Americans with Disabilities Act of 1990 (ADA)
• The Age Discrimination in Employment Act of 1967 (ADEA)
• Executive Order 13658 (Establishing a Minimum Wage for Contractors)

Reporting Violations

Companies must report violations that occurred within a three-year period prior to the contract bid or proposal. Reportable violations include those that occurred at any and all sites within the legal entity, not just the site that will be performing the work. Companies awarded contracts have a continuing obligation to report labor law violations every six months.

Reportable violations include an enforcement agency’s preliminary findings. For example, a pending OSHA citation, an Office of Federal Contract Compliance Program’s show cause notice, and an NLRB complaint issued by a regional director are all reportable even if the company is in the process of appealing or adjudicating those determinations. Even interim court orders are reportable. A partial summary judgment order and a preliminary injunction are both reportable if there is a finding that the company violated one of the enumerated labor laws. In the OSHA context, these reporting requirements are akin to what many private contractors require of subcontractors in bid proposals. Bidding companies are typically required to report pending OSHA citations even if contested, or in circumstances where the company accepted the citation pursuant to a settlement with OSHA or a state plan OSHA agency.

Importantly, the Executive Order specifically excludes private settlements and offers of judgment as reportable items. Clearly, this exclusion will result in an alternative risk analysis for companies with federal contracts while litigating labor law claims.

Disclosure Evaluation

Contracting agencies work with labor compliance advisors (ALCAs) who evaluate reported violations and determine whether a company has a “satisfactory record of integrity and business ethics.” ALCAs consider various factors, including the amounts of fines assessed against the company, the number of similar violations assessed against the company within a three-year period, and whether the affected workers composed 25 percent of more of the workforce. The ALCA also considers whether the company took steps to correct the violations and improve compliance. Remediation is a huge factor in determining whether a company has a satisfactory record. In some instances, the ALCA may recommend that the company enter into a compliance agreement with the contracting agency. Compliance agreements can include changes in policies and operations, internal audits or external compliance monitoring. In the worst case scenario, an agency may recommend suspension or debarment after an assessment of a company’s reported labor law violations.

New Paycheck Transparency

In addition to extending required reporting to include labor law violations, the Executive Order also contains provisions requiring contractors to provide non-exempt employees with detailed salary and overtime information (hours worked, overtime hours, pay, and any additions and deductions from pay). Companies are not required to provide this information for independent contractors, but must provide a document informing them of their independent contractor status.

Arbitration Provisions

Companies with federal contracts worth more than $1 million cannot enter into agreements with workers which require arbitration of Title VII, sexual assault or sexual harassment claims. The Executive Order provides three exceptions to this bar:

• Where the employee agrees to arbitrate after the dispute arises
• Where the employee is covered by a collective bargaining agreement (CBA)
• Where the contract is for commercially available off-the-shelf items

The Executive Order circumvents favorable Supreme Court precedent, which has broadly upheld the enforceability of arbitration agreements over the past half-decade. Now, companies entering into future federal contracts will need to re-evaluate whether to continue to do so, or opt not to include provisions requiring arbitration of the prohibited claims.

Public Access to Company Disclosures

Most alarmingly, a federal contractor’s disclosures will be publicly accessible on the Federal Awardee Performance and Integrity Information System (FAPIIS). This opens the door for unions, competitors and plaintiffs’ lawyers to access specific information related to a company’s labor law violations. This data could potentially be used as leverage in pending civil cases and collective bargaining discussions, and may even provide data for shareholder initiatives.