On July 31, 2014, President Obama released Executive Order 13673, known as the Fair Pay and Safe Workplaces Executive Order. The theme of the Executive Order is that when the U.S. federal government is going to use taxpayer dollars to buy goods and services from government contractor companies, the taxpayers’ dollars should not be used to buy from companies that engage in repeated, pervasive, serious or willful violations of our employment laws.
This Executive Order has not been implemented yet, but proposed rules are due out imminently, which is why LocalJobNetwork.com wanted to put this on government contractors’ radar.
There are three components to the Executive Order: (1) a certification obligation; (2) pay transparency; and (3) a prohibition against the use of pre-hire arbitration agreements for certain types of causes of action.
Certification (Sections 2, 3 and 4 of the Executive Order)
- To procurement contracts for goods and services, including construction
- Where the estimated value of the supplies and services exceeds $500,000 (The Executive Order was silent as to whether this is a single contract for $500,000, or an annual aggregate.)
- A contract bidder to disclose and certify on behalf of itself and its subcontractors whether “there has been any administrative merits determination, arbitral award or decision, or civil judgment, as defined in guidance issued by the Department of Labor, rendered against the offeror within the preceding 3-year period for violations of any of the following labor laws and Executive Orders (labor laws):
- (A) the Fair Labor Standards Act;
(B) the Occupational Safety and Health Act of 1970;
(C) the Migrant and Seasonal Agricultural Worker Protection Act;
(D) the National Labor Relations Act;
(E) 40 U.S.C. chapter 31, subchapter IV, also known as the Davis-Bacon Act;
(F) 41 U.S.C. chapter 67, also known as the Service Contract Act;
(G) Executive Order 11246 of September 24, 1965 (Equal Employment Opportunity);
(H) section 503 of the Rehabilitation Act of 1973;
(I) 38 U.S.C. 3696, 3698, 3699, 4214, 4301-4306, also known as the Vietnam Era Veterans' Readjustment Assistance Act of 1974;
(J) the Family and Medical Leave Act;
(K) title VII of the Civil Rights Act of 1964;
(L) the Americans with Disabilities Act of 1990;
(M) the Age discrimination in Employment Act of 1967;
(N) Executive Order 13658 of February 12, 2014 (Establishing a Minimum Wage for Contractors); or
(O) equivalent State laws, as defined in guidance issued by the Department of Labor.”
- The awaited “guidance” from the Department of Labor is one of the items that is due out shortly. On March 6, 2015, the Department of Labor and the Federal Acquisition Regulatory Council each submitted separate documents to the Office of Management and Budget (OMB), which is the next-to-last step before these agencies can publish their guidance and their proposed rules in the Federal Register, for public comment. Typically, OMB will respond within 90 days to the agencies’ drafts, and if little additional drafting or editing is needed, the DOL and the FAR Council will publish in the Federal Register very soon after the OMB gives its approval. Ninety days from March 6 is June 6 (approximately).
- Once the proposed rules are issued, it is imperative that government contractors and subcontractors comment on the proposal.
- In addition to making this initial certification about violations of the laws listed above, the successful bidder will be required to update the information every six months during the life of the contract.
- The Labor Contract Advisor is the position within each federal agency that will help to determine whether violations of the above laws are serious, repeated, willful, or pervasive. The anticipated DOL Guidance that is being developed will set standards for these terms:
- To determine whether a violation is serious in nature, the guidance is expected to look at the number of employees affected; the degree of risk posed or actual harm done by the violation to the health, safety, or well-being of a worker; the amount of damages incurred or fines or penalties assessed with regard to the violation; and “other considerations as the Secretary finds appropriate”;
- To determine whether a violation is repeated, the guidance is expected to look at whether the entity has had one or more additional violations of the same or substantially similar requirement in the past 3 years;
- To determine whether a violation is willful, the guidance is expected to look at whether the entity knew of, showed reckless disregard for, or acted with plain indifference to the matter of whether its conduct was prohibited by the requirements of the labor laws listed above;
- To determine whether a violation is pervasive in nature, the guidance is expected to look at the number of violations of a requirement or the aggregate number of violations of requirements in relation to the side of the entity.
- If information regarding violations of labor laws is brought to the attention of a contracting officer during the term of a contract, the contracting officer is expected to consult with the agency’s Labor Contract Advisor to determine whether any action is necessary. Such action “may include agreements requiring appropriate remedial measures, compliance assistance, and resolving issues to avoid further violations, as well as remedies such as decisions not to exercise an option on a contract, contract termination, or referral to the agency suspending and debarring official.”
Section 5 of the Executive Order dealing with pay transparency also applies to contracts at the $500,000 level. It requires the government contractor or subcontractor to provide to each person performing work under the contract a document containing information concerning that individual’s hours worked, overtime pay, pay, and any additions made to or deductions made from pay.
- Exempt Employees: The document provided to individuals exempt from the overtime compensation requirements of the Fair Labor Standards Act need not include a record of hours worked if the contractor informs the individuals of their overtime exempt status.
- Independent Contractors: If the government contractor is treating an individual performing work under a contract or subcontract as an independent contractor, not an employee, the government contractor must provide a document informing the individual of this status as an independent contractor.
Presumably, as to the last point, the government contractor has already set out in the terms of its agreement with the independent contractor the basis for the government contractor’s conclusion that the individual is not an employee.
Section 6 of the Executive Order addresses complaint and dispute transparency. For contracts of $1 million and higher, government contractors and subcontractors are not going to be able to negotiate pre-hire arbitration clauses that cover 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, until after the dispute arises. (“Now that we have disc;riminated against you or harassed you, will you waive your right to a bench or jury trial and come to arbitration with us?”)
There are three exceptions to this prohibition, which would allow the employer to continue using arbitration to resolve disputes. The three exceptions are: (1) contractors whose employees are covered by any type of collective bargaining agreement negotiated between the contractor and a labor organization representing them; (2) contracts for the acquisition of commercial items or commercially available off-the-shelf items; or (3) employees or independent contractors who entered into a valid contract to arbitrate prior to that contractor or subcontractor bidding on a contract subject to this Executive Order.
That third exception is limited, though. A contractor will be required to obtain post-dispute consent if “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.” It is ambiguous whether “the contract” in the last clause is the independent contract or the procurement contract.
What Should Contractors Be Doing Now
- Assess the overtime exemption status of current employees under attorney client privilege, keeping in mind that the Obama Administration intends to revise those regulations soon, too. (DOL submitted its draft proposed rule to OMB on May 5, 2015.) If your company was called upon to provide all employees who are not earning overtime with a document explaining why the employee is not eligible for overtime, are you ready to do that? Are you confident in the application of the FLSA exemption status to your exempt employees?
- Conduct a privileged inventory of “losses” in the federal courts, in arbitration, and before federal Administrative Law Judges so that your company may evaluate these facts against the upcoming definitions of serious, willful, pervasive and repeated. (Once we receive more information about what state laws are implicated, you may need to supplement the inventory with state claims, too.)
Under the theory that the law could take effect in 2016, begin with January 1, 2013 and identify:
- Laws implicated
- Date of adverse decision (we do not yet know whether EEOC Cause Decisions will be viewed as adverse administrative merits decisions, for example)
- Nature of the claims
- Number of employees affected
- List all remedies arising out of the decision or judgment
- What corrective steps has the employer taken to ensure the same claim or allegations will not arise in the future?
- Person within the organization most knowledgeable to answer factual questions about the adverse ruling
- Contact information for the person with knowledge of the claims, resolution, and remedies
- Try to determine a realistic estimate of what it would cost your company to comply with the Executive Order. Are you going to lose business? Are you going to lose subcontractors or suppliers? Make sure that estimates like these make their way into the regulatory review process by using this data in your own comments, or by sharing this data with organizations that are planning to submit comments.
There is little doubt, given the breadth and scope of this Executive Order, that it will be challenged in the courts once the regulations are final. But there is an interim step between now and then that is critical. It is likely that we will see proposed rules from the FAR Council and guidance from the Department of Labor published in the Federal Register soon. Please consider commenting on the effect that this Executive Order, the Proposed Regulations, and DOL Guidance will have on your company’s continued ability to provide goods and services to the federal government. We cannot over-emphasize the importance of such comments to the regulators. (Yes, Littler will be drafting comments, and we would welcome this type of information once the regulations have been published). Please also begin to think about the type of pressure this Executive Order may exert on your company to settle claims rather than risk an adverse judgment in court, by an arbitrator, or by an administrative law judge.