The long wait for the so-called “contractor blacklisting” final rule is over. On August 24, 2016, the U.S. Department of Labor (“DOL”) and the Federal Acquisition Regulatory Council (“FAR”) released the highly anticipated final regulations and guidance implementing Executive Order 13673, “Fair Pay and Safe Workplaces” (“EO 13673”), which President Obama signed on July 31, 2014. The final rule was published on August 25, 2016 in the Federal Register and the effective date of the regulations is October 25, 2016.

The Final Rule implementing EO 13673 is the product of two years of feedback from contractors, unions, workplace advocacy groups and other stakeholders. For those unfamiliar with EO 13673, President Obama’s purpose in signing the Executive Order was to promote efficiency in government and procurement by ensuring that federal agencies only contract with “responsible” contractors who comply with federal and state workplace laws. The final rule requires federal agency contracting officers to consider an employer’s record of “Labor Law compliance” when awarding contracts and subcontracts valued at more than $500,000.

Under the final rule, contractors must disclose any administrative merits determination (“AMD”), arbitral award or civil judgment rendered for a violation of the labor laws enumerated in the Executive Order, even if the violation was not committed in the performance of work on a federal government contract or subcontract and regardless of how “minor” the violation. The following is a list of the labor laws covered by the final rule:

  • Fair Labor Standards Act
  • Occupational Safety and Health Act
  • National Labor Relations Act
  • Family and Medical Leave Act
  • Davis-Bacon Act
  • Service Contract Act
  • Title VII of the Civil Rights Act
  • Americans with Disabilities Act
  • Age Discrimination in Employment Act
  • Executive Order 11246 (affirmative action and equal employment opportunity)
  • Vietnam Era Veterans’ Readjustment Assistance Act
  • Section 503 of the Rehabilitation Act
  • Executive Order 13658 (federal contractor minimum wage)

The final rule requires the disclosure of AMDs, arbitral awards and civil judgments even when they are subsequently settled, although the fact that a contractor remediated an alleged violation is counted as a mitigating factor tending to show that the contractor is a responsible employer and therefore eligible to submit a bid on a federal contract. This means that unilateral decisions by staff of enforcement agencies will serve as reportable AMDs that could limit an employer’s ability to compete for federal contracts. This result certainly raises the stakes for contractors in any investigation by an agency under one of the enumerated labor laws.

What do contractors need to know in order to comply? Below is a summary of the key points highlighted in the Final Rule:

  1. Effective Date. The final rules will take effect on a phased-in schedule starting on October 25, 2016.
  2. Early Assessment Opportunities. Starting on September 12, 2016, the DOL will offer a “voluntary” pre-assessment process, that will allow contractors to come forward to the DOL “to discuss their history of compliance with labor laws” and secure guidance on whether “additional compliance measures are necessary.”
  3. Disclosure on Bids. The proposed rules had indicated that bidders on covered contracts would have to make disclosures of labor law violations each time that they submitted a bid. The Final Rule clarifies that bidders will have to make a general representation (“yes” or “no”) as to whether they have any labor law violations within the reporting period, but they will be required to make disclosures of the violations (and submit mitigation information) only if the responsible Contracting Officer has initiated a responsibility determination.
  4. Pre-Dispute Arbitration Agreements. On contracts valued at $1,000,000 or more, except for contracts for Commercial Items (as defined in the FAR), contractors will face prohibitions against requiring employees to enter into pre-dispute agreements to arbitrate claims brought under Title VII of the Civil Rights Act of 1964 or tort claims arising from sexual assaults or harassment. This requirement will take effect on October 25, 2016, but will not apply “where valid contracts already exist and remain unmodified.” Note that this provision does not bar a contractor from requiring employees to enter into pre-dispute agreements to arbitrate other types of claims, such as disability discrimination or wage payment claims. (The arbitration restrictions also apply to subcontracts of $1,000,000 or more, except for contracts for Commercial Items.)
  5. Phase-in for Prime Contractors. From October 25, 2016, until April 25, 2017, the requirement for prospective prime contractors to disclose workplace law violations will apply only to solicitations valued at $50 million or more. Starting on April 25, 2017, solicitations valued at or above $500,000 will be covered. There is no retroactive application to contracts awarded prior to the effective date.
  6. Phase-in for Subcontractors. Subcontractors will not be required to disclose labor law violations until after October 25, 2017. As of that date, all tiers of subcontracts with an estimated value of $500,000 or more will be covered, with the exception of subcontracts for Commercially Available Off-the-Shelf (“COTS”) Items (as defined in the FAR).
  7. Paycheck Transparency. Paycheck transparency provisions of the final rule will become effective on January 1, 2017, with respect to all contracts valued at $500,000 or more, and to subcontracts at the same level, with the exception of COTS items. This will require implementation of wage statement provisions and independent contractor notices.
  8. Three-Year Lookback Window. The three-year lookback period for disclosures will be phased in gradually. Initially, the period of time covered by the disclosure obligation will be limited to one year preceding the date on which a contractor submits a bid on a covered solicitation. Thus, contractors will not be required to disclose any reportable violation that occurred prior to October 25, 2015. After October 25, 2017, contractors and subcontractors must report AMDs, arbitral awards and civil judgments issued beginning on October 25, 2015, and up to the date of the offer or for the three years preceding the date of the offer, whichever period is shorter. By October 25, 2018, the full three-year lookback period will apply in all instances.
  9. DOL to Handle Subcontractor Disclosures. Once subcontractor disclosures are required, subcontractors will make their disclosures directly to the DOL, rather than to prime contractors as originally proposed. The DOL will conduct a review and assessment, and the subcontractor will be required to make representations to the prime contractor concerning the results of the DOL review. Prime contractors will be able to rely on the DOL’s review.
  10. Equivalent State Laws. The final rules do not contain any timeframe for rulemaking concerning labor law violations involving “equivalent” state laws. The White House indicates that this requirement will be “phased in at a later time” (with the exception for OSHA-approved state plans, which will take effect in accordance with the above schedule).
  11. No Disclosures Required for “Affiliates.” The final rule clarifies that a bidder/offeror on a covered contract does not need to make disclosures of any labor law violations rendered against any parent, subsidiary, or affiliated entities. Disclosures are required only as to the operation of the legal entity (e.g., the corporation, limited liability company, etc.) that submits the bid.
  12. Helpful Citizens. The White House fact sheet highlights the opportunity for the public to make reports to contracting agencies, a point that largely has escaped notice until now. According to the White House, Agency Labor Compliance Advisors “will also be available to members of the public who have information they feel that prospective contractors should have disclosed about their labor violations.”

Notably, the DOL includes an Office of Federal Contract Compliance Programs (“OFCCP”) “show cause notice” as an AMD. As contractors know, OFCCP issues a show cause notice when it determines that a contractor has violated one or more regulations under OFCCP’s jurisdiction. Although OFCCP often threatens to file a show cause notice during the course of an investigation (even for a contractor’s failure to submit documentation requested by OFCCP after repeated requests), OFCCP issues fewer than 200 show cause notices annually. The inclusion of a show cause notice as AMDs will provide the OFCCP with considerably more leverage in negotiating settlements with contractors prior to the issuance of a show cause notice.

The fact that the DOL phasing in subcontractor disclosures and then taking responsibility for evaluating those disclosures is a positive development for prime contractors. The benefit is potentially significant since this approach relieves prime contractors of a complex undertaking and also spares them the risk of having their determinations second-guessed by the DOL or affected subcontractors. However, exactly what this development means for subcontractors (some of which may be “primes” on some contracts and “subs” on others) remains to be seen. To avoid surprises, prime contractors will need to work through subcontractor labor violations well in advance of the due date for RFPs.

What needs to be reported regarding each labor law decision? Under the new rule, the contractor, and eventually the subcontractor, will be required to disclose: (1) The labor law that was violated; (2) the case number, inspection number, charge number, or docket number; (3) the date of the determination, judgment, award, or decision; and (4) the name of the court, arbitrator, agency, board, or commission that rendered the decision. The DOL may take into account “good faith and reasonable grounds” as a mitigating factor weighing in favor of the contractor when reviewing its compliance record.

The Final Rule, although still onerous, includes some positive changes for government contractors. The incremental phase-in of the three-year lookback window is a welcome development. It puts AMDs, arbitral awards or decisions, and civil judgments rendered against contractors prior to October 25, 2015, outside the reporting period. Thus, with the exception of the one-year period leading up to the effective date, contractors will have a clean slate going forward.

This article was drafted by the attorneys of Ogletree Deakins, a labor and employment law firm representing management, and is reprinted with permission. This information should not be relied upon as legal advice.