Blacklisting for Past Labor Violations -- Executive Order 13673

Government Contracts Newsletter

Client Alert

Officially known as “Fair Pay and Safe Workplaces,” Executive Order 13673 now consists of proposed guidance from the Department of Labor (DOL) and proposed regulations from the Federal Acquisition Regulatory Council (FAR). It is generally considered to be one of the broadest, most demanding, and potentially most expensive of the Executive Orders issued by the President in 2014. The order, guidance, and regulations will require federal prime contractors and subcontractors with a construction, service or supply contract of $500,000 or more to self-report any violation of 14 different federal labor and employment laws (and also comparable state laws) for the prior three years. The laws of general application to employers are:

The Fair Labor Standards Act - basic wage hour law 
The Occupational Safety and Health Act (OSHA) 
The National Labor Relations Act (NLRA) - union activity 
The Family and Medical Leave Act (FMLA) 
Title VII of the Civil Rights Act of 1964 - race, national origin, sex, pregnancy, and religion; discrimination, harassment, and retaliation 
The Americans with Disabilities Act Amendments Act (ADAAA) - discrimination and reasonable accommodations 
The Age Discrimination in Employment Act (ADEA) - discrimination and retaliation

Laws applicable to federal government contractors:

The Davis Bacon Act - area wage and benefit determinations and job classifications 
The Service Contract Act 
Executive Order 11246 - equal employment opportunity and affirmative action; special provisions for construction companies 
Section 503 of the Rehabilitation Act of 1973 
The Vietnam Era Veterans Readjustment Assistance Act 
Executive Order 13658 - establishing a minimum wage for federal contractors

Covered contractors and subcontractors will have to check a box during the initial bidding process declaring whether they have had a violation of any of the above laws in the last three years. Once a bidder is selected as a finalist, it will have to disclose the specifics of any violation on a publicly available website. After disclosure, the contracting officer in charge of the project will be responsible for determining whether the disclosed violation(s) qualified as a “serious, repeated, willful, or pervasive” violation(s) to determine whether the company satisfies the requirement for having a satisfactory record of integrity and business ethics. Those terms have little meaning under most of the 14 labor and employment laws. For example, a violation will be considered “serious” if it affects more than 25 percent of the workers at a worksite; if it involves more than $5,000 in fines or $10,000 in back pay; if it involves harassment or retaliation for protected activities; or if it involves interference with a government investigation, including failure to provide requested information or access to property.

A senior official from within each federal agency will be designated as a “labor compliance advisor” to assist the contracting officer in making determinations. Contractors are allowed to provide any favorable information regarding terms of settlements, remedial actions taken, and factual and legal disputes that were in existence. The contracting officer could decide to require a labor compliance agreement, or refer the company to the federal agency responsible for enforcing a particular law to consider a suspension or debarment action, or simply use the past violation(s) as a reason for denial of an award of a government contract. There is no bright line test for determining how many violations or how egregious the violations have to be before a particular remedial action is selected by a contracting officer to apply to a company.

In addition to the initial disclosure of violations, prime and subcontractors would have to update the report of violations every six months during a project. Prime contractors will have the duty to obtain the initial and six-month update reports from subcontractors, or they may have the option to turn that responsibility over to the Department of Labor, keeping in mind the potential problems that might cause. If the prime contractor collects the subcontractor’s reports, then the prime contractor will be responsible for making a determination if a subcontractor qualifies for consideration for a subcontract. The reporting requirements do not apply to contracts that are for commercially available, off-the-shelf items.

One of the principal problems with the proposed DOL guidance and FAR Council regulations is that a broad definition of “administrative merits determinations” is used, requiring companies to report as violations agency findings which often are not final decisions. Example: Wage and Hour (WH-56) summary of unpaid wages letters and forms. These are initial back pay calculations made by an investigator at the lowest level of the agency. They are often changed as a result of negotiations or additional facts being brought forward on behalf of the company. Further, companies can seek review at higher levels of the DOL, and in Davis Bacon and Service Contract Act situations; they can also seek due-process hearings in front of two administrative levels, then the federal courts. Though few cases actually go that far in the process, the proposed guidance and regulations show the importance of setting forth facts and law which support the company in any labor and employment cases. If a settlement occurs, it becomes more important than ever to make sure that the word “settlement” is used, that “waiver” of any prior government positions on debarment be stated, and that the employer is not admitting liability even though it agrees to comply with the particular law in question. Most government agencies will not sign off on such settlement letters, but at least the employer can unilaterally draft such letters to go along with WH-56 forms or other government documents used in settling an investigation.

Likewise, an OSHA citation which has not been fully developed would be considered a reportable “violation,” as well as an Equal Employment Opportunity Commission “reasonable cause” finding on a discrimination, harassment, or retaliation charge, even though the underlying case may not have been litigated. The same applies to National Labor Relations Board complaints of unfair labor practices, which is nothing more than the NLRB becoming a prosecutor on behalf of an employee or union. Hearings would be held in front of an administrative law judge, then possibly reviewed by the NLRB, and ultimately reviewed by a federal court of appeals. Even so, in the proposed regulations and guidelines, an NLRB complaint would be considered a reportable “violation.”

There are two other requirements in the proposed guidelines and regulations for employers seeking contracts of $1,000,000 or more. First, employers are barred from requiring their employees to enter into mandatory arbitration agreements to resolve disputes arising out of Title VII of the 1964 Civil Rights Act or any tort-related court action relating to sexual assault or harassment. This prohibition through an Executive Order arguably flies in the face of the Federal Arbitration Act, passed by the Congress and given broad support by the federal courts, including the U.S. Supreme Court.

Second, anyone being treated as an independent contractor must be given notice of his or her status in writing. This would further fan the flames of an issue that has already received considerable attention and is the focus of numerous investigations and lawsuits by the IRS and the DOL claiming that individual contractors are actually employees, with wage and benefit rights and tax liability for the employer.

The proposed regulations and guidance could be phased in as soon as 2016. There appears to be little dispute that the new procedures would considerably slow the federal government bidding process and would be expensive to maintain the necessary recordkeeping and reporting systems in place, especially by large contractors. The purpose of this early notice is to put all companies that may be covered on alert that they need to be preparing for what is coming, unless stopped by the courts or congressional action. If the provisions go into effect, it almost certainly will cost most companies a fairly significant amount to implement. At a minimum, an internal compliance plan should be drafted sooner rather than later, and all labor and employment law “violations” should be funneled through one person or office for tracking purposes. A company official or team may be assigned to go back at least two and a half years to find and organize all paper and electronic files on labor law investigations and civil actions, making sure to collect all paperwork or other evidence that puts the company in the best light. For any existing labor law investigations or cases which have not been finalized, consider how best to pursue and close them on favorable terms with favorable documentation. This applies not only to agency investigations but also to arbitration and any civil court actions that involve alleged labor law violations in the 14 identified areas. A critical task will be for prime contractors and subcontractors to work together to develop a plan for obtaining information, making sure that what is provided is complete, and assessing the level of responsibility in complying with the laws.

You can also be active with trade associations, who will likely be involved in bringing legal actions in court or lobbying members of Congress. And never underestimate the impact of a personal phone call or letter from senior company officials to your representatives in Congress. Many industry groups are urging the DOL and FAR Council to withdraw or revise these regulations due to the forecasted disruption to procurements and added costs to contractors.