“Blacklisting” OR “Bad Actor” Executive Order 13673

Construction and Procurement Law News, Q3 2015

Client Alert

Officially known as the “Fair Pay and Safe Workplaces” Executive Order, 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 President Obama 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 violations for the prior three years of 14 different federal labor and employment laws (and also comparable state laws).

The laws of general application to all 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, religion; discrimination, harassment, and retaliation), the Americans with Disabilities Act (discrimination, reasonable accommodations), and the Age Discrimination in Employment Act (“ADEA”; discrimination, retaliation). Laws applicable to federal government contractors include: 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, and Executive Order 13658 (establishing a minimum wage for federal contractors).

In the initial bidding process, covered contractors and subcontractors will have to check a box as to whether they have had a violation of any of the above Acts in the last three years. Once a bidder is selected as a finalist, if they indicated they had a violation, then the specifics would have to be disclosed on a publicly available website. After disclosure, the contracting officer in charge of the project would maintain responsibility for determining whether the disclosed violations qualified as a “serious, repeated, willful, or pervasive” violation 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 fourteen labor and employment laws, but are somewhat defined in the EO. For example, a violation will be considered “serious” if it affects more than 25% 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 violations 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. There appears to be little dispute that the new procedures would considerably slow the federal government bidding process and also be expensive to maintain the necessary recordkeeping and reporting systems in place, especially by large contractors. It is possible that small and midsize subcontractors could be driven out of business, or out of the federal contracting arena, if challenged repeatedly by contracting officers.

Downstream, the prime contractor will be responsible for making a determination if a subcontractor shows a lack of integrity or business ethics sufficient to disqualify it from consideration for a subcontract.

In addition to the initial disclosures 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 be able to turn that responsibility over to the DOL, keeping in mind the potential problems that causes.

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. 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; seek due process hearings in front of two administrative levels, then to 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. Examples: 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 (“NLRB”) complaints of unfair labor practices, which is, in effect, the NLRB becoming the attorney for the employee or a union. The bare allegations are heard by an administrative law judge, and then possibly reviewed by the NLRB, and ultimately 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, which has generally been given broad support by all courts, including the U.S. Supreme Court.

Second, anyone being treated as an independent contractor must be given notice of their status in writing, further fanning 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 individuals are actually employees, with wage and benefit rights, and tax liability for the employer.

The proposed regulations and guidance are not expected to take effect immediately as to all contractors and subcontractors, but likely will be phased in possibly during 2016. 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 government contractors fairly significant amounts to implement. At a minimum, a draft internal compliance plan should be prepared sooner rather than later, and all labor and employment law “violations” may 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 at this time 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 allegations in perspective. For any existing labor law investigations or cases which have not been finalized, consider how best to pursue and close them, keeping in mind this pending EO. This guidance applies not only to agency investigations but also arbitrations and any civil court actions that involve labor law violations in the 14 areas. A critical task will be for primes and subcontractors to work together to develop a plan for obtaining information on subcontractors, making sure that what is provided is complete, and begin assessing how to verify the subcontractor reports.

A company can also be active with its trade associations which will likely be involved in studying this EO and its implications. Finally, never underestimate the impact of a personal phone call or letter from senior company officials to your representatives in Congress. As always, be aware of what is coming and let it help guide your company’s actions today.