Federal Contractors May Lose Contracts Because of Labor and Employment Law Violations

And here we go again. We have noted that the National Labor Relations Board is aggressively expanding employee protections and organized labor opportunities, that the EEOC has decided to claim many common provisions of separation and settlement agreements are unlawful, and that the Obama Administration has decided the overtime exemptions under the Federal Labor Standards Act need to be dialed back. If you are keeping score, you can add these up to reach the reasonable conclusion that there is a clear executive branch policy seeking to expand and protect employees through non-legislative means. The most recent domino in this bigger policy lineup affecting federal contractors has just fallen.

President Obama recently issued the Fair Pay and Safe Workplaces Executive Order, imposing several significant new obligations on federal contractors. The primary focus of the Executive Order is requiring contractors to disclose their labor law “violations” and requiring agencies to deny federal contracts if a contractor’s violation history suggests “a lack of integrity or business ethics.” In addition, the Executive Order requires employers to provide employees with information to evaluate whether they are being paid correctly and imposes new limitations on employee arbitration agreements. Employers should become familiar with how these new requirements may impact their ability to obtain federal contracts in the future, as well as the consequences of doing so.

Violation Disclosure

Under the Executive Order, prospective contractors for federal contracts valued at more than $500,000 must disclose “any administrative merits determination, arbitral award or decision, or civil judgment, as defined in guidance [to be] issued by the Department of Labor” in the previous three years against the contractor for its violation of various labor laws. Federal and state laws covered under this requirement include those involving safety and health, wage and hour, family and medical leave, collective bargaining, and civil rights protections. Contractors will also be required to update these disclosures every six months throughout the duration of the contract. A federal contract may be denied or terminated based on these disclosures, depending on the severity and frequency of the violation(s).

The Executive Order also requires contractors to collect information on their subcontractors’ violations from the previous three years and every six months during the contract’s duration. Contractors, in consultation with a labor compliance advisor, must evaluate whether the subcontractor’s violation history requires remedial measures, compliance assistance, or contract termination.

Wage Information and Arbitration Limitations

In addition to the new disclosure requirements, the Executive Order imposes two additional obligations on contractors. First, contractors must provide employees with a document reflecting the number of hours worked, overtime hours, pay, and any additions or deductions made from their pay for each pay period. Most employers probably already include this information on employees’ pay stubs. Second, contractors with federal contracts for at least $1 million may not enter into advance arbitration agreements with employees for claims under Title VII or arising out of sexual assault or harassment. Rather, any agreement to arbitrate must be voluntarily made after the dispute arises. The Secretary of Labor is expected to develop guidelines on what violation history may make an employer ineligible to remain or become a federal contractor. Contracting agencies will begin implementing these requirements for new federal contracts during 2016.