Government Contracts Legal ForumKris D. MeadeSteve McBradyRebecca SpringerJason M. Crawford

On May 28, 2015, the Obama Administration published the highly-anticipated Proposed Rule and Proposed Guidance implementing the “Fair Pay and Safe Workplaces” Executive Order, (E.O.) which President Obama issued on July 31, 2014. The proposed rule adds a new subpart to the Federal Acquisition Regulations (FAR) – subpart 22.20 “Fair Pay and Safe Workplaces” – which “incorporate[s]” proposed guidance issued by the Department of Labor (DOL) titled “Guidance for Executive Order 13673, ‘Fair Pay and Safe Workplaces.’ ” (“Proposed Guidance”). These regulations will not take effect until the final rule and final guidance are issued, but the proposed rule and guidance trigger a 60-day period to comment on the proposed rule and guidance, and offer insight into the onerous compliance and reporting burdens that contractors and subcontractors will face under the Proposed Rule. Below is a summary of several key provisions.

Pre-award Requirements. Under proposed FAR 22.2004, contractors bidding on contracts valued over $500,000 would be required to disclose whether there has been any “administrative merits determination,” “arbitral award or decision,” or “civil judgment” – key terms defined by the DOL in its Proposed Guidance –rendered against the contractor within the preceding three-year period for violations of enumerated labor laws. Under the Proposed Rule, contractors would also be required to report similar information for subcontractors on subcontracts (other than commercially available off-the-shelf items) valued over $500,000. The proposed rule explains that the GSA is developing a single website for contractors to use for reporting requirements related to labor laws. Moreover, disclosure of basic information about the labor violations will be made publicly available in the Federal Awardee Performance and Integrity Information System (FAPIIS). The Administration is seeking comment on the scope of documents that should be publicly disclosed about violations and remedial measures.

Administrative Merits Determinations, Arbitral Awards or Decisions, and Civil Judgments. These key terms, undefined by the E.O., are defined in the Proposed Guidance and will be incorporated into the FAR rule. The Proposed Guidance defines “administrative merits determinations” to include, among other things: (1) issuance of a Form WH-56 or a “letter indicating that an investigation disclosed a violation of sections six or seven of the FLSA or a violation of the FMLA, SCA, [or] DBA” issued by the DOL’s Wage and Hour Division; (2) an OSHA citation or notice of imminent danger; (3) a “show cause” notice issued by the Office of Federal Contract Compliance Programs; (4) a complaint issued by any Regional Director of the NLRB; and (5) a reasonable cause determination issued by or a civil action filed on behalf of the EEOC. In short, the DOL proposes that the FAR Council rule include as “administrative merits determinations” some decisions reached by agency officials before any hearing is held on the merits.

Post-Award. Proposed FAR 52.222-BB requires COs to repeat the responsibility analysis for covered contracts during contract performance, and requires contractors to disclose, semi-annually, whether there have been any administrative merits determinations, arbitral awards or decisions, or civil judgments rendered against them—or their subcontractors—for violations of labor laws. Contractors must report new decisions and determinations even if they arise from a violation of labor law that was already reported. FAR 22.2004-3 lists the options available to a CO upon learning of a violation—i.e., a CO can decide not to exercise an option, terminate the contract, or make a referral to the agency suspending and debarring official.

Agency Labor Compliance Advisors. Proposed FAR sections 22.2004-2 and 22.2004-3 address the newly established role of the Agency Labor Compliance Advisor (ALCA). Federal agencies are required to designate a senior agency official to serve as an ALCA, a position tasked with facilitating contractor compliance with labor laws, “helping” agency officials determine the appropriate response to address violations, and, “where appropriate” sending information to agency suspending and debarring officials. Under proposed FAR 22.2004-2, the ALCA is to provide the CO, within three business days after a request by the CO, a recommendation that (1) the contractor “could be found to have a satisfactory record of integrity and business ethics;” (2) the contractor could be found to have such a record “if the process to enter into a labor compliance agreement” with the DOL is initiated; or (3) the contractor does not have a satisfactory record of integrity and business ethics and “the agency Suspension and Debarring Official should be notified.”

Applicable Labor Laws. Under proposed FAR 22.2002, the definition of “labor laws” includes the following statutes and executive orders, all of which were identified in the E.O.: Fair Labor Standards Act; Occupational Safety and Health Act; National Labor Relations Act; Americans with Disabilities Act; Family and Medical Leave Act; Title VII of the Civil Rights Act; Age Discrimination in Employment Act; Davis-Bacon Act; Service Contract Act; Section 503 of the Rehabilitation Act; Vietnam Era Veterans’ Readjustment Assistance Act; Migrant and Seasonal Agricultural Worker Protection Act; Executive Orders 11246 (Equal Employment Opportunity) & 13658 (Contractor Minimum Wage); and Equivalent State Laws as defined by the Department of Labor. In a notable departure from the Executive Order – and likely in response to contractor concerns over the vague “equivalent state laws” framework – the only “equivalent state laws” identified in this Proposed Rule are OSHA-approved State Plans. According to the proposed rule and Proposed Guidance, the FAR Council will publish a subsequent proposed rule that further identifies “Equivalent State Laws.” Thus, one of the key questions unanswered by the E.O. remains unanswered with publication of the proposed rule and Proposed Guidance.

CO’s Duties. FAR 22.2004-2 mandates that COs address labor law compliance when determining contractor and subcontractor responsibility. The CO and the ALCA will assess the reported violations and consider whether the violations are “serious,” “repeated,” “willful,” and “pervasive.” These key terms, which are the trigger for a potential determination that the contractor lacks a satisfactory record of integrity and business ethics, are defined in the DOL’s Proposed Guidance, not in the proposed rule. The Proposed Guidance notes that, in “most cases,” a single violation of a labor law will not give rise to a determination of lack of responsibility, but a contracting agency is not precluded from making such a determination in “rare circumstances” where merited. COs are likewise instructed to consider whether the contractor has entered into, or is currently negotiating in good faith, a “labor compliance agreement” to resolve the underlying violation with DOL or other appropriate agency.

Weighing Violations of Labor Laws. The Proposed Guidance defines the terms “serious,” “repeated,” “willful,” and “pervasive” and provides guidance on their meanings and how violations of the labor laws should be weighed. Indeed, a sizable portion of the 106-page DOL guidance is devoted to defining these terms, and the Appendix includes an extensive chart of illustrative examples. The CO must also request information about mitigating circumstances, remedial measures, and other steps taken to achieve compliance with labor laws. The proposed rule instructs COs to consider the ALCA’s recommendations in evaluating any disclosed violations, but reaffirms that the contracting officer solely has the duty to make a responsibility determination. Notably, the Proposed Guidance defines “serious” violations to include those in which an assessment of at least $10,000 in back wages is “imposed by an enforcement agency or a court.” The Proposed Guidance also defines “serious” violations to include those in which the contractor “engaged in adverse employment action” (including discharge, refusal to hire, suspension, demotion or threat) or is responsible for unlawful harassment against one or more workers for exercising rights protected by the enumerated Labor Laws.

Paycheck Transparency. Proposed FAR 22.2005 requires contractors performing work on covered contracts and subcontracts to provide employees covered by the FLSA, the Davis Bacon Act, the Service Contract Act, or “equivalent” state laws, with information concerning the individual’s pay, hours worked, overtime hours, if applicable, and any additions made to or deductions made from the individual’s pay. The proposed rule also requires contractors to provide to any independent contractors performing work on the contract a document informing them of their status as independent contractors.

Dispute Resolution. On contracts over $1 million, proposed FAR 22.2006 requires contractors to agree that the decision to arbitrate 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 may only be made with the voluntary consent of employees or independent contractors after such disputes arise. The proposed rule lists some narrow exceptions to this requirement including an exception for certain pre-existing arbitration agreements.

Alternative Clauses. The proposed rule lists three alternative clauses that the FAR Council is considering. Respondents to the proposed rule are encouraged to comment on the alternatives:

  • Phase-in of Sub Disclosure. In order to give contractors “time to acclimate themselves to their new responsibilities” the FAR Council is considering applying the subcontracting requirements in phases. For solicitations issued and resultant contracts awarded during the phase-in period, “Fair Pay Safe Workplaces” would apply only to prime contractors.
  • Sub Responsibility Determinations. Under the proposed rule, contractors are required to obtain from subcontractors the same labor compliance history that they must themselves disclose. Perhaps recognizing the unintended consequences this could have on the prime-sub relationship (contractors that enter into prime-sub relationships will often compete against each other for other procurements), the FAR Council is considering an alternative approach in which subcontractors would disclose details regarding their violations to DOL instead of to the prime contractor. The subcontractor would then make a representation back to the prime contractor regarding DOL’s response to its disclosure.
  • Contractor Performance Evaluation. The FAR Council is also considering a supplemental FAR clause in which the CO—as part of the FAR Part 42.15 performance evaluation—would consider whether DOL has raised concerns that a contractor has not entered into a labor compliance agreement within a reasonable period or is not meeting the terms of an existing agreement. If the FAR Council were to adopt the clause, it would make labor compliance both a contract performance and a contractor responsibility issue.

Timeline for Next Steps. The 60-day comment period will begin on May 28, 2015 when the proposed rulemaking is published in the Federal Register. The proposed rule and guidance provide 60 days for public comment—the comment period is scheduled to close on July 27, 2015—but it is anticipated that respondents will request an extension of time to file comments. After the close of the public comment period, the FAR Council and DOL will make final changes and resubmit the rule and guidance to the Office of Information and Regulatory Affairs for another round of regulatory review before issuing the final rule and guidance in the Federal Register. The Administration has stated that its goal is to implement the EO in stages during 2016.

Potential Legal Challenges. Based on the breath-taking scope of “Fair Pay and Safe Workplaces” and its impact on the contracting community, contractors and relevant industry trade associations are likely to participate vigorously in the upcoming comment period. If the Administration declines to make significant changes to the Proposed Rule before issuing it as a Final Rule, the Final Rule will almost certainly be subject to a legal challenge by a combination of affected companies and industry trade groups.