On August 25, 2016, the Department of Defense, General Services Administration, and National Aeronautics and Space Administration (FAR Council) released the final rule implementing the “Fair Pay and Safe Workplaces” Executive Order (EO). Simultaneously, the Department of Labor (DOL) released final guidance on key provisions of the final rule.  The so-called “blacklisting” EO requires prospective and existing contractors on covered contracts to disclose administrative determinations, arbitral awards, and civil judgments (referred to collectively in the rule as “labor law decisions”) finding or (sometimes even just alleging) violations of 14 enumerated labor laws and state law equivalents. 

Contracting officers, in consultation with agency labor compliance advisors (ALCAs), a new position created by the EO, must then consider the decisions, (including any mitigating factors and remedial measures), as part of the contracting officer’s decision to award or extend a contract.  Specifically, the contracting officer will consider such information in determining whether a prospective contractor is responsible and has a satisfactory record of integrity and business ethics. While the final rule and guidance did make limited favorable changes for contactors, namely a phased-in implementation schedule, it closely tracks the proposal in creating onerous burdens on contractors.  In rejecting many of the concerns raised by the contractor community, government contactors face significant new costs, risks and uncertainty in seeking to do business with the federal government.

Preaward Disclosure Requirements

Under the EO, when bidding on covered federal contracts, contractors will be required to attest to whether they have had violations of the covered labor laws resulting in any “administrative merits determinations, civil judgments, or arbitral awards or decisions” issued within the preceding three years. It has been left to the DOL to define the scope of such reportable violations or “labor law decisions.” Like the proposed guidance, the DOL has retained a broad interpretation of labor law decisions that would mandate reporting on enforcement agency findings- including findings that are not final or remain subject to appeal or further review. Specifically, an “administrative merits is defined as “ notices or findings – whether final or subject to appeal or further review – issued by an enforcement agency following an investigation that indicates that the contractor or subcontractor violated any provision of the Labor Laws.” Listed Among the agency findings triggering disclosure are a WH-56 "Summary of Unpaid Wages" form from the DOL’s Wage and Hour Division; a citation from the Occupational Safety and Health Administration (OSHA) or state agency, a show cause notice from the Office of Federal Contract Compliance Programs (OFCCP); a reasonable cause finding from the Equal Employment Opportunity Commission (EEOC), and complaint issued by a Regional Director at the National Labor Relations Board (NLRB).

In retaining the broad definition of “administrative merits determinations,” the DOL dismissed the concerns raised by many in the government contractor community.  For example, in its explanation of the final guidance, the DOL cited Littler’s Workplace Policy Institute comment characterizing a complaint by a NLRB Regional Director as “being based on “investigatory findings without judicial or quasi-judicial safeguards.” Nonetheless, the DOL retained the definition of administrative merits determinations for NLRA violations – and much of the other problematical definitions – as proposed.

Preaward Assessment and Advice

Section III of the Guidance explains the process by which ALCAs classify, weigh, and provide advice about a contractor’s violations of the Labor Laws during the preaward period. The final guidance clarifies that the ALCA’s preaward assessment of a contractor’s Labor Law violations and the contracting officer’s responsibility determination are separate process points, performed by two separate individuals: the ALCA assesses the nature of the violations and provides analysis and advice; the contracting officer, informed by the ALCA’s analysis and advice, makes the responsibility determination—the determination of whether the contractor is a responsible source to whom a contract may be awarded. The guidance describes a three-step process for the ALCA’s role in the contracting process. First, an ALCA reviews all of the contractor’s violations to determine if any are serious, repeated, willful, and/or pervasive. Second, the ALCA then weighs any serious, repeated, willful, and/or pervasive violations in light of the totality of the circumstances, including the severity of the violation(s), the size of the contractor, and any mitigating factors that are present. Third, after this holistic review, the ALCA provides written analysis and advice to the contracting officer regarding the contractor’s record of Labor Law compliance, and whether a labor compliance agreement or other action is warranted.

As with the definition of reportable labor law decisions, the DOL left most of the guidance defining “serious, repeated, willful or pervasive” intact from the proposal, despite objections about the vague and subjective nature of these terms. The DOL affirms that “the weighing process is not mechanistic, and this Guidance cannot account for all of the possible circumstances or facts related to a contractor’s record of Labor Law compliance.” However, the guidance does set forth certain factors that will weigh for or against a conclusion that a contractor has a satisfactory record of Labor Law compliance. Generally, the most important mitigating factor will be the extent to which the contractor has remediated the violation(s) and taken steps that will prevent recurrence in the future.  Other mitigating factors include where the contractor has only a single disclosed violation; where the number of violations is low relative to the size of the contractor, and a significant period of compliance. Conversely, violations that are pervasive or that fall within two or more of the categories (serious, repeated or willful), are of particular gravity, involve injunctive relief or are reflected in final orders, weigh against a satisfactory record of labor law compliance. The guidance explains that a “labor compliance agreement” may be warranted where the ALCA has concluded that a contractor has an unsatisfactory record of Labor Law compliance.

Public Availability of Disclosures and Assessment Information

One of the most concerning aspects of the blacklisting rule to contractors is no doubt the public availability of disclosures and assessment information regarding labor law decisions. Some commenters suggested that protections be put in place to protect confidential and proprietary information in disclosures made by contractors pursuant to the Order’s requirements. Several also suggested that any information disclosed by contractors and made publicly available should be redacted to remove any personally identifiable information. Some commenters were concerned that the release of information disclosed by contractors would have a negative effect on a contractor’s business and reputation, especially if there are errors in the data presented. Despite these concerns raised with the proposed rule and guidance, the final version continues to require representations and disclosures regarding each Labor law decision to be reported through the Federal Awardee Performance and Integrity Information System (FAPIIS), where it will be publically available.

Paycheck Transparency

The EO requires covered contractors and subcontractors to provide wage statements to covered workers, giving them information concerning their hours worked, overtime hours, pay, and any additions to or deductions made from their pay. The EO also requires covered contractors and subcontractors to provide to workers whom they treat as independent contractors a document informing them of their independent contractor status. Contractors and subcontractors must also provide written notice to inform workers if they are exempt from overtime pay.  The requirement to provide notice of exempt-status raises the stakes even further of proper classification, particularly in light of the new white collar overtime regulations. The required independent contractor notice itself takes on added import and risk given the DOL’s assault on alleged misclassifications of employees as independent contractors and recent related guidance.

Arbitration Restrictions

Finally, contractors with contracts for goods or services worth more than $1 million are prohibited by the EO and final rule from entering into agreements with employees for mandatory arbitration of certain civil rights claims. This provision covers claims arising under Title VII, or any tort related to or arising out of sexual assault or harassment. Contractors would be able to arbitrate such claims only if the employee filing the claim voluntarily agreed to arbitration after the dispute arose. Contractors would be required to include this provision in subcontracts worth $1 million or more. The prohibition does not apply to employees covered by a collective bargaining agreement negotiated between the Contractor and a labor organization representing the employees; or employees or independent contractors who entered into a valid contract to arbitrate prior to the contractor bidding on a contract covered by the EO. However, this exception does not apply if the contractor is permitted to change the terms of the contract with the employee or independent contractor; or when the contract with the employee or independent contractor is renegotiated or replaced.

Phased-in Implementation

The proposed rule and guidance left a number of important questions unanswered, such as the treatment of subcontractor reporting and coverage of “state law equivalents.”  The implementation schedule for the final rule reflects, to some degree, the immense challenges that implementation of these new rules will place on both the government and contractors.

• For the first year that the regulations are effective (beginning October 25, 2016), only prime contractors must make disclosures. Subcontractors will not be required to start making disclosures until October 25, 2017.
• For the first six months that the rule is effective, disclosure requirements will only be included in solicitations valued at $50 million or more. Disclosure requirements will be included in solicitations valued at $500,000 or more beginning on April 25, 2017.
• The initial period for which labor violations must be disclosed is limited to one year and will gradually increase to three years by October 25, 2018.
• The rule’s paycheck transparency requirements will become effective January 1, 2017.
• The Executive Order provides that contractors and subcontractors will also be required to disclose violations of state labor laws that are equivalent to the 14 federal labor laws identified in the Order, and directs the DOL to provide guidance as to which state laws are equivalent. This requirement will be phased in at a later time, with the exception of OSHA-approved state plans, which are included in the guidance and regulations issued today.

Release of the final rule implementing the “Fair Pay and Safe Workplaces” EO comes as efforts are still underway by Congress to exempt Department of Defense contractors from its application. The outcome of these efforts in the pending National Defense Authorization Act legislation remains uncertain. The EO and its implementation also face likely challenges in court. With legislation and legal battles over the blacklisting rule likely still ahead, contactors are facing serious challenges, risks and burdens in complying with the EO and doing business with the federal government.

Additional analysis from Littler on the final rule and guidance will be forthcoming.