New Regulations Impose New Burdens on Federal Government Contractors
The federal government has issued several final and proposed regulations that place new obligations on contractors that submit offers to and enter contracts with federal government agencies and on subcontractors that perform under those contracts. These new regulations—not all of which are yet final and in force—implement presidential executive orders concerning the labor and employment practices of federal contractors and subcontractors. In imposing these new duties and prohibitions on contractors and subcontractors, some of these regulations require that contractors and subcontractors flow down certain specific contractual terms and clauses into their subcontracts.
The new and proposed regulations:
- require most contractors and some subcontractors to report to the contracting agency, in their offers and during contract performance, violations of 15 different labor and employment laws;
- require most contractors and some subcontractors to provide certain payment documentation to employees and a certain notice to independent contractors;
- limit arbitration (as opposed to litigation) of civil claims involving employment discrimination, sexual assault, or sexual harassment;
- expand prohibitions aimed at combatting human trafficking ;
- require contractors and subcontractors to report more data on employee compensation;
- prohibit pay-secrecy policies;
- prohibit discrimination based on sexual orientation or gender identity; and
- require contractors and subcontractors to pay applicable prevailing wages to their employees.
Reporting Violations of Labor and Employment Laws
A particular onerous new regulation which is not yet final or in force— implements the president’s “Fair Play and Safe Workplaces” executive order. The regulations require contractors bidding or proposing on federal contracts valued at more than $500,000 to disclose in their bids any administrative merits determination, arbitral award or decision, or civil judgment rendered against the contractor within the preceding three-year period for violations of any of 15 enumerated federal and state labor and employment laws. They also require potential subcontractors (at any tier) on subcontracts valued at more than $500,000 to disclose to contractors the same information. For every contract or subcontract of more than $500,000, the contractor or subcontractor must also disclose any violations every six months during performance. Information about violations disclosed by contractors will be made publicly available through the Federal Awardee Performance and Integrity Information System (FAPIIS).
An “administrative merits determination” includes the following notices or findings, whether they are final or subject to appeal or further review:
- a Summary of Unpaid Wages issued by the Department of Labor’s Wage and Hour Division;
- a letter issued by the Department of Labor’s Wage and Hour Division indicating that an investigation disclosed certain violations of the Fair Labor Standards Act or a violation of the Family and Medical Leave Act, the Service Contract Act, the Davis-Bacon Act, or Executive Order 13658 (Establishing a Minimum Wage for Contractors);
- a citation, notice of imminent danger, or notice of failure to abate from the Occupational Safety and Health Administration, or any state equivalent;
- a show-cause notice issued by the Office of Federal Contract Compliance Programs;
- a reasonable-cause determination issued by or a civil action filed on behalf of the Equal Employment Opportunity Commission;
- a complaint issued by any Regional Director of the NLRB;
- any other complaint filed by or on behalf of a federal agency with a federal or State court, an administrative judge, or an administrative law judge alleging that the contractor or subcontractor violated any provision of the applicable labor and employment laws; and
- any order or finding from any administrative judge, the Department of Labor Administrative Review Board, the Occupational Safety and Health Review Commission (or state equivalent), or the National Labor Relations Board that the contractor or subcontractor violated any provision of the applicable labor and employment laws.
This definition requires contractors and subcontractors to disclose “administrative merits determinations” that can be issued following nothing more than an investigation by the relevant government agency. They are not limited to notices and findings issued following adversarial or adjudicative proceedings such as a hearing on the merits, nor are they limited to notices and findings that are final and not appealable.
Contractor's in the industry are calling these proposed regulations the “blacklisting” rules. Contracting officers will evaluate any reported violations both prior to and after contract awards to determine whether contractors are responsible and have satisfactory records of integrity and business ethics to be awarded or continue performance of a contract with the federal government.
After a contract award and during performance, the ongoing semi-annual analysis could lead contracting officers to refer contractors and subcontractors to the Department of Labor for action (which may include a new or enhanced labor compliance agreement), to decline to exercise contract options, to terminate contracts, or to refer contractors and subcontractors to agency suspending and debarring officials.
The applicable labor and employment laws covered by these regulations are:
- The Fair Labor Standards Act, 29 U.S.C. chapter 8;
- The Occupational Safety and Health Act;
- The Migrant and Seasonal Agricultural Worker Protection Act;
- The National Labor Relations Act;
- The Davis-Bacon Act, 40 U.S.C. chapter 31, subchapter IV;
- The Service Contract Act, 41 U.S.C. chapter 67;
- Executive Order 11246 (Equal Employment Opportunity);
- Section 503 of the Rehabilitation Act;
- The Vietnam Era Veterans’ Readjustment Assistance Acts;
- The Family and Medical Leave Act;
- Title VII of the Civil Rights Act;
- The Americans with Disabilities Act;
- The Age Discrimination in Employment Act;
- Executive Order 13658 (Establishing a Minimum Wage for Contractors); and
- OSHA-approved State Plans.
Future regulations will identify additionally applicable “equivalent state laws” to be included.
Again, these proposed regulations are not yet final or in force, but they provide a good indication of what to expect from final regulations that are surely forthcoming.
Payment Documentation to Employees and Notice to Independent Contractors
The May 28, 2015 proposed regulations—which are not yet final or in force—further implement the president’s “Fair Play and Safe Workplaces” executive order by requiring most federal contractors and some of their subcontractors to provide certain payment documentation to employees and a certain notice to independent contractors. Contractors and subcontractors at any tier must include provisions that flow down these requirements into subcontracts of more than $500,000.
Contractors and subcontractors with a federal contract or subcontract of more than $500,000 who are treating any individual performing work under the contract or subcontract as an independent contractor and not as an employee must provide a document to the individual that informs the individual of this independent-contractor status. Contractors must provide the document to the individual either prior to the work beginning or at the time the contractor and the individual form a contract.
Where a significant portion of a workforce is not fluent in English, contractors and subcontractors must provide the wage statement and the independent-contractor notification in English and in the language(s) with which the workforce is more familiar.
Although not yet final, these regulations are certain to become binding in the new future.
Limiting Arbitration of Employment-Discrimination and Sexual-Harassment Claims
The May 28, 2015 proposed regulations seek to further burden employers by limiting arbitration of civil claims involving employment discrimination, sexual assault, or sexual harassment. The limitation does not apply to employees covered by a collective bargaining agreement negotiated between a contractor and a labor organization representing the employees. The limitation also does not apply to employees or independent contractors who entered into a valid contract to arbitrate prior to the contractor bidding or proposing for a contract containing the arbitration-limiting clause required by these regulations, unless, however, the contractor is permitted to change the terms of the contract with the employee or independent contractor or the contract with the employee or independent contractor is renegotiated or replaced.
Reporting Employee Compensation Data
The government has proposed new regulations requiring federal government contractors and subcontractors to submit an annual “Equal Pay Report” on employee compensation to the Office of Federal Contract Compliance Programs. The rule would apply to contractors and subcontractors at any tier that employ more than 100 workers and that hold contracts with federal government agencies, or subcontracts under contracts with federal government agencies, worth $50,000 or more for at least 30 days. Such contractors and subcontractors would report their number of employees, wages, and hours worked, each by categories of race, ethnicity, and sex. The comment period on these regulations expired in January, and a final rule is forthcoming.
Discrimination Based On Sexual Orientation or Gender Identity Prohibited
On December 3, 2014, the Department of Labor issued a final rule implementing an executive order prohibiting federal contractors and subcontractors from discriminating on the basis of sexual orientation or gender identity. Longstanding prior law prohibited federal contractors and subcontractors from discriminating against any person because of race, color, religion, sex, or national origin. The new rule adds sexual orientation and gender identity to that list, and the Equal Opportunity clause (FAR 52.222-26) and the Affirmative Action Compliance Requirements for Construction clause (FAR 52.222-27)—which are required in all federal contracts and subcontracts—have been amended accordingly.
Minimum Wage for Employees of Federal Government Contractors
On October 7, 2014, the Department of Labor published final regulations establishing a minimum wage of $10.10 per hour for certain employees of federal contractors and subcontractors with contracts subject to the Davis-Bacon Act or the Service Contract Act. The minimum wage will be updated annually, with notice given 90 days before any change becomes effective. The Federal Acquisition Regulation interim rule applying the minimum-wage policy requires that a newly established contract clause, FAR 52.222-55, be included in all covered contracts and flowed down to all covered subcontracts at any tier.
Flowing Down FAR Clauses into Subcontracts
Most of these new and proposed regulations require that contractors and subcontractors flow down certain specific contractual terms and clauses into their subcontracts. These new and revised flow-down requirements are in addition to dozens of already existing flow-down obligations. Contractors, subcontractors, and their counsel should take care to consider updating their subcontracts to include these new and revised clauses as necessary. If a contractor or subcontractor were incorporating the substance of these clauses by full text rather than by reference, they should be particularly careful to note not only the wholly new clause to be added (FAR 52.222-55, Minimum Wages Under Executive Order 13658) but also the substantial revisions to clauses that were previously included (FAR 52.222-26, -27, -50).
While most of the substance of the newly proposed regulations are covered in one way or another by existing laws, the Government seems to be under the impression that by promulgating still more regulations, will somehow make compliance a certainty. It appears to me that additional regulations in areas that are already highly regulated will create more non-compliance than compliance due to the sheer volume of regulations that a contractor must keep abreast of. Only time will tell.