By Brent I. Clark, Kerry M. Mohan, and Craig B. Simonsen

As part President Barack Obama’s “Year of Action,” on July 31st he signed an Executive Order (EO) on “Fair Pay and Safe Workplaces” that requires prospective federal contractors to disclose labor law violations, and will provide “federal agencies guidance on how to consider labor violations when awarding federal contracts.” 79 Fed. Reg. 45309 (August 5, 2014).

The EO was issued with much fanfare, which may be seen in the video of the President’s signing ceremony. The Whitehouse indicates that “by cracking down on federal contractors who break the law, the President is helping ensure that all hardworking Americans get the fair pay and safe workplaces they deserve.” Fact sheet, July 31, 2014.  According to Secretary of Labor Tom Perez, “the new process aims to bring more companies into compliance, not to keep them from winning federal contracts. It imposes minimal burdens on the vast majority of companies who play by the rules.” Work in Progress Blog: Cheaters Shouldn’t Win.

Paul Kehoe and Lawrence Lorber have prepared a separate Client Alert on this EO that provides insight as to the ramifications of this action. “Coming in 2016 — More Burden For Federal Contractors Courtesy of The President’s July 31, 2014 Executive Order.” The Client Alert concludes that “while this Executive Order will not impact contractors immediately given the realities of the rulemaking process, this is one more burdensome reporting and compliance requirement from the White House impacting the procurement process which is already criticized as hidebound and non-responsive and of which stakeholders need to be cognizant.”

The Whitehouse, in its announcement, alleges that “while the vast majority of federal contractors play by the rules, every year tens of thousands of American workers are denied overtime wages, not hired or paid fairly because of their gender or age, or have their health and safety put at risk by corporations contracting with the federal government that cut corners. Taxpayer dollars should not reward corporations that break the law, so today President Obama is cracking down on federal contractors who put workers’ safety and hard-earned pay at risk.” The EO seeks to eliminate such corner cutting.

Key Provisions of the Executive Order

The Executive Order will govern new federal procurement contracts valued at more than $500,000. It will require information to be submitted on companies’ compliance with federal labor laws. The Executive Order is to be implemented on “new contracts in stages, on a prioritized basis, during 2016.” Whatever that means? To consider the extent of the potential impact this EO may have, the Department of Labor estimates that there are roughly “24,000 businesses with federal contracts, employing about 28 million workers.”

Key provisions of the EO, in summary include:

  • Agencies will require prospective contractors to disclose labor law violations from the past three years before they can get a contract.  The fourteen covered federal statutes and equivalent state laws include those addressing wage and hour, safety and health, collective bargaining, family and medical leave, and civil rights protections.  Agencies will also require contractors to collect similar information from many of their subcontractors.
  • Contracting officers will take into account only the “most egregious violations.” Each agency will designate a senior official as a “Labor Compliance Advisor” to provide consistent guidance on whether contractors’ actions rise to the level of a lack of integrity or business ethics.
  • Federal agencies risk poor performance by awarding contracts to companies with a history of labor law violations.
  • The federal contracting community and other interested parties will be invited to participate in “listening sessions” to share views on how to ensure implementing policies and practices are both “fair and effective.”
  • “Companies with labor law violations will be offered the opportunity to receive early guidance on whether those violations are potentially problematic and remedy any problems.  Contracting officers will take these steps into account before awarding a contract and ensure the contractor is living up to the terms of its agreement.”
  • Directs companies with federal contracts of $1 million or more not to require their employees to enter into predispute arbitration agreements for disputes arising out of Title VII of the Civil Rights Act, or from torts related to sexual assault or harassment (except when valid contracts already exist).
  • Requires contractors to give their employees information concerning their hours worked, overtime hours, pay, and any additions to or deductions made from their pay.
  • Directs the General Services Administration to develop a single website for contractors to meet their reporting requirements.

In response to the EO, the Associated Builders and Contractors (ABC) issued a statement that concludes that “President Obama’s executive order is yet another example of politically motivated executive overreach that will end up harming taxpayers and the economy in the long run.”

This EO provides an example of how important it is to contest a proposed OSHA citation when issued by the Agency. Merely accepting the citation, for instance, if it is seen as “not very important” or because it is a low dollar penalty proposed, can leave the company open to repeat violations – when they could have been resolved by contesting. Don’t let the company fall into a position where its “labor law violations” cause it to lose contracts — especially if the violations could have been contested and “deleted.”