After some two years of process – involving proposed rules,
amendments, delays, and public comments – the final regulations implementing
the President’s Executive
Order on Fair Pay and Safe Workplaces were published on August 25, 2016. On
that date, the Federal Acquisition Regulatory Council published a final
rule and the U.S. Department of Labor (DOL) published final
guidance, but the two publications must be read in tandem. The regulations
are many hundreds of pages long and represent a sea change in the way that labor laws are enforced and reported. Federal
contractors should be prepared to invest a lot of time and energy learning
about these new requirements, because poltergeist pitfalls are lurking
everywhere.
REQUIRED REPORTING
OF LABOR VIOLATIONS
Most notably, the regulations require that in order to be
eligible for any procurement over $500,000, bidders must now submit
comprehensive disclosures of any and all violations of 14 different federal
labor laws, including FLSA, OSHA, NLRA, FMLA, ADA, ADEA, Title VII, the Davis-Bacon
Act, the Service Contract Act, and Executive Orders relating to affirmative
action and minimum wage. The regulations also require disclosure of violations
of any “equivalent” State labor laws, though DOL has yet to propose
supplemental regulations identifying which State laws are equivalent. However,
any State-administered OSHA Plans are considered state “equivalents” and any
violations of those State Plans must be reported. Contractors and
subcontractors at all tiers must
report all such violations going back three
years from the date that a bidder submits its proposal on a federal
procurement opportunity.
The final regulations provide for a phased-in approach to
help contractors adjust. The new requirements for reporting take effect on
October 25, 2016, and while there will ultimately be a three-year look-back
period for reporting, contractors will not be required to report any labor
violations that were determined prior to October 25, 2015. Additionally, for the
first six months, the reporting requirement will only be applied to procurements
worth at least $50 million. On April 25, 2017, the threshold will reset to
$500,000.
Subcontractors at all tiers are also required to make these
disclosures for applicable prime contracts. While the prime contractor remains
responsible for ensuring that it uses subcontractors who are in compliance with
the new rules, the final regulations establish a process by which
subcontractors can report their labor violation data directly to the
government, rather than forcing the prime contractor to act as the middleman. It
remains unclear how such a process will work in practice.
One of the most controversial aspects of the regulations is
the scope of what is considered a “violation” that must be reported. The rule
defines violations to include civil judgments, arbitral awards or decisions,
and “administrative merits determinations.” As we have previously
reported on this blog, this last category has been interpreted so broadly
as to include any process by which an enforcement agency has made a mere
preliminary finding that there is probable cause to believe a labor violation
may have occurred. In other words, if NLRB or EEOC staff performs a preliminary
investigation and issues a letter indicating there is cause to believe a labor
violation may have occurred, or if the agency files a complaint in court, this
alone suffices to require a contractor to report the matter as an
“administrative merits determination,” notwithstanding that the preliminary
determination may never mature into an adverse adjudication by a court or
quasi-judicial administrative body. The mere issuance of a WH-56 “Summary of
Unpaid Wages” form by DOL’s Wage and Hour Division (WHD) is likewise considered
an “administrative merits determination” that must be reported. Some agencies
have already indicated they will use this as leverage
to force quick settlements.
These disclosure requirements apply to all types of
procurement contracts for goods or services, including construction and
commercial items. The only exception is commercial off-the-shelf (COTS) items
from subcontractors. However, they do not apply to other types of government
contracts that are not “procurements,” such as certain leases or grants.
Contractors are also required to update and supplement their
disclosures as circumstances change, e.g.,
by providing information about any additional labor violations determined after
a proposal has been submitted but before an award has been issued. Updates will
also include changes in the status of a previously disclosed violation, e.g., if it has subsequently been
dismissed or reversed. Finally, during performance of a covered contract,
contractors must make updated post-award disclosures every six months.
HOW THE DATA WILL
BE USED
Contractors will be required to input their labor violation
data into the existing System for Award Management (SAM) database platform,
including the following data points for each violation: the particular labor
law that was violated; the case number or other unique identification number;
the date that the judgment, decision, or determination was rendered; and the
name of the court, arbitrator, or agency rendering the decision. Other detailed
information such as the name of the complainant is not required. But the
aforementioned data will be publicly
available on the internet via the Federal Awardee Performance and Integrity
Information System (FAPIIS).
Each agency will appoint an Agency Labor Compliance Advisor
(ALCA) to review the data and assist the contracting officer in evaluating the
labor law compliance history of bidders. The ALCA will issue a written report to the contracting
officer with the ALCA’s findings and recommendations as to whether a potential
awardee is “responsible.” But the final call remains with the contracting
officer (CO). According to the final regulations, only violations “that are
serious, repeated, willful, and/or pervasive will be considered as part of the
weighing step and will factor into the ALCA's written analysis and advice.” The
rules dedicate several pages to defining and explaining each of these four
terms, with several examples. Note that the language is disjunctive, i.e., that a CO need only find that a
contractor’s violations meet just one
of these standards -- serious, repeated, willful, or pervasive – in order to conclude that a contractor is not
responsible and therefore ineligible for award. Given the potential for a
perception that the ALCA is more well-versed in labor law than the CO, there is
a good chance that COs will regularly defer to their ALCAs for the
responsibility determination.
Contractors are permitted to submit additional information
before a final responsibility determination is made, to help explain the data
and mitigate the chances of a finding that their violations are serious,
repeated, willful, or pervasive. This additional information will also be
submitted through SAM, and contractors may opt to keep this additional
information private or make it publicly available. But there is nothing in the
final regulations that limits the consideration of this information to a single
procurement, so it may end up being shared across agencies and considered
repeatedly in conjunction with multiple procurements. It may also be subject to
FOIA requests, as these final regulations do not carve out any new exemptions
to FOIA. Any such material that contractors provide should be properly marked
pursuant to Federal Acquisition Regulations governing protection of
confidential and proprietary information or information submitted solely for
the purpose of evaluating a bid.
Contractors will be required to certify the accuracy of the
data they report, which means that false or fraudulent certifications of labor
violation data could expose contractors not only to losing a contract, but also
to liability under the False Claims Act and similar regulations governing
certifications. Federal Acquisition Regulations (FAR) provide for suspension or
debarment of a contractor and/or its principals for knowingly failing to
disclose evidence of false or fraudulent certifications. In some cases, there
may even be criminal penalties.
ALCAs are also empowered to consider additional information
from any third party source. This
means that competitors, disgruntled employees, plaintiffs’ attorneys, or anyone
trolling a contractor may contact ALCAs and report information related to labor
violations, which the ALCA and CO can then vet and consider as they see fit. The
unbounded nature of this provision raises serious concerns about potential
abuses of the process and the data, especially when considering that the data
will be publicly available. For example, an alleged whistleblower or former
employee might try to use the data as an admission by the contractor of a pattern
of behavior or as the basis for a qui tam
lawsuit.
OPTIONS: PREASSESSMENT
AND LABOR COMPLIANCE AGREEMENTS
To address contractors’ concerns about the breadth of the
disclosure requirements and the availability of the data, the final regulations
provide for a so-called “preassessment” process, in which contractors can
voluntarily consult with DOL prior to
bidding, in order to get a preliminary opinion as to whether their record of
labor violations is serious, repeated, willful, or pervasive. If DOL’s preassessment
advises the contractor that it is unlikely to be considered “responsible,” the
contractor can then decide not to proceed with bidding on that contract. If a
contractor subsequently decides to go forward with a proposal, ALCAs and COs
may rely on DOL’s preassessment – but they are not required to rely on it. Moreover,
the regulations do not provide for any safe harbor or confidentiality as to the
information disclosed by a contractor during a preassessment, raising the risk
that such information could be used against the contractor in other ways even
if it does not end up bidding on the contract at issue.
Another mechanism in the final regulations allows a
contractor about whom an ALCA has concerns to remain eligible for an award if
the contractor agrees to a Labor Compliance Agreement (LCA). The ALCA can recommend
that an LCA be required if the “contractor has serious, repeated, willful,
and/or pervasive Labor Law violations that are not outweighed by mitigating
factors—but the ALCA identifies a pattern of conduct or policies that could be
addressed through preventative actions.” But an LCA can also be recommended
even when a contractor’s labor law compliance record is satisfactory, as long
as there are “risk factors” present. COs and ALCAs have significant discretion
to require an LCA as a mitigating factor to justify an award. If they direct a
contractor that an LCA is required, the contractor must then negotiate the LCA
directly with the labor law enforcement agency or agencies involved.
Commenters have expressed concern that this process could
subject contractors to unfair pressure to execute an LCA “and forgo a challenge
to a nonfinal administrative merits determination in order to receive a pending
contract,” or that it could “unfairly penalize contractors by subjecting them
to multiple rounds of remedial requirements in response to the same underlying
conduct,” e.g., where an enforcement
agency has already resolved a complaint but the contractor must then come back
to the same agency and negotiate an LCA containing additional obligations. The
final regulations, however, rejected these concerns, noting that “in
appropriate circumstances contractors may enter into labor compliance
agreements while at the same time continuing to contest an underlying Labor Law
violation. And, if a contractor … refuses to negotiate an agreement, the
existing procurement process provides ample opportunity to contest any
resulting nonresponsibility determination. The contractor can bring a bid
protest and receive a hearing and judicial review of the agency action.” The
final DOL guidance also rejected the notion that LCAs might penalize
contractors unfairly, concluding that “[t]he purpose of a labor compliance
agreement is not to penalize a contractor for past violations; it is to protect
the Federal Government's interest in economy and efficiency in the prospective
contract at issue.… Federal agencies have a duty to contract only with
responsible sources, and a track record of Labor Law violations raises serious
questions about whether a contractor can be trusted to comply with Labor
Laws—or with other non-labor laws—during the course of contract performance.” LCAs
are, according to the final regulations, therefore “properly understood as an
opportunity for contractors, not a penalty.”
OTHER EMPLOYEE
PROTECTIONS
While the labor violation reporting system and the attendant
process for agencies to weigh contractor responsibility represent the most
noteworthy aspects of the new final regulations, there are additional requirements
for employers who engage in federal contracting. First, new paycheck
transparency rules require covered contractors and subcontractors to provide
detailed wage statements to all employees starting on January 1, 2017. Statements
must include information about hours worked, overtime hours, pay, and any
deductions. Furthermore, prior to the start of any work under an awarded
contract, contractors and subcontractors must notify each individual who is
being treated as an independent contractor in writing that this is the case. The
notice cannot “indicate or suggest” that the independent contractor
classification for that worker is objectively correct, and such notice must be
provided anew each time an individual commences work on a different contract.
Additionally, effective October 25, 2016, contractors with
federal contracts totaling at least $1 million may no longer impose binding
arbitration on employees for sexual harassment or Title VII claims. This
anti-arbitration rule builds off of the Franken
Amendment to the Department of Defense Appropriations Act of 2010, which
legislated a similar prohibition but was limited to defense contractors. The
new restriction also applies to subcontractors with subcontracts totaling at
least $1 million, except for subcontracts for commercial items (including
COTS). However, the prohibition on arbitration of such claims does not apply to
employees subject to a collective bargaining agreement. Nor does it apply to
employees and independent contractors who executed an arbitration agreement
before the contractor submitted a bid for the covered contract, unless the
contractor has the authority to change the terms of the covered contract. But
it does apply as soon as a contract is replaced or renegotiated.
* * * * *
As is evident from the volume of these final regulations and
the many complex bureaucratic burdens, unclear definitions, and unanswered practical
concerns inherent in the text of the rule and the guidance, they are rife with
poltergeists that have yet to be ferreted out. In time, perhaps some of the
many questions raised by these regulations will be clarified by further
rulemaking, litigation, or legislation. But until then, contractors and
subcontractors need to proceed with great caution in developing a robust
understanding of these game-changing rules and implementing thoughtful
compliance procedures in time for the impending effective dates.
By: Hope Eastman and Ryan Spiegel
First Published: The Law Firm of Paley Rothman Law Blog
