A spate of executive orders issued by President Barack Obama in 2014 has made it an eventful year for federal contractors. From his minimum-wage hike in January to his LGBT employment protection order in July, Obama has been putting his tactic of governing by “pen and phone” to use.
The latest use of this approach is the “Fair Pay and Safe Workplaces Executive Order,” signed by the president on Thursday. The order requires most federal contractors to disclose new facts about labor law violations, and will prevent mandatory arbitration for many employees in certain types of legal disputes, thus creating more potential work for legal departments and more potential litigation.
The executive order, which will govern new federal procurement contracts valued at more than $500,000 beginning in 2016, requires that companies in the running for these contracts—as well as many subcontractors—hand over the last three years’ worth of information on any labor law violations. Contractors will have to disclose whether they’ve incurred a violation (defined as an administrative merits determination, arbitral award or decision, or civil judgment) under any of 14 listed statutes or corresponding state laws. The labor statutes range from those dealing with wage-and-hour issues to workplace civil rights issues to collective bargaining and health and safety. Those contractors with enough violations might lose out on opportunities to work for the federal government.
Part of the administration’s rationale behind the order, as explained on a White House-issued fact sheet, is the idea that contracting with companies that break labor laws means contracting with poorly performing organizations that waste taxpayer money. It cited a 2010 Government Accountability Office report finding that nearly two-thirds of the 50 largest wage-and-hour violations and nearly 40 percent of the 50 largest workplace health and safety penalties from FY 2005 to FY 2009 were at companies that ended up receiving government contracts.
From a practical standpoint, according to Connie Bertram, head of Proskauer Rose’s Washington, D.C., labor and employment practice, and cohead of the firm’s government regulatory compliance and relations group, as well as its whistleblowing and retaliation group, this executive order calls for a new level of disclosure never really seen before for federal contractors.
“It’s a sea change,” she told CorpCounsel.com. “It’s an entirely new requirement.” Bertram explained that under current rules, this level of disclosure about labor law violations would only come to the government’s attention during an audit, which only happens to some contractors each year.
What’s more, the government isn’t just asking for a one-and-done disclosure when a company bids for a particular job. The executive order requires an update from contractors every six months. And Bertram said that, especially given the White House’s emphasis on tying legal violations to contract performance in its fact sheet, there’s always a chance there could be even more information required from contractors in the future.
“If there are these findings against the company with respect to wage and hour, employment, labor and safety issues, are they going to start auditing them for other purposes, like auditing their performance of the contract or their accounting under the contract?” said Bertram. “It’s all about information disclosure and information sharing. But this one is going to put an enormous burden on the contractors.”
The question still remains somewhat open as to how exactly contractors that are considered violators will be judged when it comes to deciding whether they can still qualify for contracts. The executive order specifies that a labor compliance adviser in each federal agency will work with federal contracting officers to decide whether contract candidates have a “satisfactory record of integrity and business ethics,” but it’s not entirely clear what the standards are for a satisfactory record.
According to the order, all of the information gathered about contractors will be put into a single online database. Cheryl Behymer, a partner at Fisher & Phillips and cochairwoman of the firm’s affirmative action and federal contract compliance practice group, told CorpCounsel.com this database could potentially serve as a “one-stop shop” for plaintiffs or unions looking for companies where employees believe they’ve been wronged. The order does not state directly whether this database will be publicly available.
What is certain is that there will be plenty of work for federal contractors to do in order to prepare for the new reporting requirements, which may involve centralization of disparate information. “It would be wise to start thinking about internally who is going to be the person you are going to have monitor compliance with this requirement, because there’s a lot of overlap,” said Behymer. It will probably take collaboration from several departments, possibly information technology, compliance, legal and procurement, to make sure that federal contractors gather and send the right information and remember to submit for their biannual checkups, she noted.
In addition to the disclosure of violations, Obama’s order has a “paycheck transparency” section. This requires—with some exceptions—that federal contractors put information on employees’ paychecks providing basic information about hours and wages, including time worked, overtime hours, and pay additions and deductions.
The other major aspect of the executive order from an employer standpoint is its limits on arbitration agreements for employees working for companies with contracts valued at $1 million or more. These contractors will no longer be able to require employees to consent to mandatory arbitration for certain types of legal disputes. The order, which builds on a comparable policy already in place for U.S. Department of Defense contractors, prohibits federal contractors from requiring their employees to enter predispute arbitration agreements for disputes either arising out of Title VII claims under the Civil Rights Act or torts related to sexual assault or harassment. Although there are some exceptions, such as employees covered by a collective-bargaining agreement, this segment of the order could still have some serious impacts.
“It’s very significant because a lot of larger employers are government contractors,” said Bertram, “and a lot of larger companies have been turning more and more to arbitration as a mechanism to try to resolve disputes more effectively or more efficiently than through the federal and state court systems.”
To help prepare for the new regulations on arbitration, in-house legal departments at federal contractors will want to think carefully about their policies on arbitration in employment agreements. “Definitely be very mindful of your arbitration agreements, even absent this executive order,” said Behymer. “With the [National Labor Relations Board’s] focus on arbitration, employers are really cautioned right now to craft their arbitration agreements very carefully because the law has just been changing. It’s fluid in this particular arena.”
As for the order itself, if the White House sets up a comment period on the new directive, Behymer recommends that in-house counsel for federal contractors with insights about the executive order and how it will affect them share them through professional associations or other organizations.