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Final ‘blacklisting’ rule and guidance: What do they mean?

August 24th, 2016  |  Pamela Wolf

By Pamela Wolf, J.D.

The much anticipated final Federal Acquisition Rule and Labor Department guidance implementing President Obama’s Fair Pay and Safe Workplaces Executive Order have been released and will be published in the Federal Register on August 25. Since Obama signed it in July 2014, EO 13673 has spawned considerable controversy; it was quickly dubbed the “blacklisting” initiative by opponents, who questioned whether it was necessary or even would produce positive results in light of its impact on employers.

Democratic lawmakers pushed the administration to issue proposed regulations that would implement the EO. When issued in May 2015, however, the proposed rule and guidance only seemed to add momentum to the controversy, prompting Republican lawmakers and others to press the Labor Department and Office of Federal Procurement Policy to withdraw the proposals. Most recently, provisions that would block or limit application of the EO were written into drafts of the 2017 Defense Authorization Act; the administration responded with a veto threat.

What’s behind the executive order? The White House has said that EO 13673 would protect both workers and taxpayers by making sure that government contracts are not going to companies that violate federal labor laws. The EO is designed to:

  • Hold corporations accountable by requiring potential contractors to disclose labor law violations from the past three years before they can receive a contract.
  • Give workers better and clearer information on their paychecks, so they can be sure they’re getting paid what they’re owed.
  • Give more workers who may have been sexually assaulted or had their civil rights violated their day in court.
  • Ease compliance burdens for business owners around the country by streamlining all types of reporting requirements across the federal government, the first step in a series of actions to make it easier for companies, including small businesses, to do business with the government.
  • For companies that have violations, rather than emphasizing punishment, give them a chance to follow good workplace practices and come into compliance with the law.

Final rule and guidance. Announcing the final rule and guidance, the Labor Department said they were “designed to increase efficiency and cost savings by ensuring that federal contractors are responsible and provide basic workplace protections.” The guidance in addition creates a process for agencies and the DOL to assist contractors to come into compliance with labor laws. In crafting the final regulations and guidance, the DOL and the Federal Acquisition Regulatory Council received and considered thousands of comments from members of the public, including many in the contracting community.

The DOL noted that contractors are already required to disclose findings of fault and liability made in administrative or civil proceedings. The problem is that current disclosures do not give the whole picture of the contractor’s labor compliance track record, leaving federal agencies at risk of making awards to contractors that “cheat their workers, competitors, and the taxpayers.”

Required disclosure. When the new rules are fully phased in, prospective contractors will have to disclose violations of 14 basic workplace protections from the prior three years, including those addressing wage and hour, safety and health, collective bargaining, family and medical leave, and civil rights protections. The EO also requires that contractors’ employees get the necessary information each pay period to verify the accuracy of their paycheck. Further, it ensures that workers who may have been sexually assaulted or had their civil rights violated get their day in court, putting an end to mandatory pre-dispute arbitration agreements covering these claims at large federal contractors.

The regulations and guidance build on the existing procurement system to help contractors come into compliance with labor laws. The DOL said that most federal contractors will only have to attest that they comply with laws providing basic workplace protections. Designated Agency Labor Compliance Advisors will be available to assist those who do report violations and coordinate with the relevant enforcement agency experts to help the contractors come into compliance.

What do federal contractors need to know? In a blog posting, Attorney James J. Murphy, shareholder in the Washington, D. C. office of Ogletree Deakins, laid out the contours of the final rules and guidance based on a White House summary and the amended executive order (published on the White House website on August 23):

  • Effective Date. The final rules will take effect on a phased-in schedule starting on October 25, 2016.
  • Pre-Dispute Arbitration Agreements. Prohibitions against requiring employees to enter into pre-dispute agreements to arbitrate claims brought under Title VII of the Civil Rights Act of 1964 or tort claims arising from sexual assaults or harassment will take effect on October 25, 2016. The White House indicates that this prohibition will not apply “where valid contracts already exist and remain unmodified.”
  • Paycheck Transparency. Paycheck transparency provisions of the final rules will become effective on January 1, 2017.
  • One-Year Delay for Subcontractor Disclosures. For the one-year period beginning October 25, 2016, disclosures of labor law violations will be required only for prime contractors. Subcontractor disclosures will not be required until October 25, 2017.
  • Contract Thresholds. For the first six months after October 25, 2016, the requirement for prime contractors to disclose labor law violations will apply only on solicitations valued at $50 million or more. Starting on April 25, 2017, solicitations valued at or above $500,000 will be covered.
  • Three-Year Lookback Window. The three-year lookback period for disclosures will be phased in gradually. Initially, the period of time covered by the disclosure obligation will be limited to one year preceding the date on which a contractor submits a bid on a covered solicitation. Presumably, that window will increase from one to two years as of October 25, 2017, and then to the full three-year window as of October 25, 2018.
  • DOL to Handle Subcontractor Disclosures. Once subcontractor disclosures are required, the DOL will be responsible for determining whether and how labor law violations will affect subcontractor access to work on covered federal contracts. Subcontractors will make their disclosures directly to the DOL, rather than to prime contractors; and prime contractors will be able to rely on the DOL’s review.
  • Equivalent State Laws. The final rules do not contain any timeframe for rulemaking concerning labor law violations involving “equivalent” state laws. The White House indicates that this requirement will be “phased in at a later time” (with the exception for OSHA-approved state plans, which will take effect in accordance with the above schedule).
  • Early Assessment Opportunities. Starting September 12, 2016, the DOL will offer a pre-assessment” process, which will allow contractors to come forward to the DOL “to discuss their history of compliance with labor laws” and secure guidance on whether “additional compliance measures are necessary.”
  • Helpful Citizens. The White House fact sheet highlights the opportunity for the public to make reports to contracting agencies, a point that largely has escaped notice until now. According to the White House, Agency Labor Compliance Advisors “will also be available to members of the public who have information they feel that prospective contractors should have disclosed about their labor violations.”

Behind the regulatory curtain … Murphy also gave Employment Law Daily his take on the final rule and guidance, calling them “a solution in search of a problem” from the start. “Federal contractors already are subject to rigorous disclosure requirements calling for them to disclose court rulings and adjudicated rulings that they violated federal laws—including the 14 labor laws covered by the final rules. What the final rules do is throw preliminary ‘findings’ by agency staffers into the mix even though there has been no adjudication of the issues before a neutral third party.”

Looking at it from the standpoint of federal contractors, Murphy called the changes to subcontractor reporting and the new phase-in schedule “undeniably positive developments.” However, he added that “they do not do a thing to cure the core deficiencies of the Department of Labor’s framework.”

The management-side labor and employment attorney pointed to another downside for federal contractors. The final rule and guidance “will allow unions and plaintiffs’ lawyers who represent or seek to represent employees of contractors to wield the specter of the barest findings of labor law violations as a weapon with which to demand concessions or settlements from contractors,” he suggested. “Because settlements that precede a finding of a violation are not reportable, unions and plaintiffs’ lawyers are the people wearing the broadest smiles this morning.”

A sword for plaintiffs … “To appreciate the full impact of the final rules, you need to focus on the five agencies that enforce the underlying labor laws—the NLRB, EEOC, OFCCP, OSHA, and Wage Hour Division—and their enforcement agendas,” Murphy said. “The NLRB is notorious for expanding federal labor law in conflict with rulings of the federal courts. It is not uncommon for contractors and these agencies to disagree over how the labor laws should apply, and contractors often have to look to the federal courts for a resolution. The unstated premise of the final rules is that contractors will be putting their contracts at risk if they fight for their day in court.”

Another perspective. In response to the final regulations, David Madland—Senior Fellow for the Center for American Progress Action Fund’s American Worker Project—said “Until now, contractors have continued to receive federal contracts worth billions of dollars despite long track records of committing rampant wage theft, creating unsafe working conditions, or discriminating against workers on the job.” He continued that “Since research has shown that companies with long records of violations frequently deliver poor-quality services to the government, the administration’s actions will also mean that taxpayer dollars will go to businesses that produce a good value for the government.”