Tag: Fair Pay and Safe Workplaces

Down to the Wire: DOL’s “Blacklisting Rule” Enjoined

blacklisting ruleA federal judge in Texas has blocked implementation of major portions of the U.S. Department of Labor’s (DOL) Fair Pay and Safe Workplaces rule, the so-called “blacklisting” rule.

Judge Marcia A. Crone of the U.S. District Court for the Eastern District of Texas entered a nationwide preliminary injunction order on Oct. 24 blocking the Oct. 25 implementation date of the DOL rule, along with a related Obama Executive Order, the Federal Acquisitions Regulations (“FAR”) Rule and the DOL’s Guidance regarding the FAR Rule.

Had they gone into effect, the new rules would have imposed significant and stringent reporting and disclosure requirements on contractors bidding on federal projects. Moreover, those disclosures of non-final and non-adjudicated “violations” could have been used to bar contractors from federal projects.

Judge Crone determined that the plaintiffs in this action, the Associated Builders and Contractors of Southeast Texas, had a likelihood of success on the merits of establishing that the new regulations exceeded the authority of the president, the FAR Council and the DOL; were otherwise preempted by other federal labor laws; violated the First Amendment rights of federal contractors through compelled speech; violated contractors’ due process rights; are arbitrary and capricious; and violated the Federal Arbitration Act.

The opinion focuses in large part on the disclosure requirements contained in the president’s Executive Order, the DOL Guidance and the FAR Rule, which Judge Crone found to be “drastic new requirements” which are “a substantial departure from and a significant expansion of prior reporting rules.”

The disclosure requirements, among other things, would require contractors to report all “violations” of 14 separate federal labor and employment statutes; disclosures could then be used to disqualify bidders on federal projects. Judge Crone’s opinion finds fault with the Executive Order, Rule and Guidance for broadly defining “violations” to include non-final decisions or administrative determinations, which have not been preceded by a hearing or made subject to judicial review. Moreover, the “violations” to be reported are not confined to performance of past government contracts.

Judge Crone determined that “[i]n the present case, the Executive Order, FAR Rule, and DOL Guidance arrogate to contracting agencies the authority to require contractors to report for public disclosure mere allegations of labor law violations, and then to disqualify or require contractors to enter into premature labor compliance agreements based on their alleged violations of such laws in order to obtain or retain federal contracts. By these actions, the Executive Branch appears to have departed from Congress’s explicit instructions dictating how violations of the labor law statutes are to be addressed.”

Judge Crone also enjoined enforcement of the portion of the Executive Order and the Rule that provided that contractors and subcontractors who enter into contracts for non-commercial items of more than $1 million must agree not to enter into any mandatory, pre-dispute arbitration agreements with their employees or independent contractors on any matter arising under Title VII, as well as any tort related to or arising out of sexual assault or harassment.

Left standing by Judge Crone is the portion of the Executive Order requiring that all covered contractors inform their employees in each paycheck of the number of hours worked, overtime calculations (for non-exempt employees), rates of pay, gross pay, additions or deductions from pay, and whether they have been classified as independent contractors. That requirement in the Executive Order has an effective date of January 1, 2017.

ARTICLE BY Gerald F. Lutkus of Barnes & Thornburg LLP

© 2016 BARNES & THORNBURG LLP

Fair Pay and Safe Workplaces Final Rule Presents Challenges to Government Contractors

fair payLast week, the FAR Council released its Final Rule implementing President Obama’s 2014 Fair Pay and Safe Workplaces Executive Order. At the same time, the U.S. Department of Labor released its Final Guidance on the rule. Contractors need to take action immediately—the Final Rule goes into effect on October 25, 2016.

The proposed rule was issued back in May of 2015 and there has been lots written about it (and more than 10,000 comments and responses submitted). In today’s post, we highlight some of the requirements that may present challenges to contractors. Remember, once the rule takes effect, contractors will be required to report certain details about their labor law violations.

Public Disclosure of Labor Law Violations

Actually, contractors will be required to disclose violations of 14 federal labor laws and executive orders and state equivalents. Those laws range from the Fair Labor Standards Act and the Occupational Safety and Health Act to the Service Contract Act, the Davis Bacon Act and the Family and Medical Leave Act. The E.O.s include E.O. 13658 (Establishing a Minimum Wage for Contractors) and E.O. 1124 (Equal Employment Opportunity). The Final Rule also requires contractors to update their reports every six months. And, all disclosures under the new rule will be public.

Phase-In Periods

That’s probably one of the main takeaways here—the rule will be “phased in” over time. Starting on October 25, 2016, the disclosure requirements will become effective as to prime contracts valued at $50 million or more. By April 25, 2017, those requirements will apply to prime contracts valued at $500,000 or more. Subcontracts are not covered by the rule until October 25, 2017. Initially, the disclosure rules only will look back one year, but that “look back” period will stretch to three years by October 25, 2018.

Paycheck Transparency and Arbitration Restrictions

Starting on January 1, 2017, the “paycheck transparency” provisions take effect. Among other things, starting in 2017, contractors will be required to provide notices to workers about their status as independent contractors and whether they are exempt from overtime pay. Those notices will be particularly problematic for contractors who have not previously focused on proper classification and for all contractors in light of new overtime regulations and DOL’s increased attention to alleged worker misclassifications.

Subcontractor Reporting Directly to DOL

The Final Rule includes one significant change from the proposed rule and requires subcontractors to report directly to the Department of Labor rather than to the prime contractor. The rule also includes a contorted pathway for consideration of subcontractors’ disclosed violations, bouncing from DOL back to the sub and then up to the prime and then to the contracting officer. It remains to be seen how that process will work and if it will work efficiently.

Reporting Does Not Extend to Affiliates

The text of the Final Rule makes it clear that the reporting requirements do not extend to corporate parents, subsidiaries or affiliated companies. Instead, it is limited to the contracting party only.

Perhaps it is a silver lining for prime contractors that they will not be required to report on their subcontractors’ and their own affiliates’ labor law violations. But the new rules contain many new requirements and contractors should get ready now for the implementation to begin on October 25, 2016.

FAR Council Issues Final Rule, DOL Issues Final Guidance on Fair Pay and Safe Workplaces (“Blacklisting”) Executive Order, Effective October 25, 2016

fair pay and safe workplacesYesterday, the Federal Acquisition Regulations Council (“FAR Council”) and the U.S. Department of Labor (“DOL”) issued its Final Rule and Guidance implementing the Fair Pay and Safe Workplaces Executive Order (the “Order”), commonly referred to as the “blacklisting” rule.  In total, the Final Rule, Guidance, and accompanying commentary totaled nearly 900 pages, responding to nearly 20,000 comments on the Proposed Rule and Guidance released earlier this year.  Some of our previous posts on the Order and the Proposed Rule and Guidance can be found here and here.  This post will highlight the notable changes and clarifications made in the Final Rule and Guidance as well as key takeaways for federal government contractors.

Effective Date

The Final Rule is effective on October 25, 2016.  This is earlier than anticipated and dramatically shortens the time for contractors to prepare to comply with the Order and its implementing regulations.  That being said, as discussed below, the Final Rule also phases in a number of the disclosure and compliance obligations, lessening the initial burden of the implementation.

Phase-In of Labor Violation Disclosure Requirements

One of the overarching concerns raised during the notice and comment period was the enormous burden the Order would place on the contracting community.  In an effort to lessen that burden, the Final Rule and Guidance announced a phased implementation of the disclosure obligations.  The phase-in has two key components.

First, the Order and the Proposed Rule contain a three-year look back for covered violations.  Recognizing that contractors have not been cataloging covered labor violations prior to the issuance of the Order, the Final Rule only requires contractors to look back one year for reportable violations when the rule becomes effective.  The look-back period will increase each year by one year until October 2018, when it will become a three-year look back.

Second, the Final Rule also limits which contractors must make labor law violation disclosures in the first six months following the effective date.  Contractors will not be required to disclose labor law violations until April 24, 2017, unless the contractor is responding to a solicitation for a contract valued at $50 million or more after the effective date of the Final Rule.  For most contractors, this provides an additional six-month window to prepare for the implementation of the disclosure obligations.

The phase-in of disclosure obligations does not just impact prime contractors.  The Final Rule also included a lengthier phase-in for subcontractor disclosure obligations.  Subcontractors must begin disclosing labor violations for solicitations issued after October 25, 2017, one year after the effective date.

A Pause on The Disclosure of “State Law Equivalent” Violations

When the Proposed Rule was released, the Proposed Guidance stated that a supplement would follow containing a list of which state-law equivalents for the 14 enumerated federal laws require disclosures of violations under the Order.  To date, no list has been released.  The Final Rule and Guidance acknowledge this and state that the DOL will release a comprehensive list of state laws that are covered by the Order.  This listing will be subject to notice and comment before it becomes effective.  In the meantime, only the 14 federal labor laws listed in the Proposed Rule and in the Order, along with state OSHA plans, are covered by the rule.

Minor Clarifications on Scope of Violations

Overall, despite numerous comments and criticisms, the DOL declined to substantively modify its list of covered labor violations in the Final Guidance.  Thus, the list of administrative merits determinations, arbitral awards, and civil judgments remain exceptionally broad and sweeping.

Although the DOL declined to narrow its definition of a violation, the Final Guidance does contain some minor modifications that broaden the definition of a violation.  For example, the definition of administrative merits determination in the Proposed Guidance did not include violations of the anti-retaliation provisions of the Occupational Safety and Health Act (“OSHA”) or the Fair Labor Standards Act (“FLSA”).  The final rule clarifies that these were unintentionally omitted from the Proposed Guidance and are now included in the Final Guidance.  Additionally, the Proposed Guidance limited “determination letters” from the DOL Wage and Hour Division to letters outlining violations of Sections 6 and 7 of the FLSA (minimum wage and overtime).  In the Final Guidance, the DOL has clarified that this was unintentionally narrow, and that the Final Guidance includes determination letters finding any FLSA violation.

Assessing A Subcontractor’s Responsibility – Removing The Burden From The Prime

One highly controversial aspect of the Proposed Rule was the burden placed on the prime contractor to perform the same type of responsibility determination of covered subcontractors’ labor violations that the government will perform on prime contractors.  In response to numerous comments, the Final Rule has modified the process for assessing a subcontractor’s violations, largely removing the burden from the prime contractor.

Instead, starting October 25, 2017, under the Final Rule, covered subcontractors will submit their list of labor violations to the Agency Labor Compliance Advisor (“ALCA”).  The ALCA will then perform an assessment of the disclosed violations and make a recommendation.  The prime contractor must make the ultimate decision as to responsibility.  If the subcontractor disagrees with the finding of the ALCA, it can raise the dispute with the prime contractor.

Clarification of Assessment Process of The Labor Compliance Advisors

The Proposed Rule and Guidance introduced a new government official into the contracting process, the ALCA.  There was substantial controversy surrounding this new role, particularly the potential disparate application of the Order between agencies and perhaps even within agencies.  The Final Rule and Guidance provides additional details regarding the process by which federal agencies and departments will assess a contractor’s labor violations.  Moreover, the Final Rule and Guidance recognizes the need for guidelines and training for the ALCAs.

The Final Rule and Guidance states that the ALCA will have three days to assess labor violations disclosed by a contractor.  Although the contracting officer is permitted to give the ALCA additional time, the contracting officer may make his or her own assessment of responsibility without the recommendation of the ALCA.  The ultimate responsibility for making a responsibility determination will remain with the contracting officer, not the ALCA.  The ALCA’s role is to “assesses the nature of the violations and provide[] analysis and advice.”

The Final Guidance also clarifies the process the ALCA will follow during his or her assessment.  The ALCA will first review all of the violations to determine if any are “serious, repeated, willful, and/or pervasive.”  Then, the ALCA “weighs any serious, repeated, willful, and/or pervasive violations in light of the totality of the circumstances, including the severity of the violation(s), the size of the contractor, and any mitigating factors that are present.”  Finally, the ALCA provides written analysis to the contracting officer.

Public Dissemination of Disclosures

The Proposed Rule and Guidance noted that information submitted to the contracting agency would be publicly disseminated.  Despite numerous comments criticizing this proposed provision, the Final Rule and Guidance declined to remove this requirement.  However, the Final Rule and Guidance provided clarification as to how this public dissemination will work in practice.  Pursuant to the Final Rule, the following information will be publicly disclosed based upon the contractor’s violation submissions:  (1) the law violated; (2) the case identification number or docket number; (3) the date of the decision finding a violation; and (4) the name of the body issuing the judgment.

The contractor will input this information into the System for Award Management (“SAM”).  From SAM, the information will be made available to the public through the Federal Awardee Performance and Integrity Information System (“FAPIIS”).  The Final Rule clarified that while the four enumerated data points must be made public, the contractor has the choice as to whether any additional documents provided by the contractor to demonstrate its responsibility and mitigation efforts shall be made public.

Key Takeaways

With the Final Rules and Guidance published, it is more important than ever that contractors begin preparing for the implementation of the Order and its regulations.  Contractors have two months before the effective date of the Final Rule, and while certain obligations will be phased-in, contractors will need time to prepare for compliance.

Contractors should start cataloging any violations during the past six months that constitute covered violations as well as any evidence of mitigation efforts taken as a consequence of the violations.  Because complaints and charges alleging violations of the 14 federal laws covered by the Order, a central official of office should be designated to coordinate the collection of this information (concerning both past and future violations) and a central repository for it.  Contractors should view the ability quickly to provide a comprehensive list to the contracting officer as a competitive advantage, as competitors may not be prepared to do so in a timely manner.

Additionally, if the ALCA makes an inquiry concerning the disclosed violations, contractors should be prepared to advocate, with appropriate evidence, why certain violations are not willful, repeated, pervasive or severe.  For instance, the contractor could point to its size or the number of employees in the organization.  It can also identify measures taken by the contractor to address the issues raised in the violation.  It will be important that these disclosures be vetted by a central authority within the organization.

In addition to preparing to report labor violations, contractors should also work internally to reduce and mitigate the risk of future violations.  This can be achieved by: (1) developing and implementing effective policies and training; (2) auditing compliance; (3) adopting a robust internal complaint mechanism; (4) developing alternative dispute resolution processes; and (5) undertaking early case assessment and management. Taking these proactive measures can help lessen the impact of future compliance by reducing the number of violations that must be reported.