On October 25, 2016, the final rule implementing President Obama’s “Fair Pay and Safe Workplaces” Executive Order (E.O. 13676) will go into effect. The final rule was released by the FAR Council on August 24, 2016. Final guidance addressing key provisions of the final rule was simultaneously released by the U.S. Department of Labor.  The final rule and guidance remain largely unchanged from the proposed rule and guidance and are expected to be a substantial burden for covered employers.

The Executive Order, often called the “Blacklisting” or “Bad Actors” Executive Order, requires federal agencies’ contracting officers to consider an employer’s record of workplace law violations when deciding whether to award the employer contracts or subcontracts. More specifically, the final rule requires prospective and existing covered federal contractors to disclose administrative determinations, arbitral awards, and civil judgements based on violations of 14 enumerated federal labor laws and their state law equivalents, including federal and state wage and hour laws, safety and health, collective bargaining, family and medical leave, and civil rights protections. Because the final rule is not retroactive, initially the requirements will apply only to solicitations for new contracts (and will not apply to existing federal contracts).

Phased-In Implementation

The final regulations establish a phased-in implementation.

  • For the first year, only prime contractors must make the required disclosures of labor law violations. Subcontractors will not be required to start making disclosures until October 25, 2017.
  • For the first six months, only contractors with solicitations valued at $50 million or more are subject to the disclosure requirements. Starting April 25, 2017, disclosure requirements will be included in solicitations valued at $500,000 or more.
  • Initially, labor law violations must be disclosed for a period of one year and will gradually increase to a three-year period by October 25, 2018.
  • The requirement that contractors and subcontractors disclose violations of state laws that are equivalent to the 14 enumerated federal labor laws will be phased in at a later date, after an additional notice and comment period.
  • The rule’s paycheck transparency requirements will become effective January 1, 2017.

Required Disclosures

When bidding on covered federal contracts, contractors will be required to disclose any violations of the 14 enumerated labor laws (and eventually, the equivalent state laws). Contractors must disclose violations of these laws that resulted in any “administrative merits determinations, civil judgments, or arbitral awards or decisions” within the previous three years.  The definition of “administrative merit determinations” remains broad in the final rule.   Contractors will be required to report the findings of enforcement agencies, including findings that are not final or that are subject to further review or appeal. For example, a contractor would be required to disclose a reasonable cause finding from the EEOC, a complaint issued by a Regional Director of the NLRB, and a show cause notice from the OFCCP.

In addition to the pre-award disclosures, once a contractor enters into a new covered federal contract after the rule takes effect on October 25, 2016, covered contractors are required to update their disclosures of labor law violations every six months for the life of the contract.

Paycheck Transparency and Arbitration Agreements

The Executive Order also addresses paycheck transparency and pre-dispute arbitration agreements for covered contractors and subcontractors. As of January 1, 2017, the paycheck transparency requirements take effect and will require covered contractors and subcontractors to provide wage statements to covered workers and provide covered workers information regarding their hours worked, overtime hours, pay, and any additions or deductions to their pay. Covered contractors and subcontractors must also notify their workers in writing if they are exempt from overtime pay. They must also notify independent contractors in writing of their independent contractor status.

In addition, pre-dispute arbitration agreements to resolve claims arising under Title VII of the Civil Rights Act, or related tort claims are prohibited for contracts of goods or services of $1,000,000 or more. This arbitration prohibition provision takes effect on the same date as the final rule – October 25, 2016. Contractors can, however, arbitrate such claims if the employee voluntarily agrees to arbitration after the dispute arose. Contractors also are not prohibited from pre-dispute arbitration agreements when there is a collective bargaining agreement in place or where a valid contract between the employer and employees or independent contractors requiring arbitration is in place prior to the contractor bidding on a contract.

What It Means for Employers

The tracking and reporting burdens on employers with covered contractors, or who solicit covered contracts, will be substantial. Employers will have to keep track of every labor law “violation” and submit updated information every 6 months.

There is also significant concern that the requirements will be used as leverage to force employers into settlements.  An early settlement could avoid a finding that the employer would be required to report.

Because the final rule goes into effect in less than two months, covered federal contractors should take the following steps:

  • Review internal compliance and reporting procedures – including systems or processes for tracking, storing and reporting the required information.
  • Determine who, within the organization, will be responsible for fulfilling the reporting and disclosure requirements.
  • Training: training on the final rule and guidance should be provided to the person who is required to coordinate the reporting and disclosures as well as for other key employees across the company who will need to supply required information regarding labor law violations to the coordinator. The contractor must further ensure that the person tasked with reporting violations has complete information.

For detailed analysis and recommendations about the new obligations, we recommend employers contact their counsel for assistance.