White House Pushes to “Blacklist” Federal Contractors for Labor Violations

The FAR Council has proposed a new rule implementing the so called “Fair Play and Safe Workplaces” rule established by Executive Order 13673 which require contractors and subcontractors of any tier to disclose nearly any labor law violation from the previous three years leading to a potential non-responsibility determination by the contracting officer (CO), contract termination or a referral to an agency suspension and debarment official (SDO).  The Department of Labor (DoL) has also issued companion guidance for the evaluation of past labor violations.

The proposed rule applies to all prime contracts and subcontracts in excess of $500,000, except for subcontracts for commercially available off-the-shelf (COTS) items (note the proposed rule does apply to prime commercial item contracts).  Although the rule imposes a new, substantial burden on COTS contractors, the proposed rule does not address how this squares with the government’s goal of imposing minimal burdens on commercial item contractors in order to reap the benefits of the commercial marketplace.  It is getting harder and harder to tell new entrants to federal procurement that it is easy doing business with the Federal Government.

Under the proposed rule, any labor violation found by a court, administrative body, or arbiter in the past three years must be disclosed by contractors (hereinafter understood to include all non-COTS subcontractors) even if such determinations or judgements are “subject to appeal or further review.”  The FAR Council has handed massive leverage to complainants to force settlements with companies in labor disputes. 

The range of labor laws prompting such a disclosure is comprehensive and currently open ended.  It applies to violations of the Fair Labor Standards Act (FLSA), the Occupational Safety and Health Act (OSHA), the Migrant and Seasonal Agricultural Worker Protection Act (MSPA), the National Labor Relations Act (NLRA), the Davis-Bacon Act (DBA), the Service Contract Act (SCA), Title VII of the Civil Rights Act, the Rehabilitation Act (Rehab Act), the Americans with Disability Act (ADA), the two Vietnam Era Veterans’ Readjustment Assistance acts (VEVRAA), the Age Discrimination in Employment Act (ADEA), the executive orders on Equal Employment Opportunity (EEO) and Minimum Wage for Contractors, as well as the nebulous catch all of violations of any “Equivalent State” law.  Contractors must publically report these violations, including judgments under appeal, in the System for Award Management (SAM) or directly to the CO if they are exempt from SAM registration.  The rule also does not consider that arbitration decisions often preclude the contractor from making the decision public. 

But contractors need not fear heavy handed treatment from the government for past labor violations because the proposed rule gives them the right to inform the CO of any “mitigating circumstances” or “remedial measures” they have taken!  After the CO collects the contractor’s dirty laundry and mea culpas, the CO turns it over to an agency labor compliance officer (ACLA) for review.  The ACLA will of course be intimately familiar with the nuances of all fourteen federal laws and executive orders and the literally hundreds of equivalent state laws.  In addition to being labor law experts, the ACLAs will also be incredibly efficient as they have a mere three days to issue a recommendation to the CO.  This is clearly plenty of time for the ACLA to review the contractor’s documents on mitigation and remediation; research the relevant labor laws; request, receive and review the underlying documents to understand the underlying facts of the case; and make a recommendation. 

In the unlikely event the ACLA is unable to issue a recommendation in this three day period, the CO is responsible for becoming a labor law expert and issuing a final determination based on their “business judgment.”  After reviewing the ACLA’s recommendation, or, more likely, making their own determination, the CO can give the contractor a pass, require the contractor to agree to an enhanced labor compliance agreement in order to be found sufficiently responsible to receive the award, decline to award the contract, or refer the contractor to the agency SDO.  Likewise, if the violations occur during contract performance, the CO can decline to exercise options, terminate the contract (the rule does not specify whether for default or convenience), or refer the matter to the SDO.  Although the proposed rule allows for referral to the SDO, it essentially duplicates the role of the SDO, without any of the independence or due process offered by the current SDO process.  Moreover, the whole punitive scheme of the proposed rule is essentially is a form double punishment for labor violations that goes well beyond what the underlying statutes impose for violations.

You may be thinking that this punitive rule is only reserved for the worst of the worst labor violators.  Think again!  The proposed rule directs the ACLA to focus on whether any violation was “serious, repeated, willful, or pervasive.”  DoL’s guidance on the rule defines a “serious” violation as any instance of at least $5,000 in back wages, fines or penalties over $10,000, adverse employment actions, or employment of minors too young to work.  Although the last one seems fair, DoL’s guidance sets the bar for “serious” violations exceedingly low and sweeps in run of the mill cases or technical labor or wage violations, which can easily result in larger fines.  Moreover, under DoL’s guidance defines, “pervasive” violations do not have to be similar as long as they involve multiple violations in the last three years of any of the applicable labor laws.

The FAR Council’s analysis of the regulatory impact of the proposed rule on contractors is laughable, estimating that it will take a mere 8 hours for contractors to implement the proposed rule.  This of course ignores the burdens for companies that operate in a highly regulated labor environments (e.g,. construction) or large businesses with hundreds or even thousands of employees.  It also ignores the time and expense companies will have to incur to put in place systems to track even provisional determinations of labor violations.

We of course cannot know whether the FAR Council and DoL actually view these rules as being fair or whether they punctuated the rule with outrageous demands in the hope that a subsequently watered down version will thus become more palatable to the acquisition community.  The period for comments on the proposed rule and DoL guidance has twice been extended and comments are now due August 26, 2015.  If you would like to submit comments you may do so here for the proposed FAR rule and here for DoL’s guidance.  To date, very few comments have been submitted so please comment as these proposed rules and guidance adversely affect the entire acquisition community.

For more information, you may contact James Fontana at jfontana@deftlaw.com or Jeffry Cook at jcook@deftlaw.com.