Last week, President Obama signed the Fair Pay and Safe Workplaces Executive Order, which imposes additional disclosure and compliance obligations on federal government contractors.  The executive order will govern federal procurement contracts valued at more than $500,000.  Among other things, the Order requires contractors to disclose labor law violations, restricts the use of arbitration agreements, and requires certain information to be provided on employees’ paystubs.

The stated goals of the executive order are to protect workers’ rights and bring more contractors into compliance with labor laws.  The White House explained that, because companies with a history of labor law violations are more likely to perform poorly on federal contractors, the executive order promotes the efficiency of federal contracting.

Specifically, the executive order contains the following key provisions:

• Agencies will require prospective contractors to disclose labor law violations from the past three years before contractors may receive a contract.  These “labor law violations” include an “administrative merits determination, arbitral award or decision, or civil judgment” against the contractor for any of the following fourteen federal laws as well as “equivalent State laws” that will be defined in guidance to be issued by the Department of Labor:

  • Fair Labor Standards Act;

  • Occupational Safety and Health Act;

  • Migrant and Seasonal Agricultural Worker Protection Act;

  • National Labor Relations Act;

  • Davis-Bacon Act;

  • Service Contract Act;

  • Section 503 of the Rehabilitation Act;

  • Vietnam Era Veterans Readjustment Assistance Act;

  • Family and Medical Leave Act;

  • Title VII of the Civil Rights Act; and

  • Executive Orders 11246 (equal employment opportunity) and 13658 (minimum wage)

• Contractors must update the listing every six months.  The contracting officer must evaluate each additional disclosure and determine whether the contractor should continue working on the contract.

• Contractors will be required to obtain the above information concerning past labor law violations from many of their subcontractors and receive updates every six months.  The contractor must consider the subcontractor’s response when making awards determinations.

• Agencies will designate a senior official as a Labor Compliance Advisor to ensure that contractors act with integrity and comply with business ethics.  The Labor Compliance Advisor will certify that the worst actors, i.e. those who repeatedly violate workers’ rights, do not receive contracts.

• Companies with federal contracts valued at $1 million or more cannot require employees to enter into pre-dispute arbitration agreements for disputes arising out of Title VII of the Civil Rights Act or from torts related to sexual assault or   harassment.  This prohibition expands the restriction that already applies to many defense contractors.

• Contractors must provide workers with specific information on their paycheck, including hours worked, overtime hours worked, total pay, and any additions or deductions made to employees’ pay.  Also, if a contractor is treating a worker as an independent contractor, the contractor must inform the individual of their status as an independent contractor.

• To simplify reporting, the General Service Administration will develop a centralized reporting website at which contractors may provide and report all information, even if contractors hold multiple contracts across different agencies.

This executive order creates the potential for significant monitoring and reporting burdens for contractors.  Contractors may have to update and develop protocols to comply with the requirement to report labor law violations at both the federal and state level dating back three years.  The order also may place additional pressure on contractors to settle existing employment-related claims.  Because only final merits determinations will be reported to the government, anything short of a violation, including settlement, will not have to be reported.

Connie Bertram—Co-Chair of Proskauer’ s Government Regulatory Compliance and Relations Group—explained to Business Week that “[c]ompanies now have an additional factor to consider as part of their risk management analysis.”  Ms. Bertram stated that when deciding on everything from proceeding with a lawsuit to terminating a group of employees, companies will question whether they will “lose a piece of business or a contract?”  Ms. Bertram explained to The Wall Street Journal that “I don’t myself see the need for additional regulation and disclosure.  I would hate to see isolated incidents of violations drive very costly disclosures that are probably not necessary.”

The White House expects that the order will be implemented on new contracts in stages, and on a prioritized basis, throughout 2016.  Federal contractors should review their policies and procedures and identify ways that the order may require changes to the collection and reporting of information regarding labor, employment and safety violations.  Contractors should also review their agreements with employees and identify whether they include arbitration provisions covered by the Executive Order.