On July 31, 2014, President Obama signed an executive order (the Order) with sweeping implications for employers that do business with the federal government. The Order requires new disclosures, imposes significant resource burdens, and bans arbitration of certain claims.

Disclosure of Labor Law Violations and Related Subcontractor Reporting

Citing the need to identify businesses with consistent track records of compliance, the Order requires contractors for the first time to report violations of labor, discrimination, wage and hour, and safety laws to the contracting agency at the pre-award stage. The disclosure must include administrative merits determinations, arbitral awards or decisions, and any civil judgments during the three-year period preceding the bid. These disclosures will be reviewed by newly appointed "Labor Compliance Advisors" at the pre-award stage at each agency.

The contractor's reporting obligations do not stop there. Contractors must also require subcontractors with contracts exceeding $500,000 to make the same disclosures to the contractor. As a result, contractors will now have to include reporting language in their subcontracts and create an internal process for soliciting and reviewing disclosures and even determining whether the subcontractor is a "responsible source that has a satisfactory record of integrity and business ethics." Once a contract is awarded, contractors must submit updates regarding their own violations and those of their subcontractors every six months.

Paycheck Transparency and "Right to Know"

The Order also requires contractors and their subcontractors to give employees accurate information about hours worked, overtime paid, and other relevant paycheck details. Significantly, the Order also contains a “right to know” provision requiring contractors to give independent contractors written notice of their independent contractor status.

Restrictions on Mandatory Arbitration of Certain Disputes

Finally, the Order bars contractors and their subcontractors with contracts of $1 million or more from forcing workers to sign agreements with pre-dispute arbitration clauses (not including collective bargaining agreements) that require the employee to arbitrate Title VII claims or any tort related to or arising out of an incident of sexual harassment or a sexual assault. This restriction tracks a similar exclusion contained in the Department of Defense Appropriations Act for Fiscal Year 2010, which previously applied only to Defense contractors and subcontractors. The good news for contractors is that the prohibition applies only to Title VII claims and tort claims related to sexual harassment and sexual assault. It does not impact the enforceability of agreements requiring the arbitration of wage and hour and other employment-related disputes.

The Rough Road Ahead for Government Contractors

The Order is the latest attempt by the Obama Administration to impose its policy agenda on businesses that contract with the federal government. Contractors should look for forthcoming regulations and should start planning for the increased resource burdens associated with the Order's disclosure obligations. Considering the growing significance of mandatory arbitration programs, employers with a government contract or subcontract that exceeds $1 million should consider the impact of the Order's restrictions on any agreement to arbitrate employment disputes.