August 26, 2016

On Your Mark, Get Set, Comply: Final Rules and Guidance for the Fair Pay and Safe Workplaces Executive Order Are Here

Arnold & Porter Advisory

Final Rules and Guidance on the Fair Pay and Safe Workplaces Executive Order were released on August 24, 2016 and will become effective and begin phase-in on October 25, 2016. These final rules and guidance—which come to over 800 pages—will affect most current and future government contractors and subcontractors with contracts valued at more than US$500,000.

In May 2015, we published an Advisory on the proposed rules and guidance published by the Federal Acquisition Regulatory (FAR) Council and the US Department of Labor (DOL). Below, we highlight some of the key changes and clarifications made in the final rules and guidance, as well as important dates, coverage information, and other significant issues.

When Do The Rules Go Into Effect? 

The Final Rules will be phased in over time (this phase-in schedule is new). Here are the key dates:

  • October 25, 2016: Prime contractors bidding on covered contracts valued at US$50,000,000 or more become subject to reporting requirements for violations of specified labor, employment, wage payment, and safety laws (which we describe below).
  • October 25, 2016: All contractors and subcontractors with federal contracts of more than US$1,000,000 (contracts and subcontracts for commercial items are excluded) will be prohibited from requiring employees to enter into new mandatory pre-dispute arbitration agreements covering Title VII or sexual assault/harassment claims.
  • January 1, 2017: All contractors and subcontractors with federal contracts of more than US$500,000 (subcontracts for commercially available off-the-shelf items are excluded) will be subject to paycheck transparency requirements, including independent contractor notices.
  • April 25, 2017: Prime contractors bidding on covered contracts valued at more than US$500,000 become subject to the reporting requirements.
  • October 25, 2017: Subcontractors bidding on covered subcontracts valued at more than US$500,000 (subcontracts for commercially available off-the-shelf items are excluded) become subject to the reporting requirements.

Who Is Covered?

  • Subject to the phase-in dates outlined above, most federal contractors and subcontractors with contracts for goods and services, including construction, where the estimated value of the contract exceeds US$500,000 over the life of the contract. Subcontracts for commercially available off-the-shelf items are excluded.
  • The final rules clarify for the first time that they apply only to the legal entity named on the bid/offer and that is responsible for contract performance. Thus the rules do not apply to the entity's parent corporation, subsidiary corporation, or other affiliates.
  • If the contractor or subcontractor is a joint venture that is not itself a separate legal entity, each member of the joint venture must separately comply with reporting requirements.
  • A prime contractor and a subcontractor that are part of a teaming arrangement will each have separate reporting requirements.

How Must Labor Law Violations Be Reported?

There are different reporting requirements for contractors and subcontractors.

  • First, when submitting a bid for a covered contract in the GSA System for Award Management (SAM), prospective contractors will be required to report whether there have been any “administrative merits determination, arbitral award or decision, or civil judgment for any labor law violation(s) rendered against the offeror for labor law violations during the period beginning on October 25, 2015 to the date of the offer, or for three years preceding the date of the offer, whichever period is shorter.” (After October 25, 2018, the reporting period will simply be three years prior to the date of offer).
  • Second, the Final Rules clarify that if a contracting officer initiates a responsibility determination and the contractor has identified that it has prior labor law violations, the contractor will be asked to report (through SAM): (i) the labor law violated; (ii) the case number, inspection number, charge number, docket number, or other unique identification number; (iii) the date rendered; and (iv) the name of the court, arbitrator(s), agency, board, or commission that rendered the determination or decision. This information will ultimately be made public through the Federal Awardee Performance and Integrity Information System (FAPIS).
  • Third, contractors may choose to voluntarily submit any additional documents or information to demonstrate compliance or remediation efforts or other mitigating factors, which will then be taken into account in determining whether the prospective contractor is a responsible source. The Final Rules clarify that these materials will not be made public unless the contractor so chooses.
  • Fourth, contractors will be required to update their disclosures on a semi-annual (twice yearly) basis. These semi-annual reports can be streamlined to avoid duplicative reporting for multiple contracts.
  • The Final Rules have eliminated the previously proposed (and heavily criticized) requirement that a prime contractor is responsible for collecting and assessing their subcontractors’ disclosures of labor law violations. Instead, subcontractors will now be required to make their reports directly to the Department of Labor for review and assessment. The subcontractor will then make a representation back to the prime contractor concerning the DOL’s response to its disclosure. The prime contractor will be required to carefully consider the DOL’s response in order to make its own evaluation of the subcontractor’s responsibility. However, the Final Rules clarify that a contractor acting in good faith will not be liable for misrepresentation made by its subcontractors about labor law decisions or compliance.

How Far Back Do The Reporting Requirements Go?

  • Once reporting requirements are triggered pursuant to the phase-in schedule, covered contractors and subcontractors will need to report labor violations dating back to October 25, 2015. Thus, for contracts entered into around October 25, 2016, the look back period will be approximately one year, increasing gradually until it reaches three years.
  • After October 25, 2018, the reporting requirements will be for the prior three year period.

What Has To Be Reported?

  • Violations of 14 different federal labor and employment laws and executive orders, including wage and hour, safety and health, collective bargaining, family and medical leave, and civil rights protections. Also, occupational safety and health “State Plans” that have been formally approved by OSHA.
  • The federal laws are: (i) the Fair Labor Standards Act; (ii) the Occupational Safety and Health Act; (iii) the Migrant and Seasonal Agricultural Workers Protection Act; (iv) the National Labor Relations Act; (v) the Davis-Bacon Act; (vi) the Service Contract Act; (vii) Executive Order 11246 (Equal Employment Opportunity); (viii) Section 503 of the Rehabilitation Act of 1973; (ix) the Vietnam Era Veterans’ Readjustment Assistance Act; (x) the Family and Medical Leave Act; (xi) Title VII of the Civil Rights Act of 1964; (xii) the Americans with Disabilities Act of 1990; (xiii) the Age Discrimination in Employment Act of 1967; and (xiv) Executive Order 13658 (Establishing a Minimum Wage for Contractors).
  • The definition of what is a “labor law violation” remains broad, and covers administrative merits determinations, arbitration awards, and civil judgments.
  • The Final Rules make clear that the disclosure and reporting requirement applies to the entire legal entity, not just employees working on the contract or public sector work.
  • One temporary change—the Final Rules have eliminated, for now, the requirement to report violations of state law equivalents. The DOL will release a proposed list of state laws, which will then be subject to a notice and comment period before going into effect in the future.

How Will The Disclosures Be Assessed By The Government?

  • The Final Rules and Guidance require contracting officers from each agency to consider and assess each contractor and subcontractor’s history of labor law violations as a factor in determining whether they have a satisfactory record of integrity and business ethics and therefore qualify as a responsible source eligible for contract award.
  • Contracting officers will consult with Agency Labor Compliance Advisors—a newly created position—and the ALCAs are expected to make assessments and recommendations (and provide written analysis) to the contracting officers and to contractors within three days of receiving reports and disclosures (the time frame itself can be extended).
  • ALCAs will consider whether the labor violations are serious, repeated, willful and/or pervasive, and then weigh them in light of the totality of the circumstances. The DOL Guidance provides some additional insight into the meaning of these terms and how they will be applied, which is largely consistent with the DOL’s preliminary guidance from 2015.
  • Potential remedies will include documenting non-compliance, negotiating a labor compliance agreement, or more severely, terminating a contract or notifying the suspending and debarring officials. Labor compliance agreements are emphasized throughout the Final Rules and Guidance.

Pay Transparency and Pre-Dispute Arbitration

  • The Final Rules keep the requirement that contractors and subcontractors will have to start providing pay transparency and numerous details in every employee's wage statement and provide independent contractors with separate notification of their independent contractor status prior to beginning work on each contract. These requirements will go into effect on January 1, 2017.
  • The Final Rules also keep the requirement that contractors and subcontractors with contracts of at least US$1,000,000 (excluding non-commercial items) must agree not to enter into any mandatory pre-dispute arbitration agreements covering Title VII and sexual assault or harassment claims with any of their employees or independent contractors. The Final Rules clarify that this prohibition applies to all employees, not just those working on covered contract(s).

What should contractors and subcontractors be doing to prepare for implementation of the Final Rules?

At a minimum, contractors should institute procedures to collect all relevant information on any labor violations since October 25, 2015, as well as implement processes to track, gather, and report future violations, along with any mitigating information (which will need to be disclosed carefully and strategically). Ideally, this responsibility will be undertaken by a designated official or department to ensure consistency and accountability. Contractors may want to develop comprehensive compliance audits to ensure that they are and remain in compliance with each of the relevant labor laws going forward. And contractors will need to carefully consider litigation and settlement strategies going forward, including the impact that any adverse administrative determination may have (notwithstanding efforts to challenge and/or appeal those determinations). Finally, contractors will also need to review and update their wage statements and paychecks, develop independent contractor notices, and review and update all mandatory arbitration agreements and provisions.

Although there is a lot of work ahead for contractors, getting out in front of things can not only help reduce compliance issues and streamline the bidding and reporting process, but it can also give companies a real advantage over competitors that may not be as prepared.

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