On August 24, 2016, the FAR Council and the Department of Labor (the “DOL”) issued final regulations and guidance implementing the Fair Pay and Safe Workplaces Executive Order (the “EO”) with an implementation date of October 25, 2016. The final regulations make some changes and clarifications to the proposed regulations, but critical areas remain unchanged. The final regulations, known in the government contracting community as the “Blacklisting Rule,” will impose significant costs and compliance burdens on government contractors and contracting agencies. Contractors need to understand these regulations and act without delay to set up internal compliance systems.

As noted in our client alert regarding the proposed regulations and guidance, Fair Pay and Safe Workplaces requires contractors to provide information regarding previous labor and employment violations during the procurement process and requires contracting agencies to consider those violations when determining whether a contractor should receive an award. Violations that are found to be “serious, repeated, willful, or pervasive” will weigh against the contractor and may result in an agency finding that the contractor needs to enter into a remedial labor compliance agreement or, even worse, that the contractor is not eligible for an award.

The laws implicated include:

1. The Fair Labor Standards Act;

2. The Occupational Safety and Health Act (OSHA) of 1970;

3. The Migrant and Seasonal Agricultural Worker Protection Act;

4. The National Labor Relations Act;

5. 40 U.S.C. chapter 31, subchapter IV, formerly known as the Davis-Bacon Act;

6. 41 U.S.C. chapter 67, formerly known as the Service Contract Act;

7. E.O. 11246 of September 24, 1965 (Equal Employment Opportunity);

8. Section 503 of the Rehabilitation Act of 1973;

9. The Vietnam Era Veterans’ Readjustment Assistance Act of 1972 and the Vietnam Era Veterans’ Readjustment Assistance Act of 1974;

10. The Family and Medical Leave Act;

11. Title VII of the Civil Rights Act of 1964;

12. The Americans with Disabilities Act of 1990;

13. The Age Discrimination in Employment Act of 1967;

14. E.O. 13658 of February 12, 2014 (Establishing a Minimum Wage for Contractors); and

15. Equivalent State labor and employment as defined in the DOL Guidance. (As of now, the only State laws implemented are OSHA-approved State Plans).

See FAR 52.222-59.

CHANGES FROM THE PROPOSED RULE

The FAR Council and the DOL received thousands of comments on the proposed regulations and guidance. After considering the comments, some important changes were made:

Gradual Implementation: beginning October 25, 2016, Fair Pay and Safe Workplaces will only be applicable to prime contractors bidding on new solicitations where the contract value is expected to be at least $50 million. That threshold dollar figure is reduced to $500,000 beginning on April 25, 2017. Then beginning October 25, 2017, subcontractors will also be included if the expected subcontract value is greater than $500,000 and is for non-COTS items. This phased-in approach also impacts other aspects of the final rule: paycheck transparency provisions will begin on January 1, 2017. See FAR 22.2007.

Subcontractor Reporting: subcontractors will report their labor law violations directly to the DOL instead of to their prime contractors. While this may prevent the awkward situation of reporting labor law violations to potential competitors, the DOL will be required to provide feedback to the subcontractor within three business days regarding the subcontractor’s fitness to receive a subcontract. See FAR 52.222-59(c)(3). It is unknown how the DOL will be able to staff the inevitable frequent requests from subcontractors across the federal government and if the DOL will use such information as a clearinghouse to commence debarment proceedings against contractors with previous violations. In addition, if the DOL does not give a subcontractor a clean bill of health and the prime contractor disagrees with the DOL’s assessment, the prime contractor must report that disagreement to the contracting agency. See FAR 52.222-59(c)(5). Prime contractors will also still be required to make an independent determination using all readily available information if the DOL fails to provide an answer to the subcontractor within three business days. See FAR 52.222-59(c)(4).

Initial Look-Back: contractors will be required to report violations from October 25, 2015 or in the previous three years, whichever is shorter. See FAR 52.222-57(c). That means the initial look-back period is just one year upon the regulation’s effective date. On October 25, 2018 and thereafter, the look-back period will be the full three years. For purposes of determining whether a contractor has a “repeated” violation, the three-year look back remains, notwithstanding the duration when a shortened violation reporting period is applied (though the date it is tied to is the first adjudicated date and not the date of subsequent decisions from appeals). See FAR 52.222-59(a).

Entering into Labor Compliance Agreements: the final regulations give agencies the option of allowing a contractor to enter into labor compliance agreements post-award. Contractors should consult counsel prior to entering into labor compliance agreements because they may include obligations above and beyond what is required by law and death-penalty clauses in the event of noncompliance. See22.2004-2(b)(3).

Reporting Requirements Post-Award: contractors will be given flexibility to determine when to report new violations in SAM (System for Award Management) after receiving an award. Formerly, it was a rigid six-month schedule keyed off of an award date that could have required near-constant reporting by the contractor. Now, contractors can choose the date so long as it is six months or less. This will allow contractors to potentially choose two or three dates a year that new violations will be reported across all contracts via SAM. Gathering of the information on a constant basis is still required, however, to support new proposals and to provide the semi-annual reports. See FAR 52.222-59(b) and (d).

In addition, the DOL has created a “preassessment” program that will begin on September 12, 2016 in which it will offer to review contractors’ labor compliance history and provide feedback. Contractors will have the option of taking preemptive action and entering into labor compliance agreements in advance of a particular procurement. This will also be seen as a mitigating factor by agencies when determining whether a contractor is responsible in light of its labor compliance history. This is not, however, like the Mandatory Disclosure Rule, which largely exempts contractors from punishment if they self-report past transgressions. Consistent with past practice, contractors receive no assurances that self-reported violations will not result in remedial action against them. More information about this program can be found here.

AREAS OF CLARIFICATION IN THE FINAL RULE AND GUIDANCE

The FAR Council and the DOL also clarified certain aspects with the final regulations and guidance:

Reporting Entities: the final regulations and guidance make clear that the entity reporting the violations is just the entity that is bidding on the contract. Violations from the entity’s parent and/or subsidiary, for example, are not included in the reporting requirement. Joint venturers must still each report violations if the joint venture itself is not a separate legal entity. See III.B.3.e. in the analysis preceding the Regulations.

Public Reporting of Mitigating Factors: the final regulations and guidance confirm that a contractor’s violations will be publicly reported. Under the final regulations, contractors also have the option of publicly reporting mitigating information to provide a more balanced view of violations. See FAR 52.222-57(d)(1).

New Violations Reportable: if a contractor did not have a reportable violation when submitting a proposal, but obtains one during the proposal evaluation process, it must report that to the contracting agency. This is significant because proposal, evaluation, and award processes can sometimes take years. See FAR 52.222-59(e).

Labor Compliance Agreements are Public: the final guidance provides the fact that a contractor entered into a labor compliance agreement will be public information. See FAR 22.2004-2(b)(9) See FAR 52.222-59(f).

More Discretion in Evaluating Past Violations: determinations as to whether a violation is “serious, repeated, willful, or pervasive” had previously required that the decision reporting the labor law violation specifically provide that the contractor’s conduct met that standard. The commentary preceding the revised regulations provide that a contracting agency may reach its own conclusion, provided such a conclusion is “readily ascertainable” from reading the decision, even in the absence of a specific finding.

State Equivalents: with the exception of OSHA-Approved State Plans, no state equivalents are part of these regulations. It is clear, however, that DOL eventually plans to issue a proposed rule covering the state equivalent laws.

CRITICAL AREAS REMAIN UNCHANGED

Important aspects of the regulations remain unchanged:

Violations still include “administrative merits determinations,” “civil judgments,” and “arbitral awards or decisions”: the definitions for these underlying categories are largely unchanged except for some minor tweaks. For instance, civil judgments include preliminary injunctions, but not temporary restraining orders and civil actions filed on behalf of the EEOC are not included as an administrative merits determination.

The definitions of “serious,” “willful,” “repeated,” and “pervasive” remain the same: these definitions remain extremely broad. For instance, serious violations include the assessment of just $5,000 in back fines or penalties or $10,000 or more in back wages due. Further, repeated violations can include violations of two different statutes so long as the issue was similar; such as back wages under the Service Contract Labor Standards and the Fair Labor Standards Act.

There are no exemptions for small businesses: small businesses remain subject to the rule even in small business set-aside contracts.

Information required to be disclosed remains the same: contractors still have to provide the contracting agency with specific information about the labor law violation including: (1) the labor law violated; (2) the case number (or other identifying number); (3) the date of the decision; (4) the name of the “court, arbitrator(s), agency, board, or commission” that issued the decision. See FAR 52-222.57(d)(i). Contractors may also be required to provide the underlying decision. See FAR 52-222.57(d)(ii).

Application to GSA Schedules: like in the proposed regulations, there is no provision that states whether Fair Pay and Safe Workplaces would apply to GSA Schedules. While the commentary preceding the final regulations provides that it would apply to base contracts for “Federal Supply Schedules, Governmentwide Acquisition Contracts, and Multi-agency Contracts,” there is no indication regarding the application of Fair Pay and Safe Workplaces in light of the $50 million expected value threshold (October 25, 2016) and $500,000 expected value threshold (April 25, 2017). If it does apply, disclosures would be made to the contract’s contracting officer and not the ordering contracting officer. As noted in the commentary in the rule, disclosures “required by FAR 52.222–59(c)(5) and (d)(4) are made to the contracting officer for the base contract.”

The Paycheck Transparency and Dispute Resolution Provisions are still applicable: the provisions requiring paycheck transparency and prohibiting mandatory arbitration for claims arising under Title VII of the Civil Rights Act of 1964 or any tort related to or arising out of sexual assault or harassment remain unchanged. As noted above, paycheck transparency will be phased-in on January 1, 2017.

THE NEW PROCUREMENT PROCESS UNDER THE FINAL RULE AND GUIDANCE

The new system set up by the regulations imposes additional obligations on the contractor and government during the procurement process.  The following is an example of a bidding process when the Fair Pay and Safe Workplaces regulations are inserted into a solicitation:

1. The contracting agency issues a solicitation with the appropriate FAR clauses indicating that it is covered by the Fair Pay and Safe Workplaces regulations and guidance.

2. Prior to bidding on a contract, a contractor must determine whether it has had any violations as defined by the regulations; to include broadly any “administrative merits determination,” “arbitral award or decision,” or “civil judgment” issued against it in the previous three years or since October 25, 2015 (whichever is shorter).

3. If a contractor does not have such a violation, it indicates so in its proposal.

4. If the contractor does have such a violation, the contractor is directed to enter its labor violations into SAM.  Details about these violations will be publicly available.

5. The agency must then investigate the prospective contractor’s labor compliance history and does so by reviewing the information in SAM and feeding that information to a dedicated Agency Labor Compliance Advisor (“ALCA”).  The ALCA also collects mitigating information that the contractor may opt to enter into SAM.  A list of Agency Labor advisors are listed on DOL’s website.

6. For subcontractors, as noted above, they feed their labor compliance history to the DOL which, in three business days, will determine whether the subcontractor should be awarded a subcontract in light of its labor compliance history.

7. The ALCA (for prime contractors) and the DOL (for subcontractors) will make a determination whether the contractor has any serious, repeated, willful, or pervasive violations and whether such violations call for a contractor to enter into a labor compliance agreement as a condition of award or referral to a suspension and debarment official.

8. If awarded a contract or subcontract, the contractor must report new violations every six months.

STEPS TO HELP ENSURE COMPLIANCE

Barring a successful lawsuit or proactive Congressional action prior to October 25, 2016, the Fair Pay and Safe Workplaces regulations will be implemented and contractors will need to ensure compliance. To help do so, contractors should:

• Ensure labor law complaints and potential labor law violations are handled collaboratively across the organization (including with inside or outside counsel), so a company can make informed strategic decisions regarding how that complaint or potential violation should be handled in light of the regulations.

• Set up internal systems that enable the efficient gathering of existing violations dating back to October 25, 2015 (no matter how small), as well as new violations.  Ensure those systems include a mechanism to report violations to a company’s bid and proposal team, as well as program managers and the individual(s) responsible for updating SAM.

• Educate the disparate areas of an organization (such as subcontractor management, proposal teams, legal, and human resources) regarding the new regulatory requirements and delegate specific tasks to these different functional areas.

• Begin to flow down the Fair Pay and Safe Workplaces FAR clauses into new subcontract agreements where suitable.

• For existing violations, determine whether it would be appropriate to provide mitigating information to the contracting agency and prepare that information so it is ready to be deployed when necessary.

Because the new regulations will impose significant new burdens on contractors, it is imperative that contractors immediately begin preparations and set up the systems necessary to ensure compliance with the regulations.

We will send further updates and analysis as events warrant.

This alert was written by Eric S. Crusius, a lawyer in the Government Contracts practice group at Miles & Stockbridge in the firm’s Tysons Corner, Virginia office. Kirsten M. Eriksson and Suzzanne W. Decker, principals in the Labor, Employment, Benefits & Immigration group, contributed content to this alert.

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