On April 8, 2014, President Obama announced two executive actions aimed at federal contractors and subcontractors. Practical Law reached out to Martin Luff and Thomas H. Wilson for their thoughts on the implications of the executive actions for contractors.

The first is Executive Order 13665 (79 Fed. Reg. 20,749 (Apr. 11, 2014)), which prohibits retaliation by covered federal contractors and subcontractors against employees or applicants who inquire about, discuss, or disclose details of their own or other employees' or applicants' compensation. The stated goal of the executive order is to provide workers with greater ability to identify violations of equal pay laws. New regulations implementing the executive order are to be proposed within 160 days of the date of the executive order.

The second is a Presidential Memorandum (79 Fed. Reg. 20,751 (Apr. 11, 2014)), which directs the Secretary of Labor to propose a new rule (within 120 days) requiring covered federal contractors and subcontractors to submit to the Department of Labor (DOL) summary data on compensation paid to their workers, including data regarding sex and race.

Most employers should already be familiar with Sections 7 and 8 of the NLRA, which prohibit employers from retaliating against covered employees who discuss the terms and conditions of their employment, including the terms of their pay, with other workers. It can come as a surprise to some employers that they are covered by these anti-retaliation provisions under the NLRA even though they do not have a unionized workforce.

In many respects, the anti-retaliation principles of the executive order mirror those under the NLRA and the applicable case law. However, federal contractors and subcontractors need to be aware that, unlike the NLRA (which does not protect supervisors), the executive order will cover all levels of employees, including management- and executive-level employees.

Many employers include broad confidentiality and non-disclosure restrictions in executive and management-level employment agreements and benefit plans. Such agreements for individuals who are supervisors under the NLRA are not affected by the NLRA's restrictions, but the scope of the executive order is not limited to non-supervisors. Federal contractors and subcontractors will need to review employment agreements and benefit plans for any provision restricting those employees from disclosing or discussing their compensation and benefits or inquiring about the compensation and benefits of others. Federal contractors and subcontractors may need to amend their employment agreements and benefit plans to avoid violating the executive order.

Until the proposed new rule is published by the DOL (which must happen within 120 days of the date of the memorandum), we do not know exactly what information will be required or the format in which data will need to be submitted to the DOL. It will be interesting to see how the rule will attempt to address the different forms of compensation (including base salary or wages, commissions, bonuses and stock options) and collect data that is meaningful and capable of being used for analysis and comparison purposes. Employers will be concerned about both the administrative burden of collecting the data and the confidentiality issues related to disclosing that data to the DOL. Federal contractors and subcontractors will already be familiar with this type of information-gathering and reporting through preparing EEO-1 and VETS-100A forms and annual affirmative action plans, but compiling compensation data is likely to be a more complicated task, and it remains to be seen how much of an additional burden the final rule will create.

That is anyone's guess! It is likely that the proposed regulations and rule will be published within the 160 and 120 days specified, but at that point the proposed regulations and rule will be open for comment and may go through a number of amendments or redrafts. It could be many months before the final regulations and rule are published and take effect.

A federal contract (or a prime contract) is an agreement between a federal department or agency and any other party for the purchase, sale or use of goods or services. However, only contractors with federal contracts above a certain threshold are covered by the equal employment opportunity obligations. Executive Order 11246 of 1965 (which the new executive order supplements) applies to federal contracts or subcontracts in excess of $10,000 (as well as a few other more specific types of contracts, such as bills of lading and contracts with depositories of federal funds or with financial institutions that are issuing and paying agents for US savings bonds and savings notes). We anticipate that the same coverage thresholds will apply to the obligations under the new executive order.

A federal subcontract is an agreement or arrangement with a federal contractor:

In other words, if a business has a contract that is "necessary to" the performance of a federal contract or is in part performance of the obligations under a federal contract, then it will be a covered federal subcontractor (assuming the other thresholds are met, such as the value of the subcontract being in excess of $10,000 or more). It is also worth noting that there can be multiple tiers of subcontractors below the prime federal contractor level.

Yes, absolutely. It can be a real challenge for businesses to determine whether they are federal subcontractors, as they will not necessarily have any direct dealings with a federal government agency. Even when there is no direct knowledge of the implication of a federal contract, sometimes coverage (or at least potential coverage) may be expected or assumed depending on the industry involved. For example, companies that supply products or parts to large defense manufacturers can usually assume that there is a federal contract somewhere in the mix. In other cases, it can come as a complete surprise to a business.

One red flag that often prompts clients to come to us on this issue is when they are asked to sign a contract that includes provisions that have "flowed down" from the prime federal contract (which include many references to federal laws and regulations). Sometimes these federal contractor clauses are inapplicable and the other party has simply been over-inclusive and used an inappropriate contract form. In other cases, it is the first time that a business learns it is facing the prospect of becoming a federal subcontractor and being subject to the various obligations and requirements that come with that status. At that point, the business needs to decide whether the value of the contract is worth the burden of compliance costs and resources.

The devil will be in the details of the regulations as to what is required on a daily basis, particularly for the data collection and reporting requirements under the memorandum. Employers should track this issue and evaluate their practices and procedures once the regulations have been published.

However, federal contractors and subcontractors can start thinking now about where problems and issues might arise in their processes and procedures. This would include, for example, reviewing employment agreements and benefit plans to identify any confidentiality and non-disclosure provisions that could run afoul of the transparency and non-retaliation principles of the new executive order. The recent executive actions should also prompt other businesses, who believe that they are not federal contractors and subcontractors, to think again. Businesses should audit their contract procurement processes to make sure they have not inadvertently entered into a contract that makes them subject to the various equal employment and affirmative action laws that apply to federal contractors and subcontractors.

For more information on Executive Order 13665, see Legal Update, Executive Order Prohibits Retaliation for Disclosing Compensation Information. For more information on the April 8, 2014 Presidential Memorandum, see Legal Update, Secretary of Labor Must Propose Rule Requiring Federal Contractors and Subcontractors to Submit Compensation Data.

For more information on the federal affirmative action laws applicable to federal contractors and subcontractors, see Practice Note, Affirmative Action: Overview.