The FAR Council and the DOL Issue Final Rule and Guidance Implementing the Fair Pay and Safe Workplaces Executive Order | Practical Law

The FAR Council and the DOL Issue Final Rule and Guidance Implementing the Fair Pay and Safe Workplaces Executive Order | Practical Law

The Federal Acquisition Regulatory Council (FAR Council) and the US Department of Labor (DOL) have respectively issued a final rule and simultaneous guidance implementing Executive Order 13673, Fair Pay and Safe Workplaces Executive Order (Order). The final rule is effective October 25, 2016, but will be implemented in phases.

The FAR Council and the DOL Issue Final Rule and Guidance Implementing the Fair Pay and Safe Workplaces Executive Order

by Practical Law Labor & Employment
Law stated as of 26 Oct 2016 • USA (National/Federal)
The Federal Acquisition Regulatory Council (FAR Council) and the US Department of Labor (DOL) have respectively issued a final rule and simultaneous guidance implementing Executive Order 13673, Fair Pay and Safe Workplaces Executive Order (Order). The final rule is effective October 25, 2016, but will be implemented in phases.
On August 25, 2016, the Federal Acquisition Regulatory Council (FAR Council) published in the Federal Register a final rule implementing Executive Order 13673 (Order), Fair Pay and Safe Workplaces Executive Order (Rule) (81 FR 58562-02, ). The DOL simultaneously published its final Guidance for Executive Order 13673 which provides more detailed guidance and definitions for those contractors and agencies covered by the Order (Guidance) (81 FR 58653). The Rule is effective on a phased-in schedule starting on October 25, 2016.

The Executive Order

The Order requires certain prospective federal contractors and subcontractors to disclose information regarding labor law violations and gives agencies guidance on how to consider these violations when awarding federal contracts. The Order also ensures that workers are given the necessary information each pay period to verify the accuracy of their paychecks and eliminates most mandatory arbitration agreements for certain claims at corporations with large federal contracts. For more information about the Order, see Legal Update, Obama Signs Executive Order Requiring Federal Contractors to Disclose Labor Law Violations and Prohibiting Certain Arbitration Agreements.

The FAR Final Rule

The Rule and Guidance were both published after an extensive notice and comment period (twice extended) and are designed to work hand-in-hand with one another. Given the detail and scope of the Rule and Guidance, this Legal Update does not purport to summarize every provision but rather provides a high level overview.

Contractor Disclosures

Any contractor submitting bids on government contracts valued over $500,000 must disclose whether any labor law decisions (as defined by the Rule and further clarified by the Guidance) were rendered against it in the past three years. If there were any decisions rendered against it, the contracting officer may initiate a responsibility determination.
If the officer initiates a responsibility determination, the contractor must submit information on the labor law decisions to the DOL and may submit additional information to demonstrate its responsibility (see The DOL Final Guidance). The contractor must disclose any new decisions or updated information about disclosed decisions semiannually in the System for Award Management (SAM).

Subcontractor Disclosures

Certain subcontractors must provide pre-award disclosures if bidding on subcontracts with an estimated value of more than $500,000, but not contracts for commercially available off-the-shelf (COTS) items. The subcontractor must make an initial disclosure about whether there have been any labor decisions to the prime contractor, but makes any detailed disclosures (about the decisions, mitigating factors, and remedial measures) to the DOL. The DOL then provides advice to the subcontractor about its record of labor law compliance. Subcontractors are required to provide information directly to the prime contractor only when the subcontractor is not in agreement with, or has concerns with, the DOL's assessment.
The prime contractor has the ultimate responsibility for determining its subcontractors responsibility. A contractor (or subcontractor) acting in good faith, however, is not liable for misrepresentations made by its subcontractors in the disclosure process.

Phase-In Compliance Requirements

In response to comments on the proposed rule, the final Rule phases in compliance requirements to give contractors and subcontractors time to prepare for the new requirements. Implementation is being phased in as follows:
  • Only the largest contracts are covered for the first six months. From October 25, 2016, to April 24, 2017 (six months after the effective date), the disclosure requirements only apply to contracts valued at $50 million or more. After April 24, 2017, the requirements cover contracts valued at $50,000 or more.
  • Three-year look back is phased in. Contractors are not required to disclose any decisions rendered more than one year before the effective date of the Rule. The reporting period increases until it reaches the three-year period, which takes effect as of October 25, 2018. As specified in the Rule, a contractor (or subcontractor) bidding on a covered contract must disclose whether any labor law decisions have been rendered against it during the shorter time period of:
    • October 25, 2015, to the offer date; or
    • three years preceding the offer date.
  • Subcontractors are not required to disclose for the first year. Subcontractors on covered contracts need not disclose labor law decisions before October 25, 2017. However, subcontractors initially must report labor decisions for the prior two years, from October 25, 2015, to the date of the bid, increasing the disclosure period until reaching the three-year window on October 25, 2018.
  • Wage statement requirements are not in effect until January 1, 2017. The delay gives contractors additional time to comply with the paycheck transparency requirements (see Wage Statement Disclosure (Paycheck Transparency)).

Publicly Available Information

The Rule provides that the contractor and subcontractor disclosures identifying the decisions rendered against them are disclosed in SAM and therefore are public, including arbitral and non-final decisions. The Rule does not, however, compel the public disclosure of additional information the prospective contractor provides to the DOL to demonstrate its responsibility, such as documents regarding:
  • Mitigating factors.
  • Remedial measures.
  • Other steps taken to achieve compliance with labor laws.

Wage Statement Disclosures (Paycheck Transparency)

The Order requires that contractors submitting bids on covered contract provide:
  • Wage statements to individuals working for them.
  • Overtime exemption notices to employees exempt from:
    • the overtime compensation requirements of the FLSA; and
    • the requirement to report hours worked in their wage statements.
  • Written notice to individual workers treated as independent contractors informing them of their independent contractor status.
The Rule and Guidance specify what information must be included in these notices, notably:
  • Wage statements:
    • must provide both gross pay and the regular rate of pay; and
    • need not include the overtime rate of pay.
  • Contractors must itemize additions to and deductions from gross pay.
  • Statements must provide information broken down for each pay period for which overtime is calculated (generally weekly), even if workers are paid bi-weekly or monthly.
  • Contractors are deemed in compliance if they provide the wage payment statements that comply with a comparable state wage payment law. The DOL has determined that comparable laws exist in:
    • Alaska;
    • California;
    • Connecticut;
    • the District of Columbia;
    • Hawaii;
    • New York; and
    • Oregon.
  • Wage statement requirements are being phased in and are not effective until January 1, 2017.

Arbitration of Claims

The Rule limits the ability of contractors and subcontractors to require employees to arbitrate certain claims. On contracts and subcontracts exceeding $1,000,000, an agreement to arbitrate claims arising under Title VII or any tort related to or arising out of sexual assault or harassment can only be made with the voluntary consent of employees or independent contractors after the dispute arises.

The DOL Final Guidance

The Guidance further clarifies and defines various provisions of the Order and Rule to aid in implementation of the Order. Among other things, the guidance addresses:
  • The pre-award disclosure requirements, including:
    • who must disclose labor law decisions during the pre-award period (Section II.A.);
    • what types of decisions must be disclosed (Section II.B.); and
    • what categories of information must be disclosed for each decision (Section II.C.).
  • Pre-award assessment and advice, including:
    • classifying the labor law violations (Section III.A.);
    • weighing the labor law violations and mitigating factors (Section III.B.); and
    • providing advice regarding a contractor's record of compliance (Section III.C.).
  • State law disclosure requirements, noting that:
    • as of the date of the Guidance, the only "equivalent" state laws covered by the disclosure requirements are OSHA-approved state plans; and
    • the DOL will identify additional state equivalent laws in future guidance (Introduction).
The Guidance broadly defines the following terms in Section II.B.:
  • Administrative merits determination. This includes many communications that do not represent a final adjudication of a violation, such as:
    • a summary of unpaid wages form issued by the DOL;
    • a determination letter from the DOL finding any FLSA violation;
    • a reasonable cause determination letter from the EEOC; and
    • a complaint issued by the a regional director of the NLRB.
  • Enforcement agency.
  • Civil judgment.
  • Arbitral award or decision.
The Guidance outlines in detail the disclosure, advice, and determination phases necessary to implement the Order. Initially a contractor bidding on a covered contract simply must disclose whether any labor law decisions have been rendered against it during the applicable phased-in reporting period.
If none has been rendered, then no further information is required. If any violations have been identified, then for each the contractor must provide:
  • The law that was violated.
  • The case number or other identification number.
  • The date of the determination.
  • The name of the court, agency, board, or commission that issued it.
The contractor may provide additional information about mitigating factors and remedial measures, and any other information it believes is relevant. Contractors must update their representations before an award if the initial representation is no longer true.
Agency Labor Compliance Advisors (ALCAs) (a new position created by the Order and fleshed out by the Rule and Guidance) are responsible for managing and accomplishing the specified objectives of the Order. The Rule and Guidance outline a three-step process for the ALCAs to assess a contractor's record, comprised of:
  • Classifying the labor law violations to determine if any are:
    • serious;
    • repeated (within a three-year look back period from the date of the violation);
    • willful; or
    • pervasive.
  • Weighing the labor law violations in light of the totality of the circumstances, including mitigating circumstances such as:
    • remedial measures;
    • compliance programs; or
    • good faith or reasonable grounds for the contractor's belief that it was in compliance.
  • Providing advice to the contracting officer regarding the contractor's record of labor law compliance. The advice must conclude that the contractor's submission:
    • supports a finding of a satisfactory record;
    • supports a finding of a satisfactory record, but the contractor must commit post-award to negotiating a labor compliance agreement or other remedial action;
    • supports a finding of a satisfactory record, but the contractor must commit pre-award to negotiating a labor compliance agreement or other remedial action;
    • may support a finding of a satisfactory record, but only if the contractor pre-award enters into a labor compliance agreement or other remedial action; or
    • does not support a finding of a satisfactory record.
    (Section III.A.)
The ALCA has three days to assess the labor law decisions disclosed by a contractor.
The Guidance includes information about the process by which contractors and subcontractors can consult with DOL and other enforcement agencies to:
  • Receive early guidance on whether violations are potentially problematic.
  • Avail themselves of the opportunity to remedy any problems.
The Guidance clarifies that the Order's requirements are not retroactive. Contractors working on contracts awarded before the effective date of the Rules are not required to make the disclosures or provide the wage statements and independent contractor notices required by the Rules, even after its effective date.
Update: On October 24, 2016, in Associated Builders and Contractors of Southeast Texas v. Rung, a federal judge in the Eastern District of Texas issued a nationwide injunction blocking enforcement of the parts of the "Fair Pay and Safe Workplaces" rule requiring federal contractors to disclose labor law violations and prohibiting certain arbitration agreements (No. 1:16-CV-425 (E.D. Tex. Oct. 24, 2016)).