As reported in our September 2014 newsletter, President Obama's Fair Pay and Safe Workplaces Executive Order (the "Order") will create significant obligations for federal contractors once effective. On May 28, 2015, the Federal Acquisition Regulatory Council (the "FAR Council") issued a proposed rule, accompanied by proposed implementing guidance from the Department of Labor (the "DOL"), to implement the Order's key requirements, which include the disclosure of labor law violations for contractors performing or bidding on covered federal contracts and new paycheck transparency requirements.

The proposed rule has generated significant commentary from the contractor community as well as from several congressional leaders. Below are some of the key provisions of the proposed rule:

• Consistent with the Order, contractors bidding on federal contracts worth more than $500,000 must disclose all administrative merits determinations, arbitral awards or decisions, and civil judgments during the previous three years for violations of a wide variety of federal and state labor and employment laws.
• During the bidding stage, for procurements exceeding $500,000, a contractor is required to disclose whether it has any covered violations within the preceding three-year period. Subcontractors are subject to similar disclosure requirements for subcontracts that exceed $500,000 and the subcontract is not for commercially available off-the-shelf items. During contractual performance, on a semi-annual basis, a contractor must update the information provided about any disclosed covered violations and also obtain the required information for covered subcontracts.
• In the case of disclosed violations, the contracting officer must coordinate with an agency labor compliance advisor (an “ALCA”), a position added by the Order, to consider the disclosed violations as part of the contracting process to determine whether the contractor has a satisfactory record of integrity and business ethics as required by FAR subpart 9.104.
• Disclosures will be made publicly available through the Federal Awardee Performance and Integrity Information System.

Under the proposed DOL rule, the scope of the types of violations that must be disclosed is broad and based on, among other things, 14 federal labor laws and executive orders identified in the Order. For example, a WH-56 "Summary of Unpaid Wages" form from the Wage and Hour Division, a letter of determination from the EEOC, a show cause notice from the OFCCP, a citation from OSHA and a complaint from any regional director of the NLRB are all examples of "administrative merits determinations. Labor violations adjudicated at a merits hearing, court or private arbitration, rendered within the previous three years, are also required to be disclosed.

The proposed rule also defines which violations would be considered "serious," "repeated," "willful" and "pervasive" for purposes of assessing whether a contractor's violation record will impact the award of a contract. The standard for "serious violations" is notably low and would cover most retaliation claims, a violation which affects more than 25 percent of the employees at a worksite, and violations resulting in fines or penalties over $5,000 or back wages of $10,000. A "repeated violation" includes violations involving overlapping protected status, even if under different laws or based on different employment practices, policies or employment actions. A "willful" violation generally incorporates those violations that result in punitive or liquidated damages under federal or state law. The proposed rule provides that there must be more than one violation to be considered "pervasive." Multiple violations of the same labor law, regardless of their similarity, or violations of more than one of the labor laws may be considered "pervasive."

In addition, the proposed rule outlines factors that an agency or prime contractor may take into account when assessing violations as well as mitigating factors. Factors to consider when assessing violations include whether the violations are pervasive such that they demonstrate a basic disregard for the labor laws; whether the violations meet two or more of the "serious," "repeated" or "willful" categories; and whether the violations are reflected in final order or determination. The proposed rule also addresses what types of information are required to be disclosed by subcontractors to prime contractors, but the specific process—whether prime contractors will be required to obtain and disclose subcontractor violations or subcontractors will report their labor violations to the contracting agency directly—has not been finalized.

The proposed rule also implements two "paycheck transparency" mandates contained in the Order. First, it requires contractors to provide employees with a wage statement including the employee’s hours worked, overtime hours and pay, and any deductions made from his or her pay. Subcontractors are subject to the same obligations by virtue of flow-down language. Second, contractors and subcontractors are required to provide a statement to independent contractors advising them of their status as such.The proposed rule also implements the Order’s prohibition on the arbitration of Title VII claims and tort claims related to sexual assault or harassment for contracts worth over $1 million (although a contractor may agree to arbitration after the fact if such a dispute arises). The proposed rule exempts collective bargaining agreements, preexisting arbitration agreements, and contractors providing commercial items or commercially available off-the- shelf items.

After several extensions to the comment period, the DOL recently extended the comment period for the proposed regulations through August 26, 2015. The regulations will take effect after publication in the FAR Council's final rule, which will likely occur sometime in 2016. We will be monitoring the progress of the regulations and will provide further detailed coverage when the FAR Council publishes the final rule. If you have any questions, please contact Patrick W. Spangler at +1 (312) 609 7797, J. Kevin Hennessy at +1 (312) 609 7868, Marques O. Peterson at +1 (202) 312 3038 or your Vedder Price attorney with whom you have worked.

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