New "Blacklisting" Executive Order Creates Disincentive to Settle Employment Law Violations

August 01, 2014

This week, President Obama signed a new “Fair Pay and Safe Workplaces” executive order that will require prospective federal contractors to report if they, or their subcontractors, have violated a wide variety of state and federal labor laws when they bid on new contracts while also creating new labor law compliance czars at each federal agency.  In addition, the new “Fair Pay and Safe Workplaces” EO will prohibit employers with federal contracts of $1 million or more from requiring employees to enter into pre-dispute arbitration agreements for Title VII complaints or from torts related to sexual assault or harassment (except when valid contracts already exist).  The new EO will give unions and plaintiffs' attorneys greater leverage to intimidate companies into agreeing to their demands by holding the threat of nuisance complaints and the potential loss of government contracts over their heads.  However, the reverse could actually occur if companies chose to resist settlements and defend themselves in court. The Labor Department, for example, now typically refuses to settle claims unless there is an employer admission of guilt, something that will now have serious contract implications for companies and thus making them more resistant to settling.  Specifically, beginning in 2016, the new EO will require employers who bid on contracts of $500,000 or more to:
  • Report every six months any serious, repeated, willful, or pervasive violation of 14 different federal labor laws, and equivalent state laws, that have occurred over the past three years or check a “no violation” box.  The laws in play include wage and hour, safety and health, collective bargaining, family and medical leave, and civil rights laws.  Contractors will also be required to collect similar information from many of their subcontractors.
  • Unless an employer informs employees working on federal contracts what their overtime exempt status is, all employees working on a contract must be given information concerning their hours worked, overtime hours, pay, and any additions to or deductions made from their pay. 
Each federal agency will create a new “Labor Compliance Advisor,” who will consult with DOL and provide “guidance” to agency contracting officers on whether an employer’s reported violations rise to the level of “a lack of integrity or business ethics” that could trigger an adverse contract award decision.  Although there are no details on how this process will work, it is likely to introduce additional subjectivity, distortion, and political influences into the federal contracting process that has little to do with procuring high quality goods and services.  Although the EO is effective immediately, it will not apply to contract solicitations until the DOL develops guidance on how to implement the EO, and the Federal Acquisition Regulatory Council publishes a final implementation rule.   Interested parties will be invited to participate in listening sessions with OMB, DOL, and senior White House officials which may allow for some shaping of the rules, but the die will largely be cast by the order itself, as has been the case with other recent executive orders.