Attorneys Offer Practice Advice, Expect Litigation Regarding New Contracting Order

Prospective federal contractors should begin thinking practically about how to collect and store information about any past violations of labor and employment laws in order to comply with President Barack Obama’s recent “Fair Pay and Safe Workplace” executive order, management attorneys told Bloomberg BNA.

Executive Order 13,673, which the president signed July 31, will require companies bidding on federal contracts to disclose to agency contracting officers any violations of more than a dozen federal wage and hour, discrimination, safety and health, labor and other laws, as well as equivalent state laws, during the preceding three-year period 147 DLR AA-1, 7/31/14. The contractors then must update their violations information every six months.

The order, which is slated for publication in the Aug. 5 Federal Register, is expected to apply to new federal contracts worth more than $500,000 beginning in 2016.

Although the executive order contains a number of new requirements and provisions, several management attorneys who spoke to Bloomberg BNA said the three-year, pre-contract “look-back” requirement is the most significant, given the potential burdens it may place on employers, among other things.

From a practical standpoint, the attorneys said, prospective contractors should begin considering developing systems for tracking employment-related claims, notices of violations and other related information in order to provide the disclosures required under EO 13,673.

The attorneys also said they anticipate litigation challenging the executive order—perhaps under the due process clause of the U.S. Constitution—before it becomes effective.

Three-Year ‘Lookback’ Requirement.

Under EO 13,673, an employer seeking a federal contract must disclose “whether there has been any administrative merits determination, arbitral award or decision, or civil judgment” rendered against it within the preceding three-year period for violations of 14 federal laws enforced by agencies including the Labor Department, the National Labor Relations Board and the Equal Employment Opportunity Commission.

An employer also must discuss “any steps taken to correct the violations of or improve compliance with the labor laws,” as well as “any agreements” entered into with the appropriate enforcement agency.

In addition, the prospective contractor must represent that it will require its covered subcontractors to make similar disclosures and will incorporate that obligation into its subcontracts.

Before awarding a contract, agency contracting officers, in consultation with new “labor compliance advisors” to be designated in accordance with EO 13,673, will then consider the information provided by the prospective contractor and determine if the employer “is a responsible source that has a satisfactory record of integrity and business ethics.”

Considerations for Prospective Contractors.

Connie N. Bertram, a management attorney with Proskauer Rose in Washington, told Bloomberg BNA Aug. 1 that the executive order’s “look-back” requirement is “significant” because it potentially could result in an employer losing a federal contract if it is perceived as having substantial labor and employment law violations.

Prospective contractors should start thinking about establishing a database or similar mechanism that can be used to “pool information relating to violations” so that the information is “readily accessible and available” for disclosure during an initial contract bid or a six-month report, said Bertram, who serves as the head of Proskauer’s D.C. Labor & Employment practice and co-head of the firm’s Government Regulatory Compliance and Relations Group and Whistleblowing & Retaliation Group.

This task would require different stakeholders within a company responsible for compliance, such as from human resources and legal departments, to “sit down together” and decide “the best way to collect this information,” she said.

Leigh M. Nason, a management attorney with Ogletree Deakins in Columbia, S.C., told Bloomberg BNA Aug. 4 that it’s “not a bad idea to have that kind of information anyway.”

However, Nason added that she expects the new order will place monetary and practical burdens on employers.

Nason, who also chairs the firm’s Affirmative Action/OFCCP Compliance Practice Group, said companies—particularly small- and medium-sized employers—will have to make business decisions on whether seeking a federal contract is “worth complying with these pretty onerous requirements.”

Apart from the compliance burdens, Bertram added that another potential long-term consequence of the order may be its encouragement of settlements.

When a company undertakes a risk-management analysis on whether to settle a claim, Bertram said the company generally considers a number of factors, including the risk of a court or jury finding against it, the monetary range of an adverse ruling or verdict, and the costs involved in trying to win a case.

The executive order, she said, now introduces a new factor for risk-management consideration—having to report negative rulings as part of a contract bid.

Bertram said an employer’s interest in keeping its record “clean” may “push [it] toward settlement.”

“What tends to happen if you settle a lot of claims? You tend to get more claims,” she said.

Some Unanswered Questions Discussed.

Among its other provisions, the executive order directs the Federal Acquisition Regulatory (FAR) Council to issue a proposal to amend the Federal Acquisition Regulation to “identify considerations for determining whether serious, repeated, willful, or pervasive violations of the labor laws … demonstrate a lack of integrity or business ethics.”

It also directs the Labor Department to develop guidance to “assist agencies in determining whether administrative merit determinations, arbitral awards or decisions, or civil judgments were issued for serious, repeated, willful, or pervasive violations.”

Bertram and Nason both stressed the importance of the rulemaking and guidance for defining a violation, especially those that will be considered serious, pervasive or egregious.

For instance, Nason said, if an employer settled a matter with the Labor Department’s Occupational Safety and Health Administration in an agreement that included a no admission of liability clause, would that settlement be counted against that company?

“Where does that play in?” Nason asked. “How many is too many of those?”

Bertram said she expects “robust commentary” on any proposed rulemaking, “particularly on the disclosure requirements.”

Legal Challenges to Order Expected.

Nason emphasized that the executive order isn’t a legislative act and potentially could be rescinded if the Republicans gain control of the White House in 2016.

“I don’t think the sky is falling,” she said. However, she added that EO 13,673 has the “most potential” for being litigated.

John Fox, an attorney with Fox, Wang & Morgan in San Jose, Aug. 4 told Bloomberg BNA that he believes the executive order is unconstitutional because it violates the due process clause of the U.S. Constitution.

Fox said the U.S. Supreme Court has long held that “the federal government may not deprive anyone it protects of property rights without a formal federal trial-type hearing,” and federal contracts are such property rights.

As such, federal contracting officers or labor compliance officers “will not be able to take into account any employment law compliance information” reported by prospective contractors unless those companies “have previously had a trial-type hearing and all appeals have been exhausted,” he said.

“Accordingly, the president’s new executive order is simply a non-starter: a noble idea with a central flaw as fatal to its design as the architectural plans for the Titanic,” Fox said.

In addition, Fox said the new order “violates the very terms of” EO 11,246, which is enforced by the DOL’s Office of Federal Contract Compliance Programs.

Section 208 of EO 11,246 provides that “[n]o order for debarment of any contractor from further government contracts … shall be made without affording the contractor an opportunity for a hearing.”

To the extent that EO 13,673 “permits or requires federal contract officers to debar federal contractors without a hearing,” it violates EO 11,246, Fox said.