On March 27, 2017, President Donald J. Trump signed into law H.J. Res. 37, a bill that nullifies the Fair Pay and Safe Workplaces final rule. This rule, also known as the “blacklisting rule,” was staunchly opposed by federal contractors.

Among other things, the rule required federal contractors to disclose previous labor law violations when submitting bids for federal contracts. The rule also required more wage payment transparency and prohibited pre-dispute arbitration agreements.

This Compliance Bulletin contains information regarding the final rule, to clarify which legal requirements no longer affect federal contractors.

ACTION STEPS

The final rule is no longer valid. Therefore, federal contractors are no longer required to comply with any of its provisions. Contractors that would have been subject to the rule may need to review their policies and procedures to ensure that they are consistent with the nullification of this rule.

The Fair Pay and Safe Workplaces Final Rule

Existing law requires federal agencies to contract with “responsible sources.” This means, among other things, that contracting officers have an obligation to award federal contracts to contractors that have “a satisfactory record of integrity and business ethics.”

The final rule was issued to improve the ability of contracting officers to act as good stewards of federal resources and to ensure that contractors that comply with federal labor laws, rather than noncompliant contractors, are allowed to provide services and products for the federal government.

The final rule contained three main provisions:

  • A mandate to disclose certain labor law violations;
  • A requirement to adopt transparent payment practices; and
  • A prohibition on pre-dispute mandatory arbitration provisions.

Injunction

The U.S. District Court for the Eastern District of Texas issued a preliminary injunction late on Oct. 24, 2016, just in time to prevent the final rule from becoming effective. The court granted this injunction because it was of the opinion that the plaintiffs—the Associated Builders and Contractors national organization and the National Association of Security Companies—would prevail in their lawsuit against the federal government.

Disclosures

The final rule’s disclosure requirements applied to contractors and subcontractors with “covered contracts.” Under the rule, affected contractors and subcontractors would have been required to disclose any labor law violation of specified laws and executive orders if:

  • The violation resulted in an administrative merit determination, civil judgment, arbitration award or decision; and
  • The violation took place within the preceding three years (though contractors would not have to disclose any decisions that were rendered against them prior to Oct. 25, 2015).

Covered contracts included contracts for the procurement of goods and services (including construction) where the estimated value of the supplies acquired and services required is more than $500,000. Covered contracts also included subcontracts if the estimated value of the supplies acquired and services required exceeded $500,000 and the contract was not for commercially available off-the-shelf items. In general, subcontractors were subject to the same requirements as contractors.

When to Disclose?

During the initial part of the bidding process, contractors would have been required to indicate whether they had any disclosures to make. The contracting officers would have then considered the existence (or absence) of disclosures as one of many factors that ultimately determine which contractor would have been awarded the contract.

At the later stages of the bidding process, the contracting officers would have performed a responsibility assessment to ensure that the contractor had “a satisfactory record of integrity and business ethics.” During this stage of the process, contractors may have received a request to disclose the details of administrative decisions against them as well as an explanation of mitigating circumstances, an explanation of corrective actions the contractor may have taken as a result of the administrative decision, and any other information and details the contractor felt needed to be considered.

After a federal contract was awarded, contractors would have been required to update their disclosures every six months. Updates in a contractor’s compliance history could have resulted in:

  • Agreements requiring appropriate remedial measures;
  • Compliance assistance;
  • Resolving issues to avoid further violations; or
  • Decisions to exercise certain contract options and contract termination privileges (with possible contractor suspension or debarment).

What to Disclose?

The final rule would have required contractors to disclose administrative merit determinations, civil judgments, and arbitral awards or decisions rendered for violations of the labor laws and executive orders indicated below. It is equally important to note that the final rule did not require contractors to disclose criminal sanctions or any administrative determinations, judgments, awards or decisions regarding any of the laws mentioned below. Disclosures for applicable violations would have been made even if the findings were not final or if they were under appeal.

Disclosures were limited to violations of the following labor laws and executive orders:

 

  1. The Fair Labor Standards Act;
  2. The Occupational Safety and Health Act of 1970;
  3. The Migrant and Seasonal Agricultural Worker Protection Act;
  4. The National Labor Relations Act;
  5. The Davis-Bacon Act;
  6. The Service Contract Act;
  7. Executive Order 11246 (regarding Equal Employment Opportunity);
  8. Section 503 of the Rehabilitation Act of 1973;
  9. The Vietnam Era Veterans’ Readjustment Assistance Act of 1974;
  10. The Family and Medical Leave Act;
  11. Title VII of the Civil Rights Act of 1964;
  12. The Americans with Disabilities Act of 1990;
  13. The Age Discrimination in Employment Act of 1967; and
  14. Executive Order 13658 (regarding Establishing a Minimum Wage for Contractors).

The final rule also indicated that contractors may have been required to disclose violations of similar or equivalent state laws.

Paycheck Transparency

The final rule also required contractors to become more transparent in their payment practices by:

  • Including in each employee’s wage statement the number of regular hours the employee worked, the number of overtime hours the employee worked, the employee’s gross pay for the pay period, and any information regarding additions and deductions made to or taken from the employee’s wages; and
  • Disclosing in writing to each worker whether he or she is being treated as an employee or an independent contractor.

The rule also required contractors to include in their agreements with subcontractors a clause that requires subcontractors to implement the same paycheck transparency practices. When applicable, compliance with equivalent state laws would have been considered compliance with this federal requirement.

Prohibited Pre-dispute Arbitration Agreements

The final requirement set out by the final rule was a prohibition on pre-dispute arbitration agreements. This requirement applied only to contracts where the estimated value of supplies acquired and services required was more than $1 million and to claims that arose under Title VII of the Civil Rights Act or any tort related to sexual assault or harassment.

As a result, contractors would have been able to submit affected claims of discrimination, assault or harassment to arbitration only after receiving their employees’ voluntary consent and after a dispute actually arises. As with the paycheck transparency requirement, contractors would have had to include a clause in their agreements with subcontractors for subcontracts where the estimated value of the supplies acquired and services required exceeds $1 million.

However, the pre-dispute arbitration prohibition would have not applied when:

  • The contract or subcontract is for the acquisition of commercial items or commercially available off-the-shelf items;
  • Employees are covered by any type of collective bargaining agreement negotiated between the contractor and a labor organization representing them; or
  • Employees or independent contractors enter into a valid contract to arbitrate before the contractor or subcontractor bids on a covered contract (however, the prohibition applies if the contractor or subcontractor is permitted to change the terms of the contract with the employee or independent contractor, or when the contract is renegotiated or replaced).