White House Tightens Standards on Contractors Who Can Do Business with the U.S. Government

By Bryan E. Pieper

Last Thursday, President Obama signed the Fair Pay and Safe Workplaces Executive Order, designed to ensure that the U.S. government spends taxpayer money on contractors who comply with the law, pay their employees fairly and protect the safety and health of their employees. Congressional studies show that many companies that are guilty of large or repetitive wage and hour or safety and health violations continue to win billions of dollars in government contracts year after year. Allowing the worst or repeat offenders to compete for federal contracts without complying with pay and safety laws puts those contractors who play by the rules at a competitive disadvantage, according to the White House, which stated that the new standards for awarding federal contracts will help level the playing field and encourage violators to get into compliance.

To achieve this, the Executive Order provides that, before being awarded a large federal contract, a contractor must provide certain information regarding its compliance with labor and employment laws and take certain steps designed to protect its employees’ ability to enforce their rights under those laws.
  • Before an agency will award a contractor a federal contract worth more than $500,000, the contractor must report all labor and employment law violations for the past three years. Contracting agencies will screen for the worst actors with the most egregious violations or repeat violations to ensure that they do not get taxpayer funded contracts.  The goal, however, is not merely to prevent violators from getting federal contracts but to help more contractors come into compliance with workplace laws. Contractors with labor law violations will be offered the opportunity to receive early guidance on the violations and to remedy them. Contracting officers will take these steps into account before awarding a contract.
  • Contractors will be required to give employees specific information on their paystubs regarding hours worked, overtime hours, pay and any additions to or deductions from their pay so that employees can verify they are being paid what they are owed and that the pay is in compliance with wage and hour laws.
  • Before an agency will award a contractor a federal contract worth more than $1 million, the contractor must agree not to require its employees to sign arbitration agreements that prevent them from going to court for discrimination, sexual assault or harassment claims.  This would not apply to valid agreements already in place.
The White House contends that these new criteria will also improve federal contracting efficiency and result in greater returns on taxpayer dollars, as companies with workplace violations are more likely to encounter performance problems or to have projects delayed by litigation. These requirements likely will not become effective until the issuance of final regulations, after a period for public comment, which the White House estimates could be as late as 2016.

Some observers contend that requiring contractors not to make employees sign pre-employment arbitration agreements is in tension with the strong congressional policy in favor of arbitration that is expressed in the Federal Arbitration Act.  Others respond that the Executive Order is consistent with the congressional policy expressed more recently in the Department of Defense Appropriations Act of 2010, which conditions the award of any federal defense contract more than $1 million on the contractor agreeing not to require arbitration of certain employment claims.  For this reason, it is likely that the Executive Order may be challenged in court.

Click here for the Fact Sheet published by the White House.

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