Court Blocks Rule Requiring Federal Contractors to Disclose Labor Law Violations, But Okays Pay Transparency Rule

10.26.2016

By: Patrick W. McGovern

On October 24, 2016 the federal district court in Beaumont, Texas enjoined implementation of President Obama’s Executive Order 13673 and the enforcement of FAR Council regulations and U.S. DOL guidance requiring disclosures of labor law violations, which were scheduled to take effect on October 25, 2016.  The court found that the requirement to report labor law violations exceeded the Executive Branch’s authority and violated free speech and due process rights of federal contractors and subcontractors.  The court also halted the ban on pre-dispute arbitration agreements covering Title VII claims and tort claims relating to sex harassment.  However, on January 1, 2017 the Order’s pay transparency rules will take effect, requiring federal contractors to furnish wage statements each pay period stating hours worked, overtime hours worked, rate of pay and any additions and/or deductions from pay.

In August 2016 the FAR Council and the DOL issued a Final Rule and Guidance on E.O. 13673 titled Fair Pay and Safe Workplaces.  The Final Rule requires federal contractors and subcontractors that solicit a contract with the Federal Government estimated to exceed $500,000 to disclose all violations of 14 federal labor laws committed during a look-back period, including FLSA, OSHA, FMLA, ADA, ADEA, Title VII and the NLRA.  The Federal Government will consider these labor law violations and decide whether they are too serious, repeated, willful or pervasive to award or extend a contract.

Because this injunction is only preliminary and partial and an appeal or amended rule is likely, federal contractors and subcontractors cannot ignore E.O. 13673, the Final Rule or DOL Guidance.  If the injunction is dissolved, then contractors and subcontractors will be faced with disclosure duties covering a look-back period of one year that will gradually increase to three years.  In addition, no disclosures will be required in the six months following the Rule’s effective date for prospective contractors, and one year for prospective subcontractors.  This phase-in disclosure process is in response to the DOL’s recognition that contractors and subcontractors were not previously required to track and report federal labor law violations and need time to familiarize themselves with the Final Rule, set up protocols and create or modify internal databases to track covered labor law decisions, including administrative merits determinations, arbitral awards or decisions, and civil judgments.

As discussed above, the court did not enjoin the Executive Order’s pay transparency requirements taking effect January 1, 2017.  In addition, the DOL requires every federal contractor and subcontractor covered by E.O. 11246 to provide notice to applicants and employees that the employer will not discriminate based on questions, discussions, or disclosures about pay.  The contractor must post the Pay Transparency Nondiscrimination Provision either electronically or in conspicuous places available to the employee or applicant at the employer’s premises and include it in existing employee handbooks and manuals.  Sample DOL language is available at https://www.dol.gov/ofccp/PayTransparencyNondiscrimination.html.

On a somewhat related issue, the DOL issued its Final Rule implementing President Obama’s E.O. 13706, which mandates paid sick leave for employees of federal contractors.  Beginning January 1, 2017 the DOL will require a covered federal contractor to provide an employee with at least 56 hours per year of paid sick leave, or alternatively the contractor must permit an employee to accrue not less than one hour of paid sick leave for every 30 hours worked under a covered federal contract.  An employee may use the paid sick leave for a physical or mental illness, injury or medical condition, obtaining diagnosis, care or preventive care, caring for the employee’s child, parent, spouse, domestic partner, or to seek counseling, relocation, assistance from a victim services organization or legal action for domestic violence, sexual assault or stalking.  If a labor agreement signed before September 30, 2016 applies to an employee's work performed under a covered contract and provides the employee with fewer than 56 hours of paid sick time each year (or fewer than seven days, if the agreement refers to days rather than hours), the contractor must provide the difference between 56 hours and the amount provided under the existing agreement.  However, if a labor agreement signed before September 30, 2016 already provides for at least 56 hours per year of paid sick leave, the other requirements of the Executive Order and Final Rule, such as recordkeeping, notice and timing of pay, will not apply to the contractor until either the agreement terminates or January 1, 2020, whichever is sooner.

For assistance in complying with the Executive Orders, Final Rules or DOL Guidance on labor law violation disclosures, pay transparency or paid sick leave, please contact Patrick W. McGovern, Esq. at 973-535-7129 or pmcgovern@genovaburns.com, or Nicole L. Leitner, Esq. at 973-387-7897 or nleitner@genovaburns.com.

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