Friday, July 15, 2022: Wage & Hour Division Published Its Long Expected Proposed Rule on “Nondisplacement of Qualified Workers Under Service Contracts”
Moving forward on the mandate of President Biden’s November 23, 2021 Executive Order 14055 requiring successor federal service contractors and subcontractors to make good faith offers to hire the predecessor’s employees when taking over a federal service contract, the U.S. Labor Department’s Wage and Hour Division (WHD) published a Proposed Rule in the Federal Register (87 FR 42552) titled “Nondisplacement of Qualified Workers Under Service Contracts.” The Division intends the Rule to keep individuals employed after a federal service contract (i.e., most contracts over $250,000 covered by the Service Contract Act of 1965, as amended) has expired. As proposed, the Rule would generally require contractors and subcontractors who work on covered federal service contracts to place clauses into successor contracts involving the “same or similar” work for existing services deals to provide employees a right of first refusal for positions under the contract for which those employees are qualified.
Executive Order 14055 builds upon Executive Order 13495 President Obama signed in 2009 but which President Trump rescinded in 2019. The Obama Order had previously established a nondisplacement requirement for Federal service contractors, an agency press release on the Proposed Rule noted. The proposed right of first refusal would cover service workers on an estimated 119,700 federal contracts, the agency statement also stated.
The Proposed Rule would amend existing regulations to add a new section with four subparts & two appendices
The proposed Rule asserts that its authors designed the 45-page Rule to promote economy and efficiency in procurement by amending Title 29 of the Code of Federal Regulations by adding Part 9, with four subparts:
- Subpart A relates to general matters, including the purpose and scope of the rule, as well as the definitions, coverage, exclusions, and exceptions that the rule provides pursuant to E.O.
- Subpart B establishes requirements for contracting agencies and contractors to comply with the Executive Order.
- Subpart C specifies standards and procedures related to complaint intake, investigations, and remedies.
- Subpart D details administrative enforcement proceedings, including the sanctions and remedies that USDOL may impose for violations.
Appendix A to Part 9 contains the specific text of the required contract clause. Appendix B to Part 9 contains the text of a proposed Notice to Service Contract Employees.
Offer parameters are outlined in the proposal, following the provisions of the E.O.
Subpart 9.12(b) of the proposed Rule would provocatively require the successor federal service contractor to make offers to former employees for any job the successor federal service contractor has available, and not just for the job the employee previously filled for the predecessor federal service contractor. That sounds like litigation on the horizon. Moreover, if this portion of the Rule survives the Rulemaking process, successor federal service contractors may find the need to field a full talent acquisition team to measure and grade the qualifications of the incoming workforce as opposed to merely accepting that existing workforce uncritically into their same jobs going forward. Also, the contractor or subcontractor must, without exception, give an employee on the prior service contract at least 10 business days to consider and accept the successor contractor’s offer of employment.
As we pointed out in our discussion of E.O. 14055 back in November 2021 (New Executive Order Looks to Keep Employees Working When Federal Contracts Change Hands), the new E.O. does not require the new contractor or subcontractor to offer a right of first refusal to an employee(s) of the predecessor contractor who was not a service employee (defined). In addition, the contractor may withhold an offer to an employee who provided service under the prior federal service contract if the new service contractor believes, based on reliable evidence of the particular employee’s past performance, that “just cause” exists to discharge the employee.
Contractors would have some discretion to determine the number, and configuration, of needed employees
The proposed contract clause would require outgoing contractors to provide to the new federal service contractor, at least 10 business days ahead of the contract’s expiration date, a list of all service employees working on the prior contract during the last month of its performance. (Of course, that does not give the new service contractor sufficient time to develop and deliver offers of employment to the prior service contract workforce, let alone to vet their qualifications, let alone to allow employees in the prior workforce to receive and take up to 10 business days to accept or decline the offer of continued employment on the new contract). Under a proposed Subpart D, the proposed Rule would provide the new contractor/subcontractor the discretion to determine how many employees the new employer needs for “efficient performance.” The new employer may staff the new contract differently and may not need the same number of employees as the predecessor contractor. Successor contractors would also be permitted to reconfigure the staffing pattern to increase the number of employees employed in some positions while decreasing the number of employees in others. Nevertheless, the proposed regulations would require the contractor to examine the qualifications of each employee to minimize displacement.
Location provisions differ from the rescinded Obama Rule
Unlike the defunct Obama Rule, the Proposed Rule contains no “same location” requirement, meaning that the Biden Order applies more broadly to contracts re-located to a new physical location or broadened to include more geographical coverage than the old contract. Moreover, for each covered contract, the contracting officer must consider whether to include a requirement or preference for location continuity.
WHD is seeking public comment regarding exemptions for subcontracts
The proposal would permit the relevant agencies to make exceptions only for “a particular [prime] contract.” In contrast, the prior Obama Rule gave top agency officials the authority to exempt “a particular contract, subcontract, or purchase order or any class of contracts, subcontracts, or purchase orders.” The WHD is also seeking public comment on the potential impact, including any unintended consequences, of not allowing procurement agency exceptions for particular subcontracts or classes of subcontracts.
Sanctions may include remedies for employees, withholding contract payments, and temporary debarment
Proposed sanctions for violations would include requiring the successor contractor to offer employment to employees from the predecessor contract and payment of lost wages, procurement agency withholdings of contract progress payments, and debarment from Federal contract work for up to three years.
An online landing page on the proposal is available
The WHD has posted an online landing page regarding the proposal at: https://www.dol.gov/agencies/whd/government-contracts/service-contracts/NPRM-nondisplacement.
Comments on the proposal are due on or before August 15, 2022.