President Signs Three Executive Orders Affecting Contractors

Citing the “need to level the playing field for workers and the unions that represent their interests,” President Barack Obama on January 30 issued three Executive Orders affecting federal contractors. These Executive Orders – tangible evidence of President Obama’s belief that “we have to reverse many of the policies towards organized labor that we’ve seen these last eight years” – impose new constraints on employers that contract with the federal government. 
 
The “Economy in Government Contracting” Executive Order prohibits federal contractors from seeking reimbursement from the government for expenses incurred in attempting to persuade employees to exercise (or not exercise) their rights to organize and bargain collectively. Because many federal government contracts are awarded on a cost-reimbursement basis, a contractor’s profit margin often hinges on costs that can be reimbursed under the contract. This Executive Order specifically “prevent[s] taxpayer dollars from going to reimburse federal contractors who spend money trying to influence the formation of unions.” Such “unallowable” expenses include: preparing and distribution of materials; hiring or consulting legal counsel; holding meetings; and planning or conducting activities by managers, supervisors, or union representatives during work hours. To the contrary, “allowable” expenses under the Executive Order include costs incurred in maintaining satisfactory relations between the contractor and its employees such as the costs of labor-management committees, certain “non-persuader” employee publications and “other related activities.”

Notably, the Executive Order does not prohibit federal contractors from engaging in “persuader” activities; the prohibition attaches only to claims for reimbursement for such activities from the federal government. To the extent federal contractors wish to conduct union avoidance activities, however, careful attention should be paid to account for such costs separate from those billed to the government. Failure to do so could result in liquidated damages penalties under some federal contracts and could preclude the award of future contracts. Effective immediately but subject to rules and regulations adopted by the Federal Acquisition Regulatory Council (FAR Council) within 150 days, this Executive Order could be subject to legal challenges as an infringement of a federal contractor’s First Amendment right to engage in non-coercive speech regarding unionization and as preempted by the National Labor Relations Act (NLRA).

According to President Obama, “[f]ederal labor laws encourage collective bargaining, and employees should know their rights to avoid disruption of federal contracts.” Thus, the second Executive Order issued on January 30 “require[s] that federal contractors inform their employees of their rights under the [NLRA].” The “Notification of Employee Rights” Executive Order specifically revokes Executive Order 13201 (the “Beck” notice requirements) signed by President George W. Bush in 2001, which required federal contractors to post a notice advising employees of certain rights (including the right not to join a union). In contrast, President Obama’s Executive Order requires non-exempt federal contractors to post a notice advising employees of their rights to organize under the NLRA.  The Beck notice need no longer be posted, and the Secretary of Labor will prescribe the size, form, and content of the new notice in rulemaking to be initiated within 120 days.

This Executive Order, which is applicable to all contracts for goods and services exceeding the $100,000 Simplified Acquisition Threshold, also requires that several new contract clauses be included in every non-exempt contract and subcontract, except for collective bargaining agreements. Failure to comply with this Executive Order may lead to cancellation or suspension of federal contracts (among other sanctions).  The Office of Federal Contract Compliance Programs (OFCCP), which was responsible for enforcing the Beck notice requirements under Executive Order 13201, is a likely candidate for monitoring compliance with the new notice requirement.

There is some confusion as to whether this Executive Order also could be interpreted to impose government contractor “blacklisting” for labor and employment law violations. The penalties imposed under the Executive Order would not only apply to failure to post a notice of federal laws, but also for violations of the “content” of the notice, leading some to speculate that this could be a backdoor way to enact the failed government contractor “blacklisting” regulation from the Clinton Administration. Undoubtedly, whether or not this is a proper interpretation will be a subject of the federal rulemaking regarding the form and content of the notice required by the Executive Order.
 
The third Executive Order affecting federal contractors – called the “Nondisplacement of Qualified Workers” – also revokes a Bush-era policy affecting employees of federal contractors when contracts change. Under Bush’s Executive Order 13204, a successor contractor was not required to offer the right of first refusal of employment to employees of the prior contractor. President Obama’s Executive Order, however, reinstates this requirement: employers assuming contracts covered by the Service Contract Act must offer their predecessor’s employees jobs for which they are qualified (subject to certain exemptions). Such a rule can, of course, affect successorship issues for collective bargaining purposes. As with the other Executive Orders signed on January 30, the Secretary of Labor is responsible for enforcing compliance with these new rules and violations can result in a three-year debarment from federal contracting. 
 
All of these Executive Orders will eventually be implemented through Federal Acquisition Regulation clauses that will be incorporated into non-exempt federal contracts. 

Employers will note that these Executive Orders do not define the terms “federal contractor” or “subcontractor,” neither of which has been consistently defined in other laws and regulations. The dollar value of federal contracts also should be scrutinized to determine if these new laws are applicable. More concrete recommendations will be provided upon publication of implementing regulations in the Federal Register. 

According to Hal Coxson, a shareholder in Ogletree Deakins’ Washington, D.C. office: “These new Executive Orders are merely the first of what we can expect to be union-friendly policies in the Obama Administration. Our clients will need to be alert to these and other changes in labor and employment policy.”

Additional Information

If you have any questions about these executive orders, contact the Ogletree Deakins attorney with whom you normally work or the Client Services Department at 866-287-2576 or via e-mail at clientservices@ogletreedeakins.com.

Note: This article was published in the February 5, 2009 issue of the Federal Contracting eAuthority.