Federal Contractors: In the Line of Regulatory Fire

On October 10, 2014, the White House hosted a listening session regarding President Obama’s “Fair Pay and Safe Workplaces” Executive Order (discussed in detail in a prior Orrick Employment blog post here), one of many new laws imposing significant new requirements on federal contractors. Representatives of the Professional Services Council met with Secretary of Labor Tom Perez and White House officials to urge changes to the Order, which (among other things) requires prospective federal contractors and subcontractors to track and report a comprehensive list of labor and employment law violations, bars larger existing contractors from requiring pre-dispute arbitration agreements of certain claims (including claims under Title VII), and requires contractors to provide employees with additional information on overtime and hours worked in paychecks.

This Order is just one of several new directives that both increases compliance obligations on contractors, as well as drives up the cost of doing business with the federal government. In the last year alone, the President and/or the Department of Labor have proposed or enacted the following new requirements affecting federal contractors:

  • Order Prohibiting Retaliation For Discussing Compensation. Executive Order 13665 prohibits federal contractors from “discharg[ing] or in any other manner discriminat[ing] against any employee or applicant for employment because such employee or applicant has inquired about, discussed, or disclosed the compensation of the employee or applicant or another employee or applicant.” Last month, the Office of Federal Contract Compliance Programs (“OFCCP”) issued a proposed rule that tracks this Executive Order, and requires contractors to include the nondiscrimination provision in both federal contracts and subcontracts, as well as in employee handbooks and job applications. The public comment period for this proposed rule ends December 16, 2014.
  • Proposed Rule Requiring Annual “Equal Pay Report.” On August 6, 2014, the OFCCP issued a Notice of Proposed Rulemaking (NPRM) requiring covered federal contractors and subcontractors with more than 100 employees to submit an annual Equal Pay Report on employee compensation.
  • Order Setting New Contractor Minimum Wage of $10.10 Per Hour. Executive Order 13658 mandated this raise in the minimum wage for all workers on federal construction and service contracts, and it is indexed to inflation in future years. After considering comments, the Department of Labor announced its final rule implementing the provisions of this Executive Order on October 1, 2014. The new minimum wage applies to new contracts and replacement contracts that result from solicitations issued on or after January 1, 2015, as well as contracts that are awarded outside the solicitation process on or after January 1, 2015.
  • Order Prohibiting Gender Identity and Sexual Orientation Discrimination. Executive Order 13672, signed by President Obama on July 21, 2014, added sexual orientation and gender identity to the list of classes protected from discrimination. Although the Executive Order applies only to federal contracted entered into on or after the effective date of the Department of Labor’s implementing regulations, the OFCCP issued a directive on August 19, 2014 that interprets the prohibition against sex discrimination to cover discrimination on the bases of gender identity and transgender status, and became effective on all contractors immediately.
  • New Compliance And Recordkeeping Obligations Regarding Individuals With Disabilities And Protected Veterans. On March 24, 2014, OFCCP’s new regulations regarding individuals with disabilities and protected veterans took effect. Although the affirmative action requirements of these new requirements do not apply until a contractor’s next AAP reporting cycle (which for many contractors begins January 1, 2015), they significantly change the way in which contractors track, analyze, and assess personnel activity regarding these protected groups. They also impose new record keeping requirements and outreach efforts, upon which OFCCP is keenly focused during compliance audits.

Industry groups estimate that day-to-day compliance costs may increase by as much as 25 percent as a result of these new requirements. Additionally, on October 1, 2014, the OFCCP released its new Scheduling Letter and Itemized Listing (discussed in detail in a prior Orrick Employment blog post here), which increase the amount and scope of data contractors must submit at the onset of an OFCCP audit.

Although larger employers may already have necessary foundations and procedures in place to meet these new requirements, the Professional Services Council expressed concern at its October 10, 2014 White House meeting that the new regulations could decrease the number of small contractors, which may be forced to withdraw from competition for federal contracts due to increased compliance costs. While the full impact of these new requirements remains to be seen, employers who contract with, or are considering contracting with, the federal government should keep abreast of these new requirements in order to ensure compliance and assess costs.