Final Fair Pay Rules Are Here: Contractors Face Complex Requirements and Challenges with New Reporting Obligations

The federal government released the final regulations implementing the Fair Pay and Safe Workplaces Executive Order (“EO” hereafter) this week.  The regulatory package contains two parts: amendments to the Federal Acquisition Regulations and guidance from the Department of Labor for implementing the regulations. The regulatory package is a central part of the Administration’s aggressive regulatory agenda we have previously discussed and reflects continuing burdens on federal contractors.

How We Got Here

The rule-making began with Executive Order 13673. Features of the EO include:

  • Requiring that contractors and subcontractors with over $500,000 in federal contracts report any “administrative merits determination, arbitral award or decision or civil judgment” arising out of 14 enumerated federal labor laws and the state equivalents in the preceding 3-year period; [1]
  • Mandating that contractors make the reports pre-award and update reporting every six months following the award;
  • Setting up a complex reporting and assessment scheme requiring reports to contracting officers who would report to an agency’s “Labor Compliance Advisors” (ALCA) to assist the agency in making a determination of “responsibility;”
  • Creating various factors (serious, repeated, willful, or pervasive) that would underlie responsibility determinations;  and
  • Threatening contractors with suspension or debarment if they did not establish that they are responsible.

The EO also takes aim at another aspect of President Obama’s domestic agenda by severely limiting the use of arbitration agreements.  The EO bans pre-dispute arbitration agreements for Title VII and gender related tort claims.  The EO also requires that contractors provide notice to workers that they are independent contractors and notice to employees of the hours worked, overtime hours, pay, and any additions made to, or deductions made from, pay.

The EO further required that the Federal Acquisition Regulatory Council propose and finalize regulations amending the Federal Acquisition Regulations to include reporting obligations and that the Department of Labor develop guidance to assist agencies on compliance with the EO including making responsibility determinations.

The Final Rules

The final rules weave a complex web of broad requirements.  Here is what federal contractors need to know.

What needs to be reported and to whom?

The final regulations require that contractors report the administrative merits determinations to the contracting officer through the government’s contract management database.  In a switch from the proposals, subcontractors will report the administrative merits determinations directly to the Department of Labor.

What are the important dates?  The proposed regulatory package sets forth a three year reporting structure.  The final rules have adopted a phase-in structure with key trigger dates:

October 25, 2015 – Date of the earliest administrative merits determination that must be reported

September 12, 2016 – DOL will begin a voluntary “pre-assessment” process whereby prospective contractors can submit their violation histories and receive guidance on whether their track records are acceptable

October 25, 2016 – Three provisions key off this date.

  1. General effective date of the rules
  2. Contract bids greater than $50 million must include reporting obligation clause.
  3. Contract bids above $1,000,000 must include provision prohibiting pre-dispute arbitration.

April 25, 2017 – Bids on contacts exceeding $500,000 must include reporting requirement

October 25, 2017 – Bids on subcontractors after this date require subcontractor reporting

October 25, 2018 – Full three-year reporting begins.

What’s the process?

Pre-award.  Offerees will have to provide information regarding administrative merits determinations at the pre-award stage.  The process will be:

  1. The administrative merits determinations information is entered into the government database;
  2. The contracting officer requests that the ALCA provide a written analysis within 3 days,
  3. The ALCA makes a responsibility determination using the evaluation factors; and
  4. The contracting agency will evaluate a range of options from a “responsible” determination to a denial of the contract.

Post-award process.  Contractors have the option of selecting the next reporting period as long as it is not longer than six months.  Steps include:

  1. The contractor updates information in government database;
  2. The ALCA monitors for new data;
  3.  ALCA assesses and provides written analysis considering factors, number of violations, mitigating factors and remedial measures;
  4. ALCA advises contracting officer of status; and
  5. Contracting officer determines appropriate action ranging from continuing the contract to recommending termination.

Who has access to the contractor violation information? 

The administrative determinations data will be publicly available through the government FAPIIS database. This includes merits determinations that arise out of arbitrations even if they are confidential.

What are the top compliance challenges?

  1. Education.  The regulatory package spans more than 1,000 pages and contains several detailed requirements. Do you understand those requirements fully?
  2. Record-keeping. Tracking merits determinations and ensuring that the reporting is accurate will be a challenge. Do you have the right systems in place to track and report?
  3. Subcontractor monitoring.  While subcontractors will be reporting directly to DOL, prime contractors have an obligation to evaluate the “integrity and business ethics of subcontractors.” Are you prepared to make that evaluation?
  4. Strategy. Determining an overall strategy on how to approach resolving reportable violations is key.  Are there potentially reportable violations that you decide to settle and are there ones that you will fight?
  5. Publicity.  The public disclosure of contractor violation information has the potential to affect corporate goodwill and encourage additional employment claims.  Are you going to have a target on your back?
  6. Follow-up reporting.  You will be scrambling to submit the first report.  However, the second one will come fast in six months.  Do you have processes in place to make sure that second report goes smoothly?
  7. Determinations.  No requirement exists that responsibility determinations are made on a consistent basis.  Will you be able to forecast whether you will be deemed responsible or not?

Contractors are encouraged to seek legal expertise to assist in wading through this complex governmental apparatus.  In particular, contractors should carefully assess whether they will participate in the pre-assessment process will begin next month. Broader challenges like fully understanding the requirements, ensuring that reporting is accurate and determining an overall legal strategy will assist in avoiding the pitfalls that will inevitably come with these new obligations.

[1] Specifically, the enumerated statutes are  the Fair Labor Standards Act; the Occupational Safety and Health Act; the Migrant and Seasonal Agricultural Workers Protection Act; the National Labor Relations Act; the Davis-Bacon Act; the Service Contract Act; Executive Order 11246 of September 24, 1965 (Equal Employment Opportunity); Section 503 of the Rehabilitation Act of 1973; the Vietnam Era Veterans’ Readjustment Assistance Act; the Family and Medical Leave Act; Title VII of the Civil Rights Act of 1964; the Americans with Disabilities Act of 1990;  the Age Discrimination in Employment Act of 1967; and Executive Order 13658 of February 12, 2014 (Establishing a Minimum Wage for Contractors).  The only state law equivalents covered are occupational safety and health “State Plans” that have been formally approved by OSHA.