The Proposed "Blacklisting" Regulations: What Contractors Need to Know Connie N. Bertram Partner, Proskauer Rose LLP Guy Brenner Partner, Proskauer Rose LLP

Connie N. Bertram cbertram@proskauer.com

202-416-6810 Guy Brenner

gbrenner@proskauer.com 202-416-6830

3

The Fair Pay and Safe Workplaces Executive Order

• The Fair Pay and Safe Workplaces Executive Order (the “Order”) was issued by President Obama on July 31, 2014

• It is often referred to as the “Blacklisting” rule because it requires contractors to disclose labor/employment law violations as part of the bidding process

• The FAR Council and U.S. Department of Labor issued proposed regulations and guidance on May 27, 2015

• Final rule expected this month

4

What is the Fair Pay and Safe Workplaces Executive Order?

•  Requires contractors to disclose violations of certain laws during the bidding process and after a contract has been awarded

•  Requires federal agencies to consider contractor’s history of violations in awarding federal contracts

•  Requires prime contractors to enforce the Order’s obligations on subcontractors

•  Imposes new paycheck transparency obligations •  Restricts certain contractors’ use of employee arbitration

agreements

5

Which Contractors Are Covered by the Order?

The Order applies to contractors with federal

government contracts valued at $500,000 or more

The Order also applies to subcontractors of covered

contractors with subcontracts of $500,000 or more

6

New Disclosure Requirements •  When submitting a bid, contractors must indicate whether they

have any covered violations •  If a contractor makes it to the “responsibility determination”

stage of the bid process, it is required to provide additional information regarding each violation from the past three years

•  Post-award, contractors must disclose any additional violations twice a year

•  The new disclosure requirements also apply to the extension of existing contracts after the rules go into effect

7

New Disclosure Requirements For each violation, the contractor must disclose: The labor law that was violated

The case number

The date of the judgment/determination

The name of the tribunal

Any information supporting mitigation efforts by the contractor

8

What is a Covered Legal Violation? •  The proposed regulations identify 14 federal labor laws,

which, if violated, must be reported during the bidding process

•  The regulations will also cover the “state equivalents” of each federal labor law

•  DOL has stated it will disclose which state laws are covered at a later date

9

Which Federal Labor Laws are Included?

•  FLSA

•  OSHA

•  NLRA

•  Davis-Bacon Act

•  Service Contract Act

•  EO 11246 and 13658

•  Section 503 •  VEVRAA •  FMLA •  Title VII •  ADA •  ADEA •  Migrant and Seasonal

Agricultural Worker Protection Act

10

What Constitutes a “Violation”? Three broad categories of determinations constitute “violations”:

(1) “administrative merits determinations;”

(2) “arbitral awards or decisions;” and

(3) “civil judgments”

11

Administrative Merits Determinations •  Includes notices or findings of an administrative agency following an

investigation •  Regulations provide an exhaustive, but extremely broad, list of what is

an administrative merits determination •  Examples include:

–  Show Cause Notice from OFCCP (but not a Notice of Violation) –  Complaint filed by a Regional Office of the NLRB –  EEO lawsuit or reasonable cause letter from the EEOC –  a WH-56 “Summary of Unpaid Wages” form –  a letter, notice, or other document from the DOL Wage and Hour Division

assessing civil monetary penalties

12

Arbitral Awards •  Any award or order in which the arbitrator finds that the

contractor either: –  Violated any provision of a covered labor law; or –  Enjoining the contractor from violating any provision of a covered

labor law •  As written, this would include injunctions for labor law

violations that may not have occurred yet. –  For example, if an arbitrator enjoined a contractor from

implementing a new policy because it would violate the law, under the current language this would need to be reported.

13

Civil Judgments •  Judgments or orders entered by any federal or state court

finding the violation of a covered labor law •  Very broadly construed to include:

–  Preliminary injunctions –  Summary judgments –  Consent judgments –  Default judgments

•  Does not include private settlements prior to entry of judgment

How Are Violations Considered?

Contractor must disclose “adverse

actions” during the prior three

years

As part of pre-award

responsibility determination,

contractor given opportunity to disclose steps

taken to correct violations or

improve compliance

Labor Compliance Advisor (“LCA”) and Contracting

Officer (“CO”) may consult with enforcement

agency regarding violation and

remedial actions

14

15

How Are Violations Considered? •  LCA and CO determine

whether contractor is “responsible source” that has a “satisfactory record of integrity and business ethics”

Review violations to determine whether:

Serious = number of employees affected,

degree of risk of harm, and amount of damages

or penalties

Repeated = one or more additional violations that are the same or substantially similar

Willful = knew of violations or showed reckless disregard for

obligations

Pervasive = reflect a basic disregard by the contractor for Labor

Laws as demonstrated by a pattern of serious

or willful violations, continuing violations, or

numerous violations

16

How Are Violations Considered? •  Certain violations are considered particularly concerning:

Pervasive violations

Violations that meet at least two of the

following categories: (1) serious; (2) repeated; or (3)

willful

Violations reflected in final orders

Violations of particular gravity

What obligations apply to subcontractors? Apply if the value of the

services or goods provided by subcontractor exceeds

$500,000 (other than COTS)

• Contractor must require subcontractor to disclose violations prior to entering into subcontract and every six months during contract

• Before entering into subcontract, contractor must perform the same type of assessment as the LCA

Contractor must flow down disclosure

obligations to subcontractor

DOL, CO and LCA available to contractor

for consultation

17

18

What penalties may be imposed post-award? •  Contractors and covered subcontractors must update disclosures

every six months •  If violations are disclosed, CO shall, in consultation with LCA,

determine whether the following are necessary:

Entering into agreements

requiring appropriate remedial measures

Providing compliance assistance

Resolving issues to avoid further

violations

Deciding not to exercise an option on a contract or to

terminate a contract

Referring the violation to the

agency suspending and debarring

official

19

Paycheck Transparency Obligations

Imposes obligations to ensure that employees have detailed information regarding pay

Intended to make it easier for employees to identify and challenge improper pay

20

Paycheck Transparency Obligations •  Contractors must include the following on each paycheck:

Total Hours Worked

Number of Total Hours that were Overtime Hours

Gross Pay for the Pay Period

Any Deductions or Additions to Gross Pay

21

Paycheck Transparency Obligations

Overtime pay must be broken down by the time period used by employers to calculate overtime

For example, if the employer uses a 40 hour workweek but pays every two weeks, the overtime listing must show overtime broken down by week

Overtime Pay Contractors must

provide notice to independent contractors of their status in a document separate from any contract

This notice does not lead to a presumption that the independent contractor is properly classified

Independent Contractors

22

Restrictions on Arbitration •  The Order prohibits companies with federal contracts

valued at $1 million or more from requiring employees to enter into pre-dispute arbitration agreements for disputes arising out of Title VII of the Civil Rights Act or from torts related to sexual assault or harassment

•  The same rule applies to subcontractors with subcontracts valued at $1 million or more

23

Restrictions on Arbitration •  The restrictions do not apply to:

–  Employees who are covered by a collective bargaining agreement –  Employees who agreed to arbitrate prior to the contractor bidding

on the contract •  This exception does not apply if the contractor can unilaterally

change the terms of the contract with the employee; or •  When the contract with the employee is renegotiated or replaced

–  Contracts or subcontracts for the acquisition of commercial items

24

Preparing for Disclosure Obligations •  Final implementing regulations are expected this month •  Contractors should start preparing to comply with the new

regulations because –  Disclosure obligations will extend back three years –  Recommended audit process and compliance/risk mitigation

approach will involve a number of departments and stakeholders –  Preventative and corrective actions taken now will

•  Avoid violations in the future that must be disclosed; and •  Put contractors in the best position to argue that their conduct

was not serious, repeated, or willful

25

Audit Compliance in Each Violation Category (e.g., OSHA, FLSA)

Determine:

• Existing stakeholders • Existing compliance and

complaint resolution programs • History and nature of prior

violations • Pending internal and external

complaints

Through This Assessment, Identify:

• Gaps in compliance • Patterns of violations • Problem personnel and

procedures • Potential alternatives for early

detection and resolution of violations and non-compliance

26

Develop a Risk Level Matrix •  Through your assessment of the various processes and

departments, identify the various levels of risk within each covered category. For example, in the food service industry:

Risk Level Claim and Category of Employee

Red FLSA – classification of managers and independent contractors; ADA and FMLA – drivers, warehouse personnel

Yellow Title VII – females in certain roles (e.g., drivers), managerial employees, harassment claims FLSA – unionization efforts

27

Keys to Reducing/Mitigating Risk

Effective Policies and Training

Audit Compliance

Robust Internal Complaint

Mechanism

Alternative Dispute

Resolution

Early Case Assessment and

Management

28

Disclosure Obligations Add a “Twist” to the Risk Management Analysis

•  Classic factors: –  Risk of adverse ruling –  Range of verdicts/penalties –  Cost and burden of investigation or litigation –  Impact of adverse ruling (e.g., media, customers, employees)

•  Now will have to add: Impact of potential “violation” on proposals and contracts

•  Will have to look backwards and forwards in assessing whether an individual potential violation could be found to be serious, repeated, pervasive or willful

29

Also Must Consider Impact of Settlement •  Although settlement avoids risk of a “violation,” it could

lead to a dangerous cycle •  Plaintiffs’ counsel – who already target contractors – will

seize on this vulnerability

Settling to avoid a violation

Can lead to even more claims

That are then settled . . .

30

Use of the Order to Coerce Settlements •  Since the Order was first introduced, there has been

widespread concern that federal agencies will use the Order to coerce settlements

•  The premise is that the agency will use the threat of having to report violations as a tool to encourage early settlement so the claimed violation does not need to be reported

31

NLRB’s Attempts to Leverage Settlements with Contractors

•  The NLRB is already demonstrating its intent to use the threat of reporting violations to COs and LCAs as a tool to induce settlement

•  A July 1, 2016 memorandum from the NLRB General Counsel regarding collecting information in compliance with the Order included a communication that should be sent to “charged party employers” when a case is opened

32

33

“Please be advised that if you reach a resolution of this matter before the Region issues a complaint, such as by entering a pre-complaint informal settlement agreement with the Regional Director, no information on this case will be forwarded to this database.”

34

“If a complaint issues in this matter and you have not provided the requested information, the NLRB will transmit the information it does have about the case, along with notification that the NLRB requested you to provide additional information and you failed to do so.”

Questions?

The information provided in this slide presentation is not, is not intended to be, and shall not be construed to be, either the provision of legal advice or an offer to provide legal services, nor does it necessarily reflect the opinions of the firm, our lawyers or our clients. No client-lawyer relationship between you and the firm is or may be created by your access to or use of this presentation or any information contained on them. Rather, the content is intended as a general overview of the subject matter covered. Proskauer Rose LLP (Proskauer) is not obligated to provide updates on the information presented herein.  Those viewing this presentation are encouraged to seek direct counsel on legal questions. © Proskauer Rose LLP. All Rights Reserved.

Connie N. Bertram cbertram@proskauer.com

202-416-6810 Guy Brenner

gbrenner@proskauer.com 202-416-6830