Proposed ‘Fair Pay’ Rule Riles Federal Contractors

Nearly a year after President Obama signed an executive order requiring contractors to disclose labor law violations when they submit bids for federal work, a proposed rule and guidance on how companies should comply are drawing a thumbs-down from many in industry.

Last week’s proposed rule from the Federal Acquisition Regulatory Council and accompanying Labor Department guidance are intended to assure workers that “their paychecks are accurate,” wrote Labor Secretary Thomas Perez in a May 27 blog post. “They also ensure that workers who may have had their civil rights violated or been sexually assaulted can have their day in court, ending pre-dispute mandatory arbitration agreements covering these claims at large federal contractors.”

The rule and guidance require companies to report past and pending labor law violations so that contracting officers may consider them—along with mitigating circumstances—during the award process for contracts topping $500,000. Both prime contractors and subcontractors are covered. The executive order requires that the firms provide workers and independent contractors every pay period with information on how they are paid. And agencies must create procedures to help companies comply, including an arbitration process for disputes.

Perez stressed that the proposals—now subject to a 60-day comment period—were informed by discussions with contractors and worker advocates. “Taxpayer dollars should not reward corporations that break the law, and contractors who meet their responsibilities should not have to compete against those who do not,” Perez wrote.

“Contractors and subcontractors will be able to engage with DOL and enforcement agencies early in the process when contractors or subcontractors know that they have violations that may require remediation,” the proposed rule reads, “so that the results of those engagements can be used by contracting officers to help determine responsibility, and used by contractors to help determine responsibility of subcontractors, without having these steps unnecessarily disrupt the procurement process.”

The problem, said Stan Soloway, CEO and president of the 400-member-company Professional Services Council, is that “the rule and guidance treat mere allegations of wrongdoing—which have not been fully adjudicated—similar to adjudicated cases where the established legal procedures have been allowed to play out as intended.”

The council’s objections—which were presented during meetings with officials—also apply to “the proposals’ treatment of arbitral settlements and settlements without any finding of guilt. Adding additional penalties to the ones already prescribed in law is tantamount to double jeopardy,” he said. “And adding them only for contractors is a double standard.”

Soloway called the reporting regime “costly and sweeping,” saying the administration should focus on improving existing internal information systems.

While the council agrees that companies guilty of “pervasive, willful, and repeated violations of law should not be awarded federal contracts,” it views the current proposals as “un-executable,” saying they “fail to meet the most basic tests of due process.”

These critiques were seconded by Lawrence Lorber, an attorney who served during the Ford administration as deputy assistant Labor secretary and director of the Office of Federal Contract Compliance Programs. The rule “potentially exposes confidential charges and settlement agreements to public scrutiny under the Freedom of Information Act,” he wrote in an essay co-authored with Paul Kehoe. Both are with the law firm Seyfarth Shaw LLP. They also challenge the government’s methods for distinguishing between “serious” adjudicated violations and a simple filed complaint or technicality.

“Practically, it incentivizes federal contractors to settle claims before any administrative merits decision occurs, even where it is unlikely that any allegations against it are true,” the attorneys write. “With an administration aggressively pursuing questionable theories on labor law violations that may be rejected inside a courtroom, this proposed guidance essentially deems any adverse decision by any enforcement agency to be grounds to deny a contract.” 

They predicted that contractors will view the guidance as nothing “more than the administration’s attempt to circumvent Congress and impose extra-statutory penalties against federal contractors.”

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