Alert March 18, 2009

New Executive Orders Will Affect Many Employers That Provide Goods or Services to the FG

President Obama recently signed four executive orders, which strongly favor the interests of organized labor and will affect many employers that enter into contracts to provide goods or services to the federal government. By their terms, the orders will not have any real impact until the Secretary of Labor issues implementing regulations later this year. The orders will not affect the obligations of federal contractors under existing contracts; the requirements will be imposed pursuant to the terms of new contracts following the promulgation of the Secretary’s regulations.

The new executive orders, which revoke several executive orders issued by President Bush, are detailed below.

Notification of Employee Rights Under Federal Labor Laws

On January 30, 2009, President Obama signed Executive Order 13496. Executive Order 13496 will require most contractors that enter into new contracts with the federal government to post a notice of employee rights under federal labor laws in conspicuous locations. Also, the Order revokes Executive Order 13201, which required most contractors who entered into contracts with the federal government to post “Beck Notices” informing employees of certain rights, such as their right to not join a union.

Executive Order 13496 states that economy and efficiency in federal government procurement is most easily achieved when employees are well informed of their rights under federal labor laws, such as their right to organize and engage in collective bargaining under the National Labor Relations Act (the “NLRA”). Thus, under Executive Order 13496, contracting departments and agencies within the federal government must include a provision in all government contracts (except purchases under $100,000) requiring contractors to post a notice of employee rights under the federal labor laws. Contractors will be required to post the notice “in conspicuous places in and about [their] plants and offices where employees covered by the National Labor Relations Act engage in activities relating to the performance of the contract.”  In addition, contractors will be required to include the notice posting provision in subcontracts related to the original contract so that the provision will be binding upon subcontractors.

In the event that a contractor does not comply with Executive Order 13496, the Secretary of Labor may direct contracting departments and agencies to terminate the contract and to bar the contractor from future federal contracts until the contractor has complied with and agrees to carry out the provisions of the Order to the satisfaction of the Secretary of Labor. Also, in the event that a subcontractor does not comply with the posting requirement, the contract provision will require the contractor to take action against the subcontractor as directed by the Secretary of Labor, including the imposition of sanctions.

The new provision will also require contractors to comply with the contents of the notice. Failure to do so could result in termination of the contract and a declaration that the contractor is ineligible for further contracts with the federal government. Thus, contractors may be debarred not only for failure to post the notice but also if they violate the employee rights described in the notice. Thus, it appears that federal contractors that are found to have committed unfair labor practices in violation of the NLRA may be barred from doing business with the government.

Contracting departments and agencies are required to include the provision in contracts that result from solicitations issued on or after the date when the Secretary of Labor issues rules on the size, format and content of the notice that contractors will be required to post. The Secretary of Labor is responsible for issuing those rules no later than May 30, 2009.

Revocation of Beck Notice Requirement

Under Executive Order 13201, which became effective on April 18, 2001, contracting departments and agencies within the federal government were ordered to include a provision in most contracts requiring contractors to post a notice of certain employee rights commonly known as a Beck Notice in a conspicuous location. The Beck Notice informs employees that they cannot be required to join a union as a condition of employment. The Beck Notice also informs employees represented by a union who choose not to be full-fledged union members that they are entitled to a refund for any portion of their union dues used for union activities unrelated to the union’s role as a bargaining representative, such as political contributions, lobbying and union building funds.

Executive Order 13496 does not prohibit employers from posting Beck Notices or require their removal. However, the provision requiring contractors to post Beck Notices will no longer appear in government contracts.

Nondisplacement of Qualified Workers Under Service Contracts

On January 30, 2009, President Obama signed Executive Order 13495, which affects a contractor’s ability to hire new employees when a contract to provide services to the federal government expires and a new contract for the same services is awarded to a different contractor. Executive Order 13495 will generally require the new contractor under those circumstances to offer employment to the employees who worked under the expiring contract before the new contractor can hire new employees to perform the contracted work. The practical impact of this Executive Order is that non-union federal contractors who are awarded new services contracts are more likely to be deemed “successors” to the prior contractor’s bargaining relationship with a union representing the prior contractor’s employees. Under the NLRA, if the contractor is deemed a “successor,” it is not bound by the predecessor’s labor contract, but it is obligated to negotiate with the union over a new collective bargaining agreement.

Executive Order 13495 applies when a contract to provide services to the federal government expires and the federal government awards a new contract in excess of $100,000 for providing the same services at the same location to a different contractor, subject to limited exceptions.1  Under such circumstances, the new contract must include a provision prohibiting the new contractor from hiring new employees to perform the contract work until the contractor has offered employment to “qualified” employees (other than “managerial” and “supervisory” employees) who worked under the expiring contract and who were terminated as a result of the prior contract’s expiration.

The required provision is not a guarantee of employment for the employees who worked under the expiring contract. The new contractor is not required to offer employment to any employee whom the new contractor reasonably believes “failed to perform suitably on the job.”  The new contractor also has the right to use fewer employees to perform the new contract than the previous contractor used. Additionally, the new contractor has the right to use its own employees who have been employed for at least three months prior to commencement of the new contract if those employees would otherwise face layoff or termination. Thus, Executive Order 13495 does not require new contractors to offer employment to all employees who worked under the expiring contract, even if an employee is qualified. Rather, the Executive Order provides non-managerial and non-supervisory employees who worked under the expiring contract with a right of first refusal of employment before the new contractor can hire new employees to replace them. However, employees of the prior contractor would have a right to displace newly hired (during the three months before the expiration of the prior contract) employees of the successor contactor. 

In the event that a contractor does not comply with the required provision, Executive Order 13495 authorizes the Secretary of Labor to bar the contractor from eligibility for any contract with the federal government for up to three years. In the event of noncompliance, the Secretary of Labor is also authorized to order the hiring of employees who worked under the expiring contract and to award them lost wages.

Executive Order 13495 does not address many important details, such as whether the new contractor must offer the same wages that employees earned while working under the expiring contract. The Executive Order also does not address how a new contractor should decide which employees should receive offers when the new contractor makes offers to some but not all of the employees who worked under the expiring contract. The Executive Order also does not provide definitions of many terms such as “qualified,” “managerial” and “supervisory.”  The Secretary of Labor is responsible for issuing regulations, which may provide many of those details, no later than July 29, 2009.

The contractual provision required under Executive Order 13495 will not appear in contracts until the Secretary of Labor issues the regulations. Thus, the hiring practices of contractors that provide services to the federal government are not immediately affected by the Executive Order. However, the new provision will appear in applicable contracts within a few months.

Economy in Government Contracting

Under Executive Order 13494, which President Obama signed on January 30, 2009, contracting departments and agencies within the federal government will no longer reimburse contractors for any costs incurred by the contractor for activities undertaken to persuade employees not to organize or to engage in collective bargaining. The Executive Order also prohibits reimbursement in the less likely scenario where a contractor incurs costs engaging in activities to persuade employees to obtain union representation.

The Executive Order provides the following examples of activities that are not reimbursable when they are undertaken to persuade employees concerning whether or not to organize and bargain collectively: i) preparation and distribution of materials; ii) hiring or consulting legal counsel or consultants; iii) holding meetings (including paying the salaries of the attendees); and iv) planning or conducting activities by managers, supervisors, or union representatives during work hours.

The Executive Order adds that costs incurred in maintaining satisfactory relations between the contractor and its employees, including the costs of labor management committees and the costs of employee publications, remain allowable for reimbursement.

Executive Order 13494 will apply to all contracts with the federal government that result from solicitations issued on or after the effective date of regulations to be issued by the Federal Acquisition Regulatory Council. The Federal Acquisition Regulatory Council is required to issue those regulations no later than June 29, 2009.

Use of Project Labor Agreements for Federal Construction Projects

On February 6, 2009, President Obama signed Executive Order 13502, which authorizes federal agencies to require contractors and subcontractors to enter into project labor agreements (a type of collective bargaining agreement) on federal construction projects with a cost of $25 million or more. The Executive Order revokes Executive Order 13202, which prohibited federal agencies from requiring contractors in construction projects to adhere to project labor agreements.

Project Labor Agreements

Because construction firms typically hire temporary workforces for construction projects, the temporary employees face difficulties in organizing and entering into collective bargaining with their employer. To address those difficulties, the NLRA allows unions to enter into collective bargaining with construction firms before the employers have hired the workforce for a construction project. The resulting collective bargaining agreement provides the terms and conditions of employment for workers who have yet to be hired. This type of pre-hire collective bargaining agreement is known as a project labor agreement.

Under Executive Order 13502, federal agencies are “encouraged” to require the use of project labor agreements on “large-scale construction projects,” which are defined as construction projects where the total cost to the federal government is $25 million or more. The Executive Order also allows federal agencies to require the use of project labor agreements on construction projects that are not large scale. Under the Executive Order, project labor agreements must bind all contractors and subcontractors assigned to the construction project. Thus, non-union contractors or subcontractors that wish to work on a federal construction project may be required to be a party to a collective bargaining agreement with one or more unions.