On July 15, 2022, the U.S. Department of Labor (DoL) published a 160-page Notice of Proposed Rulemaking (NPRM) to implement Executive Order (EO) 14055, “Nondisplacement of Qualified Workers Under Service Contracts,” seeking to once again require successor contractors to give a right of first refusal of employment to certain employees of predecessor contractors. EO 14055 was the latest development in the long history of the Nondisplacement of Qualified Workers rule, which, as we previously discussed, the prior Trump Administration had revoked to provide successor contractors with more flexibility when staffing. The Biden Administration, however, believes that the proposed nondisplacement rule will lead to less disruption in services due to a carryover workforce as well as a more experienced, well-trained workforce providing such services. Regardless of the political dynamics, contractors should take note of the new requirements in the NPRM and how it might impact their operations.
Interested parties and stakeholders can submit comments to DoL on the NPRM on or before August 15, 2022. The DoL has not yet slated a timeframe for when the rule might become final.
Covered Contracts
The NPRM seeks to cover any successor contract, contract-like instrument, or subcontract (at any tier) covered by the Service Contract Act of 1965 (SCA) that is over the simplified acquisition threshold, which is currently $250,000. EO 14055 applies to any contracts with an executive department or agency, including an independent establishment subject to the Federal Property and Administrative Services Act. Under the NPRM, when a covered service contract expires and the government awards a follow-on contract for the same or similar services, the contracting officer must include the contract clause in Appendix A of the NPRM in the successor’s prime contract. Once the prime contract meets the coverage thresholds, each subcontractor at any tier must comply with EO 14055, even if the value of the subcontract is under the simplified acquisition threshold.
The NPRM also says that a covered contractor or subcontractor has an “affirmative obligation” to ensure its contract contains the clause if it should have been included, including notifying the contracting officer as soon as possible if the clause was not incorporated.
Covered Employees
The first right of refusal would need to be provided to all “service employees” covered by the SCA. The SCA applies to all employees engaged in the performance of an SCA contract that are not exempt under a bona fide executive, administrative, or professional exemption under the Fair Labor Standards Act (FLSA). Significantly, “service employees” can include independent contractors that work on an SCA contract that would not otherwise be exempt under the FLSA. The NPRM excludes employees who were hired to work under both an SCA contract and one or more nonfederal service contracts as part of a single job, provided that the employees were not deployed in a manner that was designed to avoid the purposes of EO 14055.
Location Requirements
Under the NPRM, prior to the solicitation being issued for a covered contract, agencies must consider whether the location of the predecessor contract is reasonably necessary to ensure economical and efficient provision of services. If the agency determines that the same locality or localities are reasonably necessary, then it must include a requirement or preference in the solicitation for the services to be performed at the same locality or localities. Alternatively, an agency must include a statement regarding their location continuity analysis should they determine that a location preference is not warranted. This then allows affected workers or their collective bargaining representative to request reconsideration of the determination. If the successor contract will be performed in a new locality, the successor contractor is not responsible for paying the relocation costs of predecessor employees who accept a job offer with the successor contractor.
Right of First Refusal
If implemented as proposed, the NPRM will require covered successor contractors to give the incumbent employees a bona fide offer of employment for positions for which they are qualified, if those same employees would otherwise be terminated as a result of the award or expiration of the predecessor contract. Successors must presume that predecessor employees will be terminated as a result of the award, unless they can demonstrate a reasonable belief otherwise based upon “reliable information provided by a knowledgeable source.” Successor contractors are free to determine the number of employees necessary for efficient performance of the contract and may elect to employ more or fewer employees than the predecessor contractor. Covered successor contractors, however, cannot have any job openings for non-predecessor candidates without first making an offer of employment to the covered predecessor employees.
In order for the successor contractor to make these offers, the NPRM contemplates that predecessor contractors will be required to submit to the contracting officer during the last month of contract performance a list of the names of all service employees working under the contract and its subcontractors as well as the anniversary dates for each covered service employee. This list must be provided to the contracting officer no fewer than 10 business days before the earlier of the completion of the contract or the predecessors work on the contract. The contracting officer must provide the list to the successor contractor. The contracting officer must also provide the list to employees or their representatives if requested by them.
Requirements for Offer
The successor must make a written offer of employment in language that the employee can understand and provide at least 10 business days for employees to consider it. The offer will generally be presumed to be a bona fide offer if it is for the same position or one for which the employee is qualified. Successor contractors, however, can offer different positions with different terms and conditions of employment, including pay or benefits, as long as the different employment terms and conditions are not offered to discourage employees from accepting offers. If the successor has or will have employees in the same or similar occupational classification who work entirely remotely during the course of the contract, the successor must offer the predecessor employee in that same classification the option to work remotely under “reasonably similar terms and conditions.”
The successor contractor’s obligation to offer a right of first refusal exists even if it has not been provided a list of the predecessor’s employees and even if the list does not contain the names of all persons employed during the final month of contract performance. In addition, a successor may have an obligation to provide an offer to a predecessor employee not on the list if there is reliable evidence that the employee worked for the predecessor during the last month of contract performance. Such reliable evidence, according to the NPRM, could include any evidence showing an employee’s assertion of an assignment to work on the predecessor contract during the predecessor’s last month of performance, coupled with contracting agency staff verification or a paycheck stub identifying the work location and dates worked.
Under the NPRM, covered successor contractors do not have to make job offers to predecessor employees whom the successor reasonably believes, based on reliable evidence of the particular employee’s past performance, there would be just cause to discharge. In addition, successors may use employment screening processes (i.e., drug tests, background checks, security clearance checks, and similar pre-employment screening mechanisms) when such processes are provided for by the contracting agency, are conditions of the service contract, and are consistent with the EO 14055. Successors may not use an employment screening process by itself to conclude that an employee is unqualified because they have not yet completed that screening process.
Recordkeeping Obligations
Contractors will be required to maintain copies of certain records for three years to verify compliance with this rule, including documents (such as written offer letters of employment) and records showing the basis for any exclusions or exceptions being claimed.
Waiver of Requirements
The NPRM also specifies that, before a solicitation is issued, a contracting agency can waive some, or all, of the requirements of EO 14055 for a prime contract if the senior procurement executive issues a written determination (with facts and supporting reasoning) that at least one of the following circumstances exists with respect to a contract: (1) adhering to the requirements would not advance the U.S. government’s interests in achieving economy and efficiency in federal procurement; (2) based on a market analysis, adhering to the requirements would substantially reduce the number of potential bidders, frustrating a full and open competition that cannot be reasonably tailored to the agency’s needs; or (3) adhering to the requirements would otherwise be inconsistent with statutes, regulations, Executive Orders, or Presidential Memoranda.
Enforcement
The NPRM provides specific procedures for DoL to investigate and enforce complaints about potential violations of EO 14055. Predecessor contractor employees, or their representatives, who believe the successor contractor has violated EO 14055, may file a complaint with the DoL Wage and Hour Division within 120 days from the first date of contract performance. DoL may investigate potential violations, whether through a complaint initiated by a predecessor employee or their representative, or on their own initiative. Upon conclusion of the investigation, DoL will issue a written determination of whether a violation has occurred. The decision can be challenged in certain instances at DoL, or an interested party can request a hearing before an administrative law judge within 20 calendar days of the determination.
The NPRM also identifies sanctions and remedies that can be imposed by DoL for noncompliance. For example, violating contractors can: (1) be required to employ each affected person and pay back lost wages; (2) have government funds withheld; or (3) face up to a three-year debarment.
The prime contractor is responsible for the compliance of any subcontractor or lower tier subcontractor. In the event of any violations, the prime contractor and any subcontractor(s) responsible will be jointly and severally liable for any unpaid wages and prejudgment and post‑judgment interest and may be subject to debarment, as appropriate.
Next Steps
DoL estimates that 449,200 contractors and over 1.4 million workers could potentially be affected by this rulemaking. Service contractors who expect to bid on or take over a predecessor service contract should continue to monitor the NPRM and the final rule for EO 14055 and determine how the final rule might impact their solicitation process or procedures for onboarding a predecessor’s covered workers. Stay tuned as we continue to follow the latest developments on EO 14055.