The Department of Labor (DOL) issued a Final Rule on August 29, 2011 promulgating regulations addressing Executive Order 13495, titled “Nondisplacement of Qualified Workers Under Service Contracts.” President Obama signed the Executive Order on January 30, 2009. DOL’s Rule is not effective and will not go into effect until the Federal Acquisition Regulation Counsel issues appropriate regulations implementing this Rule. Nonetheless, because that action will be taken shortly, this Rule is something that employers bidding on and performing future Service Contract Act-covered contracts should consider and prepare to follow.
The Executive Order and DOL’s Final Rule establish a policy mandating the inclusion of a contract clause in Service Contract Act-covered (“SCA”) contracts that requires successor contractors and their subcontractors to offer those SCA-covered employees working under a predecessor SCA-covered contract, whose employment would otherwise be terminated as a result of the award of the successor contract, a “right of first refusal” of employment under the successor contract in positions for which they are qualified..
This new Rule applies only to contractors and subcontractors that succeed a different contractor for Service Contract Act-covered work, where the new contract requires performance of the same or similar services as the predecessor contract at the same location. Moreover, the new Rule itself does not make changes to the Service Contract Act’s requirements for the payment of prevailing wages or bona fide fringe benefits. However, the Rule does impose certain procedural requirements on successor contractors and subcontractors to offer employees of a predecessor contractor/subcontractor a right of first refusal for employment in positions for which they are qualified under the new contract. The right of first refusal must be left open for at least ten days. The new contractor may not hire new employees to replace any member of the old contractor’s workforce until the right of first refusal has been offered to each qualified employee of the old contractor.
DOL’s Final Rule includes some noteworthy exceptions that limit its applicability and afford service contractors and their subcontractors some relief from the Rule. Among others, first, the rule does not apply to contracts or subcontracts under the Simplified Acquisition Threshold (currently $150,000 in most cases). Second, employees who split their time between SCA-covered contracts and other commercial, non-federal government contracts will not be entitled to receive the protections of this Rule. Third, the successor contractor will not be required to offer employment to employees who have poor work performance with the predecessor contractor. Finally, the successor contractor and subcontractor need not provide a right of first refusal to fill positions for which they intend to utilize existing employees, provided that those employees have worked for the successor for at least three months and face discharge if not offered employment under the successor contract. A number of other exceptions apply to particular facts.
Compliance with these new requirements is key because penalties for non-compliance could include payment of lost wages to the affected workers, re-employment, or administrative debarment.
The rule will be formally implemented by a new contract clause in all covered contracts and a flow-down provision for subcontractors. The final rule does not have an effective date; the rule will not be effective until the Federal Acquisition Regulatory Council issues its own regulations that will implement this final rule.
