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Labor-Friendly Executive Orders Place New Obligations On Federal Contractors

February 26, 2009


In his first few weeks in office, President Obama signed four Executive Orders related to labor policies and government contracting. Signaling a new direction in federal labor relations, each of these Executive Orders reverses a Bush-era Executive Order (and in the process effectively revived two Executive Orders signed by President Clinton).

Each of the new Executive Orders (EOs) applies only to employers who have contracts with the federal government; two apply specifically to service contractors or large-scale construction contractors. These EOs, as described in detail below:
  1. Require federal contractors to offer employment to the workers of a predecessor for work under a successor service contract;
  2. Require federal contractors to forego federal reimbursement of costs for encouraging or discouraging workers from joining unions;
  3. Require federal contractors to post notices advising workers of their right to organize under the National Labor Relations Act (NLRA); and
  4. Permit federal agencies to require federal contractors working on large-scale construction projects to enter into union-only project labor agreements.

Each of the EOs reverses a Bush-era order and became effective immediately upon being signed. This is common on change of administration; both former President George W. Bush and former President Bill Clinton issued policy-changing EOs early in their presidencies as well.
  1. “Nondisplacement of Qualified Workers Under Service Contracts” EO

On January 30, 2009, President Obama signed the Nondisplacement of Qualified Workers Under Service Contracts EO. The EO notes that when “a service contract expires, and a follow-on contract is awarded for the same service, at the same location, the successor contractor” sometimes “hires a new work force, thus displacing the predecessor's employees.” The EO seeks to avoid this result. Citing the federal government’s “interests in economy and efficiency [that] are served when the successor contractor hires the predecessor's employees,” the EO requires:
“that service contracts and solicitations for such contracts shall include a clause that requires the contractor, and its subcontractors, under a contract that succeeds a contract for performance of the same or similar services at the same location, to offer those employees (other than managerial and supervisory employees) employed under the predecessor contract whose employment will be terminated as a result of the award of the successor contract, a right of first refusal of employment under the contract in positions for which they are qualified.”

(Note that the new EO revives and expands a Clinton-era EO, which had a similar mandate for federal building maintenance service contractors, and which EO President Bush later rescinded.)

The EO places enforcement responsibility on the Secretary of Labor, who has the authority to prescribe sanctions and remedies, including reinstatement and back pay. In addition, a contractor or subcontractor who fails to comply with any order of the Secretary of Labor may be debarred from contracting with the federal government for three years.
  1. “Economy in Government Contracting” EO

On January 30, 2009 President Obama issued an EO euphemistically entitled Economy in Government Contracting. The EO defines as “unallowable” all costs to federal contractors for “any activities undertaken to persuade employees – whether employees of the recipient of the federal disbursements or of any other entity – to exercise or not to exercise, or concerning any manner of exercising, the rights to organize and bargain collectively through representatives of the employees’ own choosing.”

The EO offers several examples of unallowable costs, including the following when intended to persuade employees in one way or another regarding their rights to organize and collectively bargain: (a) preparing or distributing materials; (b) paying employees to attend meetings; and/or (c) “planning or conducting activities by managers, supervisors, or union representatives during work hours.” The Federal Acquisition Regulatory (FAR) Council, which must develop implementing rules and regulations within 150 days, likely will provide more examples.

The NLRA protects non-coercive speech about labor organizing, whether that speech is by unions or employers. Nevertheless, this EO would disallow federal disbursements to federal contractors who exercise their rights as an employer. As a practical matter, therefore, the EO poses a serious challenge to any federal contractor who is facing a union organizing campaign.

In opposing it, the US Chamber of Commerce argued that the EO conflicts with a recent United States Supreme Court opinion, not-so-coincidentally called Chamber of Commerce v. Brown. The June 2008 Brown decision struck down a law restricting the use of government funds “to assist, promote or deter” labor organizing campaigns, and characterized the NLRA as “favoring uninhibited, robust, and wide-open debate in labor disputes.” It is possible that this EO will face a challenge in court.
  1. “Notification of Employee Rights Under Federal Labor Laws” EO

The Notification of Employee Rights Under Federal Labor Laws EO requires all federal contractors to notify their employees of their rights under the NLRA and other federal laws. President Obama signed it on January 30, 2009 and it went into effect immediately. The EO reverses a Bush-era rule that had required federal contractors to notify employees of their right not to join a union and of their right to challenge how their union spent their dues monies.

This seemingly innocuous EO is something of a wild card. It instructs employers to post a notice “containing such content as the Secretary of Labor shall prescribe.” The new Secretary of Labor (labor-friendly Hilda Solis), in turn, is instructed to issue rules, regulations and orders “as are necessary and appropriate to achieve the purposes of this rule.” The required posting will be part of the regulatory scheme adopted by the Department of Labor; thus, the full impact of this EO will not be known until the Department of Labor adopts and implements a regulatory scheme.

The stated purpose of the EO is to promote “industrial peace” by ensuring that workers are advised of their rights to collectively bargain, exercise freedom of association and designate representatives “for the purpose of negotiating the terms and conditions of their employment or other mutual aid or protection.” Obviously, Labor Secretary Solis’s interpretation of “industrial peace” will be key to what DOL ultimately requires and the manner in which it enforces the EO.

Under the NLRA, employees have the right to decide whether or not to form or join a union to bargain collectively. While the EO does not change these rights, it modifies the discussion of them. The EO requires all federal contractors to emphasize the right to join aspect of the NLRA by notifying employees of their right to form or join a union to bargain collectively. The EO leaves it for employees to figure out that they also have the right to decide not to join a union; there is no reason to believe that the right not to join a union will be mentioned in the Notice that DOL is drafting and that federal contractors will be required to post in the workplace.
  1. “Use of Project Labor Agreements for Federal Construction Projects” EO

On February 6, 2009 President Obama signed the Use of Project Labor Agreements for Federal Construction Projects Executive Order. It is consistent with the Administration’s focus on infrastructure improvements and permits federal agencies to require contractors to sign union-only project labor agreements (PLAs) for “large-scale construction projects,” defined as those with costs exceeding $25 million. The EO encourages, but does not require, that federal agencies require PLAs. It states that “it is the policy of the Federal Government to encourage executive agencies to consider requiring the use of project labor agreements in connection with large-scale construction projects in order to promote economy and efficiency in Federal procurement.”

Please feel free to contact us if you have questions or comments about the new Executive Orders, collective bargaining, government contracting, or any other labor, employment and benefits issues.

- Sarah M. Petersen