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Legal Updates

President Obama Issues Three Executive Orders Regarding The Labor Obligations Of Federal Contractors

President Obama recently issued three executive orders aimed at creating a strong labor movement among workers employed by federal contractors.  These executive orders, which became effective immediately, impose new obligations on federal contractors and reverse certain directives of President Bush.

Executive Order 13494—Economy in Government Contracting

Executive Order 13494 prohibits federal contractors from passing on to contracting departments and agencies the costs of attempting to persuade employees to exercise – or to refrain from exercising – their rights to organize or engage in collective bargaining.

Importantly, the executive order does not preclude federal contractors from trying to persuade their employees not to exercise these rights.  It merely prevents them from seeking reimbursement for these costs under their federal contracts.

In the words of Executive Order 13494, federal departments and agencies “shall treat as unallowable the costs of any activities undertaken to persuade employees … to exercise or not to exercise, or concerning the manner of exercising, the right to organize and bargain collectively through representatives of the employees’ own choosing.”

Executive Order 13494 designates as “unallowable” the costs of the following activities when undertaken to persuade employees to exercise, or not to exercise, their rights under federal labor law:  (a) preparing and distributing materials; (b) hiring or consulting legal counsel or consultants; (c) holding meetings (including paying the salaries of the attendees at meetings held for this purpose); and (d) planning or conducting activities by managers, supervisors, or union representatives during work hours.

Notwithstanding the foregoing, Executive Order 13494 designates as “allowable” any costs incurred in maintaining satisfactory employee relations.  Such costs include “costs of labor-management committees, employee publications (other than those undertaken to persuade employees to exercise or not to exercise, or concerning the manner of exercising, the right to organize and bargain collectively), and other related activities.”

The Federal Acquisition Regulatory Council is expected to issue implementing rules, regulations, and/or orders for Executive Order 13494 this summer.

Executive Order 13495—Nondisplacement of Qualified Workers Under Service Contracts

Executive Order 13495 requires certain successor contractors and their subcontractors to offer a right of first refusal of employment to qualified nonmanagerial and nonsupervisory employees of the predecessor contractor whose employment was terminated as a result of the award of the successor contract.  Executive Order 13495 revokes Executive Order 13204, which was issued by President Bush in 2001.

Specifically, Executive Order 13495 applies when an employer obtains a federal service contract of $100,000 or more “that succeeds a contract for performance of the same or similar services at the same location,” subject to limited exceptions.  Each required right of first refusal must remain open for at least ten days, and the successor contractor will be deemed to have no employment openings under the contract until all such offers have been made.

Nonetheless, under this directive, the successor contractor has the rights:  (1) to employ fewer employees than the predecessor contractor; (2) to employ under the federal service contract any employee who has worked for the successor contractor for at least three months immediately preceding the commencement of the federal service contract and who would otherwise face layoff or discharge; (3) not to offer a right of first refusal to any employee of the predecessor employer who is not a service employee within the meaning of the Service Contract Act of 1965; and (4) not to offer a right of first refusal to any employee of the predecessor contractor who has failed to perform suitably on the job (as the successor contractor or any of its subcontractors reasonably believes, based on the employee’s past performance).

As a result of Executive Order 13495, it is likely that many successor contractors will have to recognize and bargain with the labor unions that represented their employees when they were employed by the predecessor contractor.  This is by operation of the National Labor Relations Board’s (“NLRB”) successorship doctrine, which generally requires such recognition and bargaining when a majority of a successor employer’s employees had been unionized at the predecessor employer.

Noncompliance with Executive Order 13495 may result in “orders requiring employment and payment of wages lost,” as well as federal-contract debarment for up to three years.  The Secretary of Labor, in consultation with the Federal Acquisition Regulatory Council, is expected to issue implementing regulations this summer.

Executive Order 13496—Notification of Employee Rights Under Federal Labor Laws

Executive Order 13496 requires most federal contractors to post a soon-to-be-released notice informing employees of their rights to bargain collectively and to associate, self-organize and designate representatives of their own choosing for the purpose of negotiating the terms and conditions of their employment.  Prime federal contractors will be required to include this notice in all subcontracts.

Executive Order 13496 also revokes Executive Order 13201, which required federal contractors to notify employees of their rights not to join a union and to “opt out” of paying union fees unrelated to the administration of the collective bargaining agreement.  These rights were determined by the United States Supreme Court in Communication Workers of America v. Beck, 487 U.S. 735 (1988).  Executive Order 13201 had been issued by President Bush in 2001.

Noncompliance with Executive Order 13496 may result in the cancellation, termination, or suspension of existing federal contracts, as well as in the employer’s debarment from additional federal contracts.  The Secretary of Labor is expected to promulgate the required notice by May 30, 2009.

Taken together, these executive orders are expected to have a profound effect on federal contractors relative to their labor costs and activities.  For instance, the requirement of Executive Order 13496 to notify employees of their rights under federal labor law will likely result in more – and more intense – union organizing campaigns.  While this is expected to lead to more union-avoidance activity and communications campaigns by federal contractors, the costs of these efforts will no longer be reimbursable under the applicable federal contracts by operation of Executive Order 13494.  Similarly, we expect that significant numbers of federal contractors that are presently union-free will be forced to assume their predecessors’ collective-bargaining obligations by operation of Executive Order 13495 and the NLRB successorship doctrine.

In light of these anticipated changes, we urge federal contractors and subcontractors to act now to (a) implement lawful policies and procedures geared toward minimizing the likelihood and effectiveness of union organizing campaigns, (b) develop plans for effectively communicating with employees, key constituents, and the general public about their positions on labor organizations, collective bargaining, and related matters, and (c) determine how best to marshal their internal and external resources to achieve these goals as cost-effectively as possible.

As always, the Firm is available to assist employers in determining and complying with their obligations – and in determining and exercising their rights – as federal contractors and subcontractors.  Please do not hesitate to contact us with any questions.