Three Executive Orders Signed Friday Increase Employment Requirements on Federal Contractors

February 2, 2009

Last Friday, January 30, President Obama signed three executive orders with important implications for the employment practices of federal government contractors.  One concerns reimbursement for activities intended to influence employee decisions about unionization, the second requires employers to post a notice of federal labor law rights and empowers the Secretary to debar federal contractors for noncompliance, and the third requires contractors to offer jobs to employees of a prior contractor in certain circumstances.  Together, the orders are among the first of what are expected to be numerous Administration initiatives to strengthen organized labor.

The Order titled “Economy in Government Contracting” provides that contractors “shall treat as unallowable” the costs from activities undertaken “to persuade employees . . . to exercise or not to exercise, or concerning the manner of exercising, the right to organize and bargain collectively.”  (The orders have not yet been assigned executive order numbers.)  The Order does, however, allow contractors to recover costs incurred in “maintaining satisfactory relations” with employees, including the costs of labor-management committees.  A legal challenge to the Order is likely in light of a Supreme Court decision last year that a similar California statute raised First Amendment concerns and was preempted by the federal labor laws.  Chamber of Commerce v. Brown, 128 S.Ct. 2408 (2008). 

The second order, titled “Notification of Employee Rights Under Federal Labor Laws,” requires federal contractors to post a notice informing employees of their rights under federal labor laws—the form and content of the notice are to be prescribed by the Secretary of Labor.  The Order also authorizes the Secretary to investigate contractors’ compliance with the Order and the accompanying Labor Department regulations; non-compliant contractors face an array of possible sanctions, including the termination of existing contracts and a bar on subsequent contracts until compliance is shown.  However, these sanctions may only be imposed if the head of the contracting agency consents.  The Order includes a provision authorizing the Secretary to “direct” a contractor to sanction a subcontractor for failing to comply with the Order; if this results in litigation between the contractor and subcontractor, the contractor “may request” the Department to join the litigation.  Finally, the Order repeals an order that had been issued at the beginning of the Bush Administration, which required federal contractors to post a notice advising employees of their right, under the Supreme Court’s Beck decision, to withhold certain dues payments from unions. 

Both of these orders are purportedly intended to “promote economy and efficiency in Government contracting,” but their combined effect is to promote unionization.  Employers who do business with the federal government will find it significantly more burdensome to speak out against union organizing campaigns, while at the same time they will be required to post notices authored by the Secretary of Labor that favor union interests. 

The third order, titled “Nondisplacement of Qualified Workers Under Service Contracts,” requires that successor contractors – those awarded a follow-on contract to provide the same services at the same location as a previous contractor – offer employment to qualified employees who worked under the prior contract.  Before doing so, however, a successor contractor may offer continued employment to workers it has employed for the preceding three months who would otherwise be laid off.  An offer of employment need not be given to managerial and supervisory employees. 

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Labor-related presidential executive orders are an inaugural tradition dating back at least to the first President Bush.  With these executive orders, President Obama is taking steps to facilitate union organizing that are expected to culminate in an effort to to enact the “Employee Free Choice Act.”   

Gibson, Dunn & Crutcher LLP

Gibson, Dunn & Crutcher’s Labor and Employment Practice Group and Government Contracts Practice Group have extensive experience in counseling and litigation regarding federal contractors’ obligations in the employment area. Gibson Dunn lawyers are available to assist in addressing any questions you may have regarding these issues. Please contact the Gibson Dunn attorney with whom you work, or any of the following attorneys in the firm’s Washington, D.C. office:

Labor and Employment Practice Group
Eugene Scalia – Practice Co-Chair (202-955-8206, escalia@gibsondunn.com)
William J. Kilberg P.C. (202-955-8573,
wkilberg@gibsondunn.com)
Jason C. Schwartz (202-955-8242, jschwartz@gibsondunn.com)

Government Contracts Practice Group
Joseph D. West (202-955-8658, jwest@gibsondunn.com)
Karen L. Manos (202-955-8536, kmanos@gibsondunn.com)

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