Executive Orders Unfairly Used to Force Ideals, Contractors Say

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By Cheryl Bolen

Nov. 30 — President Barack Obama took office in 2009 promising to regulate only when necessary, but some federal contractors say he's now using regulation—such as his executive order on fair pay and safe workplaces—to promote his social agenda.

“There is, I think, a long history of trying to enact change, policy you can't get through Congress, by looking to federal contractors first,” said Michael Eastman, vice president of public policy at the Equal Employment Advisory Council, which represents employers.

Case in point is Executive Order 13,673 on Fair Pay and Safe Workplaces, intended to ensure that contractors comply with 14 federal labor laws or equivalent state laws. It was signed by the president July 31, 2014 (32 HRR 819, 8/4/14).

The proposed regulation implementing the order cites three studies as proof that federal contractors need better incentives to comply with labor laws. The research found a total of 104 federal contractors with egregious violations over the past decade, or about 0.4 percent of an estimated 24,000 federal contractors nationwide.

The policy assumes federal contractors are egregiously violating labor laws. But requests by Bloomberg BNA for additional data on labor law violations by contractors were denied by the Labor Department and the White House's Domestic Policy Council.

Contractors say what little problem exists is already being addressed by current law, or if that isn't enough, existing penalties could be increased. Labor advocates counter that enough of a problem exists in the contracting community to justify a new regulation and that the government should use a high standard in deciding which companies get taxpayer dollars.

Contractors are even more fearful of midnight regulations in Obama's final year in office, stemming from 2014 and 2015 executive orders on minimum wage, paid leave and nondiscrimination.

Labor Says Evidence Sufficient

Labor advocates point to horrendous violations in the past that have resulted in worker deaths and multimillion-dollar fines. Companies responsible for such violations continued to get federal contracts, they say.

In April 2010, for example, seven workers were killed in an explosion at a Tesoro Corp.-owned refinery in Anacortes, Wash. The state issued 44 citations and a $2.38 million fine to Tesoro for safety and health violations.

“We think that there's still a lot of evidence of real problems out there of not respecting workers’ rights, and that it's absolutely appropriate for the government to take measures like this to try to get at that problem,” said Lynn Rhinehart, general counsel at the AFL-CIO.

Contractors counter that in March 2010, a final rule (RIN: 9000–AL38) was issued by the major contracting agencies to improve the government's ability to evaluate the business ethics and expected performance quality of prospective contractors.

The rule also stated it was “part of an ongoing initiative by the administration to increase consideration of contractor integrity” in awarding federal contracts.

The scope of the current problem was laid out in the three studies cited by the proposed regulation.

Using the administration's estimate that “tens of thousands” of contract workers are being denied fair wages or safe workplaces, the regulation would potentially protect slightly more than 0.35 percent of the estimated 28 million employees in the contracting workforce.

The Office of Management and Budget declined to provide additional evidence of contractor violations.

Classified as Major Regulation

The new regulation is being written by the Department of Defense, General Services Administration and the National Aeronautics and Space Administration—together known as the Federal Acquisition Regulatory (FAR) Council. The executive order also directed DOL to issue guidance to assist contracting agencies in applying the order's requirements.

The proposed regulation would impose $106.57 million in compliance costs on contractors in the first year, and has been classified as a major regulation (RIN 9000-AM81), according to the cost estimate of the proposal by the FAR Council.

Contractors argue that the costs will be far greater. Eastman said the most significant components of the estimate rest on faulty assumptions about the number of contractors and subcontractors that will have violations to report.

The proposed regulation and guidance were issued May 27. The public comment period was extended, with public comments due Aug. 26. The FAR Council and DOL are now reviewing comments (33 HRR 977, 9/14/15), and the latest regulatory agenda estimates that the final rule will be issued in April 2016 (33 HRR 1265, 11/30/15).

In a statement e-mailed to Bloomberg BNA, a DOL spokeswoman said it's worth noting that the fair pay executive order doesn't impose any new obligations on government contractors to comply with basic workplace protections.

“The EO only adds the requirement that prospective contractors share information about their compliance history before being awarded a contract,” she said.

Regulatory Principles

The president has broad authority to regulate the federal contracting process, so legally, he is regulating in well-established territory.

However, in January 2011, Obama reaffirmed and strengthened his administration's commitment to the regulatory principles established in 1993 by former President Bill Clinton in EO 12,866 on Regulatory Planning and Review. That order states that federal agencies should promulgate only such regulations as are required by law, are necessary to interpret the law, or are made necessary by compelling public need, such as material failures of private markets.

Under the 2014 fair pay executive order, agencies must require prospective contractors to disclose labor law violations from the past three years before they can get a contract. The order requires agency contracting officers and newly created labor compliance advisers to assess the violations, and contractors with “serious, repeated, willful or pervasive” labor law violations will not get contracts.

Lawsuit Being Drafted

Daniel Yager, president and general counsel of the HR Policy Association, said contractors already are supporting a lawsuit against the executive order that will, in part, argue that it's preempted by the National Labor Relations Act.

The president's contracting authority is pretty broad, but at the same time, the courts are going to be looking to existing law, Yager said.

He noted that Clinton signed an executive order in 1995 barring the federal government from contracting with employers that hired permanent replacement workers during a strike.

The order was challenged and the U.S. Court of Appeals for the District of Columbia Circuit ruled that the executive order was preempted by the NLRA (Chamber of Commerce v. Reich, 74 F.3d 1322, 151 LRRM 2353 (D.C. Cir. 1996); 14 HRR 2/12/96).

Essentially, the court said the regulatory scheme had already been laid out in the NLRA and that hiring replacement workers had nothing to do with the performance of the contract, Yager said.

“To do something like this, [Obama] has to be able to show that there is a connection with the performance of the contract,” Yager said.

The fair pay executive order states that contractors that consistently adhere to labor laws are more likely to have workplace practices that enhance productivity and increase the likelihood of timely, predictable and satisfactory delivery of goods and services to the federal government.

“At the end of the day, these executive orders are very, very vulnerable to legal challenges,” Yager said.

Devil in Too Much Detail, Closed Process?

In contrast to the closed process of drafting an executive order, contractors say there's more “sunlight” in the legislative process, which allows the other side to object and lawmakers to consider alternatives.

Nancy Hammer, senior government affairs policy counsel at the Society for Human Resource Management, said she understands the president's frustration with congressional inaction.

But some of these executive orders go into tremendous minutiae, Hammer said. The new executive order on paid sick leave doesn't just require federal contractors to offer paid leave; it specifies the number of hours, requires leave to roll over, and defines the reasons it can be used, she said.

Obama signed EO 13,706 on Establishing Paid Sick Leave for Federal Contractors on Sept. 7 (33 HRR 960, 9/14/15).

“It's really having the White House write an individual employer's handbook, and I think that goes too far,” Hammer said. “There needs to be some sort of balancing of the cost of compliance against what benefit does the government really get in procurement.”

Justification Questioned

The justification that is written into the paid leave order is similar to that in the fair pay order, in that when employees are healthier and happier they do better work and that's better for the U.S. procurement economy, Hammer said.

The paid leave order states that providing access to paid sick leave will improve the health and performance of employees of federal contractors. It further states that these savings and quality improvements will lead to improved economy and efficiency in government procurement.

It's also possible that giving employees Starbucks gift cards would make them happier and improve the efficiency of government contracting, Hammer said. But there needs to be a balance and it can't be done through executive order, she said.

“While I understand the frustrations, we have a system and we have a system of checks and balances for a reason,” Hammer said. “And when we do all of our legislating through executive order, it takes away our ability to be more balanced in how we're proceeding.”

In its proposed fair pay regulation, the FAR Council said that in recent years, the administration and Congress have taken a number of steps to improve the selection process for federal contractors.

Among these steps was deployment of the Federal Awardee Performance and Integrity Information System (FAPIIS), which is an online database to help contracting officers determine whether a company has the “requisite integrity” to do business with the federal government.

The FAR Council also noted that the violations found in two of the three studies it cited as evidence of contractor wrongdoing had occurred before these steps were put into place.

Mixed Reviews for Harkin Report

But it said a 2013 report released by former Sen. Tom Harkin (D-Iowa), then-chairman of the Senate Committee on Health, Education, Labor and Pensions, found continued problems, even after some of the steps had gone into effect.

The Harkin report isn't without controversy. In total, it found 49 federal contractors with serious health, safety and wage violations over a six-year period that continued to get contracts.

Stan Soloway, president and chief executive officer of the Professional Services Council, which represents the government technology and professional services industry, testified in February that there have been few reports in recent years examining companies with labor law violations that continued to get federal contracts.

“These reports are riddled with flaws that seek to paint a picture of contractor abuse that is woefully inaccurate,” Soloway said in his prepared testimony.

The Harkin report listed several contractors as owing back wages to their employees, yet it was an error in the contract and not the contractor's behavior that was at fault for the violations, Soloway said.

Harkin's report also didn't limit its findings to cases that had been fully resolved, “thus falsely inflating the appearance of contractor violations,” Soloway said.

Previous Studies Cited

On Nov. 13, the Center for American Progress Action Fund (CAP), a policy institute and advocacy organization, released a report on the contracting workforce written by two of its scholars and two scholars from the National Employment Law Project, a worker advocacy organization.

The report said “jobs created through government contracting are often substandard, paying very low wages and involving poor working conditions where workplace law violations are common.”

As evidence for this claim, the study cited an earlier CAP Action Fund study released in December 2008. That study was focused primarily on federal contracting work in the low-wage service sector.

The 2008 study said that “evidence from a number of sources suggests that mistreatment of federally contracted workers is a widespread problem.”

It cited, for example, a December 2005 Government Accountability Office report pointing to an investigation by the DOL into Service Contract Act complaints that found 80 percent of the contractors investigated were in violation of the act.

Labor advocates argue that regulating for societal change is a worthy pursuit and that, for contractors, it's the cost of accepting lucrative, taxpayer-funded federal contracts.

The fair pay order is “complementary” to existing systems, such as debarment, which temporarily blocks a company from seeking federal contracts, said the AFL-CIO's Rhinehart. It's necessary because the data show that existing systems are insufficient to ensure that the companies that get federal contracts respect workers’ rights, she said.

“I think there's a real difference in perspective on how much of a burden this executive order really is going to be for the vast majority of companies,” she said.

Regulating federal contractors is a “tried and true method” of accomplishing policy objectives that goes back to the Johnson administration, and maybe before, Rhinehart said.

Indeed, Republican and Democratic administrations alike have attached conditions to being a federal contractor, she said.

EEAC: Every Mandate Has a Cost

The EEAC's Eastman conceded that no one is required to be a federal contractor. But there are considerations that go into regulating, because every requirement has a cost, he said.

One consideration is the federal budget and the price of contracts being greater than what the government could get on the commercial market, Eastman said.

At a more practical level, he said, the administration's recent executive orders seem to be based on laudable policy goals, but the consequences don't appear to be fully thought through—the costs, whether there's a better or more efficient way to accomplish the goals, and whether a new mandate on contractors is the right solution or the best solution.

“And so we see a lot of—as we go through the various executive orders—there are lots of things that maybe could have been done better, or are simply confusing or hard to implement,” Eastman said.

NELP: Little Burden on Employers

Labor advocates say that DOL regulators “get it” and understand all too well the fine balance between overburdening employers and protecting workers.

Judy Conti, federal advocacy coordinator at the National Employment Law Project, said employers say costs are exorbitant and burdens unbearable every time there's a new regulation.

“If you follow the law, then there's not going to be any adjudications against you and your reporting is going to be one second, because there's nothing to report,” she said.

But contractors say this argument misses the point for most of them, because self-reporting is far simpler than auditing the company's countless suppliers every six months.

Some projects may have up to 1,000 subcontractors, and contractors are concerned that mistakenly including a subcontractor that turns out to have unreported labor law violations could make them liable.

Give Credit to Regulators

Deborah Berkowitz, senior fellow at NELP and former senior policy adviser at the DOL's Occupational Safety and Health Administration, said the majority of employers in America follow the law.

“The reason you have the government [intervening] is because there are still many that don't and cut corners,” Berkowitz said.

The FAR Council and DOL have carefully considered this, have come up with a proposal, and are now pulling everything together, she said.

Regulators have to respond to the public comments and they'll write the rule that is best for everybody, including the American worker as well as the contractor, Berkowitz said.

Tilt Toward Workers, No Bright Line?

Conti said worker protection needs to take into account the realities of employers and their business practices, but that the DOL is employee-focused. “They're supposed to care most about workers,” she said.

Berkowitz said that from everything Obama and Labor Secretary Thomas Perez have said about this executive order, it is not intended to go after contractors that have small violations here and there.

Rather it's aimed at serious violators that haven't come into compliance and that still have outstanding and serious safety hazards and wage and hour violations, Berkowitz said.

The proposal is clear that agencies want to work with contractors with violations to see if they can bring them into compliance and show that they're no longer in violation, she said.

Contractors counter that no one knows exactly how the violations will be assessed.

According to the proposed guidance, contracting officers and labor compliance advisers are going to look at serious, repeated, willful or pervasive violations, then look at mitigating factors, and then make a recommendation.

But there's still no bright line and still no way to know what is severe enough to block a contract. One contractor asked what level of violation would stop the construction of a fighter jet.

And will the standard be different if it's something that isn't as necessary to the military, such as a cafeteria in a federal building?

NAM: Mere Charge Could Upset Contract

Contractors also object to reporting all violations that have been filed, rather than only those that have been fully adjudicated.

Amanda Wood, director of employment policy at the National Association of Manufacturers, said that now, if there is an allegation of a misclassified employee pending in the DOL Wage and Hour Division, a federal contractor may say it had no idea and settle quickly, and the employee goes home happy.

“But what this executive order contemplates is that a mere allegation of a misclassification could actually prevent that company from getting a contract,” she said.

Misclassifications can occur when an employer mistakenly classifies a worker as an independent contractor not covered by the Fair Labor Standards Act or as an employee “exempt” from the FLSA overtime pay provisions, rather than as an hourly worker who is eligible for overtime pay.

If a settlement could be viewed as a violation, the company is going to be less motivated to settle, contractors say. Instead, the company may feel compelled to fight, which drives up litigation costs.

“We in the business community are scratching our heads because we don't think that this [order] is necessary,” Wood said. “It doesn't solve making workplaces safer or making sure people aren't misclassified.”

If DOL is concerned about bad actors, there's a process already in place that gives any agency the ability to suspend or debar a federal contractor, Wood said.

But the way this proposal is written, Wood said, the administration couldn't have contemplated how broad it really is and how it will capture every allegation.

On Nov. 10, White House press secretary Josh Earnest was asked about the president's use of executive actions to advance his agenda.

The president believes it's important to follow the strictures of the U.S. Constitution, Earnest said. However, the Constitution affords significant power to the president, he said.

“But when you see Congress do next to nothing, it means that executive actions need to be considered, even if they would not advance the country as far as common-sense congressional action would,” Earnest responded.

To contact the reporter on this story: Cheryl Bolen in Washington at cbolen@bna.com

To contact the editor responsible for this story: Heather Rothman at hrothman@bna.com