By Executive Order issued on October 31, 2019, President Trump repealed the Obama-era Executive Order (13495) requiring government contractors to offer a “right of first refusal” to qualified incumbent employees covered by the Service Contract Act. The Order, with the stated intent of improving Federal Contractor operations, became effective immediately.
The Order includes an instruction to the Department of Labor and the FAR Council to immediately begin to repeal the rules, regulations, policies, etc., implementing the prior Executive Order on non-displacement of qualified service workers. Therefore, consistent with legal requirements, the regulations and FAR clauses that address the preferred hiring of service workers on a predecessor contract will be rescinded. In addition, any enforcement actions currently before the Department of Labor shall be terminated immediately. This includes investigations or compliance actions.
This should be welcome news to the Federal Contracting community. Only hourly workers who are non-exempt from the FLSA overtime requirements were required to be provided offers of employment. However, even contracts with a low percentage of such workers often contain Service Contract Act FAR clauses, leaving contractors who traditionally perform professional services faced with unfamiliar compliance rules. The regulations and FAR contract clauses implementing the non-displacement/right of first refusal requirements contained strict timelines and very narrow exceptions for when offers to incumbent employees were required to be made.
In addition, contractors taking over contracts that had been poorly managed from an HR perspective were often faced with the dilemma of trying to establish sufficient proof that a poor performing incumbent employee was not “qualified” under the rules. A failure to have sufficient justification (which typically required written evidence from a knowledgeable source) left contractors in the difficult position of deciding whether to extend an employment offer to a potential “bad apple” that could lead to a difficult transition, or not extend an offer to the incumbent and face a potential complaint at the Department of Labor.
On the other hand, contractors looking to break into Service Contract Act work may find that it is more difficult to contact and recruit incumbent personnel for new contracts. The regulations issued under the rescinded Order included requirements for the exchange of information related to incumbent personnel that facilitated a newly awarded contractor’s efforts to provide timely offers to service workers. For new contracts with tight transition timing, newly awarded contractors may need to engage in several contact methods (e.g., open houses, online announcements, etc.) in order to meet staffing objectives. In addition, now that incumbent service workers are no longer required to be hired by a successor contractor, incumbent contractors may begin seeking to preclude these employees from working for the competition through non-competition or other restrictive covenant agreements.
For more information, or to learn more about how this Order will affect your business, contact OFP Shareholder Marina Burton Blickley at 703-218-2111.