Recently, President Barack Obama signed an Executive Order entitled “Fair Pay and Safe Workplaces,” which will affect approximately 24,000 businesses. Businesses seeking to obtain federal procurement contracts for goods and services, including construction, valued at over $500,000 (“federal contractors”) must comply with a number of new requirements.

Likely most significant is that covered federal contractors must disclose any labor law violations rendered against them or their subcontractors in the prior three years. For subcontracts valued at over $500,000, the prime federal contractor must require that each subcontractor disclose labor law violations and then determine whether the subcontractor is a responsible source. According to the Order, a labor law violation is an “administrative merits determination, arbitral award or decision, or civil judgment” rendered for violating any of 15 enumerated laws and executive orders, such as the Fair Labor Standards Act, National Labor Relations Act, Title VII, and their state equivalents. Once a contract is awarded, federal contractors have a continuing obligation to update information regarding labor law violations every six months. Although the Order designates a website as the method for reporting, it is silent concerning the confidentiality of these reports.

The labor law violations disclosed by contractors can result in the denial or termination of government contracts, effectively imposing an additional penalty on employers beyond underlying administrative or civil adjudication. Each federal agency must now designate a senior official to serve as a Labor Compliance Advisor, who will assist contracting officers in assessing whether a federal contractor is a responsible source with a “satisfactory record of integrity and business ethics.” The Labor Compliance Advisor will further assist in determining whether a contractor’s disclosed labor and employment law violations rise to the level of “serious, repeated, willful, or pervasive violations,” and the appropriate action to be taken in response. The potential for barring contractors from obtaining federal procurement contracts based upon their “labor law” violations is significant. These provisions may be used to pressure employers to settle labor and employment matters that they might otherwise fight due to fear of disclosing an adverse judgment.

The Order also mandates that federal contractors and their subcontractors must provide employees with specific information regarding “hours worked, overtime hours, pay, and any additions to or deductions made from pay” for each pay period. Additionally, contractors are required to notify, in writing, any individual the contractor treats as an independent contractor rather than an employee that they are treating the individual as an independent contractor. These “paycheck transparency” requirements are expected to lead to increased wage and hour disputes.

Finally, contractors seeking federal contracts valued at over $1 million are now prohibited by this Executive Order from requiring their employees to agree to arbitrate disputes arising under Title VII or any tort relating to sexual assault or harassment before the dispute arises. The decision to arbitrate is permissible only with the voluntary consent of employees or independent contractors after the dispute has arisen. This provision does not apply to contracts for “commercial items or commercially available off the shelf items” or to those employees covered by a collective bargaining agreement. This requirement will likely result in decreased use of arbitration agreements which can save both employers and employees time and resources.

The Federal Acquisition Regulatory (FAR) Council is charged with proposing amendments to the Federal Acquisition Regulation to implement the Order. The public will have the opportunity to comment on the proposed rules and regulations before they become final, potentially in 2016.