“Our tax dollars shouldn’t go to companies that violate workplace laws. They shouldn’t go to companies that violate worker rights,” President Obama said during the signing ceremony.

This latest executive order is in a line of mandates from the president, all increasing the compliance obligations of federal contractors. In February, the president signed an executive order that raises the minimum wage of certain federal contractors to $10.10/hr., and this summer, the president signed an executive order that prevents federal contractors from discriminating based on sexual orientation.

In keeping with his statements during the State of the Union address, President Obama has been using his authority to mandate executive orders to move along a progressive agenda that has otherwise been blocked by Republicans in Congress. Due to these developments, federal contractors should consult with their labor and employment counsel, understand the new requirements, and develop plans for meeting the increased compliance thresholds.

The New Executive Order under the Microscope

The latest executive order moves to accomplish three things. First, it forces contractors and subcontractors to disclose labor and employment violations to the federal government. Second, it bars contractors from utilizing arbitration agreements in some situations. And third, it increases work hours and pay disclosure requirements for federal contractors.

• Violation Disclosures Requirements

The executive order only governs federal contractors and subcontractors, not the private sector at large. It applies to procurement contracts for goods and services, including construction, where the estimated value is greater than $500,000. Although there is a limited exception for some subcontractors, the order applies to all prime contractors.

The order requires covered contractors to report, at the time of bidding or renewal, any administrative merits determination, arbitral award or decision, or civil judgment within the last three years for violations of the Fair Labor Standards Act, the Occupational Safety and Health Act, the Migrant and Seasonal Agricultural Worker Protection Act, the National Labor Relations Act, the Davis-Bacon Act, the Service Contract Act, Executive Order 11246 (equal employment opportunity), Section 503 of the Rehabilitation Act (persons with disabilities), the Vietnam Era Veterans’ Readjustment Assistance Act, the Family and Medical Leave Act, Title VII of the Civil Rights Act, the Americans with Disabilities Act, the Age Discrimination in Employment Act, Executive Order 13658 (the new minimum wage requirement for contractors), or equivalent state laws.

In short, it requires disclosure of violations of almost all federal and state labor or employment laws. In addition, these disclosures must be updated every six months. Although exactly what must be disclosed is still unclear, based on the language of the executive order, it appears that the order will require disclosure of all agency administrative hearing rulings as well as non-adjudicative findings, such as “For Cause” findings by the Equal Employment Opportunity Commission (EEOC). It will also require disclosure of any adverse court rulings.

• Limitations on Arbitration Agreements

In a move that will likely be challenged in court, the executive order also bans certain pre-dispute arbitration agreements; federal contractors will no longer be able to utilize arbitration agreements for claims arising under Title VII (race, color, religion, sex, or national origin), or any tort relating to sexual assault or harassment. This provision appears to seek to regain a foothold lost when the Fifth Circuit overruled the NLRB’s decision in DR Horton, which had held that arbitration agreements violated federal labor law.

The arbitration portion of the executive order is more limited than the rest of the order — it only applies to federal contractors and subcontractors with contracts that exceed $1,000,000, and it doesn’t apply to prime or subcontracts for the acquisition of commercial items or commercially available off-the-shelf (COTS) items.

In addition, the arbitration prohibition only applies to arbitration agreements entered into after a contractor bids on or renews a federal contract. In other words, arbitration agreements in place now are still okay.

• Pay Check Provisions

Finally, the executive order requires certain contractors and subcontractors to provide employees each pay period with the number of hours worked, the number of overtime hours, their pay, and any additions to or deductions from pay. If the employee is exempt from overtime under federal law, then the notice doesn’t need to include hours worked, so long as the employee is informed of his or her overtime exempt status.

Next Steps for Employers

In light of the increased regulations through executive fiat this year alone, not to mention the increased enforcement activity of federal regulatory agencies in general, federal contractors need to be especially mindful of their obligations under federal law.

• Know the Law

Federal contractors should know what each of the new executive orders require of them, including whether the order applies to their business or not. This is more difficult than it seems at first blush, because most of these new orders are ambiguous in their coverage, and regulations are still being promulgated.

The federal government will be writing and issuing regulations, implementing the requirements of this executive order. As of now, there is no anticipated date for these regulations, but federal contractors should keep a close eye out for them.

• Be Mindful of Labor and Employment Laws

Not only do federal contractors now have to worry about the specifics of proper compliance when it comes to their disclosure requirements under this new executive order, they now have an additional reason to worry about compliance with the myriad of federal employment and labor regulations referenced in this executive order. Non-compliance with any of these could lead to adverse action, not only from the federal or state agency responsible for enforcing that particular law, but also from the contracting agency, potentially jeopardizing a company’s federal contract.

• Consider Your Use of Arbitration Agreements

For some contractors, the new executive order will call certain arbitration agreements into question. However, this doesn’t mean that contractors should simply give up on arbitration agreements — these agreements provide invaluable protection for employers, especially with regard to wage and hour lawsuits and class action waivers. Remember that all arbitration agreements are still valid if they are entered into prior to the date the company bids on the new federal contract. Consequently, now is an excellent time for companies to consider implementing arbitration agreements.

Additionally, a legal challenge to this portion of the executive order is almost guaranteed. However, even if this portion is ultimately upheld by the courts, contractors should still weigh the option of adapting their arbitration agreements to conform to the executive order, with the addition of a “savings clause.” While the National Labor Relations Board (NLRB) and the EEOC in the past have taken the position that savings clauses are insufficient, courts often uphold such clauses.

Finally, the ban on arbitration agreements only applies to claims arising under Title VII, or any tort relating to sexual assault or harassment. This means that covered contractors can continue to require arbitration agreements with class action waivers for wage and hour disputes, disability claims, age claims, family leave claims, and a number of other disputes. Contractors should consider their circumstances, consult with counsel, and take action accordingly.

• Ensure Compliance with the Pay Disclosure Requirement

This portion of the executive order is the least controversial. Although it mandates another regulatory hoop for covered contractors to jump through, its required disclosures are less onerous than many states’ current requirements. Covered contractors should audit their practices to ensure compliance, since they may already be complying with these requirements.

Unfortunately, federal contractors are caught in an election year showdown, with the administration vowing to move its agenda, with or without the cooperation of Congress. If you have federal contracts or subcontracts to a prime federal contractor, you should consult with labor and employment counsel, understand the new requirements, and develop plans for meeting the increased compliance thresholds. Don’t put business opportunities at risk by inattention to these serious changes.

Publication date: 8/18/2014

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