Proposed Rule on Non-Displacement of Employees Under Service Contracts
On November 18, 2021, President Biden issued Executive Order 14055, “Nondisplacement of Qualified Workers Under Service Contracts,” reinstituting the requirement that successor contractors on Service Contract Act contracts offer positions to the employees of the predecessor contractor. President Trump had previously rescinded this requirement with Executive Order 13897.
President Biden’s Executive Order 14055 required the Department of Labor to issue final regulations implementing the terms of Executive Order 14055. On July 15, the DOL issued those final regulations. They are available here.
The proposed regulations require agencies subject to the Federal Property and Administrative Services Act to ensure that service contracts and subcontracts that “succeed a contract for performance of the same or similar work” include a nondisplacement clause. This clause requires the contractor and its subcontractors to offer a right of first refusal of employment to service employees employed under the predecessor contract and its subcontracts, if their employment would be terminated as a result of the successor contract.
The proposed regulations define “service contract” as “any contract, contract-like instrument, or subcontract for services entered into by the Federal Government or its contractors that is covered by the Service Contract Act.”
Offers of Employment Required by the Nondisplacement Clause
The nondisplacement clause requires contactors and their subcontractors to make express offers of employment to each service employee working under the predecessor contract during the last month of contract performance “to a position for which the employee is qualified,” regardless whether the position is similar to the one the employee previously held. The contractor must provide at least 10 business days for the service employee to respond to the employment offer.
The successor contractor or subcontractor may offer employment to more or fewer employees than employed under the predecessor contract in connection with performance of the work, after determining the number of employees “necessary for efficient performance of the contract.” If additional positions become available within 90 days of the first day of performance of the contract, the successor contractor must also provide these employment offers to service employees under the predecessor contract.
Until the successor contractor has complied with the displacement clause and made such employment offers, it may not offer employment under the contract to any other person for positions that employees under the predecessor contract are qualified.
Notice and Disclosures
When a contract will be awarded to a successor for the same or similar work, the Contracting Officer must ensure that the predecessor contractor provides written notice to service employees employed under the predecessor contract of their possible right to an offer of employment, as required by the displacement clause.
The predecessor contractor must also provide a list of all current service employees working under the contract to the Contracting Officer at least 30 days before completion of performance of the contract. The Contracting Officer must then provide the list to the successor contractor within 21 days prior to the start of the successor contract.
Subcontracts under the Successor Contract
All subcontracts entered into to perform services under the successor contract must include the nondisplacement clause. All contracts and subcontracts must also include a clause requiring any lower tier subcontracts to include the nondisplacement clause. The prime contractor is responsible for the subcontractor and for any lower tier subcontractor’s compliance with the nondisplacement clause.
Agencies soliciting for a service contract succeeding a contract for performance of the same or similar work must determine whether “performance of the work in the same locality or localities in which the contract is currently being performed is reasonably necessary to ensure economical and efficient provision of services.” If so, the agency must “include a requirement or preference in the solicitation for the successor contract that it be performed in the same locality or localities.”
Exclusions and Exceptions
The requirements of the proposed regulations do not apply to prime contracts under the “simplified acquisition threshold” of $250,000, or to employees hired to work under a federal service contract and one or more nonfederal service contracts as part of a single job.
A successor contractor or subcontractor is not required to offer employment to a service employee under the predecessor contract if the employee is retained by the predecessor contractor, or if the successor contactor reasonably believes, based on past evidence, that there would be just cause to discharge the employee if they were employed.
Exceptions Authorized by Federal Agencies
A contracting agency may waive some or all requirements of these regulations if it provides a written determination, no later than the solicitation date, that adhering to the requirements of these regulations would result in at least one of the following circumstances:
(1) Adhering would not advance “the Federal Government’s interests in achieving economy and efficiency in Federal procurement.”
(2) Adhering would “substantially reduce the number of potential bidders so as to frustrate full and open competition” and would “not be reasonably tailored to the agency’s needs for the contract,” based on a market analysis.
(3) Adhering would otherwise be “inconsistent with statutes, regulations, Executive Orders, or Presidential Memoranda.”
Enforcement and Sanctions for Non-Compliance
The Secretary of Labor may issue final orders prescribing sanctions and remedies for non-compliance with these regulations, including requiring the successor contractor to offer employment and payment of lost wages to qualified employees under the predecessor contract. If the Secretary finds that a contractor failed to comply with these regulations, it may determine that the contractor is ineligible to be awarded any contract or subcontract with the United Sates for up to three years.
The proposed regulations allow employees under the predecessor contract to file a complaint with the Wage and Hour Division within 120 days of contract performance if they believe the successor contractor violated the requirements of the nondisplacement clause. The Administrator of the Wage and Hour Division may then commence an investigation of the successor contractor’s compliance with the nondisplacement clause. If the Administrator determines that a violation has occurred, it may issue the appropriate relief and sanctions. In this circumstance, the aggrieved party may seek judicial review, an Administrative Law Judge hearing, or review by the Administrative Review board, of the Administrator’s determination.
This article summarizes aspects of the law and does not constitute legal advice. For legal advice for your situation, you should contact an attorney.
Contributing to this article, Dylan Sollfrank, Summer Associate.