On March 19, the Department of Labor’s Wage and Hour Division (WHD) published in the Federal Register a notice of proposed rulemaking (NPRM) (pdf) that seeks to implement Executive Order 13495, Nondisplacement of Qualified Workers Under Service Contracts, (pdf) signed by President Obama on January 30, 2009. This Order requires that any federal service contracts and solicitations for such contracts include a clause requiring contractors and their subcontractors to offer existing employees the right of first refusal to take positions for which they are qualified under the new contract. The right of first refusal clause does not apply to managerial or supervisory employees. Any new contractor cannot advertise employment openings until the right of first refusal has been exercised by the existing employees.

This order revokes Executive Order 13204, issued by former President Bush on February 17, 2001, which in turn had rescinded former President Clinton-era Executive Order 12933 implementing the displaced worker policy in the first instance. Obama’s order effectively reinstates Clinton’s.

According to the NPRM, the DOL proposes to implement the current Executive Order with regulations based on similar requirements to those issued under the Clinton Order, but recognizes that the current Order is broader in scope as to the types of service contracts covered. Therefore, the NPRM provides a section-by-section discussion of the proposed rule, highlighting significant differences between this proposal and the prior regulations issued under the Clinton Order.

Notably, the current Executive Order covers all contracts covered by the Service Contract Act (SCA) above the simplified acquisition threshold (currently $100,000). The Clinton Order was limited to building services contracts in excess of the simplified acquisition threshold for maintenance of public buildings. Moreover, exemptions listed for, among other entities, the U.S. Postal Service, NASA, military, and Veterans Administration installations in the Clinton Order have been eliminated.

In addition, while both the current and Clinton Orders establish a federal policy for successor contractors to offer employment in most cases to the employees on the predecessor contract when the new contract award would otherwise displace those workers, the regulations covering the Obama Order would be written in the customary format, as opposed to the question and answer format for the Clinton Order. The current regulations also propose minor modifications to the enforcement and administrative procedures to clarify responsibilities of various federal officials, which was not included in the prior rule.

Also, the current proposed rules would add a definition of managerial and supervisory employee. The general policy stated in section 1 of the current Order and in the contract clause parenthetically excludes managerial and supervisory employees from its requirements, but does not define these terms, nor did the regulations implementing the Clinton Order.

The Obama Executive Order requires contractors to include in their contracts with subcontractors provisions requiring that the subcontractor agree to the nondisplacement provisions with respect to their own employees. Contracts below the simplified acquisition threshold of $100,000 are excluded under the Order. The DOL interprets this exclusion for subcontracts, even when the prime contract is for a greater amount. However, the covered prime contractor or higher tier subcontractor would still have to comply with these nondisplacement requirements. If a covered contractor subject to the nondisplacement requirements were to discontinue the services of a subcontractor at any time during the contract and perform those services itself at the same location, the contractor would have to offer employment to the subcontractor's employees who would otherwise be displaced and would otherwise be qualified but for the size of the subcontract. The DOL notes the Clinton Order excluded prime contracts under the simplified acquisition threshold and therefore did not mention subcontracts in the regulations.

The DOL further explains that proposed contract clause paragraph (g) requires the contractor to maintain certain records to demonstrate compliance with the nondisplacement requirements. The NPRM notes that this proposed paragraph was not included in the prior regulations.

Comments to this proposed rule must be submitted on or before May 18, 2010, and include the Regulatory Identification Number (RIN) 1235-AA02. Written comments may be sent to Regulatory Analysis Branch, Wage and Hour Division, U.S. Department of Labor, Room S-3502, 200 Constitution Avenue, NW., Washington, DC 20210. Alternatively, comments may be submitted electronically through the federal eRulemaking Portal: http://www.regulations.gov. 

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