In his first month of office, President Obama issued three significant Executive Orders affecting employees of government contractors.  Revoking several Bush administration Executive Orders, the three new orders demonstrate a dramatic shift in federal labor policy.

a. Executive Order 13494

On January 30, 2009, President Obama issued Executive Order 13494, entitled “Economy in Government Contracting.”  Executive Order 13494 mandates that contracting departments and agencies treat as “unallowable” the costs of activities undertaken to persuade employees — whether employees of the Contractor or of any other entity — to exercise or not to exercise (or concerning the manner of exercising), the right to organize and bargain collectively through representatives of the employees’ own choosing.  “Unallowable” costs for this purpose include preparing and distributing materials, hiring or consulting legal counsel or consultants, holding meetings (including payment of employees’ wages while attending such meetings), and other related activities.

Notwithstanding this mandate, contracting departments and agencies may allow costs “incurred in maintaining satisfactory relations between the contractor and its employees,” including joint labor-management committees, employee publications (other than those undertaken to persuade employees to exercise or not to exercise, or concerning the manner of exercising, the right to organize and bargain collectively), and other related activities.  The FAR Council has until June 29, 2009 to revise its regulations to implement Executive Order 13494.

b. Executive Order 13496

On the same day, President Obama issued Executive Order 13496, entitled “Notification of Employee Rights Under Federal Labor Laws.”  In an effort to enhance “industrial peace” and “worker productivity,” Executive Order 13496 attempts to ensure that workers are better informed of their rights under federal labor laws, including the National Labor Relations Act, 29 U.S.C. § 151 et seq.  The Order requires that contractors and subcontractors post a notice regarding employee rights under federal labor laws

in conspicuous places in and about its plants and offices where employees covered by the National Labor Relations Act engage in activities relating to the performance of the contract, including all places where notices to employees are customarily posted both physically and electronically.

The Secretary of Labor will prescribe the content, size, and form of the notice by June 1, 2009.  This Order is effective immediately, and applies to contracts resulting from solicitations issued on or after the effective date of the rule promulgated by the Secretary. 

In the event that a contractor does not comply with these posting requirements, the Order provides that the contract may be cancelled, terminated, or suspended in whole or in part, and that the contractor may be declared ineligible for further Government contracts.  If applying the requirements would not serve the purposes of the Order or would impair the ability of the Government to procure goods or services on an economical or efficient basis, the Secretary may exempt a contracting department or agency or group of departments or agencies from the requirements of any or all of the provisions of the Order with respect to a particular contract or subcontract or any class of contracts or subcontracts.

Perhaps most significantly, Executive Order 13496 revoked former President Bush’s Executive Order 13201 of February 17, 2001, which required notice to employees of their rights not to join a union and not to pay agency fees for nonrepresentational union expenditures under Communication Workers of America v. Beck, 487 U.S. 735 (1988).

c. Executive Order 13502

On February 6, 2009, President Obama issued Executive Order 13502, entitled “Use of Project Labor Agreements for Federal Construction Projects.”  The Order encourages agencies to use Project Labor Agreements (“PLAs”) in certain large-scale federal construction projects where the total cost to the Government is $25 million or more.  The Order recognizes that construction employers typically do not have a permanent workforce, which makes it difficult for them to predict labor costs when bidding on contracts and to ensure a steady supply of labor on contracts being performed.  In addition, large-scale construction projects typically involve multiple employers at a single location, and a labor dispute involving one employer can delay the entire project.  A lack of coordination among various employers, or uncertainty about the terms and conditions of employment of various groups of workers, can create frictions and disputes in the absence of an agreed-upon resolution mechanism.  These problems arguably threaten the efficient and timely completion of construction projects undertaken by federal contractors.

To address these perceived challenges, Executive Order 13502 encourages, but does not mandate, the use of PLAs on such large-scale construction projects.  Rather, agencies “may” on a project-by-project basis, require the use of a PLA by a contractor where use of such an agreement will advance the Government’s interest in achieving economy and efficiency in federal procurement, producing labor-management stability, and ensuring compliance with laws and regulations governing safety and health, equal employment opportunity, labor and employment standards, and other matters.  If appropriate, an agency may require that every contractor or subcontractor on the project agree, for that project, to negotiate or become a party to a PLA with one or more appropriate labor organizations.

The FAR Council has until June 8, 2009 to take “whatever action is required” to implement the provisions of the Order.  The Order is effective immediately and applies to all solicitations for contracts issued on or after the effective date of the action taken by the FAR Council.

Notably, Executive Order 13502 explicitly revokes former President Bush’s Executive Orders 13202 and 13208, which prevented federal agencies from requiring or prohibiting contractors from signing PLAs as a condition to performing work on federal projects.

Given the “immediate” effect of these Executive Orders, and drastic reversal of former Bush administration policies, contractors who do business with the federal government should  review their applicable invoicing, personnel, and labor policies to ensure compliance.  Sheppard Mullin’s team of Government Contracts and Labor and Employment attorneys will continue to monitor the resulting rules and regulations from the Secretary of Labor and the FAR Council, and will update this Blog with any significant developments. 

Authored by:

Emily Seymour

(202) 772-5359