A Re-Gift from 2009: The Department of Labor Issues a Final Rule Implementing President Biden’s Executive Order on Nondisplacement of Qualified Workers Under Service Contracts

On December 14, 2023, the Department of Labor (“DoL”) issued a final rule implementing Executive Order 14055, “Nondisplacement of Qualified Workers Under Service Contracts” (the “Rule”). The Rule requires contractors to give service employees from a predecessor contract a bona fide right of first refusal for employment under new Service Contract Act (“SCA”)-covered contracts, contract-like instruments, or subcontracts for the same or similar work. These bona fide offers to service employees—as defined by the SCA—must be made before the contractor makes offers to other workers. The Rule will go into effect on February 12, 2024.

The Rule applies to SCA-covered contracts and subcontracts of all tiers, and the FAR clause that will be issued pursuant to Appendix A of the Rule is a mandatory flowdown clause. Because the Rule applies to SCA-covered contracts and subcontracts regardless of the location of the successor contract, the Rule requires contracting agencies to issue location continuity determinations if the agency reasonably determines that the successor contract must be performed in the same or similar locality as the predecessor contract. The Rule does not require contractors to pay predecessor employees’ relocation costs.

Agencies may grant an exception to the Rule in narrow circumstances where the senior procurement executive issues a written determination that the Rule would: be inconsistent with the law; frustrate full and open competition based on a market analysis; or not advance economy and efficiency in federal procurement—i.e., written credible information provided by a knowledgeable source that the “entire predecessor workforce failed” to “perform suitably,” or an emergency event would make it impossible or impractical to retain the workforce.

The Rule requires predecessor contractors on SCA-covered contracts to:

• Provide a certified list of service employees: At least 30 calendar days before performance of services on a contract is complete, the predecessor contractor must give the contracting officer a certified list of the names, mailing addresses, anniversary dates of employment, and if known, phone numbers and email addresses of all service employees working under the contract and its subcontracts at the time the list is submitted. (This satisfies 29 CFR 4.6(l)(2) obligations to provide a certified list of employees 10 days before the completion of work, so long as there are no employee changes.).
• Notify service employees of their possible right to a successor contract employment offer: Before contract completion, the Rule requires contractors to provide service employees with a written notice of their possible right to an offer of employment on a successor contract.
• If an exception to the Rule applies, notify service employees of that exception.

The Rule requires a successor contractor on SCA-covered contracts to:

• Ensure a covered contract contains the nondisplacement contract clause and notify the contracting officer if it appears that the clause was mistakenly omitted.
• Make written, bona fide, express job offers to service employees of the predecessor contract. This offer must state the timeframe for acceptance, which must be at least 10 business days after issuance of the offer.
• Accept other reliable evidence of a worker’s right to receive a job offer, if the successor contractor does not receive a certified list of predecessor contract service employees from the contracting agency or information on that list is incorrect.
• Comply with notice requirements for predecessor contract service employees when a location change for contract performance is possible.
• Abide by recordkeeping obligations for employment offers, exceptions, and payments by retaining:
  • Copies of written offers of employment, including the date of the offer, any records that form the basis for any exclusion or exception claimed, and both of the employee lists received from, and (near completion of the successor contract) provided to, the contracting agency.
  • Records of required retroactive wage payments to workers as a remedy for a violation of the nondisplacement clause, which must include the amount paid to each employee, the time period covered by the payment, and the date of payment.
  • Evidence of any notices that the contractor provided to workers, or workers’ collective bargaining representatives, to satisfy the requirements of the E.O. or the Rule, including notices of the possibility of successor contract employment offers, and communications with collective bargaining representatives about the location continuity determination.

DoL will investigate alleged violations of the Rule based on DoL initiative or oral or written complaints. Possible consequences of a violation include withholding of funds—either temporarily while the contractor cures noncompliance with recordkeeping and certified employee list obligations, or as payment for back wages owed to workers—and debarment. The Rule provides DoL with the authority to require a contractor to provide appropriate relief if DoL finds that a contractor obstructed the investigation or discriminated against any whistleblower or cooperating witness.

This Rule is largely a return to the prior nondisplacement rule, first implemented in 2009 but revoked in 2019 by executive order, with a few important differences. The new Rule potentially applies even where a contract location changes, based on the outcome of the location continuity determination, and requires such an analysis whenever a location change is possible.  The 2009 rule only made the non-displacement requirements applicable where contract performance of the same or similar services would take place in the “same location.” Additionally, the new Rule requires predecessor contractors to provide employee lists earlier, and requires successor contractors to provide additional time for predecessor employees to respond to offers of employment. The new Rule also slightly broadened the potential exceptions available to a contracting agency to avoid the nondisplacement obligations.

Contractors performing service contracts should consider their service employee workforce options and hiring processes when bidding on successor SCA-covered contracts. We are continuing to monitor the implementation efforts by both DoL and contracting agencies.