President Obama Signs Pro-Union Executive Orders

On January 30, 2009, President Obama signed three Executive Orders (posted on WhiteHouse.gov but not yet numbered) that took immediate effect and could immediately impact federal contractors and subcontractors.  The Executive Orders are generally viewed as indicative of the new Administration's favorable sentiments toward unions.

Posting Notices of Employee Legal Rights.  According to an Executive Order entitled "Notification of Employee Rights Under Federal Labor Law," federal contracts (with few exceptions) must contain provisions requiring the contractor to post notices of employees' legal rights (including rights under the National Labor Relations Act) in areas where employees covered by the NLRA, performing contract work, are located.  Subcontracts must also include such language.  The U.S. Secretary of Labor will set the size, form and content of such notices. 

Alleged violations will be investigated by the Secretary of Labor, and violators may have their contracts cancelled, terminated, or suspended, in whole or in part, and may be declared ineligible for further federal government contracts.  Implementing regulations will be issued by the Secretary of Labor. 

The pro-union premise of the Executive Order is stated in the preamble, which declares that the federal government has an interest in ensuring that work under federal contracts not be disrupted by "labor unrest," and that "industrial peace ... and workers' productivity" are best achieved "when workers are well informed of their rights under Federal labor laws, including the [NLRA] . . . ."

Neutrality in Contractors' Labor-Management Disputes.  An Executive Order entitled "Economy in Government Contracting," directs that contractors providing goods or services to federal agencies shall not be paid for the costs of any activities undertaken by the contractors to persuade employees to exercise or not to exercise, or concerning the manner of exercising, the right to organize and bargain collectively through unions.  Federal agencies are to treat such costs as "unallowable," and such costs are not to be included in any billing, claim, proposal or disbursement from a contractor. 

Duty to Offer Rights of First Refusal to Employees of Predecessor Contractors.  An Executive Order regarding "Nondisplacement of Qualified Workers Under Service Contracts" is the most extreme of the three new Executive Orders.  This Executive Order deals with service contracts with the federal government that are covered by the Service Contract Act.  It applies to situations where a service contract expires and a follow-on contract is awarded for the same service, at the same site, to another contractor ("successor"), rather than the incumbent contractor ("predecessor"). 

A successor contractor (or subcontractor) may employ fewer employees on the work than its predecessor, but the successor must offer a right of first refusal of employment under the new contract to the employees of the predecessor who previously performed the work, in positions for which the employees are qualified.  The employees of the predecessor must be given at least 10 days to decide whether to exercise the rights of first refusal given to them.  Successors may not offer employment to anyone else until after the above requirements have been satisfied.

There are two major exceptions to the right of first refusal requirement:  (1) the successor may employ any employee who has worked for the successor for at least three months immediately before the start of the new contract, if the employee would otherwise face layoff or dismissal, and (2) no right of first refusal need be given to an employee of a predecessor if the successor reasonably believes, based on the employee's past performance, that the employee has failed to perform suitably.

The Secretary of Labor may investigate violations of this Executive Order, and among available remedies are orders requiring employment and awards of lost pay.  Violators, as well as their responsible officers, "and any firm in which the contractor or subcontractor has a substantial interest" shall be ineligible to be awarded any federal contract for a period of up to three years.

Sherman & Howard has prepared this advisory to provide general information on recent legal development that may be of interest. This advisory does not provide legal advice for any specific situation. This does not create an attorney-client relationship between any reader and the Firm. If you want legal advice on a specific situation, you must speak with one of our lawyers and reach an express agreement for legal representation.

© 2009 Sherman & Howard L.L.C.                                                February 6, 2009