Government Contractor Compliance & Regulatory Update

DOL Issues Proposed Rule on Raising Minimum Wage to $15 per Hour for Federal Contractor Employees

Quick Hit

On July 21, 2021, the Department of Labor (“DOL”) announced a proposed rule (the “Proposed Rule”) to implement President Biden’s Executive Order (the “Order”) requiring an increase of the minimum wage for certain employees of covered federal contractors and subcontractors to $15.00 per hour – except for tipped workers who must be paid $10.50 per hour – beginning January 30, 2022, with annual increases beginning in 2023 to account for inflation.  With some exceptions, the requirement will apply to new contracts issued on or after January 30, 2022, or existing contracts renewed or extended on or after that date.  The final rule will be issued by November 24, 2021.

Key Takeaways                                                                                 

Although the Proposed Rule is not final and may be subject to revisions, federal government contractors should begin to prepare for its implementation by (1) ensuring they properly understand who is covered; and (2) particularly where not all of their workforce will be covered, assessing how best to ensure accurate records and address the practical issues of potentially having two different payment structures for their employees.

More Detail

The Proposed Rule seeks to implement the Order’s requirement that workers on government contracts receive a minimum wage of at least $15 per hour.  The Proposed Rule requires the minimum wage for covered workers on covered “new contracts” to be increased to $15 per hour starting on January 30, 2022, and then to be assessed by DOL and potentially increased annually beginning January 1, 2023.  Any increases will be announced at least 90 days before the new rates take effect.  For covered tipped employees, the Proposed Rule would establish a minimum wage of $10.50 beginning January 30, 2022, and, in the event the new $15 minimum wage for non-tipped employees is increased, the minimum wage for tipped employees would increase to be 85 percent of the new rate until January 1, 2024, when tipped workers will be subject to the same minimum wage requirements as non-tipped employees.  Further, if the tips received by the tipped employees when combined with the minimum wage do not equal or exceed the standard minimum wage for non-tipped employees, the contractor must provide additional wages so that the tipped worker earns at least $15 per hour (or the new increased rate).

Under the Proposed Rule, any worker working on or in connection with a covered contract will be subject to the new minimum wage requirements.  This includes workers who are performing the specific services called for by the terms of the contract, as well as those performing “other duties necessary to the performance of the contract,” unless a specific exemption would apply.

The Proposed Rule requires the new minimum wage requirements apply to and be incorporated into all “new contracts” with government agencies beginning January 30, 2022.  The term “new contract” is not limited to contracts issued on or after January 30, 2022, but also includes any pre-existing contracts where such contracts are renewed or extended on or after that date, or where the government exercises an option to purchase additional supplies or services on or after January 30, 2022.

Notably, the Proposed Rule excludes contracts where the solicitation pre-dates January 30, 2022, and the contract is entered into between January 30, 2022 and March 30, 2022, but renewals, extensions and exercised options during this period appear to be subject to the new minimum wage requirement.

The minimum wage requirement will apply to a “new contract” requiring performance in whole or in part in the United States that is (i) a procurement contract for construction covered by the Davis-Bacon Act; (ii) a contract for services covered by the Service Contract Act; (iii) a contract for concessions, including any concessions contract excluded from coverage under the Service Contract Act by Department of Labor regulations at 29 CFR 4.133(b); or (iv) a contract entered into with the Federal Government in connection with Federal property or lands and related to offering services for Federal employees, their dependents, or the general public.  Further, the minimum wage requirements will only apply where the wages of the workers under such contract are governed by the Fair Labor Standards Act, the Service Contract Act, or the Davis-Bacon Act.

The Proposed Rule does not apply to grants, employees who are exempt from the minimum wage requirements of the FLSA, student workers, and a limited number of other categories of workers.

Under the Proposed Rule, the DOL Wage and Hour Division would be responsible for enforcing the rule’s requirements.  DOL would accept complaints in either oral or written form, and could initiate investigations into violations as a result of such complaints or on its own initiative.  The Proposed Rule would also permit DOL to inspect relevant records and interview both the contractor and the contractors’ workers.  If a government contractor is found to have violated any of the regulations in the Proposed Rule, DOL would notify the contractor of the violation and request it be remedied.  If the contractor does not remedy the violation, DOL could require the contracting agency to withhold payments to the contractor and then transfer the withheld money to the eligible workers.  Contractors could also be subject to debarment proceedings.

Under the Proposed Rule, covered contractors and subcontractors would be required to include in any covered subcontracts a flow down provision requiring the lower-tier subcontractor to comply with the minimum wage requirements.  The Proposed Rule provides that irrespective of whether this clause is included in the subcontract, the prime contractor and any upper-tier subcontractor(s) will be responsible for compliance by any subcontractor or lower-tier covered subcontractor.

The Proposed Rule also includes the following requirements:

  • Wage payments to workers must be made no later than one pay period following the end of the regular pay period in which such wages were earned or accrued;
  • Contractors and subcontractors subject to the Order must maintain records containing information on each worker for a period of three years; and
  • The contractor must notify all workers performing work on or in connection with a covered contract of the applicable minimum wage rate under the Order.

DOL will accept comments on the Proposed Rule until August 21, 2021 before publishing its final version by November 24, 2021.

OFCCP Announces The First New Audits of the Biden Administration – Was Your Company On It?

On July 1, 2021, OFCCP announced the release of the first Corporate Scheduling Announcement List (CSAL). The list consists of 750 Supply and Service establishment-based full compliance reviews, Corporate Management Compliance Evaluations (CMCE), Functional Affirmative Action Program (FAAP) Reviews and University Reviews.  Note that the list merely notifies contractors that they will be audited in the future, which gives them time to prepare.

Contractors are advised to review the CSAL (available here) to see if they have been selected for an audit. If they have been selected, contractors should begin preparing for the type of audit for which they have been selected, and consult with counsel as necessary. One great way to start the process is to attend my panel presentation “You are on the CSAL- Don’t be Caught with your Pants Down!” at the National Industry Liaison Group conference virtually or in person in Nashville on August 1.  Details are available here.

President Biden Issues Executive Order Increasing Minimum Wage for Federal Contractor Employees to $15/Hour

On April 27, 2021, President Biden issued an Executive Order that will increase the minimum wage for certain employees of covered federal contractors and subcontractors to $15.00 per hour, with annual increases beginning in 2023 to account for inflation.  The Executive Order builds upon President Obama’s 2014 Executive Order requiring federal contractors to pay employees at least $10.10 per hour.  The White House expects that “hundreds of thousands of workers” will be affected by the Executive Order.  A White House statement on the Executive Order is available here.

The minimum wage increase does not apply immediately.  Rather, it will only apply to new or renewed contracts beginning January 30, 2022.  Specifically, the following types of contracts, so long as they are also governed by the Fair Labor Standards Act, Service Contract Act, or Davis-Bacon Act, will be subject to the new minimum wage: (1) procurement contracts for services or construction; (2) contracts for services covered by the Service Contract Act; (3) contracts for concessions; and (4) contracts that are both (a) entered into with the federal government in connection with federal property or lands and (b) related to offering services for federal employees, their dependents, or the general public.

The Executive Order also restores minimum wage protections for outfitters and guides operating on federal lands by revoking an exemption created by President Trump.  With regard to tipped workers, the Executive Order increases their minimum wage from $7.65 per hour to $10.50 per hour for new or renewed covered contracts beginning January 30, 2022.  The tipped wage will continue to increase each year until January 1, 2024, when it will be eliminated, and afterwards tipped employees will have to be paid the same minimum wage as other employees on federal contracts.  Further, the Executive Order ensures that individuals with disabilities will be paid the $15.00 minimum wage.  The Executive Order does not apply to agreements with Indian Tribes under the Indian Self-Determination and Education Assistance Act.

The Executive Order specifies that covered federal contracts will have to include a clause increasing the minimum wage, and contractors and any subcontractors will have to incorporate that clause into lower-tier subcontracts.  The Secretary of Labor must issue regulations by November 24, 2021 to implement the Executive Order.  The Secretary may provide, as appropriate, exclusions from the requirements of the Executive Order.

Contractors should evaluate their contracts and workforce to determine (1) which contracts subject to the Executive Order are up for renewal during the remainder of this year and after January 30, 2022 and (2) which job classifications in those contracts currently make below $15.00 per hour.  Contractors should also assess the extent to which wage increases will affect the pricing of their bids and may be considered a cost reimbursement under their respective contracts.

OFCCP Releases 2021 VEVRAA Hiring Benchmark

The Office of Federal Contract Compliance Programs (“OFCCP”) has released its 2021 Vietnam Era Veterans’ Readjustment Assistance Act (“VEVRAA”) benchmark.  Effective March 31, 2021, the new benchmark is 5.6%, a slight decrease from 2020’s 5.7% benchmark.  This is OFCCP’s sixth reduction of the benchmark, which has steadily declined since its inception in 2014.

The VEVRAA Benchmark is the figure which federal contractors must use to assess the effectiveness of their outreach programs for the hiring of veterans.  Contractors may either use OFCCP’s national benchmark, or establish their own benchmark using applicable statistics and other metrics set forth in OFCCP’s regulations (41 CFR § 60-300.45(b)(2)).

 

 

OFCCP Effectively Ends Focused Reviews, Cancelling Those on FY2020 CSAL

On March 2, 2021, OFCCP announced it had amended the FY2020 Supply and Service Corporate Scheduling Announcement List (“CSAL”) issued on September 11, 2020. The amendments removed all establishments selected to receive focused reviews and compliance checks. In so doing, OFCCP removed over half of the 2,500 compliance evaluations included on the list. The amended list is available here.

In announcing the change, OFCCP stated the move would “allow[] it to more thoroughly evaluate contractors through the strategic allocation of limited agency resources.” As such, this move signals the end of focused reviews.

Those contractors scheduled for focused reviews may now breathe a sigh of relief, as they no longer face the imminent prospect of an OFCCP audit. Even so, nothing prevents these contractors from being scheduled for more comprehensive reviews when the next CSAL is issued. Given the expectation OFCCP will be more active under the Biden Administration, contractors should conduct self-assessments and consult with counsel to ensure they are in compliance with the myriad of additional regulatory requirements they face.

OFCCP Announces Response to Revocation of Executive Order Limiting Diversity Trainings

As we previously reported, shortly after taking office, President Biden revoked the controversial Combatting Race and Sex Stereotyping Executive Order (the “Order”) as part of a new Executive Order focusing on “Advancing Racial Equity and Support for Underserved Communities Through the Federal Government.”  The new Order notes that “[i]t is . . . the policy of [this] Administration that the Federal Government should pursue a comprehensive approach to advancing equity for all,” and is just one mechanism through which the President has begun making his mark in ways that will impact the government contractor community.

In response to the revocation of the Order, OFCCP announced the following actions:

  • OFCCP has rescinded its Frequently Asked Questions regarding the Order.
  • OFCCP will completely shut down the phone hotline and email address that were created to accept complaints related to contractors’ alleged noncompliance with the Order. OFCCP had previously acknowledged that it was no longer accepting complaints after a nationwide preliminary injunction prohibited enforcement of the Order, but it has now taken the additional step of completely shutting down the hotline and email address.
  • OFCCP will administratively close all complaints regarding alleged noncompliance with the Order received through the hotline or any other means. For any complaints that were previously held in abeyance pursuant to the preliminary injunction, OFCCP will notify affected employers to the extent possible.
  • OFCCP will not enforce any of the Order’s requirements, including the requirement that contractors include certain flow down provisions in their subcontracts. To the extent contractors have already included the provisions required by the Order in their subcontracts, OFCCP will no longer take any action to enforce such provisions.  Further, OFCCP will not require contractors or subcontractors to provide notice of their commitments under the Order to their respective labor unions or employee representatives.
  • OFCCP will not publish any additional Requests for Information from any individual or entity regarding the training, workshops or programming provided to employees of government contractors or subcontractors with regard to compliance or noncompliance with the Order.

As always, we will continue to report on noteworthy developments impacting the federal government contractor community.  In addition, you can subscribe to Proskauer’s Law and the Workplace blog to stay current on the latest Biden Administration developments impacting your business.

Jenny Yang Will Be The Next OFCCP Director

As previously reported, the new Biden Administration is wasting no time in making changes impacting the government contractor community.  This now includes changing leadership at the OFCCP.  As was anticipated, and is now reflected on the agency’s website, Jenny Yang, who served as EEOC Chair during the Obama Administration, has been selected for the OFCCP Director post.

It is too soon to know exactly what Director Yang’s priorities will be as OFCCP Director, but from her tenure at the EEOC it is anticipated she will focus on pay equity and sexual orientation and gender identity rights.  We will report on any new developments as Director Yang begins to make her mark on the agency.

As has been detailed extensively in this blog, outgoing Director Craig Leen has had an incredibly active tenure in the post.  His time at the agency has been noted for its focus on transparency, new initiatives such as focused reviews, efforts to improve the department’s efficiency, a notable increase in the number of contractor audits, securing record-levels of back pay and interest recoveries, and improved relations with the contractor community.  On a personal note, in my interactions with Leen over the years I found him to be incredibly dedicated and passionate about his work and the agency’s mission, as well as accessible, thoughtful, creative and practical.

 

 

President Biden Revokes Controversial Executive Order Limiting Contactor Diversity Trainings Shortly After Taking Office

As predicted, just hours after taking office, President Biden revoked the controversial Combatting Race and Sex Stereotyping Executive Order (the “Order”) issued by his predecessor in September.  As previously reported, the Order, among other things, required new contracts entered into with the federal government to include a clause prohibiting federal contractors from including certain concepts in diversity and awareness trainings.  The Order included a variety of penalties and sanctions for non-compliance, including debarment.

The Order was controversial from the start.  Many viewed it as an effort to impede unconscious bias and societal privilege trainings that had become more prevalent in the wake of the country’s renewed focus on racial justice and equality.  Lawsuits were filed to stop its enforcement, eventually resulting in one court issuing a preliminary injunction enjoining its enforcement in December.

In a statement issued prior to his inauguration, President Biden called the Order “damaging” and promised that in addition to revoking the Order, he would take “[a]dditional actions in the coming weeks will restore and reinvigorate the federal government’s commitment to diversity, equity, inclusion, and accessibility.”

The new President is already making his mark in ways that directly affect the federal government contractor community, and more changes are clearly in store.  For some predictions of what additional actions may be forthcoming, check out my presentation with Dr. Rick Holt of Resolution Economics from earlier this month recapping major OFCCP developments from 2020 and what we believe may be in store for 2021, available here.

And, as always, you can continue to rely on us to report on consequential developments impacting the federal government contractor community.  Stay tuned for an eventful 2021.

 

 

 

OFCCP Publishes Opinion Letter on Protections for Religious Liberty in (and out of) the Workplace

On January 8, 2020, the Office of Federal Contract Compliance Programs (“OFCCP”) published an opinion letter responding to an unidentified religious organization’s request for clarification on the “scope of the legal protections for religious liberty in the workplace.” The organization’s request stemmed from its concern that “employees in the technology, education, public, and other sectors may face discrimination at work based on faith-related activities and beliefs.”

Executive Order 11246 applies to federal contractors and subcontractors and, through its equal opportunity clause included in federal contracts, prohibits employment discrimination on a variety of characteristics, including religion. However, the executive order includes an exemption for religious corporations, associations, educational institutions, and societies with respect to the employment of individuals of a certain religion. OFCCP recently finalized regulations expanding the scope of this exemption.

Nonetheless, in its opinion letter, OFCCP noted that a contractor falling under the religious exemption often still has an affirmative obligation to provide religious accommodations and “should evaluate its processes to make sure it is not failing to provide religious accommodations when legally required to do so. If a proposed religious accommodation would impose an undue hardship, the contractor should work with the applicant or employee to attempt to identify a reasonable accommodation that would not impose such a hardship.” Further, the letter advises that contractors “should develop reasonable internal procedures to ensure that their obligation [to provide equal opportunities to members of all religious faiths (or no religious faith) and to provide appropriate accommodations] is being fully implemented.”

The opinion letter addresses six hypothetical scenarios of religious discrimination and assumes in its response that the employer agreed to the requirements of Executive Order 11246 and was not entitled to a religious exemption:

  • Where an applicant or employee suffers an adverse employment action because the employer assumes the individual has religious values that others may find offensive (e.g., wearing a hijab or attending an Orthodox synagogue where seating is separated by sex), that adverse employment action would be unlawful.
  • Where an applicant or employee suffers an adverse employment action because of his or her membership in a religious group that has taken public policy positions that others may find offensive (e.g., supporting or opposing the State of Israel or opposing late-term abortions), that adverse employment action would be unlawful.
  • Where an applicant or employee suffers an adverse employment action for: (1) attending or supporting a synagogue/church-sponsored cause or event (that is part of the individual’s religion); (2) the cause or event is one that others may find offensive (e.g., an anti-war rally, the March for Life, or a rally opposing anti-Semitism); (3) and the attendance takes place during non-work hours, that adverse employment action would be unlawful.
  • Where an employee suffers an adverse employment action for stating, during a company-provided rest break, that he or she has religious views that others may find offensive (e.g., supporting only traditional marriage or, conversely, supporting an expanded definition of the family), that adverse employment action would be unlawful. The opinion letter notes that it assumes for this hypothetical that the employee was not told that the comments were unwelcome and the employee stated his or her view respectfully, in a non-hostile way.
  • Where an applicant or employee suffers an adverse employment action after informing the employer he or she requires a religious accommodation (e.g., the inability to work on religious holy days or the need to have a personal microwave for kosher food), that adverse employment action would be unlawful. Further, the letter notes that “if the employer made no effort to act on the . . . accommodation request, it will likely be unable to demonstrate that the proposed accommodation would actually have posed an undue hardship.”
  • Where an applicant or recently hired employee is let go because he or she requested a religious accommodation (e.g., needing to leave work early in observance of the Sabbath), and was given no opportunity to discuss the requested accommodation with the employer, that termination is unlawful. Although the employer may not be required to provide an accommodation, the opinion letter again notes that if the employer does not act on the request, it will be difficult to show that the accommodation would pose an undue hardship.

These hypotheticals provide clearer guidance on the protections for religiously observant employees and clarify the freedom many employees must be afforded for expressing potentially controversial religious views. However, given the incoming new Administration, it is unclear whether this opinion letter and other developments regarding the religious exemption will be amended or even rescinded. Further, it is unclear whether OFCCP under the new Administration will continue to issue opinion letters. The practice was introduced in 2018, but in subsequent years has resulted in only a handful of opinion letters.

We will continue to report on note-worthy opinion letters as they become available as well as other OFCCP developments.

OFCCP Proposes Accommodations and Promotions Focused Review Scheduling Letters

As we previously reported, when OFCCP released its latest Corporate Scheduling Announcement List (“CSAL”) in September 2020, it identified contractors selected for the agency’s new reviews focused on promotions and accommodations.  Little was known about the reviews, although the agency provided some additional detail later that month when it launched two websites devoted to the new focused reviews.

However, the agency was not able to initiate such focused reviews as it had not proposed or received approval of scheduling letters for the reviews.  The agency has now begun that process, submitting to the Office of Management and Budget (“OMB”) proposed scheduling letters for the two new reviews.

The proposed scheduling letters must still be approved by the OMB before OFCCP may use them to schedule the new focused reviews.  Given the upcoming change in Administration, it is difficult to predict when, or even if, these letters will be approved, and what changes may be implemented in any final versions.  However, contractors selected for these reviews should be familiar with and follow developments regarding these letters as they provide the first real sense of the burden associated with such audits.

Below we summarize some of the key components of the proposed letters.  As discussed, the proposed letters seek information from contractors that go well beyond the stated focused purpose of the reviews and differ from the narrow scope of other focused review scheduling letters.  From this it appears these new focused reviews may be more like traditional establishment reviews with some additional lines of inquiry.  We will continue to monitor and report on this and other noteworthy OFCCP developments.

Proposed Accommodations Focused Review Scheduling Letter

OFCCP’s website on Accommodations Focused Reviews states that these reviews will look at review “contractor’s policies and procedures related solely to religious and disability accommodations.”  However, the scheduling letter seeks a plethora of materials and information that go well beyond this narrow stated scope.  Notable documents and information the proposed letter seeks to require contractors to submit, include:

  • A copy of their Executive Order 11246, Section 503 and VEVRAA AAPs;
  • Analyses of utilization of individuals with disabilities;
  • Information on contractors’ Executive Order 11246 affirmative action goals and progress toward goals;
  • Applicant, hiring, promotion and termination data. In addition to promotions data, contractors must include “a definition of ‘promotion’ as used by [their] company and the basis on which [the promotions] were compiled (e.g. promotions to the job group, from and/or within the job group, etc.).”
  • Compensation data; and
  • Copies of reasonable accommodation policies and documentation of any accommodation requests received and their resolution.

Proposed Promotions Focused Review Scheduling Letter

Similarly, the proposed Promotions Focused Review Scheduling Letter seeks information that goes beyond OFCCP’s prior statements concerning the scope of these new reviews.  On its website, OFCCP informed contractors these reviews would examine “contractor data, policies, and procedures related to promotions to ensure that federal contractors are meeting their equal employment opportunity obligations.”  However, like the proposed accommodations focused review scheduling letter, the proposed promotions focused review scheduling letter seeks to have contractors submit data and documents that go well beyond the stated focus of the review, such as hiring and termination data, and detailed compensation data.

Check back here for more information on the proposed scheduling letters and new accommodations and promotions focused reviews.

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