Over the past year, the bar for U.S. federal contractor compliance has been raised considerably. Between the Executive Orders issued by President Obama and the recent uptick in the number and dollar amount of settlements involving Office of Federal Contract Compliance Programs (OFCCP), the risks to contractors who fail to make the leap are greater than ever.
Minimum wage for covered employees
For instance, Executive Order 13658 took effect on January 1, 2015, and established a $10.10 minimum wage for contractors. The directive applies to new contracts issued after January 1, 2015, as well as supplemental agreements to existing contracts with a term of more than six months, and extends to Service Contract Act and Davis Bacon Act contracts. Also specifically covered are employees who spend over 20% of their time “in connection with” such contracts, reflecting a deliberate effort to include “indirect” employees in the regulation. Since its implementation, EO 13658 has covered the wages of over 200,000 employees nationwide. Beginning January 1, 2016 and annually thereafter, the Secretary of Labor will evaluate and increase the $10.10 rate to remain lockstep with the Consumer Price Index for Urban Wage Earners and Clerical Workers.
The initial takeaway is that contractors must ensure that they are paying covered employees at or above the $10.10 minimum hourly rate, which is simple enough logistically, if not financially. However, the burden of tracking and identifying which employees spend 20% of more of their time on a covered contract also falls to contractors. And as always, employers must review and evaluate their contracts to determine whether or not it is a covered contract.
Protection for sexual orientation and gender identity
Directive 2015-01, which took effect on April 16, 2015, clarifies that the OFCCP shall include sexual orientation and gender identity among the protected categories of EO 11246. While not all circuits have interpreted the Title VII protections to include sexual orientation or gender identity, Directive 2015-01 expressly does so for contractors. Accordingly, contractors must recognize that the OFCCP is authorized – and is in fact directed – to investigate individual and systemic complaints of discrimination based on sexual orientation and gender identity made by covered employees.
Paid sick leave
More recently, on September 7, 2015, President Obama signed an Executive Order requiring federal contractors to provide workers the ability to earn up to 7 days of paid sick leave each year. Essentially, the order allows an employee to earn one paid sick leave hour for every 30 hours worked. The order applies to a broad definition of “sick leave” to include leave relating to physical or mental illness, injury or medical condition, as well as obtaining diagnosis, care, or preventive care from a health care provider. The order extends to employees caring for a sick child, parent, spouse, domestic partner, or any other individual related by blood or so close as to be the equivalent of a family relationship. The order also specifically includes any absence resulting from domestic violence, sexual assault, or stalking, as well as time taken for counseling and legal proceedings related to the same.
Until the Department of Labor issues its Final Rule, the full impact of this directive can only be estimated. The EO instructs the Secretary of Labor to issue regulations and to implement the order by September 30, 2016, with a targeted effective date of January 1, 2017. Between now and then, contractors should prepare themselves by examining its practices; revising its policies as needed; budgeting for the anticipated increase in workforce costs; reevaluating its cost benefit analysis of future government contracts in light of the additional cost; and, training managerial and supervisory staff to monitor, track, and comply with the new requirements on workforce sick leave.
Pay transparency protection
Additionally, on September 11, 2015, the Department of Labor issued its Final Rule for the implementation of Executive Order 13665. EO 13665, which takes effect on January 11, 2016, promotes pay transparency by targeting pay secrecy. It amends the Equal Opportunity Clause of EO 11246 to proscribe the discharge or discrimination against employees or applicants who inquire about, discuss, or disclose their compensation or the compensation of other employees or applicants.
Not only must covered contractors permit employees to ask about and share pay data, they must affirmatively include the added protection to employee handbooks and manuals, and disseminate similar language to job applicants as well. EO 13665 does provide two employer defenses to its pay transparency requirements, however: a general defense, which could be based on the enforcement of a “workplace rule” that does not explicitly prohibit the discussion of compensation information; and an “essential job functions defense” should an employee distribute employer-wide information to employees who do not otherwise have access to the pay information.
OFCCP enforcement and settlement
Perhaps bolstered by the increase in regulations, the OFCCP has doubled down on its enforcement and settlement activity. Recently, the Department of Labor announced a $1.8M settlement for employees and job applicants at a uniform rental company. That employer was alleged to have disproportionately paid female, male, African American, and Caucasian employees across several positions and at various physical locations.
The takeaways for contractor employers are alarming. Most importantly, a single employment practice implemented by an employer may expose that employer to as many violations as it has locations. Additionally, employers must be aware that a single hiring violation as against one protected group in one particular job group may create necessarily imply violations at other job groups for other protected groups (for instance, disproportionately placing one men at higher-paying jobs adversely affects women, but may at the same time adversely affect those men applying for lower-paying jobs).
