Labor Relations Today : Labor & Employment Lawyers & Attorneys : Contract Administration, Collective Bargaining

On January 18, 2013, the Federal Acquisition Regulatory (“FAR”) Council implemented Executive Order (“E.O.”) 13495 (“Nondisplacement of Qualified Workers Under Service Contracts”) into regulation at FAR Subpart 22.12.  Our colleagues at McKenna Long & Aldridge's Government Contracts Advisor blog report: 

FAR Subpart 22.12 requires successor service contractors and subcontractors (whose contracts are above the simplified acquisition threshold) to offer “service employees,” who were employed under predecessor contracts, “a right of first refusal of employment” when the successor contract is for the “same or similar service[s]” and at the “same location” as the predecessor contract.  As we outlined in our recent client advisory, service contractors and subcontractors must carefully review this regulation to understand its impact on hiring processes, especially in light of the ambiguities, loopholes, and strong enforcement provisions contained in the regulation.  For example, FAR Subpart 22.12 does not define the phrase “same location,” leaving it open to various interpretations: the “same location” could be limited to the same building or expanded to include all services performed in the same city.  As one can imagine, such interpretations could dramatically affect the reach of this regulation.  On the enforcement side, this regulation allows the contracting officer to suspend payment on a contract or suspend or debar a contractor, in certain instances.  Further, disputes arising from FAR Subpart 22.12 will not be subject to the Contract Disputes Act; they will be resolved in accordance with Department of Labor procedures set forth at 29 C.F.R. part 9.

In a client advisory and blog post published when President Obama issued E.O. 13495, we observed the potential labor relations impact of the Order:

The Order expressly states that it is intended to promote “economy and efficiency” by “reduc[ing] disruption” to services and ensuring “an experienced and trained work force.” Pursuant to labor law “successorship” principles, however, the Order will also have the effect of securing the continued recognition of the predecessor’s union representative and preventing the successor from unilaterally setting initial terms of employment. Under well-settled law, unless it is "perfectly clear" that a new employer intends to hire all of a predecessor’s employees, the new employer is free to set the initial terms and conditions of employment. However, where it is “perfectly clear” that all prior union-represented employees will be retained, the successor must maintain the pre-existing wages and benefits for those employees while bargaining with the union over terms and conditions of employment.

Service contractors should continue to act carefully and make calculated decisions when considering taking over for incumbent contractors. We, and our friends at the Government Contracts Advisor, will continue to monitor legislative and regulatory activities in this area.

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2011 was the most dynamic year in labor law in quite some time.  Fueling many of the changes last year were the impending departures of National Labor Relations Board Chairman Wilma Liebman and Member Craig Becker. With no certainty as to when Liebman or Becker might be properly replaced, the Board acted aggressively while it still held a pro-labor majority and a quorum. In addition to the Board’s activity, the Acting General Counsel pursued an expansive agenda. In response to these efforts, Republican opposition in Congress attempted to rein the Board in via additional oversight and legislative efforts that failed to gain much traction.

The labor attorneys here at Labor Relations Today have been following these significant developments every step of the way.  Today we are publishing "Labor Law in 2011: A Very Active Year in Review."  This brief summary highlights some of the most noteworthy developments in 2011.  We hope you find it a helpful resource as we head into what is already shaping up to be another "very active year." 

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Yesterday, the Supreme Court declined to hear a challenge to Los Angeles' Grocery Worker Retention Ordinance that imposes a 90 day transition period on grocery stores when ownership changes. The California Grocers Association ("Grocers") filed a lawsuit challenging the ordinance on various grounds, including the claim that the ordinance is preempted by the National Labor Relations Act.

The ordinance provides that during the transition period, purchasers of grocery stores 15,00 square feet or larger must hire the predecessor's employees with at least six months tenure. Moreover, the owner can only terminate those employees for cause during the 90 day transition period. 

The Grocers claim that the ordinance is preempted by the NLRA because it interferes with negotiations between employees and employers, deprives employers of the freedom to choose their own employees, and forces employers to become successor employers under the NLRA when the predecessor employees are represented by a union. Typically, an employer becomes a successor employer under the Act when the new employer hires a majority of the predecessor's represented employees. Successor employers must then recognize the union and either accept any existing collective bargaining agreement or bargain with the union for a reasonable period of time. However, employers that do not hire a majority of the predecessor's employees are not successor employers and thus do not have to recognize and bargain with the union. Accordingly, the Grocers asserted that by forcing new grocery store owners to automatically have the obligation to recognize and bargain with the union, the ordinance is preempted by the NLRA.

In July 2011, the California Supreme Court disagreed, and held that the NLRA does not preempt the ordinance:

On the subject of employee hiring and firing, the text of the NLRA is, with one notable exception, resoundingly silent. It neither guarantees nor prohibits the retention of employees; it does not affirmatively protect new employers‘ latitude to hire and fire whomever they please, nor does it address in any way the power of states and localities to regulate the subject....

This silence leaves unrebutted the initial presumption that Congress did not intend preemption. The NLRA‘s statutory text does not disturb state and local authority to address, as these entities see fit, matters of hiring and firing, authority traditionally recognized as a core incident of their police power.

It also rejected the Grocers' claim that the ordinance impermissibly intrudes upon federal successor employer determinations: 

Additionally, we can discern in the NLRA no clear and manifest congressional intent to foreclose indirect impacts on successorship. As with any preemption question, "'"[t]he purpose of Congress is the ultimate touchstone"'" (Metropolitan Life, supra, 471 U.S. at p. 747), and on this point we find neither textual nor historical support. Successorship is a question of federal common law because "[n]o provision of the [NLRA] even mentions successorship."

The United States Supreme Court's refusal to review the California Supreme Court's decision has implications beyond the grocers in Los Angeles. Shortly after taking office, President Obama issued Executive Order 13495 requiring federal contractors and subcontractors that are successors to certain government contracts to offer employment on a "first right of refusal" to employees (not including managerial or supervisory employees) employed under the predecessor contract whose employment would be otherwise terminated at the end of the predecessor contract. Many commentators have asserted that the executive order is preempted by the NLRA on the same grounds asserted by the Grocers in its unsuccessful challenge to the Los Angeles ordinance.

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The Department of Defense, General Services Administration, and NASA have published a Final Rule in the Federal Register to implement Executive Order 13494, "Economy in Government Contracting."  The Order, one of three Executive Orders issued by President Obama on January 30, 2009 regarding labor relations, declared the costs of any activities undertaken by federal contractors to persuade employees to choose or decline union representation to be ineligible for government reimbursement.  Following review of public comments, the agencies finalized the April 14, 2010 proposed rule with "just one minor editorial change" to FAR 31.205-21, the cost principle addressing labor relations costs:

To implement the requirements of the E.O., DoD, GSA, and  NASA issued a proposed rule that would amend this cost principle by adding a new paragraph addressing the handling of persuader activities--that is, activity involving the persuading of employees to exercise or not exercise their rights to organize and bargain collectively. By doing so, the proposed rule differentiated the handling of costs incurred through persuader activities, which are unallowable, from those incurred in maintaining satisfactory labor relations, which remain allowable.

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On September 13, 2011, Senate Majority Leader Harry Reid (D-NV) introduced President Obama’s “American Jobs Act of 2011” (S. 1549). The President has been on a barn-storming tour, urging passage of the bill as the nation’s unemployment rate remains north of nine percent. The Democratic National Committee has also launched a website to promote the proposed legislation – and a thorough summary of the bill's 155 pages can be found here.

The bill's introductory provisions include a standard requirement that all contractors and subcontractors on projects funded directly by or assisted in whole or in part by and through the Federal government under the Act must pay Davis-Bacon prevailing wages.  Specifically, Section 5 reads:

SEC. 5. WAGE RATE AND EMPLOYMENT PROTECTION REQUIREMENTS.

(a) Notwithstanding any other provision of law and in a manner consistent with other provisions in this Act, all laborers and mechanics employed by contractors and subcontractors on projects funded directly by or assisted in whole or in part by and through the Federal Government pursuant to this Act shall be paid wages at rates not less than those prevailing on projects of a character similar in the locality as determined by the Secretary of Labor in accordance with subchapter IV of chapter 31 of title 40, United States Code.

(b) With respect to the labor standards specified in this section, the Secretary of Labor shall have the authority and functions set forth in Reorganization Plan Numbered 14 of 1950 (64 Stat. 1267; 5 U.S.C. App.) and section 3145 of title 40, United States Code.

(c) Projects as defined under title 49, United States Code, funded directly by or assisted in whole or in part by and through the Federal Government pursuant to this Act shall be subject to the requirements of section 5333(b) of title 49, United States Code.

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Last Friday, a subcommittee of the House Committee on Oversight & Government Reform held a hearing entitled "H.R. 735 And Project Labor Agreements: Restoring Competition & Neutrality To Gov't Construction Projects".  The bill number identified in the hearing title, introduced earlier this year by  Rep. John Sullivan (R-OK), is the Government Neutrality in Contracting Act (H.R. 735).   This and a similar bill (S. 119) would largely invalidate President Obama's Executive Order 13502. 

That EO, one of four issued during the President's first month in office in 2009, allows federal executive agencies to require contractors on large-scale government construction projects to enter into a project labor agreement as a condition of being awarded a contract.  A “project labor agreement” (PLA) is a pre-hire collective-bargaining agreement – often involving multiple employers and multiple unions – designed to systemize labor relations at a construction site.

Witnesses at Friday's hearing included Daniel Gordon, the Administrator of OMB's Office of Federal Procurement Policy; Susan Brita, Deputy Administrator of the GSA; Maurice Baskin, Esq., of Venable LLP; David Tuerck, Executive Director of the Beacon Hill Institute; Kirby Wu, of Wu & Associates; and Mike Kennedy, Esq., of the Associated General Contractors of America.

The prepared statements and submissions of these witnesses are linked above, and the video of the hearing is available at the Committee's website.

More resources & information:

• "ABC Testifies on Problems with Project Labor Agreements Before House Committee" -- PR Newswire
• "Republicans challenge Obama guidance on labor agreements in contracts" -- GovExec.com
• Labor Relations Today's "Project Labor Agreements" tag
• MLA Government Contracts Advisory, “President Obama Signs Executive Order Allowing Agencies to Require Project Labor Agreements (PLA’s) on Large Construction Projects,” Feb. 10, 2009.
• "Project Labor Agreements: A Better Deal For All" -- The White House Middle Class Task Force

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On Wednesday, Rep. John Sullivan (R-OK) introduced a bill designed to reverse President Obama's Executive Order 13502.  That EO, one of four issued during the President's first month in office in 2009, allows federal executive agencies to require contractors on large-scale government construction projects to enter into a project labor agreement as a condition of being awarded a contract.  A “project labor agreement” (PLA) is a pre-hire collective-bargaining agreement – often involving multiple employers and multiple unions – designed to systemize labor relations at a construction site.

Rep. Sullivan's Government Neutrality in Contracting Act (H.R. 735) and a similar bill (S. 119) would largely invalidate the President's Order in the absence of special circumstances.  Section (a) of the bill states:

(1) GENERAL RULE- The head of each executive agency that awards any construction contract after the date of enactment of this Act, or that obligates funds pursuant to such a contract, shall ensure that the agency, and any construction manager acting on behalf of the Federal Government with respect to such contract, in its bid specifications, project agreements, or other controlling documents does not--

(A) require or prohibit a bidder, offeror, contractor, or subcontractor from entering into, or adhering to, agreements with 1 or more labor organizations, with respect to that construction project or another related construction project; or

(B) otherwise discriminate against or give preference to a bidder, offeror, contractor, or subcontractor because such bidder, offeror, contractor, or subcontractor--

(i) becomes a signatory, or otherwise adheres to, an agreement with 1 or more labor organizations with respect to that construction project or another related construction project; or

(ii) refuses to become a signatory, or otherwise adhere to, an agreement with 1 or more labor organizations with respect to that construction project or another related construction project.

President Obama's EO 13502 encouraged federal agencies to use PLAs on any construction project worth more than $25 million, but did not require them.  It did also require the O.M.B. to investigate expansion of the use of PLAs on federal construction projects.  The White House's related statement of policy explained the goals of the EO as follows:

The use of a project labor agreement may prevent these problems from developing by providing structure and stability to large-scale construction projects, thereby promoting the efficient and expeditious completion of Federal construction contracts. Accordingly, it is the policy of the Federal Government to encourage executive agencies to consider requiring the use of project labor agreements in connection with large-scale construction projects in order to promote economy and efficiency in Federal procurement.

Law360 reports that Rep. Sullivan sent out a letter to his colleagues earlier this week describing the Executive Order as an “'anti-competitive and costly measure encouraging federal agencies to mandate union favoring” agreements that raise construction costs from 12 to 18 percent":

“In short, government-mandated PLAs are nothing more than schemes to repay big labor bosses for political support by steering lucrative federal construction contracts to unionized companies and their unionized workforces,” Sullivan said.

“Instead of pandering to special interests, Congress should be doing all it can to ensure fair and open competition on federal construction contracts, and help deliver to taxpayers the best possible construction project at the lowest possible price,” he said.

The House bill has 23 co-sponsors.  Committee hearings are expected on the bills soon.

More resources and commentary:

• MLA Government Contracts Advisory, “President Obama Signs Executive Order Allowing Agencies to Require Project Labor Agreements (PLA’s) on Large Construction Projects,” Feb. 10, 2009.
• Federal Acquisition Regulation council (FAR) Final Rules implementing EO 13502
• Brett McMahon of the Association of Builders and Contractors (ABC) discussing EO 13502 on Fox News
• "Project Labor Agreements: A Better Deal For All" -- The White House Middle Class Task Force
• Labor Relations Today's Project Labor Agreements tag

 

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Today's Washington Post's "Capital Business" section published a piece I wrote about what to expect from labor law developments during the coming months.  The intro:

When President Obama took office in early 2009, many expected significant legislative changes in the area of traditional labor law to facilitate union organizing in the private sector. But the new Republican majority in Congress on the one side and the Democrats' simple Senate majority and presidential veto pen on the other make passage of sweeping legislation like the Employee Free Choice Act -- or for that matter the converse Secret Ballot Protection Act -- all but impossible.

Employers should still expect significant changes, however, as the president will instead advance his regulatory agenda administratively through the National Labor Relations Board (NLRB) and the issuance of executive orders. If you're running a nonunion workplace today, these developments will make it easier for unions to organize your employees. Regardless of one's personal feelings about unions or union representation, there's no question that this increased government oversight, regulation and involvement will have a significant impact on large and small businesses alike.

Read the rest here.

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Late last week, a group of 29 Republican senators sent a letter Administrator Karen G. Mills of the U.S. Small Business Administration, expressing concern over the Obama administration’s purported consideration of a “High Road Contracting” policy.  The senators, led by Sen. Susan Collins, (R-ME), asked Ms. Mills to clearly disclose her position on the issue by September 30, 2010. 

Earlier this year, the White House Middle Class Task Force released an annual report, which suggested the administration would soon propose such a policy.  This set off considerable speculation among contractors.  As described by Employment Law360:

The policy would require contracting officers to take into account a company's labor, employment and compliance reports when evaluating which bids offer the best value to the government.

Among other factors that might be considered are business ethic records, including noncompliance with labor, tax, fraud and consumer protection laws, as well as "substandard wages and benefits" that could negatively impact workers' productivity, stability and overall performance on critical federal projects, according to the report.

The senators’ letter criticizes the possible policy changes thus:

This policy would make no sense even in good economic times.  But at a time when our economy is suffering, our small businesses are suffering, and we are faced with escalating deficits and debt, we are stunned that the administration would even contemplate erecting artificial barriers to full and open competition for government contracts. If this policy is implemented, it would violate the Competition in Contracting Act and cause small businesses not to compete for federal contracts.  This would undermine the diversity of our federal contracting base, lessen competitive pressures on large contractors, and increase the costs of the goods and services necessary to fulfill the government's mission.  Ultimately, this policy could deprive federal agencies of many innovative solutions offered by our nation’s small businesses.

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Last month, the Federal Acquisition Regulation council (FAR) published a proposed rule implementing Executive Order 13494, "Economy in Government Contracting" in the Federal Register.  The Order was one of three Executive Orders issued by President Obama on January 30, 2009 regarding labor relations.  EO 13494 declared the costs of any activities undertaken by federal contractors to persuade employees to choose or decline union representation to be ineligible for government reimbursement.

The Regulatory Secretariat is now accepting comment on the proposed amendment of 48 CFR Part 31 to include the following:

31.205–21 Labor relations costs.

(a) Costs incurred in maintaining satisfactory relations between the contractor and its employees (other than those made unallowable in paragraph (b) of this section), including costs of shop stewards, labor management committees, employee publications, and other related activities, are allowable.

(b) As required by Executive Order 13494, Economy in Government Contracting, costs of any activities undertaken to persuade employees, of any 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 are unallowable. Examples of unallowable costs in paragraph (b) of this section include, but are not limited to, the costs of—

(1) Preparing and distributing materials;

(2) Hiring or consulting legal counsel or consultants;

(3) Meetings (including paying the salaries of the attendees at meetings held for this purpose); and

(4) Planning or conducting activities by managers, supervisors, or union representatives during work hours. 

Comments are due on or before June 14, 2010.

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Mr. Spencer's piece includes additional items regarding Department of Labor, OSHA, and Wage & Hour administration, classification of independent contractors and pending DOL regulatory actions.  You can read the entire piece here.

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Last week the final rule was published regarding President Obama's Executive Order 13502 which allows agencies to require participation in a Project Labor Agreement (PLA) as a condition of bid solicitations on "large-scale" construction projects.   Yesterday, Government Executive reported that Senator Susan Collins (R-ME) recently criticized these developments as changing the government's federal procurement policy from "neutral" on union issues to one that is "pro-labor.":

"When it comes to spending taxpayer money, the decisions should always be based on the best value possible," Collins said. "Such decisions should not be driven by partisanship, politics or other agendas. With this change ... the administration has eliminated the practice of awarding contracts based on an objective assessment that puts the taxpayers' interests first."

  *  *  *

"This is one more example where the administration is taking a position that creates barriers for small businesses and blocks the participation of entrepreneurial startup companies," Collins said.

The article provides additional comment from Jim Elmer, national chairman of Associated Builders and Contractors; Jared Bernstein, chief economic adviser to Vice President Joe Biden; and, Secretary of Labor Hilda Solis.  Our initial analysis of the Order and Rule can be found here.

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Following on our earlier post on the FAR amendments regarding the use of Project Labor Agreements on "large-scale" construction porjects, here are some additional resources and commentary on the issue:

• "Project Labor Agreements: A Better Deal For All" -- The White House Middle Class Task Force
• Government Neutrality in Contracting Act (H.R. 983, S. 90)
• The Associated Builders and Contractors' (ABC) TheTruthAboutPLAs.com 
• "Final Rule Issued on Obama PLA Executive Order" -- AFL-CIO Building & Construction Trades Dept.
• "The Final Rule on Project Labor Agreements" -- NAM's ShopFloor.org 
• "The United States is the New Europe" -- RealClearMarkets

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On February 6, 2009, President Obama signed Executive Order 13502 allowing federal executive agencies to require contractors on large-scale government construction projects to enter into a project labor agreement as a condition of being awarded a contract. (See MLA Government Contracts Advisory, “President Obama Signs Executive Order Allowing Agencies to Require Project Labor Agreements (PLA’s) on Large Construction Projects,” Feb. 10, 2009.)  On April 13, 2010, the Federal Acquisition Regulation council (FAR) published final rules interpreting and implementing the Executive Order. The rules will become effective 30 days after their publication and will only apply to solicitations for projects issued on or after the effective date of the rules.

A “project labor agreement” (PLA) is a pre-hire collective-bargaining agreement – often involving multiple employers and multiple unions – designed to systemize labor relations at a construction site. The rules make clear that, in accordance with Section 8(f) of the National Labor Relations Act, the PLA requirement will only apply to contracts involving construction work.  Construction is defined to include “construction, rehabilitation, alteration, conversion, extension, repair, or improvement of buildings, highways, or other real property.”  Moreover, the Order and rules apply primarily to “large scale” construction projects -- which they define as projects with a total cost exceeding $25 million.

It is important to clarify that the new rules do not require contractors and subcontractors to enter into a PLA on every large-scale government-funded construction project awarded. Instead, they give each agency responsible for awarding construction contracts very broad discretion in determining, on a project-by-project basis, which large-scale contracts will require PLA’s and which ones will not. Beyond the few express criteria listed in the Executive Order, the final rules provide awarding agencies with six additional factors they may consider in determining whether a PLA requirement is appropriate.  These additional non-mandatory factors are:

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