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.

In our February 2, 2009 Advisory on these Executive Orders, among other things, we noted:

In 2000, the State of California passed Assembly Bill 1889, which placed similar restrictions on the use of State funds by contractors to promote or deter union organizing by employees. The California bill was expressly intended to advance the state’s policy of not “interfer[ing] with an employee’s choice about whether to be represented by a labor union.”4 Last year, in Chamber of Commerce of United States v. Brown, 554 U.S. __, No. 06-939 (June 19, 2008), the United States Supreme Court struck down AB 1889, ruling that the provision unlawfully sought to “regulate within ‘a zone protected and reserved for market freedom.’” Slip Op., at 4-5. The Court stressed that the addition of Section 8(c) of the National Labor Relations Act by the 1947 Taft-Hartley Act was intended to protect non-coercive, non-threatening speech for all parties in the context of union organizing:

From one vantage, §8(c) merely implements the First Amendment… in that it responded to particular constitutional rulings of the NLRB…But its enactment also manifested a “congressional intent to encourage free debate on issues dividing labor and management.”… It is indicative of how important Congress deemed such “free debate“ that Congress amended the NLRA rather than leaving to the courts the task of correcting the NLRB’s decisions on a case-by-case basis. We have characterized this policy judgment, which suffuses the NLRA as a whole, as “favoring uninhibited, robust, and wide-open debate in labor disputes,” stressing that “freewheeling use of the written and spoken word…has been expressly fostered by congress and approved by the NLRB." Letter Carriers v. Austin, 418 U.S. 264, 272-273 (1974)


It is clear from its express text that the White House has attempted to design this Order to avoid the issues which compelled the Supreme Court’s decision in Brown. The language of the Order’s policy statement and title — attempting to frame the federal government as a market participant and not a regulator — and the explicit protection of activity for which no reimbursement is sought are directly intended to bolster arguments the Supreme Court found lacking when advanced by the State of California in Brown. The ordered rules and regulations, yet to be developed by the FAR Council, may provide additional basis for challenge of this Order. In the meantime, however, federal contractors are faced with the prospect of accounting practices and procedures which clearly separate costs for communication with their employees in any matters arguably related to rights protected by the National Labor Relations Act.

Contractors who do business with the federal government would be wise to revisit these issues, to review the proposed rule and to consider submitting comment to the Secretariat.