The Nondisplacement Rule is Officially on the Books—Again.
Last week on December 14, 2023, the Department of Labor published a Final Rule to implement the latest iteration of a policy widely known as the “nondisplacement rule.” This policy came about because, for many years, labor unions and worker advocates sought protections for Service Contract Act (“SCA”) covered employees who worked on contracts that were expiring. There was a perception that existing service employees were being fired in favor of cheaper new workers when contracts turned over.
This led to the issuance of an Executive Order by President Clinton intended to address this concern. However, it was repealed by President Bush (the younger). And then in 2009 it came back when President Obama issued Executive Order No. 13495 “Nondisplacement of Workers Under Service Contracts” (“EO 13495”). The Obama order remained in place until 2019 when President Trump issued his own Executive Order that repealed President Obama’s Order.
Fast forward to 2021 and, bingo, President Biden issued a new Executive Order (No. 14055) that unwound President Trump’s action. We’ve previously blogged about these orders here (regarding the Obama order), here (regarding Trump’s Order), and here (regarding President Biden’s order). In 2022, the Department of Labor (“DOL”) issued a Notice of Proposed Rulemaking that laid out the proposed regulations to implement President Biden’s order. Yes, we blogged about that too.
After receiving comments, DOL published its Final Rule last week which can be found here. Unsurprisingly, DOL’s final rule adopts its proposed rule except for a few changes that DOL considered to be limited clarifications and technical changes. DOL has posted information about the new rules including FAQ as well as guidance for small entities (FYI - almost all of this guidance actually is applicable to all entities).
Our bottom line on the new rule is that except for a few differences, the nondisplacement rule that was adopted by the Obama administration has now returned. The FAR Council must now issue regulations and a contract clause to implement DOL’s new regulation. DOL’s rule is effective on February 12, 2024 but for procurement contracts, the rule will be “applicable” to solicitations on or after the effective date of new final rules issued by the Federal Acquisition Regulatory Council (“FAR Council”).
Of course, the new FAR provisions all will go into effect, at the earliest, in the midst of the upcoming election that, if current trends hold, will pit President Biden against President Trump. While we have no idea what the outcome will be next November (or December or January??), there is a possibility that the Biden executive order will be repealed—perhaps before the new FAR provisions would go into effect.
All that said, here are the key features of DOL’s final rule that will be what we can expect from the new FAR provisions:
Successor contractors will again be required to offer continued employment to qualified employees who work on a predecessor contract but would be terminated upon the conclusion of the earlier contract.
Covered workers aren’t just employees, they are workers who are covered by the SCA (including certain independent contractors but not FLSA exempt employees).
A list of employees to whom offers must be extended will come from the predecessor contractor who will be required to furnish a certified list of current employees in the month preceding the conclusion of the predecessor contract.
In turn, the Contracting Officer will turn the list over to the successor contractor.
The successor may determine the number of employees it will need to perform the new contract, which may mean there will be a greater or smaller number of positions available to the predecessor employees.
Where offers are extended to fewer than all of the predecessor employees, the successor may be required to hold the right of first refusal period open during the first 90 days of contract performance during which they must continue to make offers to other qualified predecessor employees.
The successor contractor will be required to make an express offer of “suitable” employment to qualified predecessor employees and must provide at least 10 business days for the workers to consider the offer.
While an offer need not call for the same compensation or benefits, the offer must be “bona fide” and not something that is so bad that it would discourage an employee from accepting the offer.
The contractor will be prohibited from hiring new employees (i.e., ones who didn’t work for the predecessor) until after it has extended offers and allowed the employees time to accept or reject the offer.
These requirements also apply to subcontractors and prime contractors will be required to ensure they’re in compliance.
These general requirements (mostly laid out at 29 C.F.R. 9.12) will apply to successor contracts (or “contract-like” instruments) that call for the performance of the “same or similar work” covered by a predecessor contract (or task order under contract vehicles such as IDIQ contracts or the Federal Supply Schedule). “Same or similar work” means “work that is identical to or has primary characteristics that are alike in substance to work performed on another service contract.” 29 C.F.R. 9.2.
Contracts (and subcontracts thereunder) are exempt if they are under the Simplified Acquisition Threshold (presently $250,000). 29 C.F.R. 9.4. For those prime contracts that exceed $250,000, the requirements apply to all subcontracts regardless of their value. As was the case under the earlier Executive Orders, contracting officials may determine that a particular contract should be exempt from the rule’s coverage based on written findings regarding a set of factors (e.g. emergency circumstances, disruption that might occur from the carryover of the existing workforce, or that the predecessor’s performance was so bad that it was a collective failure). These exceptions and the analysis that must be performed are found at 29 C.F.R. 9.5. Unlike the earlier orders, the findings generally must be published and furnished to existing workers and their collective bargaining representatives. 29 C.F.R. 9.5(f).
Finally, as we discussed previously, Contracting Officers will be required to assess whether it is “reasonably necessary” for the successor contract to be performed in the same locality “to ensure economical and efficient provision of services.” 29 C.F.R. 9.11(c). If so, the Contracting Officer must include a requirement or preference that the successor contract be performed in the same place. If a location change is under consideration for the performance of the work by workers who are covered by a collective bargaining agreement, then the union and affected employees must be given notice of the potential change before the solicitation goes out so they can offer input on the change. 29 C.F.R. 9.11(c)(4). This location analysis requirement is a new feature of the Biden Executive Order that is intended to minimize the risk that existing workers would have to relocate if they want to work on a successor contract.
We’ll be on the lookout for the upcoming FAR provisions to see the exact language that will be put into new contracts.