On July 14, 2022, the Department of Labor (DOL) published a Notice of Proposed Rulemaking (NPRM) which requires that non-displacement clauses be included in successor contracts for current contracts covered by the Service Contact Act (SCA.) The rule would require federal contractors and subcontractors who take over the same or similar work to make good faith offers of employment to employees working on the SCA job, with some exceptions.
The NPRM was issued to implement the requirements of Executive Order 14055, which was signed by President Biden in November 2021. This Executive Order established a general policy of the federal government that contracts which succeed contracts for the same or similar services, and solicitations for such services, should include a non-displacement clause.
The NPRM notes that the federal government’s procurement interests in economy and efficiency are best served when the successor contractor or subcontractor hires the predecessor’s employees. The proposed rule notes that a carryover workforce minimizes disruption in the delivery of services, and the federal government will benefit by having a well-trained workforce that is already familiar with the services to be rendered.
Unless an exclusion applies, an employer working on a SCA job must provide the contracting officer with a certified list of all employees working on the SCA job during the last month of the contract, at least 10 business days before contract completion. The proposed rule would require a new contractor taking over the SCA job to offer employment to the prior contractor’s employees and allow the employees at least 10 business days to accept the employment offer.
Some SCA jobs will be exempt from the rule if the senior procurement executive within the agency issues a written determination that at least one of the following circumstances exists with regard to the contract:
1. Adhering to the Executive Order and the regulations would not advance the government’s interests in achieving economy and efficiency regarding federal procurement;
2. Based on a market analysis, adhering to the regulations would:
- substantially reduce the number of bidders, frustrating full and open competition; and
- not reasonably be tailored to the agency’s needs for the contract.
3. Adhering to the requirements would otherwise be inconsistent with the statutes, regulations, Executive Orders, or Presidential Memoranda.
Factors the agency may consider include: (1) whether factors specific to the contract suggest that use of a carryover workforce would greatly increase disruption of the services; (2) emergency situations such as a natural disaster or act of war that physically displace incumbent workers from the location of the service contract work; and (3) situations where the senior procurement executive believes, based on the predecessor’s past performance, that the entire predecessor workforce failed, individually and collectively, to perform suitably on the job and it is not in the interest of economy and efficiency to provide supplemental training to the predecessor’s workers.
The proposed regulations will not apply to contracts under the simplified acquisition threshold, which currently is $250,000. An employer that is covered by the regulations must extend an offer of employment to the predecessor’s employees; however, the offer of employment may be a position on the contract with different terms and conditions than the employee had with the predecessor, as long as the employment offer is bona fide. In addition, a successor employer/contractor is not required to offer employment to a worker who will be retained by the predecessor contractor, to the predecessor’s employees who are not service workers, and to an employee of the predecessor if the successor contractor reasonably believes, based on a particular employee’s past performance, that there would be just cause to discharge the employee if employed by the successor contractor or any subcontractor. The successor employer may have such a reasonable belief if the predecessor had started a process to terminate the employee for conduct warranting termination, but the predecessor had not completed the termination process prior to contract expiration. Before contract expiration, the contractor is required to provide written notice to its service employees of their possible right to an offer of employment from the successor employer.
Comments must be submitted by August 15, 2022. All comments and all information submitted with comments will be pasted without change to www.regulations.gov.
If you have any questions regarding this Alert, please contact the author, Karen Milner, partner in our St. Louis office at kmilner@fordharrison.com. Of course, you can also contact the FordHarrison attorney with whom you usually work.