Requiring First Refusal Rights to Employees Covered under Predecessor SCA Contract
Just when we were settling down with recent regulations governing the nondisplacement of workers upon the expiration of a Service Contract Act (“SCA”) contract, the regulations are targeted to be revoked. The law at issue pertains to Obama administration regulations generally requiring successor federal contractors to offer employment to SCA-covered employees covered under a predecessor federal contract (the “nondisplacement regulations”).
On January 30, 2009, President Obama, in one of his first acts as President, issued Executive Order (“EO”) 13495 (entitled the “Nondisplacements of Qualified Workers under Service Contracts”). The EO resulted in new regulations issued by the Department of Labor that became effective for federal SCA contracts made on or after January 18, 2013.
Among its many nuances, the federal nondisplacement regulations required the following:
- Not less than 30 days before completion of a contractor’s performance of services under an SCA contract, the contractor was required to furnish the Contracting Officer with a list of the names of all SCA employees working under the contract and any subcontracts at the time the list was submitted.
- A successor contractor or subcontractor could not fill any employment openings under the contract prior to making good faith offers of employment (i.e., a right of first refusal to employment on the contract), in positions for which the employees were qualified, to those employees employed under the predecessor contract whose employment was to be terminated as a result of award of the contract or the expiration of the contract under which the employees were hired.
- The successor contractor and its subcontractors needed to allow the incumbent employees at least 10 days to accept the offer of employment. Only then could the contractor or subcontractor hire an new employee for the position.
Executive Order 13495
That was then, this is now. On October 31, 2019, President Trump issued Executive Order 13495 directing the revocation of EO 13495. The rationale for the revocation is to ‘promote economy and efficiency in Federal Government procurement.’
EO 13495 requires federal agencies to “promptly move to rescind any orders, rules, regulations, guidelines, programs, or policies, implementing or enforcing Executive Order 13495.” It further orders all federal agencies to terminate, effective immediately, any investigations or compliance actions based on EO 13495.
The revocation of the current regulations is welcomed news to successor federal contractors. The contractors will now be able to select the employees of their choosing to work under the successor contract, and will no longer need to wait 10 days to make the offer of employment.
As a matter of law, the current nondisplacement regulations technically remain in effect until the Department of Labor formally rescinds them pursuant to statutory ruling making rules. It is unclear as to whether the Department of Labor will adopt some form of regulation in their place. Nevertheless, the Department of Labor is presently prohibited from enforcing any actions under the current regulations, allowing contractors to proceed for the time being with a blind eye toward the current regulations. Contractors who are presently soliciting a federal SCA contract should review the proposed contract language to ensure that it does not provide for the nondisplacement regulation provisions.
Effect on SCA Fringe Benefit Obligations
Importantly, the nondisplacement regulations did not have any effect on the contractor’s SCA fringe benefit contribution obligations. Accordingly, the revocation of the revocations will likewise have no effect.
We will continue to monitor the Department of Labor activities regarding the revocation of the nondisplacement regulations, and will provide updates as new guidance is released.