Department of Labor Proposes Rule Granting Government Contractor Employees Right of First Refusal

August 18, 2022

On July 15, 2022, the U.S. Department of Labor issued a Notice of Proposed Rulemaking (NPRM) that would require successor contractors to offer employees of predecessor contractors the first right of refusal for employment on certain contracts. This proposed rule offers standards and procedures for implementing President Biden’s Executive Order 14055, which requires the same of contractors and subcontractors on most Service Contract Act (SCA) awards over $250,000. Contractors engaged in SCA bidding should be aware of the Executive Order and the forthcoming requirements in upcoming procurements.

Entitled the “Nondisplacement of Qualified Workers Under Service Contracts,” the NPRM includes several noteworthy requirements. The NPRM covers those service contracts, subcontracts, or contract-like instruments that fall under the SCA and are over $250,000 — the simplified acquisition threshold. It applies specifically to service employees, or the non-exempt individuals employed under the predecessor SCA contract. This includes independent contractors but excludes those exempt under the Fair Labor Standards Act.

Going forward, covered contracts will include a nondisplacement clause requiring successor contractors to offer, in good faith, a right of first refusal to service employees of the predecessor contractor. The Executive Order’s purpose is to decrease disruptions in federal services by promoting the retention of trained, skilled workers on covered federal contracts. To facilitate this process, the outgoing contractor would be required, no less than 30 calendar days before completion of its performance on a covered contract, to provide the contracting officer with a list of the names of all service employees under the contract and subcontracts.

The NPRM further requires that agencies determine whether continuing to procure services in a certain location or locality provides the agency with the most economical and efficient outcome. If the agency determines that performance of the contract in the same locality is reasonably necessary to ensure economical and efficient provision of services, then it will include at least a preference for the successor contract to be performed in the same facility and/or location in the contract.

Finally, the Secretary of Labor would have the power to impose appropriate sanctions against contractors who fail to comply with the nondisplacement rule. Sanctions may include ordering reinstatement and payment of lost wages, in addition to withholding payments due under the contract.

For questions related to the NPRM’s effect on government contractors and their employees, contact any of the authors or another member of the McGuireWoods labor and employment or government contracts practice groups.