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Department of Labor Proposes New Rule on Nondisplacement of Qualified Workers under Service Contracts

Recently, the Wage and Hour Division of the Department Labor (“DOL”) proposed regulations designed to implement President Biden’s Executive Order 14055, concerning the nondisplacement of qualified workers under federal service contracts (the “Order”).  The Order requires federal contractors and subcontractors to offer qualified service employees working on a contract the right of first refusal of employment under a successor contract when a service contract expires and a follow-on contract is awarded for the same or similar services.  The Order is intended to reduce disruption and offer a seamless transition for experienced employees already familiar with the Federal Government’s personnel and requirements.

Under the DOL’s proposed rule, the Order would apply to prime contracts that exceed the simplified acquisition threshold of $250,000.  If the prime contract exceeds this threshold, then all subcontracts, regardless of size, would be covered if the prime contract is covered.  Once it is determined that a contract is covered, contractors and subcontractors must, in good faith, offer service employees employed under the predecessor contract a right of first refusal of employment.  In other words, the covered contractors and subcontractors must not fill any employment openings under the contract prior to making offers of employment to qualified employees under the predecessor contract whose employment would otherwise be terminated as a result of award of the contract or the expiration of the contract under which the employees were hired.  The position offered need not be the same or similar position as the employee held on the predecessor contract, but must be a position for which the employee is qualified.  The offer provided must be a bona fide, express offer of employment and the contractor or subcontractor must give the employee at least 10 business days to consider and accept the offer of employment.  However, the successor contractor and subcontractor is not required to offer the right of first refusal to an employee if the contractor reasonably believes, based on reliable evidence of the employee’s past performance, that there would be just cause to discharge the employee.    

            Finally, there is no requirement under the Order that the nondisplacement requirement only applies to successor contracts at the same location as the predecessor contract.  The DOL, however, clarifies that contractors and subcontractors are not required to pay the relocation costs of employees who exercise their right to work for a successor contractor or subcontractor.  The DOL is currently accepting comments on the Proposed Rule until August 15, 2022.  

Honigman will continue to monitor and report any notable updates.  Should you have any specific questions, please contact your relationship attorney or one of Honigman’s Wage and Hour Matters team members. 

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