President Barack Obama signed an executive order this week that requires prospective federal contractors to disclose labor law violations, and gives agencies more guidance on how to consider labor violations when awarding federal contracts. The new process is also structured to encourage companies to settle existing disputes, such as paying back wages, and also ensures that workers are given the necessary information each pay period to verify the accuracy of their paycheck.

The Fair Pay and Safe Workplaces Executive Order will govern new federal procurement contracts valued at more than $500,000, providing information on companies’ compliance with federal labor laws for agencies. It’s expected to be implemented on new contracts in stages, on a prioritized basis, during 2016.

The Department of Labor estimates that the executive order will affect roughly 24,000 businesses, employing about 28 million workers. 

Following are some key provisions of the executive order:

Hold companies accountable: Under the terms of the executive order, agencies will require prospective contractors to disclose labor law violations from the past three years before they can get a contract. The 14 covered federal statutes and equivalent state laws include those addressing wage and hour, safety and health, collective bargaining, family and medical leave, and civil rights protections.  Agencies will also require contractors to collect similar information from many of their subcontractors.

Crack down on repeat violators: Contracting officers will take into account only the most egregious violations, and each agency will designate a senior official as a labor compliance advisor to provide consistent guidance on whether contractors’ actions rise to the level of a lack of integrity or business ethics. This advisor will support individual contracting officers in reviewing disclosures and consult with the Labor Department.

Protect responsible contractors: The Labor Department estimates that the overwhelming majority of companies with federal contracts have no federal workplace violations in the past three years. The executive order builds on the existing procurement system, so it will be familiar to contractors and will fit into established contracting practices. Responsible businesses will check a single box on a bid form indicating that they don’t have a history of labor law violations. 

Focus on helping companies improve: Companies with labor law violations will be offered the opportunity to receive early guidance on whether those violations are potentially problematic and remedy any problems. Contracting officers will take these steps into account before awarding a contract and ensure the contractor is living up to the terms of its agreement.

Give employees a day in court: The executive order directs companies with federal contracts of $1  million or more not to require their employees to enter into pre-dispute arbitration agreements for disputes arising out of Title VII of the Civil Rights Act, or from torts related to sexual assault or harassment (except when valid contracts already exist). 

Give employees information about their paychecks: The executive order requires contractors to give their employees information concerning their hours worked, overtime hours, pay, and any additions to or deductions made from their pay, so workers can be sure they’re getting paid what they’re owed.

Streamline implementation and overall contractor reporting: The executive order directs the General Services Administration to develop a single website for contractors to meet their reporting requirements—for this order and for other contractor reporting.  Contractors will only have to provide information to one location, even if they hold multiple contracts across different agencies.

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