This afternoon, President Obama is expected to sign yet another executive order and this one will create significant problems for businesses who wish to provide goods and or services to the federal government. According to reports, the order will require federal procurement officers to effectively act as enforcers of labor laws that even the Department of Labor itself has difficulty understanding, which is a dangerous game for our President to be playing with federal contracts. Effectively, the President is sanctioning a practice known as “blacklisting” companies from federal contracts due to even minor infractions of complex labor laws under the Fair Labor Standards Act. While true bad actors deserve consequences, there are already procedures in place to address those cases.
The Fair Labor Standards Act is a labyrinth of federal statute, regulations, guidance and case law that ensnares even the most cautious employers. It encompasses things like how employees are classified, overtime pay and recordkeeping requirements. All of these issues are fraught with landmines that even sophisticated employers can run into without knowing it. In fact, even the Department of Labor itself ran afoul of employee classification regulations recently and were forced to issue back-pay to a number of the nearly 2,000 of its employees who filed a grievance under the FLSA in 2010. Ironically, the very federal agency charged with enforcing the requirements would be blacklisted or put on a “contract avoidance list” under this new executive order.
Further complicating matters is the fact that the administration is in the process of regulatory rulemaking to change various aspects of the FLSA, which is certain to create violations out of what were once legal practices and bog employers down with additional litigation on matters that have already been largely ironed out in current law. In the end, there is already a process federal procurement officers can go through if there are contractors having trouble complying with the FLSA. Creating a “contract avoidance list” and dispatching a member of the Politburo to each agency to police the list seems unnecessary.
The President seems to be using the federal procurement process as his own little “laboratory” for bad ideas in labor policy and this one is bound to have some unintended consequences. We may not be there yet, but at some point businesses with federal contracts, or those thinking about bidding for them, may decide the additional hoops, hurdles and hassles just aren’t worth it anymore – particularly if they are a small to medium-sized business. There’s likely quite a bit to be concerned with in this executive order and we’ll be going through it very carefully. More to come on this one, I’m sure.