Member Article

On November 18, 2021, President Biden issued an executive order reinstating a version of the Nondisplacement of Qualified Workers Under Service Contracts executive order that had previously been implemented by President Obama and then rescinded by President Trump. The new clause is reproduced below. 

President Biden’s new executive order applies to contracts and subcontracts that are covered by the Service Contract Act. The only exclusions from the executive order are Service Contract Act contracts below the Simplified Acquisition Threshold and “employees who were hired to work under a federal service contract and one or more nonfederal service contracts as part of a single job, provided that the employees were not deployed in a manner that was designed to avoid the purposes of” the executive order. 

The executive order requires agencies to include a clause in Service Contract Act contracts that gives workers on a service contract the right of first refusal for employment with the successor contractor if they would otherwise lose their jobs as a result of expiration of the contract.  Prime contractors are also required to flow down these requirements to their subcontractors. 

The new contractor retains the right to determine the “number of employees necessary for efficient performance of [the] contract.”  However, for those Service Contract Act positions that the new contractor determines is necessary to perform the contract, employees working on the predecessor contract must be given a right of first refusal as to those positions. The employees on the predecessor contract who are entitled to that right of first refusal must be given not less than ten (10) days to accept the offer of employment.  The new contractor does not need to offer employment to employees of the predecessor contractor for whom the new contractor reasonably believes, “based on reliable evidence of the particular employees’ past performance, that there would be just cause to discharge the employee(s) if employed by the contractor or any subcontractors.” 

In order to facilitate these offers of employment, contract clause will require the predecessor contractor to, not less than ten (10) business days prior to the completion of the contract (or its work on the contract), “furnish the Contracting Officer a certified list of the names of all service employees working under this contract and its subcontracts during the last month of contract performance.”  The list must include the employees’ anniversary dates of employment under all predecessor contracts. The list is then to be provided to the new contractor by the Contracting Officer. 

If a contractor violates the terms of the Nondisplacement of Qualified Workers Under Service Contracts clause, the contractor may be liable for lost wages incurred by aggrieved former employees, in addition to potentially being debarred for a three (3) year period. 

The executive order directs the Department of Labor to issue final regulations implementing the executive order within 180 days and the Federal Acquisition Regulatory (FAR) Council to amend the FARs to include the contract clause mandated by the executive order within 60 days of the Department of Labor’s final regulations. 

The Nondisplacement of Qualified Workers Under Service Contracts contract clause will be added “to solicitations issued on or after the effective date of the final regulations issued by the FAR Council.”  Agencies are permitted, but not required, to include the Nondisplacement of Qualified Workers Under Service Contracts in solicitations issued between now and the effective date of the final regulations issued by the FAR Council. Accordingly, the Nondisplacement of Qualified Workers Under Service Contracts clause will generally not be included in existing contracts and will not be included to new solicitations until the effective date of the final regulations issued by the FAR Council, which is likely to occur sometime in 2022. 

The following is the specific contract clause mandated by the executive order

Nondisplacement of Qualified Workers:  

(a)  The contractor and its subcontractors shall, except as otherwise provided herein, in good faith offer service employees (as defined in the Service Contract Act of 1965, as amended, 41 U.S.C. 6701(3)) employed under the predecessor contract and its subcontracts whose employment would be terminated as a result of the award of this contract or the expiration of the contract under which the employees were hired, a right of first refusal of employment under this contract in positions for which those employees are qualified. The contractor and its subcontractors shall determine the number of employees necessary for efficient performance of this contract and may elect to employ more or fewer employees than the predecessor contractor employed in connection with performance of the work solely on the basis of that determination.  Except as provided in paragraph (b), there shall be no employment opening under this contract or subcontract, and the contractor and any subcontractors shall not offer employment under this contract to any person prior to having complied fully with the obligations described in this clause.  The contractor and its subcontractors shall make an express offer of employment to each employee as provided herein and shall state the time within which the employee must accept such offer, but in no case shall the period within which the employee must accept the offer of employment be less than 10 business days.

(b)  Notwithstanding the obligation under paragraph (a) above, the contractor and any subcontractors (1) are not required to offer a right of first refusal to any employee(s) of the predecessor contractor who are not service employees within the meaning of the Service Contract Act of 1965, as amended, 41 U.S.C. 6701(3), and (2) are not required to offer a right of first refusal to any employee(s) of the predecessor contractor for whom the contractor or any of its subcontractors reasonably believes, based on reliable evidence of the particular employees’ past performance, that there would be just cause to discharge the employee(s) if employed by the contractor or any subcontractors.  

(c) The contractor shall, not less than 10 business days before the earlier of the completion of this contract or of its work on this contract, furnish the Contracting Officer a certified list of the names of all service employees working under this contract and its subcontracts during the last month of contract performance.  The list shall also contain anniversary dates of employment of each service employee under this contract and its predecessor contracts either with the current or predecessor contractors or their subcontractors.  The Contracting Officer shall provide the list to the successor contractor, and the list shall be provided on request to employees or their representatives, consistent with the Privacy Act, 5 U.S.C. 552a, and other applicable law.

(d)  If it is determined, pursuant to regulations issued by the Secretary of Labor (Secretary), that the contractor or its subcontractors are not in compliance with the requirements of this clause or any regulation or order of the Secretary, the Secretary may impose appropriate sanctions against the contractor or its subcontractors, as provided in Executive Order (No.) _______, the regulations implementing that order, and relevant orders of the Secretary, or as otherwise provided by law.

(e)  In every subcontract entered into in order to perform services under this contract, the contractor will include provisions that ensure that each subcontractor will honor the requirements of paragraphs (a) and (b) with respect to the employees of a predecessor subcontractor or subcontractors working under this contract, as well as of a predecessor contractor and its subcontractors.  The subcontract shall also include provisions to ensure that the subcontractor will provide the contractor with the information about the employees of the subcontractor needed by the contractor to comply with paragraph (c) of this clause.  The contractor shall take such action with respect to any such subcontract as may be directed by the Secretary as a means of enforcing such provisions, including the imposition of sanctions for noncompliance:  provided, however, that if the contractor, as a result of such direction, becomes involved in litigation with a subcontractor, or is threatened with such involvement, the contractor may request that the United States enter into such litigation to protect the interests of the United States.

This article summarizes aspects of the law and does not constitute legal advice. For legal advice for your situation, you should contact an attorney.