Businesses blast Obama’s ‘blacklisting’ regulations

Industry groups are lining up against a proposed rule requiring firms seeking to do business with the federal government to report past labor law violations, contending the regulations would “blacklist” companies from procuring federal contracts. 

President Obama ordered up the rule almost a year ago via executive action as part of a larger effort to protect workers’ rights. If enacted as proposed, the regulations would force federal contractors to disclose even minor violations they — or their subcontractors — have had had in the last three years when procuring contracts over $500,000.

The violations would be compiled in an online database that businesses say would allow agencies wide discretion to deny contracts on questionable grounds. They warn that the rule would create burdensome new reporting requirements.

Less than a week after the draft rule was issued, industry groups are already considering a court battle against the proposal.

“We’re looking at all our legal options,” said Ben Brubeck, director of labor and federal procurement for Associated Builders and Contractors (ABC). “We think this will be an issue resolved through litigation.”

Brubeck said contractors would have to spend time and money to implement a system to track violations and ensure they are reported correctly.

And the reporting doesn’t end there, critics note. The rule from the Federal Acquisition Regulatory Council would force contractors awarded a job to update their information every six months throughout the life of a contract, some of which last for years.

Marc Freedman, executive director of labor law policy at the U.S. Chamber of Commerce, said the rule boils down to three words: “Unnecessary, unworkable and impermissible.”

He said the rule is unnecessary because agency contracting officers already have the authority to determine whether past labor violations should force a contract denial; unworkable because it would flood the officers with a deluge of irrelevant information they don’t have time to process or use in any meaningful way; and impermissible because the proposal strips contractors of their due process rights.

The Department of Labor (DOL) countered that the federal government should be doing business only with companies that comply with laws that protect workers’ safety, wages and civil rights. Contractors that consistently adhere to labor laws are more likely to have workplace practices that enhance productivity and produce good results.

“DOL will work with contractors to help them come into compliance with basic workplace protections,” department spokeswoman Ann Mangold said in an email response to questions. “Denying contracts is expected to be rare.”

According to the guidance proposed by the Labor Department, contractors will have to report any “notices or findings — whether final or subject to appeal or further review  — issued by an enforcement agency following an investigation that indicates that the contractor or subcontractor violated any provision of the labor laws.”

The guidance, for instance, lists pending citations from the Occupational Safety and Health Administration (OSHA) as a violation that needs to be reported, Freedman said.

“Employers will have to report these challenges before they’ve had a chance to challenge them,” he said.

Like ABC, Freedman said the chamber is discussing a court challenge to the rule.

The proposed Fair Pay and Safe Workplaces rule is similar to federal contracting regulations enacted during the Clinton administration and later repealed by former President George W. Bush.

Unlike Clinton’s rule, which gave contracting officers the authority to review a company’s record and decide whether or not to award a contract based on violations, AFL-CIO general counsel Lynn Rhinehart said Obama’s rule creates an ongoing process to ensure companies are complying with labor laws.

“It’s an improvement from what the Clinton rules did,” she said. “It’s an important and positive innovation they’ve added.”

While industry fears a bad review from one contracting officer could bar companies from future federal contracts, Rhinehart said the rule is contract-specific.

“Blacklisting is clever, but it’s really a misnomer,” she said. “Blacklisting implies you’re on a list and barred forever, but that’s not what this is about. This is about awarding a particular contract and having an ongoing process through which we can ensure a company’s compliance with employment and labor laws throughout the duration of that contract.”

A 2013 Senate Health, Education, Labor and Pensions Committee report found that almost 30 percent of the top violators of federal wage and safety laws were current federal contractors.

The investigation, led by then-chairman Sen. Tom Harkin (D-Iowa), also found that 42 American workers had died between 2007 and 2012 as a result of OSHA violations by companies holding federal contracts in 2012.

The U.S. spends $500 billion in taxpayer dollars to private companies for goods and services each year, and companies that receive government contracts employ an estimated 22 percent of the U.S. workforce, or approximately 26 million workers, according to the report.

“That’s a lot of workers this rule is going to protect,” said Christine Hines, consumer and civil justice counsel for Public Citizen.

The executive order, the proposed rule and the Labor Department’s proposed guidance released last week, she said, are to ensure that employees have safe workplaces and that people are not being taken advantage of.

“In terms of reporting, it shouldn’t be that burdensome if people are following the rules,” she said. “It’s really easy for companies not violating the law. It’s easy for them to check a box and say they have no labor law violations.”

But labor and employment lawyer John Meyers, a partner at the firm Barnes & Thornburg, said it’s not that easy for the majority of contractors.

“It’s hard for companies to keep a clean record and the way to do that is to settle claims out of court,” he said.

Because many companies fight labor claims in an effort to discourage lawyers and copycat plaintiffs, he said the rule will pressure companies to settle frivolous claims.

DOL estimates 22,150 contractors would be subject to the rule, expected to be finalized as early as this year.

This story was updated at 1:48 p.m. to claify Freedman’s view that the proposed rule is impermissible because it doesn’t give contractors any due process rights. 

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