Superstition -- When Is an Employee First Right of Refusal Required?
“When you believe in things that you don’t understand, then you suffer.” Superstition, By Stevie Wonder
While President Trump has revoked several of the Obama era procurement-related executive orders, the so-called “Nondisplacement” Executive Order (“EO”) first issued in 2009 has survived.
Executive Order (“EO”) 13495, “Nondisplacement of Qualified Workers Under Service Contracts,” requires that qualified workers on a Federal Government service contract, who could otherwise lose their jobs because of the completion or expiration of a contract, be given a first right of first refusal for employment with the successor contractor. Generally, a successor contractor may not hire new employees under the contract until this right of first refusal has been provided. The EO applies to a successor contract for the performance of the same or similar services at the same location.
In many respects, the Nondisplacement EO simply codified the practice of successor contractors of hiring the incumbent’s workforce. The Government has an interest in retaining the experienced and qualified staff and avoiding labor unrest. The predecessor contractor has an interest in cooperating rather than laying off workers. And the retention of critical skills reduces the successor’s inefficiency at start up and recruitment costs. As a result, most workers, even before the EO was issued were in fact hired by the successor contractor. The Nondisplacement EO thus really addressed the exceptional circumstances, where the successor refused to hire the least productive employees, or those who were a behavioral problem, or those who were perceived as likely to aid union organizing campaigns.
The EO only applies in the United States and certain territories and possessions. It does not apply to contracts overseas, or in places like Guantanamo Bay, Cuba. I mention the latter place because I had a bid protest case at GITMO involving the ferry contract where the incumbent contractor (incidentally, it was Munilla Construction Management of the recent Florida pedestrian bridge collapse notoriety) zealously tied up the incumbent staff with non-competes and non-solicitation requirements to frustrate the transition to a successor contractor.
The EO contains several exclusions, including contracts under the simplified acquisition threshold and certain contracts awarded for services produced or provided by persons who are blind or have severe disabilities.
Service employees must be advised of their right of first refusal in the event a service contract will expire, and a follow-on contract is awarded for the same or similar services at the same location. The EO requires the predecessor contractor to either post a notice or give individual notice to the predecessor contractor’s employees in English and, where a significant portion of the workforce is not fluent in English, in the language with which the employees are more familiar.
The successor contractor is required to offer the right of first refusal of employment to all qualified employees whose names appear on the predecessor’s certified list (as well as any omitted from the list), except as follows:
· The successor contractor may first employ on the contract its own employees who worked for that contractor for at least three months immediately preceding commencement of the contract and who would otherwise face lay-off or discharge.
· The successor need not employ workers that will remain with the predecessor contractor.
· The successor need not employ workers who are not covered by the SCA, like exempt professional, administrative, executive or computer employees.
· The successor need not employ workers that were hired to work under the predecessor’s Federal service contract and one or more other non-Federal service contracts as part of a single job, so long as the job arrangement is not intended to circumvent the requirements of the Order.
· The successor likely need not hire former employees who quit the employment of the predecessor contractor. The worker must be an employee of the predecessor contractor to be covered by the EO. If the employee quits his or her job prior to the start of the successor contract, they should not be eligible for the first right of refusal. But be prepared for DOL to take a hard line as to what constitutes quitting work. We had a case involving an employee who cleaned out her desk, and left work, and wasn’t around to transition to the successor, and DOL still maintained that she had a right of first refusal.
· The successor contractor has the discretion to determine how many employees are needed for efficient performance of the contract, and may employ fewer employees than the predecessor contractor.
· The successor is not required to offer employment to any employee of the predecessor contractor for whom the contractor or any of its subcontractors reasonably believes, based on the worker's past performance, has failed to perform suitably on the job. The successor may demonstrate a reasonable belief that the employee, in fact, has failed to suitably perform by written evidence of disciplinary action arising from poor performance or evidence received directly from the contracting agency that the employee did not suitably perform. The problem with the latter is that the Government agency personnel rarely wish to go on record. The performance determination is factual and must be made individually for each employee. Again, be prepared for DOL push back should the employer take a hard line in making these determinations.
· The successor has the discretion to determine which employees will first be offered the right of first refusal.
· Where the successor offers a right of first refusal to fewer employees than were employed by the predecessor, the obligation to provide a right of first refusal of employment under the contract to the predecessor’s employees continues to apply for 90 days after commencement of the contract to fill vacancies, including those due to increased staffing levels.
· As a general matter, a bona fide offer of employment need not be in a position similar to that which the employee previously held, but only in a position for which the employee is qualified. Information regarding an employee’s qualifications shall ordinarily come directly from the employee. If a question arises concerning an employee’s qualifications, that question shall be decided based upon the employee’s education and employment history, with particular emphasis on the employee’s experience on the predecessor contract. Be prepare for pushback from the DOL if you take a hard line about employee qualifications.
· An offer of employment to a position providing lower pay or benefits than those of the position the employee held with the predecessor contractor will nonetheless be considered bona fide if the business reasons for the offer are valid (not related to a desire that the employee refuse the offer or that other employees be hired). Of course, the Service Contract Act prevailing wages likely set a floor under which the compensation cannot fall below.
· Where the timing of an employee’s termination by the successor contractor suggests that the offer of employment may not have been bona fide, the facts and circumstances of the offer and the termination will be closely examined by DOL to determine whether the offer was bona fide.
Not less than 30 days before completion of its contract, the predecessor contractor must furnish the contracting officer with a certified list of the names of all service employees working for the contractor at the time the list is submitted, together with their anniversary dates of employment. The contracting officer in turn shall provide the list to the successor contractor and, if requested, to employees of the predecessor contractor or their collective bargaining representatives. A recent case at the ASBCA concluded that, since there is no requirement to give that seniority list to the prospective offerors in the bidding stage, there can be no basis for a claim for a price adjustment for the failure to furnish such a list or for any cost deviations from the estimate made by the offeror. See SecTek, Inc. v. National Archives and Records Administration, CBCA 5036, 17-1 BCA 13,735. It is caveat emptor and the offeror assumes the risk. Unless the predecessor contractor (either directly or through the contracting agency) or the individual employee in question provides evidence to the contrary, the successor contractor must presume that all service employees of the predecessor contractor who are working at the same location during the final month of contract performance will be terminated when the contract ends. If no employee list is furnished, the successor is supposed to ask the workers to identify their anniversary date of employment.
Any employee who thinks that he or she is entitled to an offer of employment with the successor contractor and who has not received an offer, may complain directly with the Wage and Hour Division within 120 days from the first date of contract performance. Thus, it basically takes employers four months from the start of performance to get clear of these kinds of claims. An employee may file a complaint directly with the Branch of Government Contracts Enforcement, Wage and Hour Division, U.S. Department of Labor, Washington, DC 20210 or via email at displaced@dol.gov or by telephone at 202-693-1399.