American Bar Association
Forum on the Construction Industry
______________________________________________________________________________
CONSTRUCTION INDUSTRY LABOR ISSUES IN THE OBAMA ADMINISTRATION:
A DRAMATIC
TILT TOWARDS ORGANIZED LABOR
By
Maurice Baskin, Esq.
Venable LLP
Presented at the 2009 Fall Meeting
“The Two-Way Street of Construction Counseling:
Learning the Ins and Outs.”
October 15-16
© 2009American Bar Association
Less than three weeks after his inauguration, President Obama issued four executive orders (“E.O.s”) relating to labor policy and government contracting. All four orders were viewed as favoring organized labor and imposing new burdens on government contractors generally, and construction contractors in particular.
·
Use Of
Project Labor Agreements For Federal Construction Projects
Executive Order No. 13502 (February 6, 2009) for the first time directs all federal executive agencies to consider requiring the use of project labor agreements on large-scale construction projects.[1] For the purposes of the E.O., a “project labor agreement” means “a pre-hire collective bargaining agreement with one or more labor organizations that establishes the terms and conditions of employment for a specific construction project ….”
The order provides that the government may require the use of a project labor agreement if the agreement will:
o “advance the Federal Government’s interest in achieving economy and efficiency in Federal procurement, producing labor-management stability, and ensuring compliance with laws and regulations governing safety and health, equal employment opportunity, labor and employment standards, and other matters,” and,
o “be consistent with the law.”[2]
If the executive agency determines that the use of a project labor agreement meets this criteria, the Government can require every contractor or subcontractor on the project to become a party to the agreement with one or more labor organizations. Project labor agreements are not mandatory on every construction project. In addition, the E.O. does not require contractors and subcontractors to enter into a project labor agreement with any particular labor organization.
If the government requires a project labor agreement, the scope of the agreement is very broad. Some of the key terms of the project labor agreement include that:
o it is binding on all contractors and subcontractors on the Construction project;
o it contains guarantees against strikes, lockouts, and other job disruptions; and
o sets forth procedures for resolving labor disputes arising during the project labor agreement.
Unlike President Bush’s E.O. 13202 which it revoked, President Obama’s Executive Order 13502 imposes no requirements or prohibitions on state and local governments receiving federal financial assistance. By revoking President Bush’s prohibition against PLAs for recipients of federal financial assistance, however, the new Executive Order frees up state and local governments to decide whether PLAs should be implemented on their own, to the extent permitted by state competitive bidding laws. President Obama also directed the OMB to issue a report in August 2009 recommending whether the Executive Order should be extended to recipients of federal financial assistance.
Though the provisions of Executive Order 13502 went into effect immediately, no federal agencies sought to implement any federal PLAs prior to issuance of a proposed rule by the FAR Council issued on July 14, 2009. See 74 Fed. Reg. 33953 (July 14, 2009). The Office of Management and Budget , however, also issued a “memorandum” encouraging federal agencies to begin considering and possibly implementing PLAs, even while the proposed rule remains pending.
Meanwhile, critics have charged that the new Executive Order violates the Competition in Contracting Act and exceeds the President’s authority under the Administration of Property and Procurement Act. They assert that none of the labor “challenges” identified as justifications for the PLA directive were in evidence during any of the thousands of construction contracts undertaken by the Bush Administration, without any PLAs. PLAs have been shown to have a discriminatory impact on non-union contractors, subcontractors and their employees, particularly with regard to the taking of money from non-union workers for the benefit of union pension plans. As a result of such discrimination, surveys have shown that non-union contractors (85% of the industry) are less likely to bid on projects requiring PLAs; bid costs are likely to be higher; and taxpayer costs likely to increase.
Notwithstanding these concerns, and despite internal opposite from a number of career federal procurement officials, significant political pressure is being brought to bear on the federal agencies to start imposing PLAs at the earliest opportunity. It is likely that a court challenge will be made against efforts to implement Executive Order 13502.
o Notification Of Employee Rights Under
Federal Labor Laws
Executive Order No. 13,496 was issued on January 30, 2009. This E.O. reversed another executive order issued by the Bush administration, and requires that “all Government contracting departments and agencies” shall include a provision in every Government contract, other than purchases under the simplified acquisition threshold and other exempted contracts, that requires contractors to post a notice, in a form yet to be determined, that informs workers of their rights under Federal labor laws.[3] More importantly, if a contractor fails to comply with this requirement, the Government has the ability to cancel, terminate or suspend the contract or, even worse, declare the contractor ineligible for additional Government contracts.
The
E.O. requires contractors to include the above referenced notice requirements
in every subcontract entered into relating to the covered contract. Further,
the E.O. gives the Secretary of Labor (“the Secretary”) the right to direct a
prime contractor to takes the steps necessary to enforce the E.O.’s requirement
against subcontractors, including sanctions.
If the contractor becomes embroiled in litigation, or is threatened with
such involvement due to the enforcement of the E.O.’s requirements, the E.O.
permits the contractor to ask the Government to enter into the litigation to
protect the
·
Requires
The
E.O. gives the Secretary the right to investigate whether the contractual
provisions relating to the notice have been violated, as well as complaints by
employees. Likewise, the E.O. gives the
Secretary the power to hold hearings and to sanction a prime contractor or
subcontractor for their failure to follow the regulations. The sanctions available to the Secretary if a
contractor or subcontractor violates the E.O. include: suspension, cancellation or termination of
the contract or any portions thereof; condition continuing performance upon
future compliance; or debarment. The E.O. authorizes the Secretary to cancel,
terminate or suspend a contract as well as debar a contractor from further
Government contracts, after a hearing, for noncompliance with the notice
provisions.
On August 3, 2009, the Secretary of Labor published a Notice of Proposed Rulemaking to enforce the E.O. The proposed rule includes definitions, prescribes requirements for the size, form and content of the notice, exceptions for certain types of contracts, and exemptions. Regarding the substance of the notice, instead of including a simplified list of employee protections under federal labor law or copying the language on employee rights that appears in Section 7 of the NLRA, the proposed notice contains “greater detail of NLRA rights, derived from Board or court decisions, implementing such rights – which will more effectively convey such rights to employees.” In addition, the proposed notice provides National Labor Relations Board (NLRB) contact information, instructions on how to file a charge with that agency, and points out the 6-month statute of limitations for lodging a complaint.
What remains unclear under the Proposed Rule (and the Executive Order) is whether the Rule will be used to suspend or debar contractors only for violations of the new notice posting requirement, or whether DOL will consider such sanctions for contractors’ violations of the underlying NLRA provisions referenced in the posted notices. The latter action by DOL would certainly provoke a court challenge based upon preemption by the National Labor Relations Act and longstanding Supreme Court precedent.[4]
o Nondisplacement Of Qualified Workers Under
Service Contracts
Executive Order No. 13495 implements a requirement for a contract clause that affords a “right of first refusal” to employees under a predecessor service contract whose employment will be terminated as a result of the award of a successor contract “in positions for which they are qualified.”[5] In fact, this E.O. provides that “[t]here shall be no employment openings under the contract until such right of first refusal has been provided.” Like the notice requirement discussed above, this clause must be flowed-down to subcontractors. While the E.O. contains a number of exemptions, e.g., contracts under the simplified acquisition threshold, contracts awarded pursuant to the Randolph-Sheppard Act, etc., and permits the heads of contracting agencies to exempt its department from all or part of the provisions, the E.O. will still apply to a significant number of service contracts. In accordance with the required contract clause, contractors and their subcontractors “shall, except as otherwise provided herein, in good faith offer those employees (other than managerial and supervisory employees) employed under the predecessor contract whose employment will be terminated as a result of 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 employees are qualified.” With regard to the incumbent employees, the E.O. requires the contractor to make an express offer of employment that the employee must accept within a defined time period of not less then ten days. Further, the E.O. requires these provisions to be included in all contracts along with a requirement that subcontractors provide information about their incumbent employees.
Fortunately for contractors, the E.O. recognizes that contractors and their subcontractors may elect to employ fewer employees than the predecessor contractor. As a result, the contractor and subcontractor have the ability to staff the project in the manner they deem most efficient. Moreover, notwithstanding the requirement to offer employment to the incumbent contractors, the E.O. also provides that contractors and subcontractors:
o may employ employees who have been with the company for at least 3 months immediately preceding this contract and who would otherwise be laid-off;
o are not required to offer a right of first refusal to predecessor contractor employees who are not service employees under the Service Contract Act; and,
o are not required to offer a right of first refusal to any predecessor employee whom the contractor or subcontract reasonably believes has failed to perform suitably on the job.
Ultimately,
the Secretary has responsibility for investigating and obtaining compliance
with the order. Further, disputes
relating to this provision shall be resolved pursuant to regulations issued by
the Secretary. Moreover, contractors are
required to follow the directions of the Secretary of Labor with regard to the
enforcement of the requirements, including the imposition of sanctions. Contractors may also request the
The penalties for failing to follow the order or any resulting regulations are very serious. “[W]here a contractor or subcontractor has failed to comply with any order of the Secretary or has committed willful violations of this order or the regulations issued pursuant thereto, the contractor or subcontractor, and its responsible officers, and any firm in which the contractor or subcontractor has a substantial interest shall be ineligible to be awarded any contract of the United States for a period of up to 3 years.” Contractors and subcontractors proposed for debarment or listing the contractor or subcontractor on a published list of non-complying contractors have the right to a hearing. Regulations relating to this order were slated to come out by July 29, 2009.
o
Economy
In Government Contracting
The final Executive Order impacting private labor relations of government construction contractors (and others), is E.O. 13494, which changes the rules on what will be deemed “allowable” costs that can be charged by contractors to the government. Pursuant to the E.O., the costs of any activities to persuade employees –whether employees of the recipient of the Federal disbursements or of any other entity - to exercise, not to exercise or the manner of exercising the right to organize as well as collectively bargain with their employer are per se unallowable. [6] As such, contractors must exclude these costs from any billing, claim or proposal or disbursement applicable to their government contracts.
Specific examples of unallowable costs undertaken to persuade employees regarding their rights to organize and collectively bargain include:
o the preparation and distribution of materials;
o hiring or consulting with legal counsel or consultants;
o holding meetings; and
o planning or conducting activities by managers, supervisors, or union representatives during work hours.
This Order is quite similar to a
regulation adopted in the final days of the
Summary of President Obama’s
Pro-Labor Executive Orders
|
USE OF PROJECT LABOR AGREEMENTS FOR
FEDERAL CONSTRUCTION PROJECTS |
Directs that
federal agencies may require the use of union-only project labor
agreements on “large-scale construction projects” ($25 million and above),
revoking a Bush Executive Order that had expressly prohibited such union-only
requirements. |
|
NOTIFICATION OF EMPLOYEE RIGHTS UNDER
FEDERAL LABOR LAWS |
Requires
employers to post signs informing workers of their right to engage in
collective bargaining under the National Labor Relations Act (“NLRA”) and
revokes an executive order signed by President Bush that had required
employers to post signs informing workers of their rights to limit financial
support of unions. |
|
NON DISPLACEMENT OF QUALIFIED WORKERS
UNDER SERVICE CONTRACTS |
Requires
government contractors to offer jobs to the qualified employees of the
predecessor contractor when a government contract changes hands. |
|
ECONOMY IN GOVERNMENT CONTRACTING |
Prohibits
government contractors from being reimbursed for expenses incurred
when seeking to inform or influence workers regarding whether to form
unions or engage in collective bargaining. |
2. THE
EMPLOYEE FREE CHOICE ACT
The centerpiece of the Obama Administration’s labor-related legislative agenda to date has been the Employee Free Choice Act (EFCA), also known as the “card check” bill. This bill in its original form would have fundamentally tilted the playing field in favor of union organizing. Due to objections by moderate Democrats to some of the bill’s most revolutionary provisions, changes to the bill were proposed during the summer of 2009. As of this writing the outcome was not yet certain.
The first section of the EFCA, as originally proposed, eliminated the right of employees to a secret ballot election on the subject of unions, in favor of a mere check of "authorization cards" that unions would collect from employees and submit to the National Labor Relations Board. The card-signing process would have none of the protections of secret ballot elections, and employees would be subject to peer pressure, threats, and mis-communication throughout the card signing process. Employers might have no knowledge that a card signing campaign is under way and could lose any opportunity to speak to their own workers on the subject of unionization.
Beyond the card check provisions of the EFCA, the bill contained another provision that is equally significant to employers, if not more so. The bill would require unionized employers to submit to compulsory arbitration of their first union contracts, in the absence of an agreement. This would mean that, for the first time in the history of the National Labor Relations Act, every aspect of private businesses' wages and working conditions would be dictated by the federal government (through enforcement of the arbitration decision).
Finally, the originally proposed EFCA would have imposed new penalties against violators of the NLRA. Employers would be subjected to the possibility of crippling fines at the behest of union activists who have suffered no actual damage. It was anticipated that these penalties would be coupled with a strong union push for government “blacklisting” of labor law violators.
Enactment of the EFCA would radically depart from decades of settled labor law. The negative impact on non-union employers would be dramatic. Another related bill, the so-called RESPECT Act, would change the definition of “supervisors” in such a way that many contractors would be forced to allow working foremen to join a union instead of treating them as part of the management team. The status of this bill remains unclear as of this writing.
3. OBAMA’S
APPOINTMENTS TO THE KEY LABOR AGENCIES
President Obama’s choice to be Secretary of Labor was Cong. Hilda Solis. Solis endorsed the Employee Free Choice Act and was known as a strong supporter of unions prior to her appointment. In a speech to the Building Trades Council of the AFL-CIO, Secretary Solis reaffirmed her belief in passage of EFCA, expressed her strong support for government-mandated union-only PLAs, and vowed to increase enforcement of the Davis-Bacon Act and OSHA. See 94 Daily Labor Report (BNA) A-10 (May 20, 2009).
The President selected current member Wilma Liebman to be Chair of the National Labor Relations Board. Liebman has spoken and written widely about the need to dramatically reform the National Labor Relations Act so as to tilt the balance more in favor of unions. She is a former union lawyer who has frequently criticized the rulings of the Bush Board. The President subsequently appointed two more union lawyers to the Board, Craig Becker and Mark Pearce, and one Republican Congressional staffer and former management attorney, Brian Hayes. Remaining on the Board for another year is former Chair Peter Schaumber, a Republican.
Many observers are predicting significant changes in NLRB case law, with the following recent rulings of the Bush Board, to name only a few, facing possible reversal in the early years of the Obama Administration:
·
Toering Electric Co., 351 NLRB
No. 18 (2007) (requiring showing of union salts/organizers’ “genuine interest”
in employment);
·
Oil Capitol Sheet Metal, Inc., 349 NLRB No. 118 (2007) (limiting back pay of union
salts/organizers);
·
Dana Corp., 351 NLRB No. 28 (2007) (allowing employees to petition against
voluntary union recognition);
·
Register-Guard, 351 NLRB No. 70 (2007) (upholding no solicitation
policies and restrictions on email), enf.
denied (D.C. Cir. 2009);
·
Oakwood Healthcare, Inc., 348 NLRB No. 37 (2006) (defining supervisory status of
working supervisors);
·
·
IBM Corp.,
341 NLRB No. 148 (2004) (no pre-discipline right of non-union employees to have
a representative);
·
Jones Plastic & Engineering, 351 NLRB No. 50 (2007) (at-will employees can be
“permanent” strike replacements);
·
St. George Warehouse, 351 NLRB No. 42 (2007)/ Grosvenor
Resort, 350 NLRB No. 86 (2007) (requiring reasonable job searches by
discharged employees).
4. OBAMA’S
DHS MANDATES E-VERIFY FOR FEDERAL CONTRACTORS, INCLUDING CONSTRUCTION
On July 8, 2009, the Department of Homeland Security (DHS) announced that beginning September 8, 2009, federal government contractors must use E-Verify, an electronic Internet-based system, to verify the employment eligibility of its employees. E-Verify is free to all employers and provides an automated link to federal databases to help employers determine the eligibility of new hires and the validity of Social Security numbers once employees have completed a Form I-9 for the employer.
Despite
the DHS's announcement, the regulations requiring federal contractors to use
the E-Verify system still face a legal challenge in federal court. A coalition of business groups filed suit
against an earlier DHS proposed start date for the E-Verify mandate. The
litigation, pending in
Meanwhile, Congressional action, although not yet final, may ultimately render the lawsuit moot. Soon after the DHS's announcement on July 8, the Senate approved an amendment (S.A. 1371) to the 2010 homeland security appropriations bill (H.R. 2892) that would make the E-Verify program, which is set to expire this fall, permanent and mandate that federal contractors use the system.
In
the same July 8 press release, DHS announced its intention to rescind the
controversial "no-match" rule that was issued in 2007, but never
implemented because it is blocked by court order. The "no-match" rule obligates
employers to follow certain steps to resolve discrepancies between employer and
government records regarding employee social security numbers and employment
authorization documents, or face liability.
On July 9, however, the Senate approved by unanimous consent an
amendment (
Meanwhile, on July 1, 2009, U.S. Immigration and Customs Enforcement (ICE) launched what it termed a "bold, new initiative" by issuing notices to 652 businesses nationwide alerting them that ICE will be inspecting their hiring records to determine whether or not they are complying with employment eligibility verification (I-9) laws and regulations. By comparison, in 2008, ICE issued 503 similar notices for the entire year. ICE later announced on July 7, 2009 that it had reached a $40,000 fine settlement with a major employer as a result of one of violations uncovered during one of its I-9 audits.
5.
INDEPENDENT
CONTRACTOR MISCLASSIFICATION ISSUES
State
and federal crackdowns are being pressed against alleged misclassification of
workers as independent contractors in the construction industry. A number of
states, including
[1] The first President Bush issued an Executive Order prohibiting federal agencies from mandating PLAs. See Executive Order 12818. President Clinton revoked President Bush’s E.O. and issued a “memorandum” (not an Executive Order) that encouraged but did not require federal agencies to implement PLAs on projects above $5 million in 1997. The second President Bush issued a new Executive Order, No. 13202 (February 2001), as amended in E.O. No. 13208 (April, 2001), which prohibited any federal agency and any recipient of federal financial assistance from “requiring or prohibiting” a PLA. President Obama’s new Executive Order revoked President Bush’s E.O.
[2] Exec. Order No. 13502, 74 Fed. Reg. 6985-6986 (2009)
[3] Exec. Order No. 13496, 74 Fed. Reg. 6107 (2009)
[4] See Wisconsin Department of Industry v.
Gould, 475
[5] This executive order is, in essence, a renewed and
expanded version of Executive Order No. 12933, issued by President Clinton on
Oct. 20, 1994. There, President Clinton directed federal agencies only to
include in public building maintenance contracts a clause requiring successor
contractors to give their predecessor’s employees a right of first refusal to
employment openings under the new contract. President Bush’s Executive Order No.
13204 revoked President Clinton’s Order, which was never tested in court. It
should be noted that the Service Contract Act has been held NOT to require
successor contractors to hire their predecessor’s employees.
[6] Exec. Order No. 13494, 74 Fed. Reg. 6101 (2009)