Employment / 1 min read
In July 2022, the U.S. Department of Labor put forward a proposed rule which requires covered contractors and subcontractors to offer workers under the predecessor contract the right of first refusal on the successor contract on covered federal service contracts.
The proposed rule has become final and will go into effect February 12, 2024. The rule stems from Executive Order 14055, issued by President Biden, which covers contractors and subcontractors that work on covered federal service contracts. This includes most contracts valued at or above $250,000 covered by the Service Contract Act.
Several industry groups opposed the proposed rule and argued that the rule was too burdensome for government contractors and was the result of a wide degree of latitude enjoyed by the executive branch, which used executive order and agency rules to impose preferred employment policies on contractors rather than putting bills through Congress.
However, the right of first refusal requirement is subject to several limitations. It does not apply to those who do not qualify as employees under the SCA, such as employees who are exempt from overtime under the Fair Labor Standards Act. Second, a successor contractor need not offer employment to a predecessor’s employees if the successor “reasonably believes, based on reliable evidence of the particular employee’s past performance,” that there would be just cause to discharge the employee. Third, the right of first refusal does not apply if the predecessor employee(s) is not qualified to do the job.
Contractors who are working with the federal government are advised to consult with employment attorneys to ensure they are properly in compliance.