On Dec. 13, the U.S. Department of Labor announced its final rule on Nondisplacement of Qualified Workers Under Service Contractors, which will implement Executive Order 14055.

Issued on Nov. 18, 2021, by President Joe Biden, the EO requires that contractors and subcontractors that work on covered federal service contracts, which include most contracts valued at or above $250,000 covered by the Service Contract Act, must in good faith offer service employees employed under the predecessor contract a right of first refusal of employment on the successor contract. ABC opposed the proposed rule and urged the DOL to withdraw the entire rule. To learn more, read ABC general counsel Littler Mendelson’s analysis of the final rule.

According to the DOL press release, the final rule does the following:

• Establishes standards and procedures for implementing and enforcing EO 14055.
• Specifies contracting agency and contractor obligations under the order.
• Creates an investigation process familiar to federal contractors to protect workers from displacement.
• Specifies how the order applies to subcontracts.
• Identifies sanctions and remedies that may be imposed by the department under the order.

The final rule is effective Feb. 12, 2024, and will apply to solicitations issued on or after the effective date of the final regulations issued by the Federal Acquisition Regulatory Council. 

More information on the final rule:

• DOL press release
• DOL webpage
• Frequently Asked Questions
• ABC general counsel Littler Mendelson’s analysis
• McNamara-O’Hara Service Contract Act

Background:

On Aug. 15, ABC submitted comments to the DOL identifying a number of concerns with its proposed rule on Nondisplacement of Qualified Workers Under Service Contracts, which would implement EO 14055.

In its comments, ABC urged the DOL to withdraw the rule in its entirety. The comments state, “ABC is concerned that, as written, the NPRM conflicts with the plain language of the SCA, which does not authorize the DOL, or the president, to require contractors to hire the incumbent employees of predecessor contractors on projects covered by the SCA. Two courts have so held without contradiction by Congress or by any other courts. In each of these cases, the courts rejected efforts by employees and/or labor organizations to assert preferential hiring rights for incumbent employees under the Act.

“In addition to and apart from the above conflict between the NPRM and the governing statute, ABC is also concerned that the proposal would create gross inefficiencies in the procurement process and would disproportionately impact small contractors and subcontractors through the imposition of additional regulatory burdens and substantial costs of compliance.” According to the NPRM, the total number of potentially affected small firms ranges from 74,097 to 329,470.

Further, “ABC observes that neither the EO nor the proposed rule contains any evidentiary support for the claim that the proposed changes will actually achieve greater efficiency in federal procurement. As is evident from the discussion of specific provisions of the NPRM, the proposed rule is likely to create greater inefficiencies as successor contractors are forced to employ workers who are not familiar with the often-different work practices that the successors may wish to implement. Thus, the cost savings that an agency may seek to achieve by hiring a new contractor will be lost or unobtainable if the successor is not allowed to bring its own uniquely qualified workforce onto the project.”

The Obama administration finalized a similar rule which was rescinded by the Trump administration in 2020.

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