Will Companies be Responsible for Their Subcontractor’s Compliance Inadequacies? - American Society of Employers - Anthony Kaylin

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Will Companies be Responsible for Their Subcontractor’s Compliance Inadequacies?

complianceWhat is the role of the HR professional?  Slowly it is turning more into a compliance role – not just for the employer, but of the employer’s contractors and subcontractors.  Many in HR will say, “Really?” But it is happening.  For example, under the Bush administration in the 2000s, I-9 compliance was pushed, and HR professionals were forced to become I-9 specialists. There was pushback, but essentially the government got their way.

In a more blatant move, President Obama issued Executive Order 13673 (July 31, 2014), or the “Fair Pay and Safe Workplaces” order that required federal contractors and subcontractors to report any “administrative merits determination arbitral award or decision, or civil judgment” against them in the preceding three years that related to potential violations under the FLSA, NLRA, OSHA, FMLA, and other anti-discrimination laws. It also required that the contractors monitor subcontractors for such violations.   The EO was known as the “blacklisting” order because it required the federal contracting officer to consider such violations when awarding or extending government contracts.   

Implementing EO 13673, the Federal Acquisition Regulatory Council (FAR) and the Department of Labor (DOL) promulgated final rules that required federal prime contractors and subcontractors, including federal construction contractors with contracts over $500,000, to disclose to the government any labor violations occurring within an expanded lookback period. Among the labor laws listed were the Davis-Bacon Act, the Service Contract Act, the FLSA, OSHA, the Migrant and Seasonal Agricultural Worker Protection Act, and the NLRA.  The final rule, which was more than 500 pages, contained an effective date of October 25, 2016. 

HR professionals were aghast.  Implementation especially for large, multi-location employers, would be a nightmare and ensuring subcontractor verification of compliance just compounded the headache into migraines.  Antacid came in the form a preliminary injunction by a federal court that that suspended certain portions of the regulations the day before the rule became effective.  Then true relief came in in 2017 when Congress under its authority under the Congressional Review Act (CRA) was able to declare the rules invalid.

However, with a new administration comes old ideas hard to shake.  President Biden stated on the campaign trail that that he would “restore and build” upon the Obama administration executive order and expand it such by only awarding government contracts to those contractors that pay at least $15 an hour as their minimum wage, provide families with sustaining benefits, and do not oppose the unionization of their workers.  In other words, at least with federal contractors, not only are they responsible for almost perfection in cleaning their dirty laundry, but the same with their subcontractors. 

Second, states picked up on the action by implementing their own versions of the EO into law.  For example, Virginia passed a law under the revised Virginia Wage Payment Act that any employer who willfully and with intent to defraud fails or refuses to pay wages can be found criminally and civilly liable.  In the construction arena it also applies to contractors and their subs who can be can be jointly and severally liable for failure to pay wages to any subcontractor’s employees. 

Third, with the likelihood the Browning-Ferris case for joint employment being reinstituted by new cases or regulations or both, joint employment can lead to a myriad of joint liability.   In the original Browning-Ferris case before the NLRB in 2015, it ruled that two or more companies are "joint employers" of a worker if they share the ability to govern the worker's terms and conditions of employment, for example, all employers have sufficient authority to control things like salary and working conditions.

With HR shrinking in size, HR compliance nightmares will likely grow over the next four years.  With so many hats on, something is bound to slip and just one slip could cost the employer greatly.  Employers will need to have multiple subcontractors available if one is forced out due to noncompliance.  And it could lead to many employers dropping out of the federal and/or state contracting sphere, where the costs of compliance eats up the bulk of profitability.

 

Source: Jackson Lewis PC 12/30/20, Bradley 10/26/16, AFL-CIO 9/2/15

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