In keeping with his promise of a “year of action” during this year’s State of the Union address, President Barack Obama signed an Executive Order that vastly extends the federal government’s enforcement reach over private federal contractors’ employment policies, requiring federal contractors to disclose all labor and employment violations during the last three years to the federal government. This latest Executive Order is in a line of mandates, all increasing the compliance obligations of federal contractors, including orders raising the minimum wage and preventing discrimination based on sexual orientation.

Due to these developments, federal contractors should consult with their labor and employment counsel, understand the new requirements and develop plans for meeting the increased compliance thresholds.

Under the microscope

The latest Executive Order moves to accomplish three things:

Violation Disclosures Requirements – The Executive Order only governs federal contractors and subcontractors, not the private sector at large. It applies to procurement contracts for goods and services, including construction, where the estimated value is greater than $500,000.

The order requires covered contractors to report, at the time of bidding or renewal, and update every six months, any administrative merits determination, arbitral award or decision, or civil judgment within the last three years for violations of almost all federal and state labor or employment laws. It appears that the order will require disclosure of all agency administrative hearing rulings as well as non-adjudicative findings, such as “For Cause” findings by the Equal Employment Opportunity Commmission (EEOC).

Limitations on Arbitration Agreements – The Executive Order also bans certain pre-dispute arbitration agreements; federal contractors will no longer be able to utilize arbitration agreements for claims arising under Title VII (race, color, religion, sex, or national origin), or any tort relating to sexual assault or harassment.

The arbitration portion of the Executive Order is more limited than the rest of the order – it only applies to federal contractors and subcontractors with contracts that exceed $1,000,000, and it doesn’t apply to prime or subcontracts for the acquisition of commercial items or commercially available off-the-shelf (COTS) items.

This doesn’t mean that contractors should simply give up on arbitration agreements – these agreements provide invaluable protection for employers, especially with regard to wage and hour lawsuits and class action waivers. The arbitration prohibition only applies to arbitration agreements entered into after a contractor bids on or renews a federal contract.

Pay Check Provisions – Finally, the Executive Order requires certain contractors and subcontractors to provide employees each pay period with the number of hours worked, the number of overtime hours, their pay, and any additions to or deductions from pay. Covered contractors should audit their practices to ensure compliance.

If you have federal contracts or subcontracts to a prime federal contractor, you should consult with labor and employment counsel to be sure you understand the new requirements. Don’t put business opportunities at risk by ignoring these changes.

Richard Alaniz is senior partner at Alaniz and Schraeder, a national labor and employment law firm based in Houston.