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WHAT: The nondisplacement rule’s revival
continues as the U.S. Department of Labor (DoL) has published its
proposed rule to implement Executive Order (EO) 14055,
Nondisplacement of Qualified Workers under Service Contracts. EO
14055’s basic obligation would require many Service Contract
Act (SCA)-covered contractors to offer employment to service
employees of their predecessor contractors. The obligations will be
familiar to many contractors in the federal services market, given
the pendulum swings of executive orders adding and withdrawing the obligations over the prior
four presidential administrations. For a broader discussion on the
potential impacts of these changes see our alert on EO 14055. All SCA-covered
contractors, whether experienced with the nondisplacement rule or
not, should focus on two changes discussed below from the current
iteration.
WHEN: DoL published its proposed rule on July
15, 2022. Comments are due by August 15, 2022. Per the EO, the
nondisplacement obligations would take effect after both DoL’s
rule and a companion Federal Acquisition Regulation (FAR) rule are
final, though the EO “strongly encouraged” agencies to
add the obligations to active solicitations and those released
before the DoL and FAR rules are final.
WHAT DOES IT MEAN FOR INDUSTRY: Contractors may
perceive a relatively modest impact from the nondisplacement rule
because hiring predecessor employees in the services industry is a
common competitive strategy. But as we noted in discussing EO
14055’s issuance, this latest nondisplacement iteration saddles
service contractors with even more administrative burden and
compliance risk than the prior iterations.
First, DoL proposed removing the prior nondisplacement
rule’s limitation to successor contracts for the same or
similar services performed in the same location. The
nondisplacement obligation would thus apply no matter where the
successor performs. This geographic expansion includes hybrid and
remote workforces. So successor contractors, armed with a list of
only names and dates of hire, now may have to locate the
predecessor contractor’s service employees literally from coast
to coast. Relocation costs need not be offered under the proposed
rule, but remote options may need to be.
Second, DoL followed EO 14055 in raising the bar to not offer
employment to a predecessor employee even higher. In
nondisplacement’s prior iteration, a successor did not have to
offer a job when there was reasonable belief based on the
particular employee’s past performance that the predecessor
employee had “failed to perform suitably on the job.” Now
the standard would be “reliable evidence” that the
successor contractor would have “just cause to discharge”
the employee. The purpose of this change appears to be making it
impossible not to hire a predecessor employee unless the successor
has evidence to justify firing the employee—perhaps an
unintentionally signature feature of reviving a nondisplacement
rule that continues to be a solution in search of a problem.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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