On January 30, 2009, President Barack Obama signed three executive orders that significantly affect federal contractors' relationship with their employees by disallowing certain costs related to persuading employees in connection with their right to form or not form a union and/or collectively bargain, requiring that applicable employees of a predecessor contractor be offered employment, and requiring contractors to post certain notices informing employees of their rights under the National Labor Relations Act.

The first executive order, Economy in Government Contracting, concerns unallowable costs under federal contracts. This executive order states that costs associated with persuading employees to exercise or not exercise (or concerning the manner of exercising) their right to form a union or otherwise engage in the collective bargaining process will be deemed unallowable and are to be "excluded from any billing, claim, proposal, or disbursement applicable to any covered Federal Government contract."  

The executive order states that unallowable costs include those associated with: (1) preparing and distributing materials; (2) hiring or consulting legal counsel or consultants; (3) holding meetings (including paying the salaries of the attendees at meetings held for this purpose); and (4) planning or conducting activities by managers, supervisors, or union representatives during work hours. Despite these restrictions, the order provides that contractors may continue to seek reimbursement for costs incurred in maintaining satisfactory relations with their employees in accordance with 48 C.F.R. 31.205-21, including costs of labor-management committees and employee publications. The Federal Acquisition Regulatory Council is directed to adopt rules and regulations to carry out this order by June 29, 2009. This order applies to contracts resulting from solicitations issued on or after the Federal Acquisition Regulatory Council adopts the aforementioned rules and regulations.

The second executive order, Nondisplacement of Qualified Workers Under Service Contracts, addresses follow-on contracts. Frequently, in the follow-on contract scenario, the successor contractor or subcontractor will hire the majority of its predecessor's employees. Occasionally, however, successor contractors or subcontractors will hire a new work force, effectively displacing the predecessor's employees. Under this executive order, contractors with service contracts (or solicitations for such contracts) for the performance of the same or similar service at the same location must offer the predecessor's employees whose employment would otherwise be terminated as a result of the successor contract, a right of first refusal of employment, in positions for which they are qualified.  

The right of first refusal does not extend to the predecessor employer's managerial and supervisory employees. Nonetheless, if the head of a federal contracting department or agency ascertains that the provisions of this order would impair the federal government's ability to procure services on an economical and efficient basis, he or she may seek an exemption. The order also sets forth several new provisions that must be included in service contracts and solicitations for such contracts. Failing to comply with this order can result in sanctions, orders requiring employment, and payment of lost wages. Notably, willful violations of the order can result in the contractor or subcontractor, its responsible officers, and any firm in which the contractor or subcontractor has a substantial interest from being awarded any contract of the United States for a period of up to three years. The secretary of labor, in consultation with the Federal Acquisition Regulatory Council, will issue regulations to carry out this order by July 29, 2009. The order will apply to solicitations issued on or after the Federal Acquisition Regulatory Council issues its regulations.

Under the third executive order, Notification of Employee Rights Under Federal Labor Laws, federal contracts must contain new provisions that require contractors to post notices of employees' rights under the National Labor Relations Act, and explain contractors' responsibilities regarding this posting requirement. The specific language that a contractor must use is set forth in the order. If contractors fail to comply with the posting requirements, their contracts may be canceled, terminated, or suspended. In addition, failure to comply may result in the contractor's ineligibility for future government contracts. Contractors must include the new posting-related language in every covered subcontract entered into in connection with the prime contract. Covered subcontractors will be bound to these provisions. The secretary of labor will initiate a rulemaking to prescribe the size, form, and content of the notice to be posted by the contractor by May 30, 2009. The order will apply to contracts resulting from solicitations issued on or after the secretary issues the rulemaking.