New Federal Rules Will Affect Contractors Who Don’t Play by The Rules

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Federal contractors have a powerful new incentive to play by the rules. Starting in October, businesses seeking federal contract work must disclose any labor law violations going back three years. Depending on the violation, a contractor may be rejected during the bidding process.

The new requirements, which stem from an executive order signed by President Obama in April, cover violations of 14 labor laws, including wage-and-hour rules, OSHA safety regulations, and Title VII discrimination protections, as well as their state law equivalents. A “violation” can mean a variety of things, from a finding of wrongdoing by a government agency to an arbitration award to a civil judgment. If you want to do business with the federal government, you’ll have to disclose any such outcomes—which could harm your ability to renew a contract or win new government business.

This means you may need to redouble your efforts to comply with labor laws, since having fewer—or, better yet, no—labor law violations will help maximize your chances of being awarded government contracts. In other words, the executive order increases the importance of ensuring that leaders, managers and employees do not act in ways that might violate the law.

There’s no secret to preventing wrongdoing. At a bare minimum, make sure you have:

Clear and Easily Accessible Policies

When employees can’t understand exactly what is required of them—or if they can’t find a policy—they are more likely to make errors. Many policies and Codes of Conduct are dense, legalistic and hard to understand. Review your Code and policies and, if need be, rewrite them in clear, straightforward language. Then, make sure employees can find them easily. A good policy management system can help on both fronts.

Engaging, Effective Training

Instituting a policy against harassment in the workplace, for instance, or accurately defining the difference between exempt and non-exempt employees, is only half the battle. If employees and managers don’t understand critical issues, your policies won’t protect you.

  • Make sure your training is engaging, so that the message sticks.
  • Don’t repeat the same content over and over. Employees will tune out, and the repetition signals that you really aren’t invested in success, but are just “checking the box.”
  • Focus your training on your biggest risks. These will differ from company to company. But given that 70% of all allegations raised through hotlines are HR-related, having cutting-edge harassment and discrimination training is a no-brainer. And since wage and hour class action lawsuits are by far the largest type of employment-related class action, ensuring that all managers know how they should manage exempt and non-exempt employees is essential—all the more so with the new wage and hour rules taking effect in later this year.

A Strong “Speak-up” Culture and Multiple Reporting Channels

Learning about potential violations of your policies early gives you the opportunity to address them—before they mushroom into lawsuits or government investigations. Make it easy for employees to let you know about problems, anonymously if need be, and then rigorously protect those who do speak up. If you don’t, the stream of early warnings will dry up, undermining your ability to nip problems in the bud.

Leaders Who Consistently Lead by Example

From Board members and executives to front-line supervisors, it is crucial that leaders live by and reinforce your values and policies—every day. “Tone at the top” means little if line managers put pressure on employees to bend the rules in order to achieve goals. Instead, leaders at all levels need to constantly remind employees that doing business the right way is paramount, even when revenue or other goals are at stake. Anything less may be perceived as permission to “do what it takes” to achieve success.

The executive order may also put greater pressure on government contractors to settle allegations against them. Under the order, settlements that do not contain an admission of wrongdoing need not be disclosed. As a result, when a firm faces allegations of having violated any of the covered labor laws, it may feel that settling the claim is its best option, because fighting it could lead to an outcome that must be disclosed. Private plaintiffs and government agencies will know this, which means they will be able to demand richer terms to settle.

On two levels, then, the executive order makes prevention of wrongdoing all the more important for federal contractors. While some firms have made only limited efforts in the past, the executive order may change the risk-reward calculus and lead firms to invest more time, effort and resources into complying with the covered labor laws. Those that do not face an increased risk to their business.


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