BLOG: The Service Contract Right of First Refusal Rules Continue to Fall Away

February 26, 2020

By Jason A. Blindauer
Practice Areas: Government Contracts Law and Labor & Employment Law

On January 31, 2020, the Federal Register announced that the U.S. Department of Labor (DOL) rescinded the service contractor “right of first refusal” regulations at 29 C.F.R. Part 9.[1] This was done to implement the President’s October 31, 2019 revocation of the 2009 Executive Order No. 13,495, Nondisplacement of Qualified Workers Under Service Contracts (Nondisplacement Rules). DOL’s move was primarily administrative in nature, given that the President’s revocation order commanded Executive Agencies to stop enforcing the rules. 

Generally speaking, Nondisplacement Rules guaranteed (with exceptions) that workers covered by Service Contract Labor Standards (SCLS, formerly known as the Service Contract Act) were re-offered their positions by a successor contractor. This non-displacement kicked in provided that the follow-on contract was “for the same or similar services at the same location.” FAR 22.1203-1. 

Even without the Nondisplacement Rules, it is not a foregone conclusion that workers will lose their positions every time a new contractor takes over the work. The incumbent workforce is already trained and experienced, which increases the probability that transition and performance will go smoothly—a fact that often makes the incumbent workforce preferable. However, this does give contractors more flexibility to make subjective determinations as to which predecessor employees they think are best for their mission. Another practical consequence is that unionized workforces may not be as protected as they were when the Nondisplacement Rules were in effect. While contractors cannot discriminate in hiring based on union membership, there is no longer a requirement which ensures that the majority of the predecessor workforce will be hired, which is necessary to maintain the bargaining unit. 

Contractors should be aware that Federal Acquisition Regulation (FAR) Clause 52.222-17 (Nondisplacement of Qualified Workers) is still in solicitations and contracts. Although the FAR Council is expected to remove the clause, it has not yet done so. Nonetheless, the fact that DOL will not be enforcing the clause means that contractors do not need to honor it. 

Finally, it is worth noting that FAR Clause 52.207-3 (Right of First Refusal of Employment) still gives a federal employee whose job has been outsourced to a contractor a right of first refusal for being hired by that contractor. Additionally, FAR Clause 52.237-3 (Continuity of Services), which applies where “services under the contract are considered vital to the Government and must be continued without interruption[,]” requires an incoming contractor to “allow as many personnel as practicable to remain on the job to help the successor maintain the continuity and consistency of the services required[.]” FAR Clause 52.237-3(c). So, if a SCLS-covered contract arises in either of these circumstances, one or both of these clauses will kick in and obligate the incoming contractor to implement nondisplacement of the previous employees.

If your company needs assistance with labor and employment matters specific to government contractors, please contact a member of PilieroMazza’s Labor & Employment or Government Contracts practice groups.

Jay Blindauer, the author of this blog, is a member of the Firm’s Government Contracts Group.

 

[1] See 85 Fed. Reg. 5,567.

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