USDA Proposes Contractor Blacklisting Rule for Its Contractors: One-Off or the First Domino?

Ostensibly as part of a comprehensive overhaul of its acquisition regulations, the U.S. Department of Agriculture (USDA) has proposed resurrecting the contractor blacklisting rule, which was overturned by Congress under the Congressional Review Act in 2017. The proposed rule would broadly exclude any contractor, subcontractor or supplier that has violated any labor law, including (but not limited to) 15 specific federal labor laws and their state equivalents. Additionally, the proposed rule would require contractor bidders 1) to provide a list of all their and their subcontractors' previous labor-law violations (for some unspecified period of time), to be updated every six months, and 2) to certify, on behalf of themselves and their subcontractors, that they are now in compliance with any corrective actions resulting from those violations.

Comments on the proposed rule are due March 21, 2022. Contractors with USDA contracts should prepare for the final release of this clause by reviewing and cataloguing labor law violations companywide so a proper certification can be made.

The rule may serve as a test case for the Biden Administration to see if it can evade the Congressional Review Act by implementing the blacklisting rule on an agency-by-agency basis.

Details of the Proposed Rule

The proposed rule follows a failed effort by the Obama Administration to introduce a government-wide blacklisting rule at the tail end of its tenure. That effort was eventually thwarted by a court in Texas and subsequently by Congress under the Congressional Review Act.

The USDA's proposed rule contains two key clauses. First, contractors must certify that they and, "to the best of their knowledge," their subcontractors and suppliers, are complying with all labor laws:

In accepting this contract award, the contractor certifies that it is in compliance with all applicable labor laws and that, to the best of its knowledge, its subcontractors of any tier, and suppliers, are also in compliance with all applicable labor laws.

In other words, the USDA cannot contract with any entity that is presently in violation of any labor law of any kind.

Applicable labor laws "include" (hence are not limited to):

1. the Fair Labor Standards Act
2. the Occupational Safety and Health Act
3. the Migrant and Seasonal Agricultural Workers Protection Act
4. the National Labor Relations Act
5. the Davis-Bacon Act
6. the McNamara-O'Hara Service Contract Act
7. Executive Order 11246 (Equal Employment Opportunity)
8. Section 503 of the Rehabilitation Act of 1973
9. the Vietnam Era Veterans' Readjustment Assistance Act
10. the Family and Medical Leave Act
11. Title VII of the Civil Rights Act of 1964
12. the Americans with Disabilities Act of 1990
13. the Age Discrimination in Employment Act of 1967
14. Executive Order 13658 of Feb. 12, 2014 (Establishing a Minimum Wage for Contractors)
15. Equivalent state laws, as defined by the Secretary of Labor in guidance
16. Executive Order 13627 (Strengthening Protections Against Trafficking in Persons in Federal Contracts)

Further, the "Department of Agriculture considers certification under this clause to be a certification for purposes of the False Claims Act." This means that contactors may face False Claims Act liability for a false certification.

A second clause (AGAR 452.222-70) requires contractors to "provide a list" of all "adjudicated labor law violations." Contractors must attest that they are in compliance with any corrective action for previous adjudicated labor law violations. Contractors are also provided an opportunity to plead their case to the contracting officer:

Prior to receiving an award, a contractor shall provide a list of the specific violations of the legal requirements listed above, if any, and be given an opportunity to disclose any steps taken to correct the violations of, or improve compliance with, such legal requirements. The contracting officer in coordination with their Mission Area senior contracting official will consider any information provided and determine whether a contractor is a responsible source that has a satisfactory record of integrity and business ethics.

Unanswered Questions

The proposed rule contains many problematic ambiguities:

• The proposed rule does not define what an "adjudicated" labor law violation is. With respect to the Service Contract Act (now known as the Service Contract Labor Standards), is it when an investigator finds there is a violation? Or when an administrative law judge subsequently rules on it? What happens if a contractor disagrees with an investigator's violation conclusion, but in the interest of time and money, accepts it and pays back wages? What if a labor law case is on appeal? Or if an employee wins an arbitration award? Or if the arbitration award has a nondisclosure agreement?
• Is there a monetary floor for a reportable violation?
• The proposed rule's second clause requires disclosure of only "adjudicated labor law violations," while the first requires "compliance with all applicable labor laws." Those are two different things.
• The proposed rule lists 15 sets of laws, but these are apparently only illustrative. What other labor laws might be included? In particular, what about whistleblower-protection laws found in non-labor statutes, like the Dodd-Frank Wall Street Reform and Consumer Protection Act or the False Claims Act?

Legal Vulnerabilities

This rule, if finalized as proposed, could be highly vulnerable to challenge under the Administrative Procedure Act and other laws. The rule's preamble contains no discussion of its blacklisting provisions nor economic analysis, and the agency has asserted that the rule "is not a significant regulatory action." Legal challenges are expected if this (and potentially other) agency-level blacklisting rules go into effect.

Conclusion

The USDA's proposed rule represents a significant departure from labor law requirements across the government. USDA contractors and prospective contractors should begin to prepare for this requirement by collecting information and noting corrective steps taken for each. Holland & Knight will continue to monitor this rule and provide additional information as it develops. If you have any questions, please contact the authors.

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.