Successor Contractors on Federal Projects Must Now Offer Employment to Predecessor’s Employees

By Candace E. Johnson

– An Executive Order signed by President Biden in November 2021 has revived an Obama-era requirement that required successor employers on federal contracts under the Service Contract Act (“SCA”) to hire or offer employment to the employees of the predecessor employer.

Under this new regulation, when a federal service contract transitions from one contractor to another, the new contractor will be required to offer jobs to qualified employees who worked for the previous contractor and performed their jobs well. The Biden Administration says this requirement will prevent disruptions in federal services, make it easier for employers to find workers who are already trained for the job, and save taxpayer dollars.

Thanks to federal infrastructure investments and stimulus spending, more large federal construction projects are underway in the St. Louis area, including the new National Geospatial Administration headquarters. Therefore, it is very important for construction contractors and subcontractors to prepare for and comply with this new order to ensure they remain eligible to receive additional federal work.

In 2009, President Obama issued Executive Order 3495, known as ‘Nondisplacement of Qualified Workers Under Service Contracts,’ requiring a right of first refusal for continued employment be offered to qualified service workers who stood to lose their jobs when a government contract was replaced with a new federal contract and contractor at the same location performing the same or similar services. This policy remained in place until October 2019, when President Trump revoked it through Executive Order 13897.

The new Biden Executive Order has already taken effect. It retains most of the Obama Executive Order and adds some important additional requirements. Specifically, under the Executive Order, contracts under the SCA valued at or above $250,000 must contain specific clauses that essentially require successor contractors and subcontractors to hire or offer employment with a right of first refusal to “qualified” predecessor employees under the prior contract.  Offers of employment must be expressly made and kept open for at least 10 business days.

The new requirements do not apply to contracts valued under $250,000 or to employees who were hired to work under a federal service contract along with one or more nonfederal service contracts as part of a single job.

The Biden Administration says this new order will ensure that a reliable supply of experienced and skilled employees is available to work on federal service contracts. They say the rules will also make federal procurement more efficient by reducing worker turnover and keeping skilled workers in their jobs. 

Failure to follow these rules can expose contractors and subcontractors to penalties including an order to hire the predecessor contractor/subcontractor’s employees, payment of lost wages and benefits, and debarment for up to three years for failure to comply with the Department of Labor’s orders for hiring.

The best way for a contractor or subcontractor to avoid these consequences is to become familiar with the requirements of these regulations and start considering successorship issues where follow-on contracts may require bargaining with and hiring a union workforce. Consulting an employment attorney can put contractors in the best position to receive federal successor contract awards effectively and efficiently.

This article was originally published in Construction News and Review on May 31, 2022.

Candace Johnson is an attorney at Carmody MacDonald P.C. She focuses her practice in employment law. She advises clients on employment-related and Human Resources matters, including employee discipline, workplace investigations, employee terminations, and various state and federal employment laws. Contact Candace at [email protected] or (314) 854.8647.

This column is for informational purposes only. Nothing herein should be treated as legal advice or as creating an attorney-client relationship. The choice of a lawyer is an important decision and should not be based solely on advertisements.