The Department of Labor has announced that new regulations addressing Nondisplacement of Qualified Workers Under Service Contracts will go into effect on January 18, 2013. (See 77 Fed. Reg. 75780 (Dec. 21, 2012) [pdf].) DOL issued the final regulations in August 2012 after receiving comments on proposed rules published in June. Our comments on the impact of the proposed rules appear here.

The DOL’s action means that all Service Contract Act contracts over the simplified acquisition threshold awarded on or after January 18, 2013 will include a contract clause requiring prime contractors and subcontractors to make good faith offers of employment to SCA-covered employees employed under the predecessor contract.

Here are some of the highlights of the new regulations and the new contract clause:

  • The predecessor contractor is required to provide to the contracting officer, not later than 30 days before contract completion, a certified list of all service employees currently working under the contract and its subcontracts.  The contracting officer must then provide the certified list to the successor contractor. 
  • The regulations then require successor contractors and subcontractors in good faith to offer SCA-covered employees of the predecessor contractor/subcontractors a right of first refusal of employment under the contract in positions for which the employees are qualified.
  • Incumbent service employees have 10 days to accept the offer. Only then can a position vacated by an incumbent service employee be filled.

The right of first refusal is subject to some important limitations. First, a successor contractor may elect to reduce staff or to offer employment under different terms and conditions, including different pay or benefits. Second, a successor contractor has no obligation to extend offers to incumbent employees who will be retained by the predecessor contractor or who have a past record of unsuitable performance.  Third, the successor contractor and subcontractors may continue to employ their own employees who have worked for them for at least 3 months and who otherwise would be laid off. Fourth, the agency can also exempt contracts from the application of the nondisplacement requirements.

The new regulations include provisions for investigating and resolving complaints of non-compliance. They also provide for remedies and sanctions for violations—including payment of back wages, withholding of funds for unpaid wages, and exclusion from federal contracting.