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Washington Labor & Employment Wire » Obama Administration Issues Regulations Prohibiting Federal Contractor Reimbursement for Labor-Persuasion Costs and Requiring Notice of Federal Labor Rights

Obama Administration Issues Regulations Prohibiting Federal Contractor Reimbursement for Labor-Persuasion Costs and Requiring Notice of Federal Labor Rights


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In today’s Federal Register, the Department of Defense (DoD), General Services Administration (GSA), and National Aeronautics and Space Administration (NASA) issued a final rule amending the Federal Acquisition Regulation (FAR) to prohibit reimbursement to federal contractors of the costs associated with persuading employees to exercise or not to exercise, or the manner of exercising, the right to organize and bargain collectively through representatives of the employees’ own choosing.

This regulation implements a 2009 executive order that President Obama signed shortly after entering office (E.O. 13494). The stated goal of that executive order was to promote economy and efficiency in government contracting by ensuring that certain costs not directly related to contractors’ provision of goods or services to the government were not reimbursable. To achieve this goal, the executive order specifically singled out contractors’ costs in persuading employees concerning the exercise of their collective bargaining rights.

The new regulation, which is effective as of December 2, 2011, amends FAR 31.205-21, the cost principle addressing labor costs. Currently, this cost principle states that costs incurred in maintaining satisfactory relations between the contractor and employees, including the costs of shop stewards, labor management committees, employee publications, and other related activities, are allowable. The amendment does not alter the existing language or change contractors’ ability to seek reimbursement for non-persuader activities aimed at maintaining relations with employees.  This includes collective bargaining costs that do not implicate persuader activities, such as paying employees who participate in the collective bargaining process, or the development, negotiation, and enforcement of neutrality agreements. 

Instead, the rule adds a new paragraph to FAR 31.205-21, stating that costs associated with persuading employees to exercise or not to exercise the right to organize and bargain collectively are not reimbursable. The regulation further provides examples of specific activities that constitute unallowable costs if they are engaged in for the purpose of persuading employees concerning the exercise of their collective bargaining rights, including: ”(1) [p]reparing or distributing materials; (2) [h]iring or consulting legal counsel or consultants; (3) [m]eetings (including paying the salaries of the attendees at meetings held for this purpose); and (4) [p]lanning or conducting activities by managers, supervisors, or union representatives during work hours.”

Opponents of this new rule argued that the proposed restrictions will act as an effective gag order and will significantly chill the exercise of employers’ right to engage in speech that does not violate the National Labor Relations Act (NLRA). The DoD, GSA, and NASA deflected this criticism, arguing that the new rule “does not prohibit or otherwise regulate persuader activities.” They asserted that the rule merely identifies types of costs that are not allowed for reimbursement under the well-established Federal procurement scheme, which already contains mechanisms for submission to and review of contract costs to avoid unnecessary expenditures, while preserving the contractor’s freedom to spend its own funds, including funds received from the government, however it wishes.

Separately today, the DoD, GSA, and NASA also adopted as final, without change, an interim rule that requires federal contractors to post a notice informing their employees of their rights under federal labor laws, including the NLRA. This rule, which is effective as of today, implements related Department of Labor regulations. It also arises out of an executive order signed by President Obama shortly after his inauguration (E.O. 13496). Copies of the required notice are available for download or order on the DOL’s website.