The Department of Labor has issued a final rule implementing President Obama’s Executive Order 13496 of January 30, 2009, which aims to ensure that “workers employed in the private sector and engaged in activity related to the performance of Federal government contracts are informed of their rights to form, join, or assist a union and bargain collectively with their employer.” Effective June 21, 2010, federal contractors and subcontractors are required to post a new DOL notice informing employees of their rights as employees under the National Labor Relations Act.

The notice informs employees of their rights under the NLRA to organize and bargain collectively with their employers and to engage in other protected concerted activity, provides examples of illegal conduct by employers and unions, and provides contact information for the National Labor Relations Board.  Federal contractors and subcontractors must post the notice in “conspicuous places in and about its plants and offices” where employees covered by the NLRA perform contract-related activity, including all places where notices to employees are customarily posted both physically and electronically. 

An employee performs contract-related activity if the duties of the employee include work that fulfills a contract obligation, is necessary for fulfillment of the contract’s provisions, or the cost or portion of the cost of the employee’s position is an allowable cost of the contract. Employers with a significant number of employees who are not proficient in English must post a version of notice in the languages spoken by employees. The Office of Labor-Management Standards (OLMS) has provided versions of the notice that comply with the physical and electronic posting requirements in English, Spanish, and Mandarin Chinese.

Core Provisions: This legislation would amend the Fair Labor Standards Act (FLSA) to strengthen enforcement and penalties for misclassification of employees as independent contractors. 

The bill creates new record-keeping requirements and requires employers to provide notice to employees and those classified as non-employees (1) of their classification, (2) that their rights to “wage, hour, and other labor protections” depend upon proper classification, and (3) directing them to the Department of Labor for further information about the rights of employees.  Failure to keep the required records or provide the required notice would create a rebuttable presumption that an individual who is remunerated for the performance of labor and services by an employer is an employee of that employer.

The legislation would impose civil penalties of up to $1,100, or up to $5,000 for repeated or willful violations, for each misclassification or violation of the record-keeping or notice provisions. If a misclassification accompanies violations under the FLSA’s maximum hours or minimum wage requirements, a worker could recover double his or her liquidated damages.

The legislation would also require state unemployment insurance agencies to conduct auditing and investigative programs to detect employers that misclassify or fail to properly report compensation to workers with the effect of excluding employees from unemployment compensation coverage. Additionally, the legislation would require the DOL to target industries it determines to have frequent incidence of misclassifying workers for audits.

Secretary of Labor Hilda Solis issued a statement supporting the bill and affirming the DOL’s committing to targeting worker misclassification.

Status: H.R. 5107 was introduced by Rep. Woolsey (D-CA) on April 22, 2010, and referred to the House Committees on Education and Labor and Ways and Means.  S. 3254 was introduced by Sen. Brown (D-OH) on April 22, 2010 and was referred to the Committee on Health, Education, Labor, and Pensions.  Both the House and Senate introduced similar bills in the 110th Congress, but both bills failed to make it out of committee.

The Department of Labor (”DOL”) has announced that it is planning to put the onus on employers to demonstrate compliance with wage and hour, safety and health, and other laws overseen by DOL.  It is not clear whether or when the initiative will come to fruition, or the form the initiative will ultimately take.  However, it is clear that the Department is laying the groundwork for changes that may impose substantial new compliance burdens on employers.  

In remarks on April 29, 2010 to the Center for American Progress, Deputy Labor Secretary Seth Harris noted that the DOL’s spring regulatory agenda, released on April 26, was the first step in a new strategy to ensure the burden of compliance with labor laws is on the employer.  This strategy, dubbed by Harris as the “Plan, Prevent, Protect” strategy, seeks especially to target those employers that DOL believes employ a cost-benefit analysis before deciding to comply with the labor laws.  Specifically, “Plan, Prevent, Protect” would require employers to: (1) formulate a plan to comply with specific labor laws; (2) enhance prevention by executing the plan and performing an analysis on its effectiveness; and (3) protect workers by making sure employers follow through by requiring disclosure of the plan to both workers and the government. 

While Harris anticipated applying these principles in a number of contexts including safety regulations under OSHA and MSHA, he repeatedly discussed their application in the context of independent contractor misclassification issues.  Driven in large part by a desire to rein in what it sees as calculated non-compliance by employers in the area of classifying workers as independent contractors, DOL intends to require employers to prepare a written plan for why certain workers are classified as independent contractors.  Employers would have to disclose this plan to their workers.  Harris further noted that DOL plans to implement a misclassification initiative aggressively, including working with the IRS and state labor agencies to target employers who are not classifying workers properly. 

Independent contractor classification has been an area of increased interest for legislators and regulators in recent years.  In addition to the DOL initiative, several states have recently passed laws that seek to tighten the definition of independent contractor, including Connecticut, Nebraska, New Jersey, Maryland, Minnesota, and Illinois.  Other states, such as Vermont, have recently launched initiatives targeting employers who misclassify employees as independent contractors. 

Federal legislation has been also introduced recently in Congress aimed at addressing these issues.  On April 22, 2010, the Employee Misclassification Prevention Act (S. 3254, H.R. 5107) was introduced in both the House and the Senate.  In addition to imposing civil penalties for misclassification and directing the DOL and state unemployment insurance agencies to perform misclassification audits, this bill would require employers to keep records concerning their classification of individuals as independent contractors and notify those individuals of their classification, along with information on what to do if they feel they have been incorrectly classified.  Additional pending legislation, such as the Taxpayer Responsibility, Accountability, and Consistency Act of 2009 (S.2882), which proposes amending the tax code to make classifying workers as independent contractors more arduous, also seeks to address this issue.

A rule implementing the use of “Plan, Prevent, Protect” has yet to be proposed, so any official implementation of DOL’s initiative is likely at least a year in the future.  Nevertheless, Harris signaled that “Plan, Prevent, Protect” is an important component of DOL’s enforcement strategy.              

On April 26, 2010, the Department of Labor published its semi-annual regulatory agenda in the Federal Register. The agenda presents the rules DOL will seek to review or develop in the next 12 months. Highlights of the agenda include:

(1) Developing regulations to strengthen federal contractors’ affirmative action requirements, including improving recruitment and placement of employs with disabilities. This Notice of Proposed Rule-Making should be published by December 2010.

(2) Undertaking a regulatory initiative to “better implement the public disclosure objectives” of the Labor-Management Reporting and Disclosure Act (LMRDA). This initiative would seek to narrow the definition of the “advice” exception to disclosure. Currently a consultant to an employer does not have to disclose its involvement in persuading employees concerning their rights to collectively organize and bargain if the consultant is only giving advice. The notice and comment would seek to address the “advice” exception that DOL currently considers to be “overbroad.” This Notice of Proposed Rule-Making should be published by November 2010.

(3) Reviewing the size, form, and content of the notice of federal labor laws that must be posted by federal contractors. A final rule should be issued under 29 CFR § 471 by June 2010.

(4) Issuing a final rule for Executive Order 13495, the Non-displacement of Qualified Workers Under Service Contracts, which requires a successor contractor to give qualified employees of the predecessor contract a right of refusal. The comment period for this rule will end on May 18, 2010, and a final rule should be issued by December 2010.

(5) Updating record-keeping regulations under the FLSA in order to enhance transparency and disclosure to workers of how pay is computed, and to modernize timekeeping for workers who telecommute or have flex-time arrangements. This Notice of Proposed Rule-Making should be published by June 2010.

(6) Examining, in light of the changes in the home care industry, the regulations of the FLSA that exclude from FLSA requirements those workers who provide “companionship services.” This Notice of Proposed Rule-Making should be published by October 2011.

(7) Finalizing regulations for the H-2B visa program allowing the importation of workers into the United States. This Notice of Proposed Rule-Making should be published by October 2011.

A proposed rule published in the Federal Register on April 14, 2010 would no longer allow federal contractors to claim reimbursement from the government for costs incurred in persuading employees regarding union organizing and collective bargaining. The proposed rule was issued under Executive Order 13,494, Economy in Government Contracting, signed by President Obama on January 30, 2009. The order was intended to maximize government efficiency by cutting certain costs “not directly related to the contractors’ provisions of goods and services to the Government.” Costs of activities that were aimed at influencing employees and thus would no longer be reimbursable under the proposed rule include:  preparing and distributing materials, hiring or consulting legal counsel or consultants, holding meetings, including paying the salaries of those attending the meetings, and planning by managers, supervisors, or union representatives during work hours.

While the executive order disallows reimbursement to the employer for “activities undertaken to persuade employees” regarding their decision to form unions or engage in collective bargaining, the order allows reimbursements for costs “incurred in maintaining satisfactory relations between the contractor and its employees,” including the costs of labor-management committees and employee publications.

On March 19, 2010, the Department of Labor (DOL) published a notice of proposed rulemaking (NPRM) under Executive Order 13495, “Nondisplacement of Qualified Workers Under Service Contracts.” Once regulations take effect for this order, employees working on federal service contracts and subcontracts of $100,000 or more will generally be entitled to an offer of employment on the contract or subcontract if it is awarded to a successor and the work is to be performed in the same location. Existing employees of the original contractor, not including managers or supervisors, will be given a right of first refusal under the new contract. The deadline for submitting comments for this NPRM is May 18, 2010.           

Executive Order 13495 effectively revokes a Bush administration order and reinstates an order put in place by President Clinton, Executive Order 12933. While the Obama administration order tracks the Clinton order, it is broader in scope. For example, the NPRM covers all contracts above $100,000, instead of only covering contracts for the maintenance of public buildings. The Obama order also eliminates exemptions found in the Clinton order, including exemptions for the military, NASA, the Veterans Administration, and the Postal Service.

Other modifications to the Clinton order include definition of the terms managerial and supervisory employees, and a requirement that contractors include in their subcontracts a term requiring the subcontractor to agree with the nondisplacement provisions. While subcontractors below the $100,000 threshold are excluded from the order, if a contractor above the threshold discontinues the services of a subcontractor, it would have to offer the right of refusal to the subcontractor’s employees.

On February 26, 2010, the Department of Labor published a final rule that will allow the Employee Benefit Security Administration (EBSA) to impose a civil penalty of up to $1,100 per day on multiemployer plans in endangered or critical funding status that fail to adopt funding improvement plans. The rule takes effect on March 29, 2010 for plan years beginning on or after January 1, 2008. No changes were made from the proposed rule.

In assessing a penalty, DOL will consider the willfulness and severity of the violation. The department will notify the multiemployer plan sponsor of the penalty and give the reasons for the penalty. The department may then waive the penalty, if the plan is able to demonstrate compliance or mitigating circumstances to explain noncompliance. The plan sponsor may also request an administrative hearing to contest the penalty. The rule clarifies that liability is joint and several among the trustees, regardless of their role in the violation.

On February 12, 2010, the Department of Labor (DOL) published a new rule regarding the H-2A temporary agricultural worker program. This rule will strengthen worker protections for both U.S. and foreign workers and ensure the integrity of the H-2A program. Major features of the rule include: 

• Requires documentation from employers showing compliance with the prerequisites for bringing H-2A workers into the country. Employers can no longer simply attest compliance.
• Returns to the USDA Farm Labor Survey, instead of the Occupational Employment Statistics Survey, as the basis for the determining the Adverse Effect Wage Rate;
• Reinstates the requirement that State Workforce Agencies inspect and approve employer-provided housing before the Department issue H-2A labor certification;
• Creates a national electronic job registry for all H-2A job orders to improve US worker access to agricultural jobs;
• Requires employers to provide workers with copies of the job orders before departure and to display a poster describing employee rights in a language common to the workers at the work site;
• Prohibits the use of multi-area itineraries by H-2A labor contractors

            The rule will become effective March 15, 2010.

On February 4, 2010, the Senate confirmed President Obama’s nomination of M. Patricia Smith to serve as Solicitor for the Department of Labor. The 60-37 party-line vote confirming Smith’s nomination ends a long confirmation process that started when Obama first announced his intention to nominate Smith on March 19, 2009.

The Senate HELP Committee approved Smith’s nomination on October 7, 2009, but the ranking Republican on the Committee, Sen. Michael B. Enzi (R-WY), placed a hold on the nomination because he believed that Smith made inconsistent statements during her confirmation hearing concerning the New York Wage Watch program. That program, which was formed while Smith was the Commissioner for the New York State Department of Labor, allows labor unions and groups advocating on behalf of low-wage immigrants to work with New York state officials to uncover wage and hour violations. As a result of that hold, Smith needed 60 votes to bring her nomination to the Senate floor for debate. On February 1, 2010, the Senate voted 60-32 along party lines to begin debate over Smith’s confirmation as the Solicitor of Labor.

As Solicitor of Labor, Smith will represent the DOL in litigation and alternative dispute resolution and provides legal opinions and advice regarding DOL activities.

On Wednesday, December 16, President Obama signed into law the Fiscal Year 2010 Consolidated Appropriations Bill (H.R. 3288).  This omnibus appropriations legislation provides additional funding to the Department of Labor, the National Labor Relations Board, and the Equal Employment Opportunities Commission, among other federal agencies.  The bill passed in the Senate by a 57-35 vote earlier this week, and previously passed the House by a vote of 221-202.