A final rule issued by the Department of Labor (“DOL”) August 29, 2011 provides final regulations to implement Executive Order (“E.O.”) 13495, Nondisplacement of Qualified Workers Under Service Contracts. E.O. 13495, which was signed by President Obama January 30, 2009, establishes a general policy for the federal government with regard to staffing successor service contracts where performance is for similar services at the same location as the prior contract. In particular, the policy provides qualified employees who worked under a preceding contract the opportunity to work under a successor contract if they so choose.

Under the new rule, it is now mandatory for service contracts to include a clause requiring successor contractors to offer qualified employees, who were employed under the prior contract and would otherwise be terminated at the award of the successor contract, a right of first refusal of employment under the successor contract. This requirement to include a right of first refusal extends to subcontractors as well.

Since E.O. 13495 does not establish wage or fringe benefit rates, the final rule does not mandate that a successor contractor offer jobs to employees at the same wage as the former contractor. However, the rates offered by successor contractors will have to meet the minimum wage and fringe benefit rates established under the Service Contract Act (“SCA”). Accordingly, successor contractors may base their bids on the minimum wage rates and fringe benefits required by the SCA.

The final rule clearly states that when a collective bargaining agreement governs the wage and fringe benefits on the predecessor contract, a provision of the SCA requires a successor contractor to pay no less than the predecessor’s collective bargaining agreement rates. However, many questions have been raised concerning whether the successor contractor would be required to accept all the terms and conditions of the predecessor’s collective bargaining agreement for National Labor Relations Act (“NLRA”) purposes. Unfortunately, the DOL has taken the position that the potential interplay between the nondisplacement provisions of the final rule and the NLRA exceeds its authority. Hopefully, additional guidance will be provided when regulations are issued that implement the final rule.

Although the final rule has been published, the effective date for this rule is still pending. Once the date has been determined, the DOL will publish a notice in the Federal Register announcing the date.