Department of Labor Issues Proposed Rules on Nondisplacement of Qualified Workers Under Service Contracts

The Department of Labor (“DOL”) recently issued proposed regulations implementing the requirements of Executive Order 13495 (“EO 13495”). EO 13495, signed on January 30, 2009, recognizes the general policy of the Federal Government that federal service contracts include a clause mandating contractors and their subcontractors to extend a right-of-first-refusal of employment to most service employees who were employed by the predecessor contractor and whose employment will be terminated upon the loss of the contract to the successor contractor. This EO is based on the recognition that the federal government’s procurement interests in economy and efficiency are best served when a successor contractor hires the predecessor’s employees because a carryover work force (1) reduces disruption to the delivery of services during the transition between contractors; (2) provides the Government the benefits of experienced and trained workers; and (3) is familiar with the Government’s personnel, facilities, and requirements.

Pursuant to the proposed right-of-first-refusal clause, a follow-on contractor must extend an offer of employment to service employees of the predecessor contractor who will be terminated by the predecessor contractor as a result of the award of the follow-on contract. Unless there is credible evidence to the contrary, the follow-on contractor must presume that all employees working under the predecessor contract will be terminated as a result of the award. The proposed regulations require the predecessor contractor to provide a certified list to the contracting officer of all service employees working under the contract during its final month. The follow-on contractor must extend offers of employment to all employees on this list and must give the offerees at least ten (10) days to accept the offer. Only after this period may the follow-on contractor extend offers of employment to other individuals. Failure to comply with these regulations may result in ineligibility for federal contracts for a period of up to three years.

While the right-of-first-refusal clause is required in all federal service contracts pursuant to the proposed regulations, certain exceptions exist. The three primary exceptions are as follows: First, no obligation exists to offer employment to managerial or supervisory employees. Second, no obligation exists to offer employment to individuals who the contractor reasonably believes, based upon the individual’s past performance, have failed to perform suitably on the job. Finally, contracts under the simplified acquisition threshold are exempt from these regulations.

Comments on the DOL’s proposed regulations will be accepted through May 18, 2010. The proposed regulations are available online at: For additional information, including assistance in preparing comments supporting or opposing the proposed regulations, please contact Jeff Eckland at [nap_phone id=”LOCAL-REGULAR-NUMBER-2″] or [email¬†protected] .