Fed’l small biz advocates raising growing concerns over new rules

Opposition to “Safe Workplaces,” NLRB ruling, overtime

Concern is rising that several recent proposed federal regulations would have negative effects on small business federal contractors.

Small business contracting advocates, including the Small Business Administration’s Office of Advocacy, are urging limitations on the new rules, and are asking for more studies on their impact on small federal contractors and other small businesses.

The concerns are focused primarily on recent proposed rules to require federal contractors to disclose labor violations from the last three years. There also are worries about a recent redefining of “joint employer” by the National Labor Relations Board and about a proposed rule to expand the pool of workers eligible for overtime pay.

“Fair Pay and Safe Workplaces”

The federal acquisition councils advanced the rule following the “Fair Pay and Safe Workplaces” executive order from the president. Officials have said the goal is to punish only the most serious violators, which are very few in number, and they predicted minimal impacts on most contractors. (See the proposed rule here: https://goo.gl/Hdgx58).

Under the proposal, companies awarded federal contracts of more than $500,000 would have to disclose violations of 14 federal labor laws or state equivalents over the past three years. Federal compliance officers, in a “responsibility determination,” would decide whether those violations were serious enough to disqualify the companies.

Many small business advocates are warning about possible negative effects.

SBA Office of Advocacy

Most prominently, the SBA’s advocacy office, after consulting with small businesses in several roundtable events, wrote in an Aug. 26 letter that the rule would create extra costs for small primes and subcontractors--costs which are not yet clearly known.

“The Initial Regulatory Flexibility Analysis states that this proposed regulation will have adverse impacts particularly on small subcontractors; many prime contractors will simply avoid contracting with a company that has a violation, rather than wait for the outcome of a responsibility determination,” the advocacy office wrote (https://goo.gl/gPy80q).

The new rule also creates “much uncertainty” for small federal contractors, the letter continued.

Small vendors have raised questions about whether the rule allows for due process, how the rule impacts mergers and acquisitions, and whether a company can be subjected to a False Claims Act violation if they fail to disclose, the advocacy office said.

In addition, there are no good estimates of the costs of complying with the rule and on how many entities are affected, the office wrote. The government estimated total compliance costs at about $13 million spread among all federal contractors.

But small firms are fearful. “Some small contractors are of the belief that they are already expending large sums of money to comply with Federal labor laws and regulations and additional compliance requirements may reduce their profit margins to a level that will force them away from this marketplace,” the advocacy office wrote.

To address the problems, the advocacy office made several recommendations:

1. Advised that the FAR Council should reconsider its implementation strategy and provide a long phase-in period for small prime contractors, along with due process assurances.
2. Advised that there should be more clarity on the costs.
3. Advised that small businesses should not be required to comply until phase two of the rulemaking has been implemented.

Women Impacting Public Policy

In addition, Women Impacting Public Policy (WIPP), an advocacy group for women, raised similar objections on behalf of women-owned small business federal contractors in an Aug. 26 letter (http://goo.gl/Qir8eA).

“WIPP is concerned that simply having violations on record--some of which may not be fully adjudicated--will ‘blacklist’ companies with the later opportunity to offer mitigating circumstances or remediation,” WIPP wrote.

“WIPP is concerned that simply having violations on record--some of which may not be fully adjudicated--will ‘blacklist’ companies with the later opportunity to offer mitigating circumstances or remediation,” WIPP wrote.

Even though the rule is intended to hit only contractors with serious violations, it may hit a much larger group of contractors, WIPP contended.

WIPP also raised issues regarding the reporting and tracking of subcontractor violations, regarding lack of clarity on which state labor law violations also must be reported, and on the very limited amount of time (three days) for newly-created Labor Compliance Advisors to review the severity of violations.

Many business organizations, including the U.S. Chamber of Commerce, Business Roundtable, National Association of Manufacturers, and the American Bar Association also have warned about negative outcomes for businesses and federal contractors from the Fair Pay and Safe Workplaces proposed rule.

NLRB ruling

A recent decision by the National Labor Relations Board also is drawing cautions for federal contractors, including small businesses.

In the Browning-Ferris Industries of California decision, the board ruled that companies using workers hired by another business — such as staffing agencies or contractors — may be held responsible for any labor law violations for those workers. It defined Browning-Ferris as a joint employer of workers hired by its subcontractor.

The NLRB’s decision could have far-reaching effects, since many companies outsource work to independent contractors or staffing agencies (see article in The Hill newspaper http://goo.gl/k4V441).

A number of contract law attorneys have warned of negative consequences for federal contractors and their suppliers.

Meredith Bailey and Annette Tyman of Seyfarth Shaw LLP assert that the Office of Federal Contract Compliance Programs may apply the new standards to organizations that provide services or supplies to federal contractors. “These entities may find themselves at increased risk of being classified as a ‘single entity’ with a federal contractor and, in turn, on the hook for onerous affirmative action requirements,” they wrote in a Sept. 2 white paper (http://goo.gl/gQ21s5).

Groups that advocate for franchisers and subcontractors say those entities also would be hurt by the new ruling (See article here: http://goo.gl/S7x1G8).

Overtime pay

Under the proposed rule, the Labor Department would raise the salary threshold for employees who are eligible for overtime pay, from $23,660 to $50,440. That would make 4.7 million workers newly eligible for overtime pay. More than 200,000 small establishments with 1.8 million workers would be affected.

However, the SBA’s advocacy office asserts those numbers are too low and claims DOL underestimated the costs of compliance.

The advocacy office said some industries would face higher costs, such as grocers and restaurants.

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