President Trump Issues Executive Order Revoking Federal Service Employee’s Right of First Refusal

On October 31, 2019, President Trump revoked Executive Order 13495, previously issued by President Obama on January 30, 2009, entitled “Nondisplacement of Qualified Workers Under Service Contracts.” With the revocation of Executive Order 13495, the President rolled back the Obama-era requirement that successor federal service contractors and subcontractors offer their predecessor’s employees who were employed under the previous contract, a right of first refusal to those employment positions for the new contract. In other words, federal service contractors commencing a new government contract are no longer required to offer employment to those working on the expiring contract.

The Service Contract Act of 1965 applies to all contracts “entered into by the United States or the District of Columbia in excess of $2,500, the principal purpose of which is to furnish services in the United States,” and sets forth labor protections for employees who provide services thereunder. See Service Contract Act of 1965, Pub. L. No. 89-286, 79 Stat. 1034 (codified as amended at 41 U.S.C. §§6701–6707 (2012)). In 2009, in a final rule implementing Executive Order 13495, the Federal Acquisition Regulatory Council (“FAR Council”) stated that in all contracts, subject to the Service Contract Act, contracting officers should include a clause requiring contractors to provide incumbent employees, who will be terminated after the award of a new contract, the “right of first refusal” of employment under a new contract. The final rule also directed contracting officers to work with their existing service contractors and bilaterally modify their contracts, to the extent feasible, to include the clause at FAR 52.222-17.

Pursuant to Executive Order 13495 and FAR 52.222-17, subject to specific exceptions, the successor contractor and its subcontractors were required to make an express offer of employment to each incumbent employee from the predecessor contractor, and provide those contractors a minimum 10 days in which to accept the offer. As a result, the successor contractor was prohibited from offering employment on its contract to any other person during this 10-day period. Contractors and subcontractors who failed to comply with these requirements subjected themselves to sanctions and remedies imposed by the Secretary of Labor.

By unraveling the mandate of Executive Order 13495, the President’s actions are in contravention to the stated policy goals of Executive Order 13495, which was promulgated by President Obama to address a frequent scenario found in federal services contracting—that when a service contract expires and a follow-on contract is awarded for the same service at the same location, the successor contractor or its subcontractors often hires the majority of the predecessor's employees, but not all the time. In certain instances, a successor contractor or its subcontractors would branch out and hire a new work force, thus leaving the predecessor’s employees without a job.

Executive Order 13495 had been premised on the notion that “[a] carryover work force reduces disruption to the delivery of services during the period of transition between contractors and provides the Federal Government the benefits of an experienced and trained work force that is familiar with the Federal Government's personnel, facilities, and requirements.” Whatever the advantages to the federal government, and perhaps to the successor contractor, the ability to disregard an incumbent’s workforce provides onboarding contractors with greater flexibility in structuring their workforce. The successor contractor can now determine for itself whether retaining the predecessor workforce is advantageous or not.

Of certain interest, however, to contractors under investigation for prior violations is the fact that Executive Order 13495 provides relief to any employers currently being investigated for compliance violations, as Executive Order 13495 directs the Secretary of Labor to terminate any such actions immediately. Although current enforcement actions are terminated, the revocation of Executive Order 13495 will not become effective until a final rule is issued implementing the President’s new mandate.