President Obama, on Thursday, July 31, 2014, signed an Executive Order that requires contractors bidding on federal government work to disclose labor law violations and gives screening assistance to federal agencies awarding contracts.  Termed the “Fair Pay and Safe Work Places Executive Order” will apply to companies pursuing federal contracts worth more than $500,000 and becomes effective in 2016.  Government statistics indicate this executive order will affect roughly 24,000 businesses that employ 28 million workers on federal contracts.  According to a White House fact sheet: “The Executive Order will ensure that the worst actors, who repeatedly violate the rights of their workers and put them in danger don’t get contracts and thus, can’t delay important projects and waste taxpayer money.” Read more.

One provision in the Executive Order bars companies with federal contracts of $1 million or more from requiring employees to use mandatory arbitration in cases involving sex discrimination or sexual misconduct (tort claims relating to or arising out of sexual assault or harassment).  CBS news reported that critics “say large corporations use the mandatory arbitration agreements to avoid the more costly prospects of litigation and the President said the Order will help ensure that workers, who alleged sexual assault or other violations, get ‘their day in court.'” Read more.

The prohibition against mandatory arbitration provisions in sex discrimination and sexual misconduct, by the terms of the Executive Order, applies to all claims involving any employee, not just the ones working on federal contracts. 

Federal contractor interest groups have already announced they will challenge the President’s authority to issue the Executive Order on a variety of legal grounds.  Read more.

For much of the past year, President Obama has focused on ways he can use his executive authority to “try and improve the economic circumstances of middle-class families across the country.”  President Obama, in signing the “Fair Pay” Executive Order, indicated that he is using his executive authority to protect employees of federal contractors because the U.S. Congress has not produced legislation that benefits working Americans.  The “Fair Pay” Executive Order signed on Thursday came a day after the Republican-controlled U.S. House of Representatives voted to sue the President over his use of the executive authority. 

  • In April, the President signed an order prohibiting federal contractors from retaliating against workers for sharing salary information. 
  • In February, the President announced that starting 2015, the minimum hourly wage for employees of federal contractors would be $10.10/hr. and tipped workers would $4.90/hr.  Last raised in 2009, the federal minimum hourly wage is $7.25/hr.; tipped workers earn a legal mandated wage of at least $2.13/hr.

Comment:  President Obama is the Chief Executive Officer for all federal agencies, and therefore, probably has the right to decide what is appropriate for contracts entered into by the federal government.  There is an argument to be made that the President is overreaching given the provisions of the Dodd Frank Act, he is acting prematurely since neither the SEC nor the Bureau have issued declarations about the need to restrict the mandatory arbitration clauses as required by Congress.  Most frustratingly, if Congress wanted to ensure that laws were passed in an orderly fashion, as envisioned by the Constitution, Congress should alleviate the political gridlock.  Congress should perform its job and deal with these issues, as envisioned by the founding fathers of this country, in a give and take legislative process that results in statutes being passed by a functional Senate and House of Representatives.  Regrettably, the dysfunction in Washington D.C. has spawned more Executive Orders and lawsuits, further witness to the political uncertainty that is affecting our economy and distracting our politicians from the real challenges the United States faces at home and abroad.

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