Fair Pay and Safe Workplaces Executive Order makes contracting system more accountable

The final rule implementing President Obama’s executive order on fair pay and safe workplaces has been issued, along with guidance from the Department of Labor. This is a big deal, affecting as many as 28 million employees in the workforce of hundreds of thousands of government contractors.

The executive order puts in place a commonsense principle: when choosing which companies to do business with, choose the ones that follow the rules rather than the law breakers. Tax dollars should go to contractors with a record of integrity and business ethics, and should not be spent on bad actors. The executive order makes it clear that violations of labor law are an indication of bad ethics and a lack of integrity that must be considered when contracts are awarded.

As part of the contract approval process, federal contractors will have to reveal to the contracting agency any labor law violations they have been found guilty of committing in the previous three years. An agency can refuse to grant a contract to a company that has not resolved its violations. Today, by contrast, it is perfectly normal that a company with several OSHA violations, a National Labor Relations Act violation, and a judgment for wage theft and overtime pay violations could win a $200 million contract from the Department of Transportation or the Defense Department. In fact, the GAO found that almost two-thirds of the 50 largest wage-and-hour violations and almost 40 percent of the 50 largest workplace health-and-safety penalties issued between FY 2005 and FY 2009 were made against companies that went on to receive new government contracts.

Companies that win bids by cutting corners undermine the law-abiding companies with which they compete. They also tend to do poorer quality work. Numerous studies, including one by the Fiscal Policy Institute in New York, have found a strong relationship between labor law violations and poor contract performance.

An important part of the rule is its prohibition against signing contracts worth $1 million or more with any business that forces its employees to give up their right to go to court over civil rights or sexual harassment claims. Forced arbitration leads to worse outcomes for employees and can impose costs that discourage employees from pursuing valid claims.

The rule and guidance that were issued today are the result of more than 20 years of study and deliberation. It took the determined leadership of President Obama and Secretary of Labor Tom Perez to bring those decades of work to fruition. Millions of working families will benefit from this effort, as will millions of law-abiding, ethical businesses. This executive order is an important vehicle for setting norms of behavior in the labor market. An ‘anything goes’ business mentality is not acceptable in America.