FAR Proposed Rule: Incumbent Service Workers Need to be Hired

Once again, the incumbent service worker rule has had its pendulum swing back to the hiring of incumbent workers, reflecting a “general policy of the Federal Government that service contracts which succeed contracts for the same or similar services, and solicitations for such contracts, shall include a non-displacement clause.” This proposed rule would insert a contract clause requiring contractors who are awarded a service contract with an incumbent on it, to offer employment to the incumbent contractor employees, for performance of the contract. This is of course quite the shift from current regulations, but it also places many new contract compliance requirements on contractors awarded a new contract as they try and stand up performance.

As you may recall, this rule is not new and in 2020, this rule was actually repealed. We blogged about the repeal here at SmallGovCon. Since then, President Biden has issued an Executive Order to reimplement the rule, and on July 15, 2022, a proposed rule was released to follow through on the aims of President Biden’s Executive Order.

This proposed rule will generally require that federal contracts include a “non-displacement clause [that] requires the contractor and its subcontractors to offer qualified employees employed under the predecessor contract a right of first refusal of employment under the successor contract.” Comments on this rule closes August 15, 2022.

We of course highly encourage contractors to read this proposed rule as it will impact contractors who are awarded contracts with incumbents, and if necessary, submit your comments to the proposed rule. However, we will still review some of the highlights of the proposed rule here.

Key Provisions

This proposed rule will be reflected in Subpart 9 of the Federal Acquisition Regulations. According to the Department of Labor, this proposed rule reinforces President Biden’s Executive Order aims, stating that a “carryover workforce minimizes disruption in the delivery of services during a period of transition” and “provides the Federal Government the benefit of an experienced and well-trained workforce that is familiar with the Federal Government’s personnel, facilities, and requirements.” To achieve this, the propose rule will require contracts to include a “non-displacement clause” and as previously mentioned, contractors who are awarded a contract with that clause present and an incumbent currently performing, must give the incumbent prime contractor employees right of first refusal to “suitable employment under the contract”.

This requirement would be applicable to any contract over the simplified acquisition threshold, and in which performance calls for the “same or similar” work to what the incumbent contractor is currently performing. When determining if something is “same or similar” the proposed rule states it would be a fact specific determination, but provided the following examples: A contract for food service at a location that was previously a food service location with similar job descriptions would be “same or similar work”, but having a contract for dry cleaning services at a location that used to be a food service location is not “same or similar work”. So, it appears it would first be quite obvious, but may depend on if certain requirements of performance were changed.

Under this rule, a contractor generally cannot fill any open positions until offering bona fide employment opportunities to incumbent contractor employees who are qualified for the positions offered, and would have their positions terminated by the awarding of a new contract. It does not have to be for the same job title, or pay, so long as it is for a job the employee is qualified, and the offer is not so low or made in a way that would discourage the employee from accepting the offer. The offer also needs to be more than an invitation to apply for a job. It must be a legitimate job offer, and the terms of the offer must be in a language for each employee to understand.

Note, this rule doesn’t apply to certain types of management employees, as it “does not extend to contracts for services to be performed exclusively by persons who are not service employees, i.e., persons who qualify as bona fide executive, administrative, or professional employees as defined in the Fair Labor Standards Act’s (FLSA) regulations at 29 CFR part 541.”

It is expected that there would be a certified list of employees of the incumbent who are currently performing the contract given to the new awardee contractor, but this is not the only way for contractors to determine if someone was an employee of the incumbent and thus meets the requirements of the proposed rule. A contractor can also accept other, “reliable evidence of an employee’s entitlement to a job offer”, such as a paystub. Once proven as employees of the incumbent, these employees may be offered jobs, in pursuance of this proposed rule.

Once the offer of employment is given to the incumbent contractor’s employee, the new contractor can explicitly require the employee respond to the offer of employment in a certain amount of days, but cannot have the deadline for response be less than ten days. The new contractor must continue to offer employment to the incumbent contractor’s employees until they have all rejected or accepted the offers. Also, If someone quits a position under the new contractor within ninety days of the start of performance, the open position must be offered to an incumbent prior to offering it to someone else.

This rule does tie in to small business affiliation principles. Under SBA precedent, where this incumbent worker rule is in effect, “the hiring of incumbent non-managerial personnel cannot be considered strong evidence of unusual reliance” because FAR 52.222-17 “specifically encourages contractors to offer a right of first refusal to qualified incumbent non-managerial employees.” Human Learning Servs., SBA No. SIZ-5785 (2016). When this rule is not in effect, hiring all of the incumbent’s employees may show over reliance on an incumbent subcontractor. But when the incumbent worker rule is in effect, hiring those same service employees does not indicate reliance.

While this proposed rule doesn’t represent a new concept in the world of federal contracting, it does present contractors with many requirements for employees that they currently do not face, as the rule was repealed in 2020. It is important to remember that this is a proposed rule, so there is still room for comments and changes based on any comments submitted. After this proposed rule receives comments, the rule will be published again with the answers to public comments and explanation of any changes. That publication should give contractors more context as to the proposed changes and implementation of the rule. Therefore, contractors should keep their eyes on the federal register for any updates, submit comments to the rule if they feel it is necessary, and of course, we here at SmallGovCon will continue to keep an eye on how this rule progresses, with updates posted here as needed.

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