The Department of Labor recently issued a final rule implementing a January 30, 2009 Executive Order titled “Nondisplacement of Qualified Workers Under Service Contracts” that requires a follow-on contractor to give employees of an outgoing contractor a right of first refusal to fill positions if they would otherwise be terminated. It is a common practice for incoming contractors to hire employees who are already trained and prepared to work on a service contract, but this new policy eliminates the follow-on contractor’s discretion to staff and perform the contract. The executive order cites ” “interests in economy and efficiency” where 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.”

Tacked onto the McNamara-O’Hara Service Contract Act (“SCA”), 41 USC § 351, the nondisplacement policy extends only to those contracts covered by the SCA. There are several exemptions, including construction contracts governed by the Davis-Bacon Act, supply contracts governed by the Walsh-Healey Act, and service contracts performed entirely by professional, administrative, and executive personnel. A contracting agency may also exempt a contract or class of contracts.

Service contractors should determine whether the nondisplacement provision will apply before bidding to take over an expiring contract and consider the ramifications of inheriting the prior staff. Former employees not offered employment and their collective bargaining representatives may lodge complaints with the Wage and Hour Division, who will complete an investigation. Sanctions may include orders to hire the former employees and pay lost wages and withholding of contract funds for non-compliance.