Employment Issues Facing Government Contractors

All companies face a myriad of employment laws and regulations.  In addition to the laws found in the commercial sector, government contractors are burdened with additional laws and regulations intended to implement government policies.  The laws and regulations affect the complete spectrum of the employment process - from hiring to firing and everything in between.  Failure to comply with these laws can lead to a variety of consequences, including lawsuits, criminal penalties, government imposed fines, debarment and cancellation of contracts.  It is clear that compliance is essential for the continued success of a contractor.

Hiring:

Prior to extending an offer to a prospective employee, prudent government contractors will analyze whether the individual is eligible to work on government contracts.  This analysis should include whether the individual’s employment is restricted due to a suspension or debarment, status as a former government employee or due to a non-compete agreement.  Failure to accurately analyze these issues before making an offer can lead to violating the law, unnecessary costs and delays due to hiring and training an employee that will not be able to perform the intended work, as well as possible legal action by the individual’s former employer.

Like companies, an individual can be suspended or debarred from doing business with the federal government.  As such, a government contractor should check the Excluded Parties List System (ELPS) to confirm a potential employee is not prohibited from doing business with the government.  ELPS can be found at http://epls.gov.

Another potential restriction on doing business with the government can arise when a prospective employee is a former government employee.  There are undeniable benefits to hiring former government employees that are familiar with agencies, programs and the procurment process.  The law places certain restrictions on the employment of former government employees, however.  The Procurement Integrity Act prohibits a former government employee who has served in covered positions on a procurement or contract in excess of $10 million from receiving compensation as an employee or consultant for that contractor for one year after leaving the government.  There are also restrictions on the employment of former government employees found in 18 U.S.C. § 207. Additionaly, individual agencies may have their own regulations regarding employment of former agency personnel. 

A significant issue that affects both the commercial and government sector is noncompete agreements.  Noncompete agreements have become ubiquitous in the business world.  For contractors that often continually compete against the same companies, noncompete agreements can be of great benefit.  They are, however, a double-edged sword: they can hinder a government contractor when it is trying to hire a competitor’s staff, but also can enhance the contractor’s ability to compete by helping to retain key personnel.  Noncompete agreements are subject to state employment laws, and the courts in many jurisidictions look unfavorably on limiting a person’s right to leave a company and continue to earn a living.  Any noncompete agreement must be able to pass the legal hurdles of the particular state in which the employee is working. In general, the restrictions of a non-compete must be reasonably limited in their scope and the company must have a legitimate business reason for the restrictions. 

Compensation:

Government contractors face several laws regarding compensation requirements.  The Walsh-Healey Public Contracts Act applies to contracts that exceed or may exceed $10,000 for the manufacturing or furnishing of goods.  The Davis-Bacon Act applies to contracts in excess of $2,000 for the construction, alteration, or repair of public buildings or public works.  The McNamara-O’Hara Service Contract Act applies to contracts in excess of $2,500 for services in the United States through the use of “service employees.”  In general, these laws require contractors to pay the locally prevailing wage and benefits to covered employees.  Contractors should look for these requirements in RFPs before submitting their bid, as they may affect their costs.  A contracting officer may include wage determinations from the U.S. Labor Department with the RFP, so that the contractors responding to the RFP are aware of what is considered the prevailing wage for a given area.

Additional requirements apply to companies that are in the SBA’s 8(a) program.  A non-disadvantaged individual’s compensation may not exceed the compensation to be received by the highest officer (usually the CEO or President) of the 8(a).  As such 8(a)’s must ensure that an employee’s base salary and bonus do not exceed that of the CEO or President of the company.  Additionally, SBA regulations limit the salaries and bonsus that can be paid by 8(a) companies.