Department of Labor Proposes Rule to Give Service Employees a Right of First Refusal under Successor Contracts

Under the proposed rule, the incumbent contractor must provide a certified list of the names of its service employees, as defined by the Service Contract Act of 1965, no less than 30 days prior to the completion of the contract. The successor contractor and its subcontractors must, in good faith, offer employment to service employees, employed under the predecessor contract and its subcontracts whose employment would otherwise be terminated as a result of the award of the contract. The successor contractor and its subcontractors must make an express offer of employment to each employee and must state the time within which the employee must accept such offer. A service employee must be provided at least 10 business days to accept the offer of employment.

A successor contractor or subcontractor would not be required to offer employment to any employee on the predecessor contract if: (1) the predecessor contractor will retain the employee, (2) the employee performs in an executive, administrative or professional capacity and is not a service employee, (3) there is reliable evidence of a particular employee's past performance which would justify not hiring the employee, (4) the employee performs a single job under the predecessor’s federal service contract (or a nonfederal service contract), or (5) the successor contractor has staffing requirement changes. The parameters of the latter exception remain to be determined and could be the subject of future disputes.

The proposed rule also provides that for a successor solicitation, an agency must consider whether performance of the work in the same locality or localities in which the contract is currently being performed is reasonably necessary to ensure economic and efficient provision of services. If such performance is reasonably necessary, then the agency must, to the extent consistent with law, include a requirement or preference that the successor contract be performed in the same locality or localities.

Within 60 days of the issuance of the final Department of Labor rule, the Federal Acquisition Regulatory Council (FAR Council) must amend the Federal Acquisition Regulation (FAR) to provide for inclusion of the clause. Written comments on this proposed rule are due by August 15, 2022.