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False Claims Act Statistics, News & Analysis

  • 27
  • October
  • 2016


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Red Meat for Escobar: New Compliance Burdens Under the Fair Pay and Safe Workplaces Final Rule

UPDATE: A U.S. District Court Judge in Beaumont, Texas, has issued a nationwide preliminary injunction. Read the e-lert here.

ORIGINAL POST: As courts across the nation search for equilibrium after the Escobar decision, potential FCA defendants are watching closely to see the measure of their potential FCA liability for failure to observe contractual, regulatory, or legal obligations. On October 25, 2016, these possibilities will grow exponentially for many government contractors when the so-called Fair Pay and Safe Workplaces final rule (“the Rule”) goes into effect. See 81 Fed. Reg. 58562 (August, 25, 2016). V&E’s more in-depth analysis of the Rule can be found here. This is a rule that imposes significant compliance burdens that could become fodder for implied certification FCA cases going forward.

The Rule’s primary purpose is to mandate the disclosure of labor law violations for the past three years as a prerequisite to receive government contracts. The government intends to use this information in making its contractor responsibility determination as required under the Federal Acquisition Regulation (“FAR”). A contractor deemed not to be responsible risks losing the ability to do business with the government.

The Rule requires contractors and subcontractors to report violations of 14 federal labor laws, including: the Fair Labor Standards Act; OSHA; the National Labor Relations Act; Davis-Bacon requirements; the Service Contract Act; the Family Medical Leave Act; portions of the Civil Rights Act of 1964; and the Americans with Disabilities Act of 1990, among others. The Rule also goes a step further by requiring contractors to report labor violations of “equivalent” state laws which purportedly will be defined by the U.S. Department of Labor at a later, unspecified date. Reportable violations will include civil judgments, administrative merits determinations, and arbitral awards or decisions – even when the adverse event was non-final and subject to appeal. Furthermore, contractors will be required to update their disclosures in the government’s System for Award Management (“SAM”) no later than every six months. 

The Rule affords the government the typical remedies for a contractor’s non-compliance– removal of the contractor from a competition, or an existing contract can be terminated. But the continuing vitality of implied certification theory foreshadows potentially far greater consequences for non-compliance. Because the purpose of the Rule is to broadly determine if a contractor is responsible, and has a “satisfactory record of integrity and business ethics,” the government and relators alike may argue that compliance with the Rule is a “material” requirement of every contract. As such, in the post-Escobar world, government contractors should recognize that their risk of non-compliance is heightened because it could lead to FCA allegations in addition to basic administrative remedies provided for by the Rule.

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Ryan D. Stalnaker Associate