Contracting with the Department of Defense (“DoD”), National Aeronautics and Space Administration (“NASA”) and General Services Administration (“GSA”) will become more burdensome after December 2, 2011, according to final regulations published today.  The regulations, which were proposed on April 14, 2010, and were adopted without any changes (no surprise there), deem certain labor relations costs unreimbursable by the federal government.  The new regulations, set forth in bold, adds to the existing regulation:

(a) Costs incurred in maintaining satisfactory relations between the contractor and its employees (other than those made unallowable in paragraph (b) of this section), including costs of shop stewards, labor management committees, employee publications, and other related activities, are allowable.

(b) As required by Executive Order 13494, Economy in Government Contracting, costs of any activities undertaken to persuade employees, of any entity, to exercise or not to exercise, or concerning the manner of exercising, the right to organize and bargain collectively through representatives of the employees’ own choosing are unallowable.  Examples of unallowable costs under this paragraph include, but are not limited to, the costs of-

(1) Preparing and distributing materials;

(2) Hiring or consulting legal counsel or consultants;

(3) Meetings (including paying the salaries of the attendees at meetings held for this purpose); and

(4) Planning or conducting activities by managers, supervisors, or union representatives during work hours.

In theory, the rule purports to simply say the contractor cannot charge the government for certain expenses, which sounds good, especially in these trying economic times.  Practically speaking, however, this rule will do nothing but cause problems for non-union employers while rewarding unionized contractors.  Here are a few examples:

  • The rule says it is neutral and applies to statements for or against a union, but let’s be honest:  how many unions are federal contractors that would fall under this rule?
  • The rule on its face allows charges for “union stewards” to work on government paid time, but disallows a supervisor expressing his or her view about unionization.  And union stewards always act in a manner that is efficient for the business, right?  What if the supervisor’s view is personally held and not one of employer policy, would the employer have to deduct the estimated amount of the conversation from any billing to the government? If so, how would it estimate the time?
  • If an employee asks a question of his or her supervisor about unions, must the supervisor account for the time spent answering the question?
  • If an employee asserts that he or she had a conversation with a supervisor about the union, what is considered persuader activity?  What if the supervisor’s answer is completely factual?  Who decides what is persuader activity and what is not? Will the government put the contract in jeopardy based on the allegation?
  • A union can use whatever resources it gets, often indirectly from the government through public sector dues payments, to use lawyers and hire organizers, but these expenditures are not affected by the rule.  The private sector employer, however, must segregate such costs.

In sum, this change while facially neutral does not even withstand the slightest scrutiny.   Like many other regulations popping out of the government like so many gumballs from a machine, this one too may be challenged in the courts.

The changes the administration forces onto federal contractors foreshadow what it intends for all private sector employers.  For example, the federal government required contractors to post the NLRB rights poster months before the NLRB issued the broader rule covering all employers under its jurisdiction.  Likewise, this final rule is similar to the Department of Labor’s attempt to narrow the LMRDA’s advice exemption, about which we reported here.