Insight Center: Publications

The Impact of President Obama’s First 30 Days on the Labor and Employment Landscape


Author: Sean P. McDevitt

Barack Obama’s election in November 2008 brought with it great anticipation over whether he can transform campaign promises into effective government and great anxiety from the business community over his promises and commitments to labor unions. Now in his first month in office, President Obama must turn his attention to the business of governing, as employers’ concerns about his pro-labor leanings are becoming apparent.

Low-Hanging Fruit: Reversing Bush-Era Executive Orders and Adopting Executive Orders Favorable to Labor

The President can adopt executive orders that dictate how the executive branch of the government will conduct its affairs. Within his first 30 days in office, President Obama has signed four executive orders that fundamentally change how the federal government will conduct federal contracting—demonstrating a pendulum swing away from business interests and toward labor interests.

The “Notification of Employee Rights under Federal Labor Laws Executive Order” requires employers to post signs informing employees of their right to engage in collective bargaining under the National Labor Relations Act. This executive order revoked one signed by President George W. Bush that required employers to post signs informing employees of their right to limit financial support of unions to collective bargaining activities and to refrain from contributing financial support to political causes favored by unions. The executive order directs the secretary of labor to initiate a rulemaking process to produce the content of the notice. In essence, President Bush required employers to post signs letting unionized employees know they don’t have to pay dues to support their union’s political causes, only collective bargaining efforts. In contrast, President Obama will require employers to post notices telling employees of their right to join unions.

The penalties for noncompliance with the executive order are harsh: cancellation, termination or suspension of the contract in whole or in part, and ineligibility for future government contracts. In addition, the secretary may publish a list of contractors that have failed to comply with the order or related rules, regulations or orders promulgated by the secretary. The secretary is empowered to investigate any suspected violation of the executive order, including any complaint by an employee of a contractor or subcontractor.

The second executive order President Obama signed is the “Non Displacement of Qualified Workers under Service Contract Executive Order.” This order requires service contracts and solicitations for such government contracts to require the successor contractor and its subcontractors to offer the “line” employees of the predecessor contractor a right of first refusal for employment in positions for which they are qualified. In essence, this requires the new contractor to give a hiring preference to the old contractor’s employees, if they are qualified, for work under the successor contract. If the old contractor’s employees reject the successor contractor’s employment offer, then this may not be controversial. However, if the successor contractor replaces a predecessor for performance reasons, this may present significant issues. It may be difficult for a successor to prove that the predecessor employees are not “qualified” even if the predecessor lost the contract for performance reasons. As a practical matter, if the predecessor contractor’s employees are represented by a union, the successor contractor will probably be required to recognize and bargain with that union. The enforcement provision of this executive order grants the secretary of labor the authority to issue final orders prescribing sanctions and remedies, which may include orders requiring reinstatement of workers not hired (and, by implication, firing of workers who were hired by the successor contractor) and payment of lost wages to affected employees of the predecessor contractor.

The President issued “Executive Order - Economy in Government Contracting” on January 30, 2009; it requires covered U.S. government contractors to exclude as "unallowable costs" activities undertaken to persuade employees regarding the exercise of their labor rights. The order creates a new category of specifically "unallowable cost" for such activities. Contractors covered by the order and implementing regulations will be required to segregate the specified costs into an "unallowable cost pool" and ensure that they are not billed to the government. The order requires the Federal Acquisition Regulatory Council to issue rules and regulations to carry out the order within 150 days.

Finally, President Obama has signed the “Use of Project Labor Agreements for Federal Construction Projects Executive Order.” Project labor agreements require that all parties to a government construction contract sign pre hire agreements that mandate the use of union labor on construction projects. Supporters of project labor agreements suggest that such agreements promote labor peace and efficiency because strikes, picketing and work stoppages can be avoided by the use of union labor. This order directs that federal agencies must use only project labor agreements on construction projects costing $25 million or more. This order revokes a Bush-era order that prohibited project labor agreements on federal construction projects.

Taxpayer groups and the business community have criticized project labor agreements because, they say, the agreements reduce competition, increase costs and unlawfully discriminate against non union construction workers (who account for 80 percent of the construction industry). But, with the stroke of a pen, President Obama has redefined how large-scale federal construction projects will be awarded – union only.

Labor-Friendly Legislation: The Lily Ledbetter Fair Pay Act of 2009

The first employment bill President Obama signed was the Lily Ledbetter Fair Pay Act of 2009. This act extends the statute of limitations under which employees are able to sue for wage discrimination claims based on age, race, gender and disability status for a period up to six months after the employee receives his or her final paycheck, even if the discriminatory decision occurred years earlier. Employees can “reach back” two years on such claims. For example, if a discriminatory pay event occurred in 1970, and a retiring employee learned about it in 2009, that employee could file a wage discrimination claim and claim two years of damages, based upon the discriminatory pay practice that occurred decades earlier.

This legislation reverses the 2007 Supreme Court decision in Ledbetter vs. Goodyear Tire and Rubber Company, in which long term Goodyear employee Lily Ledbetter claimed to have learned on the eve of her retirement that she received a smaller paycheck than her male counterparts for doing the same work. The Supreme Court held that the unlawful employment practice occurred at the time the employer made its pay setting decision, which occurred decades earlier, well beyond the 180-day limitation period before Ledbetter filed her charge.

This creates daunting evidentiary issues for employers. Employees can file claims based upon decisions made decades earlier. Witnesses may be difficult to locate and documents may have been discarded. Nonetheless, if employees can make good faith claims, employers will be required to defend them and bear the costs of mounting such a defense.

American Recovery and Reinvestment Act of 2009

On February 17, 2009, President Obama signed the American Recovery and Reinvestment Act of 2009, which represents a massive $787 billion spending package aimed at stimulating the economy. The act commits significant funding to help workers who have been hurt by the current economic climate.

Specifically, $4 billion has been committed to job training for adults, dislocated workers and youth services. $500 million has been committed for vocational rehabilitation state grants for the construction and rehabilitation of facilities to help disabled persons prepare for gainful employment. $500 million has been earmarked for employment services grants to match unemployed individuals to job openings through state employment services agencies. Funds are targeted to states with the greatest need based on labor force, unemployment and long-term unemployment rates. $120 million has been committed to community service employment for older Americans, which provides subsidized community service jobs to 24,000 low-income older Americans.

The act significantly changes COBRA healthcare coverage for the unemployed. $30.3 billion has been committed to extend health insurance coverage to the unemployed, and the period of COBRA coverage for older and tenured workers has been extended beyond the traditional 18-month period provided under current law. Specifically, workers aged 55 and older and workers who have been working for an employer for ten or more years will be able to retain their COBRA coverage until they become eligible for Medicare or until they secure coverage through a subsequent employer. In addition, the first nine months of COBRA coverage for eligible persons who have lost their jobs on or after September 1, 2008, will receive an employer subsidy of 65 percent of the subsidy rate. This means that the employer will receive a payroll tax credit of 65 percent of the COBRA premium, and the affected worker will have to pay 35 percent of the premium. Consequently, although the federal government will subsidize a substantial portion of the COBRA premium, the affected worker still will be “out of pocket” 35 percent of the COBRA premium.

The act also commits $27 billion to continue the current extended unemployment compensation benefits programs. The current program provides up to 33 weeks of benefits, which will extend current unemployment compensation benefits through December 31, 2009. $9 billion has been committed to increase the current average unemployment insurance benefit amount from $300 per week, which is paid out of state unemployment compensation trust funds, to $325 per week. This program also is extended through December 2009. An unemployment insurance modernization component provides funds to states based upon states meeting specific reforms to increase unemployment insurance coverage for low-wage part-time and other jobless workers.

What is Ahead for the Employee Free Choice Act?

President Obama has demonstrated his ideological and political commitment to his labor supporters. What he was able to do quickly to favor labor, he has done. What does this mean for the Employee Free Choice Act (EFCA)?

EFCA presents, by far, the possibility of the most fundamental change in labor law in 70 years. This law would, in effect, remove the secret ballot from union elections. Employers fear unions’ deceit, coercion and intimidation in efforts to obtain signed union authorization cards. If agreements are not quickly reached with unions, unions can seek interest arbitration. The net effect of interest arbitration will be the imposition of two year contracts, the terms of which would be decided upon by federal employees who may have little industry expertise. Setting the terms of private collective bargaining agreements would become the province of federal employees.

Andrew Stern, president of the Service Employees International Union (SEIU), raised $85 million for President Obama’s election campaign. He also enlisted the support of countless SEIU volunteers for President Obama’s campaign. Stern is on record as saying that politicians who have pledged support for the EFCA will be held accountable if they fail to deliver. President Obama, obviously, would be at the top of that accountability list. The only impediment standing between the EFCA and President Obama’s pen is a slim filibuster margin in the Senate. If moderate Republicans side with Democrats, as they recently did regarding the stimulus package, and the filibuster opportunity is lost, the EFCA will become law.

President Obama has grown noticeably quiet concerning the EFCA during this recession. His only public comments of late express his desire that the business and labor reach an agreement on this issue. However, where unions win over half of all NLRB-certified elections under current law, employers do not see much need for correction, and it is unlikely that employers would be willing, without a compelling reason, to give up the secret ballot and throw contract commitments into the laps of federal arbitrators.

Is There More?

President Obama’s support of other bills in Congress further demonstrates his pro labor philosophy. The Paycheck Fairness Act, for example, may increase damages that employees could claim in gender pay discrimination cases. President Obama also has sponsored or supported a series of bills that would make it more difficult to designate individuals as independent contractors, which would increase the potential for Fair Labor Standards Act overtime claims as well as benefit claims under ERISA. Given the uncertain economic climate that President Obama faces, the economic costs of such legislation may outweigh the political benefit. As a result, these bills may not become high priorities for our new President, at least in the short term. However, President Obama’s actions during his first 30 days suggest that if and when the economy improves he will continue to receive pro labor legislation favorably.

If you have questions about how any of these recent labor developments may affect you or your business, contact Pepper Hamilton partner Sean P. McDevitt at 610.640.7856, 302.777.6519 or mcdevitts@pepperlaw.com.

This is one of a series of articles published by members of Pepper Hamilton LLP discussing issues arising out of the American Recovery and Reinvestment Act of 2009. For our other publications, please refer to our firm's Web site at www.pepperlaw.com.

The material in this publication is based on laws, court decisions, administrative rulings and congressional materials, and should not be construed as legal advice or legal opinions on specific facts. The information in this publication is not intended to create, and the transmission and receipt of it does not constitute, a lawyer-client relationship.

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