September 24, 2020

New Executive Order Seeks to Impose Additional Requirements, with Severe Consequences, on Federal Government Contractors, Subcontractors, and Grant Recipients

7 min

On September 22, 2020, the President issued an Executive Order, titled Executive Order on Combating Race and Sex Stereotyping ("EO"), for the purpose of instituting a Federal ban on the "use of workplace training that inculcates in its employees," or promotes the concepts of, "any form of race or sex stereotyping or any form of race or sex scapegoating." The requirements enumerated in this EO apply to Federal government contractors, their subcontractors, and Federal grant recipients, among others, whereby, pursuant to the EO, the Federal Government is essentially seeking to take a seat in the boardroom when it comes to company-wide policymaking decisions around gender and race discussions. Though the President provided immediate guidance and restrictions on Federal government contractors and their subcontractors, the precise ramifications for Federal grant recipients remain to be seen, pending the results of investigations by the agency heads of their respective grant programs.

Given that implementation of these broad new restrictions appears imminent, as more fully explained below, we encourage Federal government contractors, subcontractors, and grant recipients to carefully review the EO and its enumerated clauses in order to prepare their businesses and employees for the impending changes. Despite portions of this EO potentially running afoul of First Amendment protections, and possibly creating tension with other laws and regulations related to well-founded programs designed to foster a more diverse workplace and contractor base, such as affirmative action and small business programs, failure to comply with the EO could result in severe consequences for Federal government contractors, their subcontractors, and Federal grant recipients alike.

Federal Government Contractors and Subcontractors

Effective November 21, 2020, all Federal agencies are required to include "in every Government contract" a multi-paragraph clause that prohibits "any workplace training that inculcates in its employees any form of race or sex stereotyping or any form of race or sex scapegoating," as defined in the EO, during the performance of that contract. All Federal contractors must subsequently flow down that clause to "every subcontract or purchase order unless exempted by rules, regulations, or orders of the Secretary of Labor."

As the EO currently stands, per Section 4 of the EO and Section 204 of Executive Order 11246 – Equal Employment Opportunity, as amended ("EO 11246"), potential exemptions to these requirements for certain classes of contracts, subcontracts, or purchase orders may ensue at the discretion of the Secretary of Labor. Such exemptions could include contracts, subcontracts, and purchase orders for work performed outside the United States that do not involve the recruitment of employees in the United States, for work valued at an amount less than a to-be-determined threshold, and for subcontractors that fall below a specified tier, among others. Perhaps most significantly, the Secretary could elect to exempt standard commercial supplies or raw materials as well as certain contractor facilities that are entirely separate and distinct from those used in the performance of a Federal contract. Nevertheless, barring the Secretary promulgating a rule or regulation that exempts those categories of contracts, subcontractors, or purchase orders, the effect of these provisions is that any company that transacts business with the Federal Government—even for a single contract, subcontract, or purchase order—must implement and enforce these provisions across every division of the company while the underlying contract is active, regardless of whether the company and Federal Government transact business on a frequent or minimal basis.

The EO further requires that all contractors "send to each labor union or representative of workers with which he has a collective bargaining agreement or other contract or understanding, a notice, to be provided by the agency contracting office, advising the labor union or workers' representative of the contractor's commitments" under the EO. Contractors must then post copies of such notice "in conspicuous places available to employees and applicants for employment"; it is unclear whether this requirement requires a contractor to publish the relevant notice on its website to ensure full compliance with the EO.

Failure to comply with the EO can result in the termination, cancellation, or suspension, in whole or in part, of a Federal contract. Further, a non-complying contractor—including contractors that provide training for agency employees relating to diversity or inclusion—can face suspension or debarment, as permitted under the EO and EO 11246, in addition to other sanctions as permitted by any rules, regulations, or orders from the Secretary of Labor pursuant to EO 11246. It is especially critical that subcontractors fully comply with the requirements of the EO, as the Federal contractor must, at the direction of the Secretary of Labor, take action against the subcontractor in order to enforce the provisions of the EO, including sanctions for non-compliance. If, as a result of such enforcement action, the subcontractor threatens litigation, the contractor can request that the United States participate in such litigation.

To further ensure compliance, the President directed the Department of Labor ("DoL"), through the Office of Federal Contract Compliance Programs ("OFCCP"), to "establish a hotline and investigate complaints received under both this order as well as Executive Order 11246" that allege any violations thereof. If an investigation establishes that a violation has occurred, the EO directs the DoL to "take appropriate enforcement action and provide remedial relief, as appropriate." In effect, the EO enables the DoL to direct, participate in, and oversee a sizeable number of transactions between, and in turn relationships of, a prime and subcontractor as well as a prime or subcontractor and its employees.

Given that many Federal contractors and subcontractors operate and conduct their respective businesses in both the public and private spheres, it is difficult to conceive how these requirements will not bleed into the contractor or subcontractor's private dealings. Nevertheless, should a business wish to conduct business with the Federal Government without consequence, the business has no choice but to comply with the terms of the EO.

Federal Grant Recipients

On or before November 21, 2020, after conducting an investigation, the heads of all Federal agencies must submit a report to the Director of the Office of Management and Budget that lists any grant programs for which the agency may, as a condition of receiving a grant, require the recipient to certify that it will not use Federal funds to promote any of the "divisive concepts" enumerated in the EO. Though the EO does not explicitly indicate which certifications or restrictions will apply to those recipients, or when they will apply, it is safe to assume that, in the coming months, irrespective of whether federal or non-federal funds are used to finance trainings or other programs and actions that promote "divisive concepts," recipients will need to cease any such training or programs and actions. Additionally, Federal grant recipients will presumably face sanctions for non-compliance similar to those of Federal contractors and subcontractors.

Other Considerations

In addition to the above requirements, the EO authorizes the Director of the OFCCP, on or before October 22, 2020, to "publish in the Federal Register a request for information seeking information from Federal contractors, Federal subcontractors, and employees of Federal contractors and subcontractors regarding the training, workshops, or similar programming provided to employees . . . having to do with diversity and inclusion." This open‑ended request for information effectively permits the Director of the OFCCP to conduct ad hoc investigations into contractors' internal training and programming—which can extend beyond the contractors' government contracts-focused training—by permitting contractors, subcontractors, and their respective employees to submit "copies of any training, workshop, or similar programming having to do with diversity and inclusion as well as information about the duration, frequency, and expense of such activities."

The EO further directs the Attorney General to continually assess the extent to which workplace training that teaches "divisive concepts" contributes to a "hostile work environment and give[s] rise to potential liability under Title VII of the Civil Rights Act of 1964." To promote these goals, it is likely that the Attorney General and the Equal Employment Opportunity Commission will issue public guidance on how employers can better promote diversity and inclusion in the workplace in a manner consistent with Title VII.

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The EO is no doubt a reaction by the Administration to quell perceived anxieties over various training and communication/discussion programs implemented by many companies and organizations as a result of recent social and racial justice concerns sweeping the country. The legal underpinnings of the EO raise serious questions and may be subject to challenge, but, as implemented in its current form, it imposes broad restrictions with dire consequences on how companies and organizations conduct themselves in relation to these important issues, even with their own private funding.