The Power to Act

The Employee Free Choice Act is a low priority for the White House and Congress. Legislation mandating a minimum number of paid sick days for all workers couldn't even get congressional action when the country was facing the public-health scares of the H1N1 virus. And bills to curb the practice of misclassifying employees as independent contractors are at the earliest stages of the legislative process.

Does this mean labor rights are doomed by gridlock? Not at all.

The President's Contracting Power. Since the days of Franklin D. Roosevelt, presidents have used their executive power to sign orders aimed at strengthening working conditions for all employees of businesses receiving federal contracts. Roosevelt was the first to sign an order prohibiting defense contractors from discriminating on the basis of race in their workforce.

The authority for presidential executive orders was addressed by the courts only in 1952 when the Supreme Court struck down President Harry Truman's executive order in which he seized the country's steel mills to avoid a threatened strike in the midst of the Korean War. In Youngstown Sheet & Tube Co. v. Sawyer, the Court held that Truman had no authority to seize the mills and instructed that the president's authority to issue an order "must stem from an act of Congress or from the Constitution itself."

The Youngstown opinion did not prohibit the president from using his executive authority to require labor standards in federal contracting. In fact, it made clear that the president may gain his executive authority through an act of Congress -- authority the Congress had already conveyed on the president with regard to federal contracting.

In 1949, Congress had passed the Federal Property and Administrative Services Act, commonly known as the Procurement Act, authorizing the president and his subordinates to purchase goods and services for the executive branch. This statute provided the necessary delegated authority to allow the president to condition the receipt of federal contracts on certain requirements, including conditions related to improved labor and employment standards in the workplace. The Procurement Act authorizes the president to adopt procurement policies and directives that provide for an "economic and efficient" procurement system, and thus any conditions ordered by the president must meet that test.

Contracting Requirements Affecting All Workers. Presidents from both parties have used this power extensively to affect all workers employed by federal contractors. Lyndon B. Johnson, expanding the work started by FDR, signed Executive Order 11246 prohibiting discrimination and requiring affirmative action to assure representation of underrepresented minorities in the workforces of businesses receiving federal contracts (the order was later amended to add women). This order required explicit goals and timetables for progress in employing minorities, as well as a nominal end to racial discrimination and exclusion. Aiming to curb inflation, Jimmy Carter issued Executive Order 12092 requiring all federal contractors to agree to abide by certain wage and price controls in order to receive a federal contract. Both Bill Clinton and George W. Bush issued executive orders related to the employment of undocumented workers. Clinton was the first president to prohibit the practice. Bush then required that federal contractors use an electronic employment-verification system to ensure the legal status of their workers.

Each of these executive orders has been challenged, and all have been upheld on the ground that the president has broad authority to place conditions on federal contracts in furtherance of his duty to promote an economic and efficient procurement system. The most helpful guidance in evaluating the legality of such orders can be found in the 1979 D.C. Circuit opinion of AFL-CIO v. Kahn. In Kahn, the court upheld Carter's Executive Order 12092 aimed at curbing inflation. The court held that there should be a "sufficiently close nexus" between the executive order and the goals of economic and efficient procurement. The court found this to be true even while acknowledging that Carter's executive order might drive up the cost of some federal contracts in the short run. This case confirmed the president's broad authority to issue orders under the Procurement Act and made clear that the standard to meet the requirement of economy and efficiency is quite flexible.

Since Kahn, courts have further clarified the breadth of the president's authority under the Procurement Act. In 2009, for example, a federal district court explained that the requirement meant "little more than that the president's explanation for how an executive order promotes efficiency and economy must be reasonable and rational." It was enough in that case for President Bush to state -- but show no additional evidence -- that employers who adopt the electronic employment-verification system for their workers would be more stable because they would be less likely to face immigration-enforcement actions.

Contracting Requirements Aimed at Union Workers. Presidents have also attempted to use their authority under the Procurement Act to condition the receipt of federal contracts on employer behavior affecting union workers and unionized workplaces. In 1995, Clinton issued Executive Order 12954 prohibiting federal contractors from permanently replacing lawfully striking workers. Both George H.W. Bush and George W. Bush, reversing Clinton's pro-labor approach, issued executive orders banning government contractors from entering into project labor agreements. These are pre-hire collective-bargaining agreements used when numerous unions are working on the same construction project. They also issued executive orders requiring contractors to post notices informing their employees that they could not be required to join a union. Clinton revoked George H.W. Bush's orders when he came into office, before they could be challenged in court.

Only in one instance has an executive order been struck down on the grounds that the National Labor Relations Act preempted it. The NLRA protects the rights of employees to organize a union, collectively bargain for wages and benefits, and prohibits certain unfair labor practices. It is intended to set a careful economic balance between employers and employees and to provide the sole, unifying law governing labor relations. In Chamber of Commerce of U.S. v. Reich, the D.C. Circuit struck down Clinton's 1995 order banning the hiring of replacement workers, relying on a Supreme Court case known as Boston Harbor decided the previous year.

In the Boston Harbor decision, the high court held that a government entity was not preempted by the NLRA -- even when imposing labor-relations requirements on publicly funded contracts -- because the government was acting as a market participant, like a private business, rather than as a government regulator setting policy. In Chamber of Commerce, the D.C. Circuit concluded that President Clinton was attempting to set government policy as a regulator because his order barred striker-replacement workers for all organizational units of the contractor, even those employees not providing goods or services to the government.

When George W. Bush's executive orders prohibiting project labor agreements and requiring notices of employees' rights not to join a union were challenged on the same grounds, however, they were upheld. There the courts found that the government was acting as a market participant, not a regulator because the actions were directed at the specific projects and specific employees funded by the government contract.

The Third Circuit summarized the state of the law in 2004 when it explained that courts must ask whether the condition of the contract seeks to "advance or preserve the state's proprietary interest in a project or transaction, as an investor, owner, or financier," and whether the condition of the contract is "specifically tailored to the proprietary interest."

So the government's power to use contracting to promote labor standards for all workers employed by a federal contractor is quite broad -- as long as the president explains how his executive order will promote economy and efficiency in federal contracting. The only practical limitation on the president's authority to promote labor standards through federal contracting is when he places requirements on contractors that could clash with the NLRA. But even then the president wields broad authority to condition contracts on meeting certain labor standards so long as the executive order is aimed at the government's role as "market participant" rather than "regulator" and is directed specifically at the project or workers funded with federal dollars.

Using Contracting to Address Today's Low-Wage Workers. The Obama administration is considering a proposal to use the president's authority under the Procurement Act to promote "high road" contracting. Variants of the proposal have been put forward by the Center for American Progress and the National Employment Law Project with support from the Change to Win labor federation and the Service Employees International Union.

The proposed executive order would require federal contractors to be in compliance with labor and employment laws, as well as other laws, in order to qualify to bid for a federal contract. It would also incentivize good labor and employment practices by providing extra credit or points in the contract-selection process to contractors offering good wages and benefits, such as a living wage and a minimum number of paid sick days.

This proposal could have a real impact on low-wage workers. It would mean that more workers would be protected by existing laws -- from employee -- classification laws to wage and hour laws to the Family and Medical Leave Act. It would also mean that low-wage workers, who currently have the least access to paid sick days and by definition the lowest-wages, could benefit from the incentives provided to contractors to offer living wages and paid sick days.

Will it meet the legal tests set out above?

Yes. Requiring compliance with labor and employment laws, like many of the previous executive orders, may result in short-term cost increases, but there is evidence that these costs would be outweighed by the long-term value of promoting a stable work environment. Furthermore, going above minimum labor standards and voluntary practices by encouraging living wages and paid sick days is reasonably related to furthering an economic and efficient procurement system. The government can show that the investment will pay for itself over time through improved worker productivity and public health, and decreased reliance on public programs. One study by Ann Sestero published in the Journal of Managerial Issues found that paid sick-leave policies have a significant positive effect on profits due to increased job contentment, reduced worker stress, and the employer's enhanced labor-market reputation.

Separate from the high-road contracting proposal, the president has the authority to use his powers under the Procurement Act in ways that support union workplaces and the growth of unions. To do so, he must ensure that the order is within the proprietary interest of the government and is specifically tailored to that interest. President Obama already used this power when he issued Executive Order 13502 urging federal agencies to consider requiring project labor agreements for large-scale construction projects.

The power delegated to the president by Congress under the Procurement Act is very broad. The president can develop policies that have a real impact in improving labor and employment standards among workers employed by federal contractors. With nearly a quarter of the workforce affected by such conditions, these policies will surely have a ripple effect across the economy.

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