June 14, General Services Administration Regulatory Secretariat (MVCB) 1800 F Street, NW, Room 4041 ATTN: Hada Flowers Washington, DC 20405

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1 C H A M B E R O F C O M M E R C E O F T H E U N I T E D S T A T E S O F A M E R I C A H S T R E E T, N. W. W A S H I N G T O N, D. C / / F A X R A N D E L K. J O H N S O N S E N I O R V I C E P R E S I D E N T L A B O R, I M M I G R A T I O N & E M P L O Y E E B E N E F I T S M I C H A E L J. E A S T M A N E X E C U T I V E D I R E C T O R L A B O R L A W P O L I C Y June 14, 2010 General Services Administration Regulatory Secretariat (MVCB) 1800 F Street, NW, Room 4041 ATTN: Hada Flowers Washington, DC RE: FAR Case ; Labor Relations Costs Proposed Rule To Whom It May Concern: We are pleased to submit these comments on behalf of the U.S. Chamber of Commerce (Chamber) in response to the proposed rule (NPRM) to amend the Federal Acquisition Regulation (FAR) to implement Executive Order 13494, as amended, as proposed in the Federal Register on April 14, Statement of Interest The Chamber is the world s largest business federation, representing the interests of more than three million businesses and organizations of every size, sector, and region. Many of our members are federal contractors with contracts utilizing the cost principles at issue in this proposal. Of these, many exercise their federally protected free speech rights to communicate with their employees about unionization. Many others may wish to engage in such conduct in the future. The proposal will have a significant impact on these members. Summary The Chamber opposes the Executive Order and this proposal. Depending on the type of business the contractor conducts, the proposed restrictions will either serve as an effective gag order or will significantly chill the exercise of employer free speech. Not only will the restrictions significantly deter employers from expressing their opinion about whether or not employees should form a union, but they will also deter employers from urging that employees should exercise their rights to unionize through a government-supervised secret ballot election rather than some other inferior method that cannot be 1 75 Fed. Reg. 19,345, 19,

2 P a g e 2 trusted to ascertain the true views of employees. The ultimate victim of these restrictions is the employee, who relies upon full information from both employers and unions in making an informed decision about whether to select an exclusive bargaining representative. Part one of these comments first offers an overview of preemption doctrine under the National Labor Relations Act. Part two briefly discusses a drafting issue that requires clarification by the Councils. Part three discusses some implementation challenges and burdens that contractors will face should the proposal be promulgated. Part four addresses the Councils failure to adhere to the requirements of the Regulatory Flexibility Act. I. Lack of Legal Authority for the Executive Order or the Proposed Regulations A complete legal analysis of the faults in the Executive Order and this proposed regulation are beyond the scope of these comments. However, because the issues involved are intertwined with those regulated by the National Labor Relations Act (NLRA), a few comments about NLRA preemption are important. First, it is important to note that NLRA preemption doctrine applies equally to the Executive Branch of government as it does to the states. As noted by the D.C. Circuit Court in a case brought by the Chamber and others challenging an Executive Order signed by President Clinton related to permanent replacement of striking workers, the principles developed [in cases challenging state action based on NLRA preemption] have been applied equally to federal governmental behavior that is thought similarly to encroach into the NLRA s regulatory territory. 2 The Executive Order and proposed regulation at issue today similarly encroach into the NLRA s regulatory territory. The primary activity that the proposal seeks to regulate is the exercise of free speech by employers related to whether or not employees should organize and bargain collectively or the manner in which they should do so. Employer free speech is a central component of the NLRA. As the NLRB has articulated, Congress has already determined, as a matter of national labor policy, that employer free speech serves employee free choice. 3 The Executive Order and the proposed regulation encroach on these rights. This encroachment is easiest to see in the case of federal contractors for whom the entirety of their business consists of contracts that will be subject to the FARs cost principles that would be amended by the proposal. For these contractors, the Executive Order amounts on a gag order with respect to speech related to unionization, a concept that is in direct conflict with the NLRA that instead reflects 2 Chamber of Commerce v. Reich, 74 F.3d 1322 (DC Cir. 1996). 3 Brief for National Labor Relations Board as Amicus Curiae at 28, Chamber of Commerce v. Lockyer, 364 F.3d 1154 (9 th Cir. 2004) (Nos ; ), rev d 463 F.3d 1076 (9 th Cir. 2006) (en banc), rev d sub nom. Chamber of Commerce v. Brown, 554 U.S. 60 (2008).

3 P a g e 3 congressional intent to encourage free debate on issues dividing labor and management. 4 Employers in this position will have no real choice but to forego free speech rights guaranteed by the NLRA. To be sure, many contractors will not be in this position, but will instead have some contracts covered by the costs principles and other business, whether federal contracts not covered by the principles or non-federal contract business. For these contractors, the Executive Order and the proposed regulation serve as a significant disincentive to exercise free speech rights. Much like the free speech restrictions that the State of California attempted to impose on employers that received state assistance, the Executive Order seeks to predicate benefits on refraining from conduct protected by federal labor law and chills one side of the robust debate which has been protected under the NLRA. 5 Likewise, the Executive Order imposes significant burdens on employers that seek to exercise federally protected free speech rights. For many of the same reasons, the Executive Order conflicts with the NLRA and is preempted. The proposal, like the Executive Order, attempts to justify its regulation of employer free speech as merely an effort to promote economy and efficiency that will reduce procurement costs. However, it is manifest that the Executive Order is intended to serve a labor policy purpose by trying to impose employer neutrality in clear conflict with the national labor policy enshrined in the NLRA. II. Unclear Drafting Due to the way in which proposed paragraph (b) is drafted, it is unclear whether the proposal would disallow all costs related to communicating with employees concerning the manner of exercising the right to organize and bargain collectively or whether the proposal would only disallow those costs if they were characterized as an attempt to persuade employees concerning the manner of exercising such rights. We presume it is the latter, but the Councils should clarify this point. If it is the former and all communications regarding the manner of exercising such rights were not reimbursable, employers would not even be able to seek reimbursement for time spent hanging posters required by Executive Order 13,496 or a notice of election ordered to be posted by the National Labor Relations Board. Presumably, costs associated with informing employees how to participate in an NLRB-conducted election are reimbursable. If not, this would raise serious concerns within the contractor community. We urge the Councils to clarify this matter. III. Compliance Burdens and Challenges The proposal establishes significant compliance burdens and challenges that will have the effect of discouraging employers from engaging in federally protected free speech. In particular, distinguishing between allowable and unallowable costs will impose a significant burden as will tracking and properly accounting for each. A single example should help illustrate the complexities involved. 4 Linn v. Plant Guard Workers, 383 U.S. 53 (1966). 5 Chamber of Commerce of the United States v. Brown, 554 U.S. 60 (2008).

4 P a g e 4 Consider an employee handbook that contains the employer s policy with respect to labor unions. If the policy states that the employer respects the rights of employees to select or reject union representation, but believes it is in everyone s best interest to operate union free, will this be sufficient to make some portion of the costs of developing the policy unallowable? Some might argue the policy is an attempt to persuade employees not to organize and bargain collectively, while others might argue that the statement is not an attempt to persuade, but merely an expression of an opinion. What if the policy stresses the importance of open communication and a preference to dealing directly with employees? Will this be sufficient to make some of the costs unallowable? What if the policy states that the employer respects its existing relationships with current unions and that it will respect any future decision by employees to form a union, but that it supports the rights of employees to make that decision through an NLRB secret-ballot election? If a portion of the policy was determined to be unallowable, would expenses related to the entire policy (or the entire handbook that contains it) be unallowable, or just related to the offending section? How would the employer account for costs related to that particular statement as opposed to the rest of the statement that may be permissible and the remainder of the employee handbook? Presumably, the employer would need to distinguish between allowable and unallowable costs for the individuals responsible for drafting the employee handbook as well as the lawyers that review it. It could be that employees debated the provision and drafted and edited it for hours or days at considerable expense or they may simply have copied one from another source, expending almost no time and effort on the exercise. Presumably, the employer would also need to separate out a portion of the costs as unallowable every time a new employee went through orientation and received the handbook from the human resources department, whether or not the human resource manager spent any time discussing the particular policy. The contractor would also need to account for any time the employee spent reading and understanding the employee handbook and attempt to allocate allowable from unallowable costs in such a situation. This exercise could result in different percentages of allowable and unallowable costs for each employee, depending on the extent to which they actually read the policy, thought about it, or asked questions. It is exceedingly difficult to articulate a rule of thumb for the contractor to determine whether the statement in the handbook crosses the line from allowable to unallowable and we can think or no way to accurately reflect the costs that are allowable or unallowable in this example. And this is but one example. Countless others will face employers trying to comply with the policy. The complexity of this task and the burdens associated with accurately characterizing costs coupled with existing penalties for improper compliance with FAR cost principles will thus serve as a significant disincentive for contractors to engage in federally protected free speech. IV. Regulatory Flexibility Act The NPRM on its face fails to comply with the Regulatory Flexibility Act (RFA).

5 P a g e 5 The RFA requires agencies to perform an Initial Regulatory Flexibility Analysis (IRFA) when conducting notice and comment rulemaking. 6 The one major exception to this requirement is only available if the head of the agency certifies that the rule will not, if promulgated, have a significant economic impact on a substantial number of small entities. 7 If such a certification is made, the agency must publish the certification along with the NPRM and must include a statement providing the factual basis for the certification. 8 In this case, the Councils have not made such a certification, though to be fair they have offered two reasons for their failure to conduct an IRFA. We draw attention to this because in the recently completed rulemaking to implement Executive Order 13,502 (related to project labor agreements) the Councils stated that GSA, DoD, and NASA do not certify that a rule will not have a significant economic impact on a substantial number of small entities until after receipt and analysis of public comments on a rule. 9 This practice is inconsistent with the Regulatory Flexibility Act. If the Councils wish to obtain public comments in advance of making a certification, then the proper course of action would have been to issue an Advanced Notice of Proposed Rulemaking first. 10 Turning to the Councils two proffered reasons for failing to conduct an IRFA the Councils first assert that most contracts awarded to small entities use simplified acquisition procedures or are awarded on a competitive fixed-price basis, and do not require application of the cost principles contained in this rule. 11 It would be extremely helpful in evaluating this statement for the Councils to include more specificity. On what basis is this conclusion drawn? Are there accurate estimates regarding the percentage of small entities that are awarded contracts to which these cost principles will apply? As explained by the Small Business Administration s Office of Advocacy, at this stage of a rulemaking the agency should be able to identify which small entities would be affected and whether adequate economic data has been obtained. 12 We strongly encourage the Councils to disclose any such estimates so that this assertion can be properly evaluated. Second, the Councils state that the practical effect of the rule will be that contractors will no longer be reimbursed for costs incurred in promoting or opposing union organizing. It is substantially less likely that small businesses will incur costs of this nature. 13 It is incumbent upon the Councils to provide some basis for this assumption. Do the Councils believe small businesses are less likely to be the targets of union organizing campaigns or are less likely to have employees who want to unionize? According to the National Labor Relations Board annual report for fiscal year 2009, 23.9 percent of election petitions 6 5 U.S.C. 603(a). 7 5 U.S.C. 605(b). 8 Id. 9 Final Rule, Federal Acquisition Regulation; FAR Case , Use of Project Labor Agreements for Federal Construction Projects, 75 Fed. Reg. 19,168, 19, (April 13, 2010). 10 See SBA OFFICE OF ADVOCACY, A GUIDE FOR GOVERNMENT AGENCIES: HOW TO COMPLY WITH THE REGULATORY FLEXIBILITY ACT (hereinafter RFA GUIDE) at 9, available at Fed. Reg. at 19, RFA GUIDE at Id.

6 P a g e 6 involved bargaining units of 10 employees or fewer and 69.1 percent of election petitions involved bargaining units of 50 or fewer employees. 14 This data raises a strong inference that many union elections occur at small businesses. It is incumbent upon the Councils to explain this assumption as well. Without a greater explanation of the assumptions underlying the Councils proffered reasons for its failure to conduct an IRFA, its statement is not sufficient to justify the failure to conduct an IRFA (not to mention that fact that it has not actually made a certification at all). We therefore urge the Councils to conduct an IRFA and make it available for public comment. Failing this, at a minimum, the Councils must disclose more information so that their assumptions can be properly evaluated. Conclusion In conclusion, the Chamber opposes the Executive Order and this proposal because they will significantly impair the exercise of federally protected employer free speech rights and ultimately will be preempted by the National Labor Relations Act. We also strongly urge the Councils to conduct a proper Initial Regulatory Flexibility Analysis and make important clarifications. Thank you for your consideration of these comments. Please do not hesitate to contact us if the Chamber may be of more assistance as the Councils further consider this matter. Sincerely, Randel K. Johnson Senior Vice President Labor, Immigration, and Employee Benefits Michael J. Eastman Executive Director Labor Law Policy 14 Available at: