Among the first actions taken by the incoming administration was to rescind Executive Order (EO) 14055. Titled “Nondisplacement of Qualified Workers Under Service Contracts,” EO 14055 required certain federal contractors to offer jobs to their predecessor’s employees. The EO had proven controversial among the business community and was widely expected to be rescinded. Now that it has, federal contractors will not have to offer jobs to their predecessor’s employees before hiring new workers.

What was EO 14055?

In 2009, the Obama administration issued EO 13495, which would have applied to federal contractors covered by the Service Contract Act. Under the EO, any covered contractor who won new work from the government would have had to give a “right of first refusal” to certain employees of its predecessor. That order, however, was rescinded by the first Trump administration. Then, in 2021, the Biden administration issued EO 14055. That EO effectively revived the Obama administration’s requirements. Like the Obama EO, it would have required a covered contractor to give its predecessor’s employees a right of first refusal. A contractor would not have been able to hire new employees until it had given the predecessor’s employees at least ten days to consider the jobs.

The Biden EO had some exceptions. For one, it applied only to service contracts worth at least $250,000. For another, it applied only to employees covered by the Service Contract Act. That meant it didn’t apply to employees who fell into certain wage-and-hour exemptions—specifically, the “white collar” exemptions under the Fair Labor Standards Act. Finally, it applied only to employees qualified for jobs with the new contractor. The contractor had no duty to modify a job for an employee, hire an unqualified employee, or hire more employees than it otherwise needed.

What did the administration do?

Now, as expected, the incoming administration has rescinded the EO. The administration offered no additional details about the rescission, nor did it say whether the Department of Labor will formally withdraw rules it published to implement the EO in December 2023. Even so, it is now clear that federal agencies need not include the order’s “nondisplacement” requirements in their service contracts. That means federal contractors will be able to hire new employees without first offering the predecessor’s employees a right of first refusal.

What should federal contractors do now?

The rescission is only one among many actions expected from the incoming administration. Littler’s Workplace Policy Institute is watching these developments closely and will continue to keep our clients informed about significant developments. In the meantime, we encourage contractors with questions about their obligations under current and future contracts to work with experienced counsel.