Introduction
The Department of Labor issued a final rule on December 22, 2025, rescinding regulations at 29 CFR Part 9. These regulations had implemented protections against the displacement of qualified workers on federal service contracts. The action stems from President Trump's Executive Order 14148, signed on January 20, 2025, which revoked Executive Order 14055 and directed agencies to dismantle related measures. Effective immediately on December 22, 2025, the rule removes requirements for successor contractors to offer right of first refusal to employees from predecessor contracts. This development marks a significant shift in federal contracting policy, potentially affecting thousands of service workers and contractors by streamlining hiring processes but raising concerns about job continuity in government-funded services. The rule bypasses traditional notice and comment procedures, justified by the Department as necessary due to the revocation of the underlying executive authority.
Background on Nondisplacement Protections
Executive Order 14055, issued on November 18, 2021, established nondisplacement protections for workers on federal service contracts covered by the McNamara-O'Hara Service Contract Act. It required successor contractors to offer qualified employees from the predecessor contract a right of first refusal for employment, aiming to prevent job loss during contract transitions. The Department of Labor promulgated implementing regulations at 29 CFR Part 9, published in the Federal Register on December 14, 2023. These rules applied to contracts above the simplified acquisition threshold and mandated actions such as providing employee lists and notices.
However, the regulations never fully took effect because the Federal Acquisition Regulatory Council did not issue corresponding rules in the Federal Acquisition Regulation. President Trump's Executive Order 14148, titled 'Initial Rescissions of Harmful Executive Orders and Actions,' explicitly revoked Executive Order 14055 among others. Published on January 28, 2025, it instructed agency heads to act swiftly to rescind related implementations. The Department of Labor cited this revocation as eliminating the sole authority for 29 CFR Part 9, rendering the regulations without legal basis.
Key players include President Trump, who initiated the revocation, and the Wage and Hour Division of the Department of Labor, responsible for the rescission. The Government Publishing Office facilitated the Federal Register publication, ensuring official dissemination.
Procedural Justification for the Rescission
The Department invoked exceptions under the Administrative Procedure Act to forgo notice and comment rulemaking. Section 553(b)(B) allows agencies to bypass these steps when they are unnecessary, as determined here because the regulations' authority no longer exists. The Department argued that public comments could not alter this fact, referencing court precedent like EME Homer City Generation, L.P. v. EPA, where similar dispensations were upheld. Additionally, Section 553(d) permits immediate effectiveness for good cause, which the Department applied, emphasizing that the rules were ultra vires post-revocation.
This approach aligns with deregulatory priorities outlined in Executive Order 14192, 'Unleashing Prosperity Through Deregulation.' The rescission is classified as a deregulatory action, with economic analysis highlighting reduced burdens on contractors and agencies.
Economic and Regulatory Impacts
The rule's economic analysis estimates impacts on up to 442,761 potentially affected firms, including those holding or bidding on Service Contract Act-covered contracts. Rule familiarization costs are projected at $8.01 million in the first year, based on 19 minutes of review time per firm at a loaded hourly wage of $57.10 for a compensation specialist.
Cost savings arise from eliminating implementation and recordkeeping requirements. Contractors avoid $8.54 million in tasks like incorporating contract clauses and providing notices, while federal agencies save $31.76 million from reduced administrative duties, such as ensuring employee notifications and handling complaints. Recordkeeping savings total $6.83 million, covering the avoidance of maintaining employee lists and offer documentation.
The analysis notes that the original regulations were never applicable due to the absence of Federal Acquisition Regulation implementation, minimizing reliance interests. It also addresses small businesses under the Regulatory Flexibility Act, estimating net cost savings of $4.28 million for up to 329,470 small firms.
For paperwork, the Department requested discontinuation of the associated information collection under Office of Management and Budget Control Number 1235-0033, as the requirements no longer apply.
Perspectives and Implications
From a contractor viewpoint, the rescission reduces administrative burdens, potentially lowering costs and enhancing flexibility in hiring. Government agencies benefit from streamlined processes, aligning with deregulatory goals to boost efficiency.
Workers and labor advocates may view this as a setback, removing safeguards against displacement and potentially increasing job instability in sectors like janitorial, security, and food services. Legal experts note the procedural bypass could invite challenges, though the Department's reliance on Administrative Procedure Act exceptions and judicial precedents strengthens its position.
Short-term implications include immediate relief from compliance for ongoing contracts, though the Department states no solicitations incorporated the prior rules. Long-term effects could involve shifts in labor markets for federal contracts, with possible increases in turnover but also opportunities for new entrants.
Forward-Looking Considerations
This rescission underscores a broader policy pivot toward deregulation in federal contracting. Key takeaways include the swift dismantling of prior labor protections and the emphasis on executive authority in shaping regulatory landscapes. Potential next steps may involve monitoring for legal challenges or congressional responses, as debates over worker protections in government contracts persist. Ongoing discussions could explore balancing efficiency with job security, influencing future executive actions or legislation in this area.
