The Department of Labor (DOL) has issued a Final Rule effectively rescinding the regulations that mandated non-displacement of qualified workers under federal service contracts. This action, published in the Federal Register, formally removes the requirements established under the previous administration’s Executive Order 14055.
Background: The Non-displacement Rule
Previously, Executive Order 14055 and its implementing regulations (29 CFR Part 9) required successor federal contractors to offer a “right of first refusal” to qualified service employees of a predecessor contractor. The rule was intended to minimize disruption and maintain a skilled workforce during contract transitions by ensuring that existing employees were given the opportunity to retain their jobs.
Under these now-rescinded regulations, contractors were obligated to:
- Offer employment to qualified predecessor employees before hiring new workers.
- Provide a certified list of current employees to the contracting agency before the contract ended.
- Adhere to a 10-day window for employees to accept job offers.
Key Changes Under the Final Rule
Following the issuance of Executive Order 14148 on January 20, 2025, which revoked Executive Order 14055, the DOL has moved to align federal regulations with the new directive.
- Immediate Rescission. The rescission of 29 CFR Part 9 is effective as of December 22, 2025.
- Removal of Hiring Obligations. Successor contractors are no longer required by federal regulation to offer employment to the predecessor’s workforce.
- Increased Flexibility. Contractors now have greater autonomy to determine their staffing needs and are free to hire new employees without first prioritizing the previous contractor’s staff.
Next Steps for Employers
Federal contractors should take immediate steps to adjust their compliance strategies in light of this significant regulatory shift.
- Review Active and Pending Contracts: Examine current solicitations and contract awards to determine if the non-displacement clause is present. While the rule is rescinded, existing contract terms may require modification.
- Update Hiring Protocols: Revise recruitment strategies to reflect that the “right of first refusal” process is no longer a federal regulatory requirement.
- Communicate with Legal Counsel: Consult with employment counsel to understand how this rescission interacts with any state or local displacement laws that may still apply to your workforce.
- Monitor Agency Guidance: Monitor the agency website for specific instructions from contracting agencies regarding the removal of non-displacement clauses from existing contracts.
