Companies that win government contracts are now required to offer employment to its predecessor’s employees, according to a new rule by the Labor Department.

The new rule covers service contracts valued at more than $150,000 and also applies to subcontractors. The Labor Department estimates that 40,000 contractors and subcontractors will be subject to the rule annually, which is based on 2006 federal procurement data.

The rule originated from a 2009 executive order issued by President Obama seeking to reduce disruption during a contractor transition and retain experienced workers. Under the rule, federal contracting officers will help determine which employees would stay on their jobs when contracted work changes hands.

During public comments, Navy and Air Force officials said the rule presents challenges for federal contract officials, since they must help decide which contractors are selected and they often don’t know or work with contractor employees said Navy labor adviser Frank Dean.

Plus, complications could arise if a new contractor is forced to hire a predecessor’s employees and then he/she performs poorly, said Patrick Rhode, chief of the Air Force Installations and Sourcing Division. In this situation, a contractor could potentially argue that the poor performance was the result of employees it was forced to hire, instead of claiming responsibility, he said.

Opponents of the rule include the Professional Services Council (PSC), TechAmerica and the U.S. Chamber of Commerce, who told the Labor Department that the rule limits a contractor’s ability to make sweeping changes that may be needed and potentially guarantees work for some poor-performing employees.

While the rule allows the successor contractor to not grant employment to an incumbent employee with evidence of past performance, the outgoing contractor may not provide adequate performance information due to employee privacy rights or corporate liability issues said Alan Chvotkin, PSC executive vice president, to Federal Times.