In an order issued on Monday, Oct. 24, 2016, a U.S. District Court in Texas granted a preliminary injunction sought by a local chapter of the Associated Builders and Contractors and related parties barring, for the present, enforcement of the two most important provisions of the Fair Pay and Safe Workplaces (“FPSW”) regulations. These were scheduled to take effect on Oct. 25, 2016.

First, the court barred enforcement of the portion of the FPSW regulations that would have required federal contractors of all types seeking contracts with a value in excess of $500,000 to self-report a myriad of labor and employment administrative and civil merits decisions into a publicly available, federally operated database to be known as the System for Award Management (“SAM”).

Second, the court also barred the provision of the FPSW regulations which would have contractors engaged in contracts which exceed $1 million to agree that they would not compel employees to arbitrate Title VII claims or torts relating to sexual assault or harassment unless such agreements are entered into voluntarily after such disputes arise. That policy clearly conflicts with several recent U.S. Supreme Court decisions authored by the late Justice Scalia which strongly favored arbitration.

The court found that “Plaintiffs have demonstrated a substantial likelihood of success on the merits as to these claims; they have shown irreparable harm in the absence of immediate relief; the balance of harms favors Plaintiffs; and the public interest supports issuance of an injunction to maintain the status quo of many decades pending a final decision on the merits.”

Note, the court’s order leaves in place two lesser components of the regulations that require federal contractors to: (1) provide employees with wage statements that report hours worked, overtime hours, pay, and any additions to or deductions from their pay, and; (2) inform workers classified as independent contractors in writing of their status. We summarized the requirements of the FPSW regulations in our Oct. 12, advisory.

The court specifically decided that its injunction should apply indefinitely on a nationwide basis, similar to the manner in which the courts enjoined the U.S. Department of Labor’s new persuader regulations last spring.

The FPSW regulations, had they taken effect, required reporting of administrative merits determinations, arbitral awards, or decisions and civil judgments against a prospective federal contractor within the preceding three years under fourteen federal statutes and executive orders and analogous state laws. The court expressed concerns that “the ‘violations’ that require reporting may not be final decisions or determinations, are not confined to performance of past government contracts, and/or have not been preceded by a hearing or been made subject to judicial review.”

In issuing the injunction, the primary concerns expressed by the court were: 

1. Many of the reportable occurrences involved events other than final determinations. The court provided a detailed listing of events under the National Labor Relations Act, Fair Labor Standards Act, Occupational Safety and Health Act, Family and Medical Leave Act, and the EEOC enforcement of anti-discrimination laws that amounted to nothing more than initial charging documents.

2. Much of the enforcement burden is placed on new agency employees to be known as “agency labor compliance advisors” (“ACLA”). ACLAs are required to analyze this wealth of new data within 3 days and make recommendations to contracting officers. The rules do not identify any specific qualifications for ALCAs and the government admitted that they need not be lawyers or trained to a level of expertise necessary to analyze and make recommendations as to the nature or severity of the “violations” at issues.

3. The regulations require ACLAs to assign one of five rankings to each proposer within the 3-day time window. One is a green light, three require negotiation of labor compliance agreements at some point in time, and the last is a no award recommendation. Contracting officers need to consider the ACLAs’ recommendations only if timely received. Those portions of the rule introduce the potential for delay as labor compliance agreements are negotiated.

4. The Regulatory Impact Analysis (“RIA”) accompanying the regulations calculated costs of $458,352,949 imposed on contractors/subcontractors and $15,772,150 imposed on the government for the first year of the implementation of the new requirements, with second year costs of $413,733,272 for contractors/subcontractors and $10,129,299 for the government. On the other side of the equation, the court noted the RIA concluded, “In the final analysis, there were insufficient data to accurately quantify the benefits presented.”

5. Another troublesome area identified by the Court was that the FPSW regulations that conflicted with “unusually elaborate enforcement schemes” of virtually all of the 14 covered federal labor statutes. While noting that such interference was most egregious as it related to the NLRA for very particular structural reasons, the court generally found that the rules improperly extended executive branch reach into areas already addressed by Congress.

6. The court also expressed concern that the FPSW regulations compelled speech in violation of the First Amendment. By requiring the disclosure of many administrative merits determinations, as well as preliminary and final determinations in otherwise private alternative forms of civil proceedings, the court stated the rule “thus compels contractors to engage in public speech on matters of considerable controversy adversely affecting their public reputations and thereby infringing on the contractors’ rights under the First Amendment.”

7. Finally, the court found the prohibition against mandatory, pre-dispute arbitration agreements with their employees or independent contractors on any matter arising under Title VII, as well as any tort related to or arising out of sexual assault or harassment problematic under the Federal Arbitration Act. In addition to the selective application of this prohibition, the government admitted at oral argument that it was intended to apply “not only on government contracts but also with regard to employees performing private work…”

At this time, it is inevitable that this lawsuit will proceed to a final decision on the merits. The timing of such a decision is impossible to predict. However, one possibility that seems reasonable is that plaintiffs may seek a final injunction based on the record presently before the court.