Late in the evening of October 24, mere hours before the Fair Pay and Safe Workplaces Final Rule was scheduled to go into effect, a federal district court judge for the Eastern District of Texas issued a nationwide preliminary injunction prohibiting key provisions of the rule from taking effect. In the absence of an injunction, the so-called “blacklisting” rule would have mandated, among other requirements, that companies bidding on certain federal contracts and subcontracts publicly disclose information regarding “labor law violations” as part of the bidding process.

Background

In July 2014, President Obama issued an Executive Order with the stated purpose of ensuring that federal contractors and subcontractors (collectively, contractors) understand and comply with state and federal labor laws. As a result, on August 25, 2016, the Federal Acquisition Regulations (FAR) Council and the U.S. Department of Labor (DOL) issued the Fair Pay and Safe Workplaces Final Rule (the Rule) and associated guidance.

The cornerstone and most controversial part of the Rule is the requirement that federal contractors bidding on contracts valued at $500,000 or more publicly disclose “administrative merits determinations, civil judgments and arbitral awards or decisions” arising under labor laws from the three-year period prior to the bid. If a contractor discloses such labor law violations, it is required to provide additional information to executive agencies so that a contractor’s compliance with labor and employment law can be factored into the decision as to whether a company is a “responsible source” with a satisfactory record of integrity and business ethics worthy of receiving a federal contract.

The term “administrative merits determinations” is defined broadly; it includes agency findings issued after an investigation that a contractor violated one of 14 federal laws or analogous state laws, regardless of whether those agency findings have been adjudicated by an administrative law judge or a court and/or are appealable or subject to reversal. Among others, the Rule defines labor law violations to include OSHA citations, complaints issued by the NLRB General Counsel and reasonable cause determinations made by the EEOC, whether or not such violations occurred while performing a government contract.

This provision of the Rule caused great concern in the contractor community because non-final agency actions that are not a legal determination of liability could prevent a contractor from receiving a federal contract, effectively “blacklisting” otherwise qualified contractors.

In addition to the disclosure requirement, the Rule also bans contractors that enter into certain contracts of more than $1 million from requiring employees to agree to mandatory pre-dispute arbitration for claims arising under Title VII of the Civil Rights Act or torts related to sexual assault or sexual harassment. Finally, the Rule includes a number of “paycheck transparency” provisions that require contractors to provide employees with written wage statements and to provide overtime-exempt employees and independent contractors with written notice of their status.

Impact of the Injunction

Finding that the Executive Order exceeded the president’s authority and compelled companies to speak in violation of the First Amendment, Judge Marcia Crone enjoined the federal government from enforcing the portions of the Rule “relating to the new reporting and disclosure requirements regarding labor law violations” and “the restriction on arbitration agreements.” Judge Crone noted that the Rule likely violates contractors’ due process rights by requiring “them to report and defend against non-final agency allegations of labor law violations without being entitled to a hearing at which to contest such allegations.” The court did not enjoin the enforcement of the less controversial paycheck transparency provisions, which go into effect on January 1, 2017.

Pending a likely appeal to the U.S. Court of Appeals for the Fifth Circuit or amendment of the Rule, all employers conducting business with the federal government or a prime contractor of the federal government should monitor what will surely be an ongoing legal dispute. Although company human resources and procurement departments have always been somewhat intertwined due to the affirmative action requirements imposed by the DOL’s Office of Federal Contract Compliance Programs, the Rule links employee claims to the ability of contractors to operate their businesses successfully. Judge Crone’s decision permits contractors to breathe a temporary sigh of relief, but they should continue to keep abreast of the status of the Rule. And, of course, the interest in defending the Rule will depend upon the outcome of the upcoming presidential election.