Key Notes:

  • A federal judge has issued an injunction against implementation of the majority of the Fair Pay and Safe Workplaces Final Rule.
  • The rule’s requirements for disclosure of labor law violations by government contractors have been halted by the preliminary injunction issued October 24, 2016.
  • The Final Rule was set to take effect the next day.

A federal judge has issued an injunction against implementation of the controversial aspects of the Fair Pay and Safe Workplaces Final Rule, which was set to take effect October 25, 2016, amending the Federal Acquisition Regulation (FAR) to require the disclosure of certain labor law violations by covered government contractors and subcontractors. Judge Marcia Crone issued her ruling on October 24, 2016, in the Eastern District of Texas case Associated Builders and Contractors of Southeast Texas v. Anne Rung, Administrator, Office of Federal Procurement Policy, Office of Management and Budget, et al.

The judge issued a nationwide injunction against the Final Rule’s most significant (and controversial) provisions, the requirements that government contractors on covered contracts disclose information during the contract formation process, and during performance, relating to violations and alleged violations of specified labor laws.

The Final Rule, which implements Executive Order 13673 (issued by President Obama in 2014), would require contracting officers, in consultation with newly established “agency labor compliance advisors” (ALCAs), to consider disclosed violations, as well as mitigating factors and remedial measures, as part of a contracting officer’s responsibility determination and decision to award or extend a government contract. The Final Rule required covered government contractors to disclose any administrative or judicial finding that a contractor violated any of fourteen specified federal labor laws.

The court issued a preliminary injunction against implementation of those portions of Executive Order 13673, as implemented by the FAR Final Rule issued August 25, 2016, and the Final Guidance issued simultaneously by the Department of Labor (DOL), that would require reporting regarding labor law violations, as well as provisions that prohibit certain pre-dispute arbitration agreements.

Judge Crone based her decision on multiple independent grounds. The judge first ruled on federal preemption and executive authority issues. The judge found that “the public disclosure and disqualification requirements being imposed on federal contractors and subcontractors are nowhere found in or authorized by the statute on which the Executive Order, FAR Rule, and DOL Guidance relies, the Federal Property and Administrative Services Act.” The judge further found that the Executive Order, Final Rule, and DOL Guidance “explicitly conflict with those labor laws that already specify debarment procedures, after full hearings and final adjudications, for contractors who violate the requirements specifically directed at government contracting[.]” Mem. Order at 12-16.

In addition, the ruling stated that “even if federal agencies could properly disqualify government contractors based upon final administrative decisions, arbitration awards, and court orders enforcing one of the fourteen labor laws at issue, the Executive Order and FAR Rule . . . extend their reach far beyond those limited circumstances. The Order and Rule appear to conflict directly with every one of the labor laws they purport to invoke by permitting disqualification based solely upon ‘administrative merits determinations’ that are nothing more than allegations of fault asserted by agency employees and do not constitute final agency findings of any violation at all.” Id. at 16-17.

In addition to her findings relating to executive authority, the judge ruled that the Executive Order, Final Rule, and DOL Guidance violate the First Amendment. The judge found that there is merit to the contention that a bidder on a solicitation subject to the new FAR Rule would suffer infringement of First Amendment rights in the form of “compelled speech.” “This is so,” wrote the judge, because of the “immediate disclosure requirement that obligates federal contractors and their subcontractors for the first time to report for public disclosure any ‘violations’ of the fourteen federal labor laws occurring since October 25, 2015, regardless of whether such alleged violations occurred while performing government contracts, and without regard to whether such violations have been finally adjudicated after a hearing or settled without a hearing, or even occurred at all.” Id. at 17-22.

The judge noted that government compulsion of speech has repeatedly been found to violate the Constitution. But the Executive Order’s “unprecedented requirement, as implemented . . . 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.” Id. at 18. The judge found that it is “settled in this circuit that government contractors are entitled to the same First Amendment protections as other citizens.” Id. at 21.

As a third independent ground, the judge ruled that the Final Rule violates due process rights, by compelling government contractors “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.” Id. at 22-24.

As a fourth independent ground, the judge found, under the Administrative Procedures Act, the Final Rule is arbitrary and capricious because the FAR Council and DOL have “failed to give an adequate explanation for imposing the drastic new requirements set forth in the Rule and Guidance.” Id. at 24-27.

The judge also found that the Final Rule’s arbitration restrictions violate the Federal Arbitration Act. However, the judge did not issue an injunction against the Final Rule’s separate requirements for paycheck transparency, which take effect January 1, 2017, providing that covered contractors and subcontractors must provide certain wage statements every pay period to all workers on a covered contract. Id. at 27-31.

As a result of this ruling from the Eastern District of Texas, the status quo should remain in place indefinitely with respect to the Final Rule’s disclosure requirements, which are suspended from implementation. The case will proceed and inevitably, will be appealed. For now, government contractors have a temporary but welcome reprieve from the Final Rule’s burdensome and most controversial requirements.