On the eve of the effective date, a federal judge granted a nationwide preliminary injunction, stopping implementation of the majority of the Fair Pay & Safe Workplaces Rule. As my colleague Jon Yarbrough recently reported, the Associated Builders and Contractors of Southeast Texas filed suit in federal court in Texas seeking to prevent these onerous obligations from going into effect. They could not have asked for a much better outcome.

Executive Order 13673 and its implementing regulations (the FAR Council’s Final Rule and the Department of Labor’s Final Guidance) require federal contractors to report 14 different labor law violations when bidding on contracts. (For a detailed review of the Rule’s requirements, see our prior summary.) The purpose of this mandate is purportedly to ensure that the government is doing business only with responsible and ethical companies.

But U.S. District Judge Marcia A. Crone noted the fallacies behind this argument and ruled that the Association was likely to succeed on each argument against the disclosure requirements. Specifically, Judge Crone found that the Executive Order and regulations

✔ are pre-empted by other federal labor laws

The Executive Order, FAR Rule, and DOL Guidance arrogate to contracting agencies the authority to require contractors to report for public disclosure mere allegations of labor law violations, and then to disqualify or require contractors to enter into premature labor compliance agreements based on their alleged violations of such laws in order to obtain or retain federal contracts. By these actions, the Executive Branch appears to have departed from Congress’ explicit instructions dictating how violations of the labor law statutes are to be addressed.

✔ violate the First Amendment

The Order, Rule, and Guidance compel government contractors to “publicly condemn” themselves by stating that they have violated one or more labor or employment laws. The reports must be filed with regard to merely alleged violations, which the contractor may be vigorously contesting or has instead chosen to settle without an admission of guilt, and, therefore, without a hearing or final adjudication. The disclosures are not “narrowly tailored” but are instead much broader than required to achieve the Executive Order’s stated interest of disclosing matters demonstrating lack of integrity and business ethics. By the DOL’s own admission, many of the reporting violations will not be used to make that determination.

✔ violate contractors’ due process rights

The FAR Rule disregards government contractors’ due process rights, however, by directing contracting officers to consider as potentially disqualifying any violations that have been found by an administrative agency (or court), including those determinations that have not yet been contested in a hearing or judicially reviewed.

✔ are arbitrary and capricious in violation of the Administrative Procedure Act

It is unclear how the concededly inexpert contracting officers, in conjunction with the newly created and questionably qualified ALCAs, can be expected to review what are expected to be significant numbers of administrative merits determinations (along with arbitration awards and court decisions), relating to esoteric fields of labor law that neither the contracting officers nor the ALCAs appear to be trained to administer. All of this is to occur within a three-day period, with some limited extensions, so as not to slow down the procurement process. Yet, it is apparent from the face of the FAR Rule and DOL Guidance that the examination and analysis of the necessary documents, administrative agency rulings, and contractor responses thereto and the preparation of written reports regarding the impact on contractor responsibility must certainly take substantially longer than three days to accomplish.

In enjoining the government from enforcing these requirements, Judge Crone noted that the violations to be reported by federal contractors “may not be final decisions or determinations, are not confined to performance of past contracts, and/or have not been preceded by a hearing or been made subject to judicial review.” As examples, Judge Crone observed that the General Counsel of the National Labor Relations Board issues more than 1,200 unfair labor practice complaints a year, but that many are dismissed by an administrative law judge or the National Labor Relations Board, or are denied enforcement by U.S. courts of appeal. Further, a “significant percentage” of cases pursued by the Equal Employment Opportunity Commission are “ultimately found to lack merit,” Judge Crone said.

The Order also questioned the ability of the federal government to meet its own obligations under the Rule. The newly created “Agency Labor Compliance Advisor” positions – those individuals responsible for advising contracting officers on the impact of contractors’ labor law violations – have no specific qualification requirements and would be ill-equipped to provide guidance within the three-day review period for each contractor’s bid. Moreover, Congress failed to provide funds for the U.S. Department of Labor’s Office of Labor Compliance, which would train the Advisors. The government has acknowledged that the electronic portal for entering the information on labor law violations was not yet operational.

Judge Crone also enjoined enforcement of the prohibition on some pre-dispute arbitration agreements in Executive Order 13673.

In one small victory for the government, the paycheck transparency requirements were not enjoined and are still slated to go into effect on January 1. Contractors should review their paycheck stubs to ensure that all required information is included, or update them accordingly.

Although Judge Crone’s decision is very welcome news for all federal contractors, it should be noted that the grant of a preliminary injunction is just that: preliminary. The government can appeal Judge Crone’s decision. Even if the government does not appeal, or if the government loses on appeal, the case will continue to be litigated, and the court will eventually have to make a decision on whether to enter a permanent injunction, which would invalidate the rule once and for all. It may be many months before a decision is made on a permanent injunction.

We will continue to monitor the status of this pending litigation and report on any significant changes to federal contractors’ obligations.