On October 24, 2016, a federal judge enjoined the U.S. government from enforcing certain provisions of the controversial Fair Pay and Safe Workplaces rule. The decision was handed down from Judge Marcia Crone in the U.S. District Court for the Eastern District of Texas the day before the rule's proposed effective date.

President Obama signed the Fair Pay and Safe Workplaces Executive Order in July 2014. On August 25, 2016, the Federal Acquisition Regulatory Council issued a rule to implement the Executive Order. The U.S. Department of Labor issued corresponding guidance on the same day. Judge Crone's decision in Associated Builders and Contractors of Southeast Texas v. Rung (ABC) is the result of a lawsuit filed by government contractors challenging the rule. Judge Crone preliminarily enjoined the federal government from enforcing the requirement that contractors disclose "violations" of labor laws and the prohibition on certain arbitration agreements. The government was not enjoined from enforcing the portion of the rule requiring contractors to provide employees with information about their pay.

Requirement to Disclose "Violations" of Labor Laws Halted

The Executive Order requires companies bidding on government contracts that exceed $500,000 to disclose "violations" of 14 identified Executive Orders and labor laws within the three-year period preceding the bid. The labor laws include the Fair Labor Standards Act, National Labor Relations Act, Occupational Safety and Health Act, Family and Medical Leave Act, Americans with Disabilities Act, Age Discrimination in Employment Act, and Title VII of the Civil Rights Act. The Executive Order opines that collecting this information is appropriate because contractors who "consistently adhere to labor laws are more likely to have workplace practices that enhance productivity and increase the likelihood of timely, predictable, and satisfactory delivery of goods and services to the Federal Government." New Agency Labor Compliance Advisors would assist in determining how or whether a contractor's "violations" of the law should affect the contractor's bid on the contract.

The rule defined "violations" very broadly to include, most controversially, non-final administrative merits determinations and cases settled without an admission of liability. The contractor community's criticism Executive Order is embodied by the fact that many referred to it as the "Blacklisting Executive Order." The federal contracting community took umbrage with the rule's expansive definition on several grounds in ABC, arguing that requiring them to disclose matters that were merely allegations and had not been proven in any manner exceeded executive authority, violated the First Amendment, and violated contractors' rights to due process. Judge Crone agreed that the contractors had a strong likelihood of prevailing on these claims, particularly noting the number of administrative merits determinations that are ultimately dismissed or found meritless. Accordingly, the court issued a preliminary injunction enjoining the federal government from enforcing the labor law "violation" reporting provisions of the Executive Order and rule.

Prohibition on Arbitration Agreements Halted

The Executive Order and Rule banned contractors who enter into contracts for non-commercial items over $1 million from requiring employees to enter into mandatory pre-dispute arbitration agreements for disputes arising under Title VII or sexual assault or harassment torts. (Though curiously, as Judge Crone pointed out, not to age or disability discrimination claims.) The Court enjoined the government from enforcing this prohibition, finding the contractors had a strong likelihood of prevailing on their argument that the prohibition violated the Federal Arbitration Act.

Paycheck Transparency Requirements Survive

A less-publicized portion of the Fair Pay and Safe Workplaces Executive Order requires covered contractors to provide pay-related information to employees working on covered federal contracts. Covered workers must receive a wage statement each pay period that identifies their hours worked, overtime hours, rate of pay, gross pay, and an itemized deduction of each addition to or deduction from gross pay. Employees who are classified as exempt from the Fair Labor Standards Act's overtime requirements do not need to receive a record of their hours worked, but the contractor must inform the employees of their exempt status. Similarly, federal contractors must provide independent contractors with a notice informing them that they are being treated as independent contractors. Judge Crone found that the contractors in ABC had not established a substantial likelihood of success challenging these paycheck transparency requirements, and that part of the rule remains in effect.

What Does This Mean?

Because of the court's ruling, the federal government will not be able to require contractors to disclose labor law "violations" or prohibit arbitration agreements as set forth in the Executive Order and rule. However, the ruling is only a preliminary injunction, and the government could appeal the ruling or amend the rule in order to directly address the court's concerns. Companies that do business with the government should assess whether their contracts subject them to the Fair Pay and Safe Workplaces requirements to begin with—only an estimated 20 percent of the federal contracting community has contracts that reach the threshold. Covered contractors should also review the wage statements currently provided to employees with their paychecks to ensure that the paycheck transparency requirements are met (for example, even if employees are paid biweekly or semimonthly, contractors must break down the information by week). Contractors may already be providing some or all of this information pursuant to state or local law.