On the eve of its effective date, a federal judge in Texas has enjoined most parts of the Federal Acquisition Regulatory (FAR) Council’s final rule implementing President Obama’s “Fair Pay and Safe Workplaces” executive order. The court’s Order in Associated Builders and Contractors of Southeast Texas et al. v. Rung et al., Case No. 1:16-cv-00425 (E.D. Tex. Oct. 24, 2016) blocks the reporting and arbitration agreement provisions, pending further litigation of the case; but, declines to enjoin the “paycheck transparency” provisions of the rule.

As outlined in greater detail here, the rule would require offerors on contracts or subcontracts estimated to exceed $500,000 to disclose “any administrative merits determination, arbitral award or decision, or civil judgment” against the contractor under fourteen enumerated labor and employment statutes and Executive Orders (“labor law violations”), for the three years preceding the contract bid. These disclosures, and any additional information supplied, would be taken into account by contracting officers in making responsibility determinations and awarding contracts.

In issuing the injunction, U.S. District Judge Marcia Crone asserted that Plaintiff’s enjoy a likelihood of success on the merits insofar as the implementation of this regulatory scheme exceeds the authority granted to the President and executive branch agencies. Not only do the named labor laws provide their own respective enforcement procedures and penalties, the Judge noted:

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.

The Judge found merit too in the Plaintiffs’ arguments that the rule violates a contractor or bidder’s First Amendment rights to be free from “compelled speech,” and their Due Process rights, including under the Fifth Amendment to the U.S. Constitution. The court found infringement of these constitutional rights sufficient to establish irreparable harm, while noting the government will suffer no harm by simply being required to continue to administer the procurement process in the same manner as it has for decades. Moreover, Judge Crone held that the rule’s prohibition against arbitration agreements likely conflicts with the Congressional enactments contained in the Federal Arbitration Act. Thus, all these provisions are enjoined by the Order.

Without much further detailed explanation, the Order simply indicates that the Plaintiffs failed to establish a substantial likelihood of success on their challenge to the paycheck transparency provisions, on the other hand, and thus, an injunction was denied as to that portion of the final rule. Accordingly, contractors should prepare for the January 1, 2017 effective date of those provisions barring further address by the court. These provisions of the final rule require the contractor to provide a wage statement document each pay period to each employee showing:

  • The total number of hours worked in the pay period;
  • The number of those hours that were overtime hours;
  • The rate of pay;
  • The gross pay; and
  • Any additions or deductions, itemized and separately identified.

Moreover, if the contractor is treating an individual performing work as an “independent contractor” as opposed to an employee, the contractor must provide a separate written document to the individual notifying the individual of this classification by the contractor. The full text of the paycheck transparency provisions is located at Section 52.222-60 of the Federal Acquisition Regulation.