Employment and Labor and Government Contracts Update

On October 24, 2016, Judge Marcia A. Crone of the United States District Court for the Eastern District of Texas granted a preliminary injunction enjoining enforcement of several key provisions of the Federal Acquisition Regulations (FAR) and corresponding guidance from the United States Department of Labor (DOL) implementing President Obama’s 2014 Fair Pay and Safe Workplaces Executive Order. These rules and guidance (the Final Rule), published on August 25, 2016, would have far-reaching effects on employers with significant federal contracts. It requires them, among other things, to publicly disclose—and be potentially disqualified from bidding as a result of—prior violations of any of 14 different federal labor and employment laws, plus equivalent state laws, whether or not such violations occurred in relation to the performance of government contract work. The Final Rule also prohibited pre-dispute arbitration agreements regarding matters arising under Title VII of the Civil Rights Act of 1964 and torts based on sexual assault or harassment. Both of these requirements have now been enjoined.

The court found the rule to be overbroad with respect to the reporting of prior violations. In particular, it requires the disclosure of administrative merits determinations, which the court regarded as “nothing more than allegations of fault asserted by agency employees and do not constitute final agency findings of any violation at all.” Moreover, the court observed that several federal acquisition statutes include specific procedural requirements that must be satisfied before debarment may occur, and consequently, “It defies reason that Congress gave explicit instructions to suspend or debar government contractors who violate these government-specific labor laws only after a full hearing and final decision, but intended to leave the door open to government agencies to disqualify contractors from individual contract awards without any of these procedural protections.”

The court held that prohibiting pre-dispute arbitration provisions—even prospectively, as provided for in the Final Rule, with respect only to those employers who choose to bid on federal contracts in excess of $1,000,000—would violate the provisions of the Federal Arbitration Act, which requires enforcement of arbitration agreements. In the court’s words, the Final Rule’s prohibition on such agreements was impermissible, “in the absence of any congressional command that would override the requirement that arbitration agreements be enforced in accordance with their terms.”

The court concluded that the plaintiffs, various Texas and national trade associations, were likely to succeed on the merits and would have suffered irreparable injury if the provisions had gone into effect as scheduled on October 25, 2016. Although the provisions are thus “preliminarily enjoined,” the litigation continues. The defendants, the Office of Federal Procurement Policy and the Office of Management and Budget, must answer Plaintiffs’ complaint by December 12, 2016.

In the meantime, it is important to note that one portion of the Final Rule has not been enjoined. Federal contractors and subcontractors should be prepared to comply with the pay check transparency requirements of the Final Rule, which will go into effect on January 1, 2017. At that point, federal contractors and subcontractors will be required to provide wage statements to covered workers giving them information concerning their hours worked, overtime hours, pay and any additions or deductions made from their pay. In addition, the contractors and subcontractors must also provide written notice informing workers if they are exempt from overtime pay, and provide workers treated as independent contractors a document informing them of their independent contractor status.