The court preliminarily blocks the Fair Pay and Safe Workplaces’ (FPSW’s) disclosure requirements and arbitration restrictions, providing some relief for federal contractors.

On October 24, the US District Court for the Eastern District of Texas preliminarily enjoined several onerous and controversial aspects of Executive Order 13673, Fair Pay and Safe Workplaces (the Order).[1] The injunction applies nationwide. The enjoined Order and the related Federal Acquisition Regulatory Council final rule (FAR Rule) and the US Department of Labor final guidance (DOL Guidance) collectively have three primary components, which impose extensive and burdensome requirements on covered federal contractors:

  1. Federal contractors must report to the government-specified labor law violations as part of the bid process as well as after a contract is awarded (reporting obligations).
  2. Federal Contractors many not enter into predispute agreements prohibiting arbitration of employees’ and independent contractors’ claims arising under Title VII or any tort related to or arising out of sexual assault or harassment (arbitration prohibition).
  3. Federal contractors must provide certain wage, Fair Labor Standards Act status, and independent contractor–related notices to employees and independent contractors (paycheck transparency requirements).

Our prior LawFlash regarding the Order, FAR Rule, and DOL Guidance discusses these components in detail.

View our checklist that summarizes the substance, scope, effective date, and status of these components.

The court’s injunction indefinitely blocks the reporting obligations and arbitration prohibition but leaves in place the paycheck transparency requirements. The reporting obligations were scheduled to take effect October 25, 2016, for new contracts valued at $50 million or more, with later effective dates for smaller contracts and subcontracts. The arbitration prohibition was also scheduled to take effect on October 25, 2016. The paycheck transparency requirements, which remain in place, take effect January 1, 2017.

The lawsuit, brought by certain state and national trade associations, contends (among other arguments) that

  • the 14 federal labor laws that trigger labor violation reporting obligations under the FAR Rule preempt the Order, FAR Rule, and DOL Guidance;[2]
  • the reporting requirements constitute impermissible compelled speech under the First Amendment;
  • the reporting requirements violate contractors’ due process rights by compelling them to report nonfinal labor law decisions prior to a hearing to contest such decisions;
  • the reporting requirements are arbitrary and capricious because the requirements are complex, cumbersome, and costly without any quantifiable benefits; and
  • the arbitration prohibition violates the Federal Arbitration Act’s mandate that courts enforce arbitration agreements according to their terms.

Ruling in the plaintiffs’ favor, the court concluded that they were likely to prevail on each of these five arguments.

At this stage, the injunction is temporary, with no fixed end date. Additional litigation is expected, particularly briefing and a hearing regarding whether to permanently block the reporting obligations and arbitration prohibition, which the court has not yet scheduled. A permanent injunction decision is not likely for many months, if not years, down the road. Government appeals are also expected.

Federal contractors should monitor this matter as it makes its way through the courts. Although the reporting obligations and arbitration prohibition may still take effect at some point in the future, federal contractors have a reprieve and may preserve some compliance resources for now. Federal contractors should, however, review any future solicitations to ensure that they do not include the reporting obligations and arbitration prohibition clauses and object to any solicitations that contain these clauses while the injunction is in effect. In addition, federal contractors should continue to monitor contracts for Defense Federal Acquisition Regulation Supplement Clause 252.222-7006, Restrictions on the Use of Mandatory Arbitration Agreements, which implements the Franken Amendment and independently imposes the prohibition on predispute arbitration agreements on US Department of Defense contractors through contracts in excess of $1 million for other than commercial items.