On October 24, 2016, the mandatory disclosure and arbitration provisions of the Fair Pay and Safe Workplaces (“FPSW”) Regulations and Guidance were preliminarily enjoined by the United States District Court for the Eastern District of Texas in Associated Builders and Contractors of Southeast Texas v. Rung, No. 1:16-cv-425-MAC. The paycheck transparency provisions remain, unaltered and in full force, effective January 1, 2017.

As explained in Duane Morris’ prior Alert and white paper, the FPSW Regulations and Guidance impose a mandatory disclosure requirement on contractors and subcontractors to disclose to the government all “labor law violations” those companies had in the preceding three years for the government to use in making contractor responsibility determinations. The FPSW’s arbitration provisions effectively void company-wide arbitration plans (at least as they relate to Title VII and sexual harassment claims and those that are not part of collective bargaining agreements) for workers on federal projects and put the decision to arbitrate in the hands of the worker, but only after the worker has a claim. Finally, the paycheck transparency provisions require contractors and subcontractors to disclose specified wage and hour information in a written statement to accompany each employee’s paycheck.

U.S. District Court Judge Marcia A. Crone preliminarily enjoined the FPSW’s entire mandatory disclosure requirements, finding the regulations (1) are preempted by other federal labor laws; (2) improperly infringe a contractor’s First Amendment rights against “compelled speech”; (3) violate contractor Fifth Amendment rights “by compelling them to report and defend against non-final agency allegations of labor law violations without being entitled to a hearing at which to contest such allegations”; and (4) are arbitrary and capricious and entitled to no deference.

Judge Crone also preliminary enjoined the arbitration provisions of FPSW, holding that the regulations violate the Federal Arbitration Act and its “liberal federal policy favoring arbitration agreements.” The nearly identical Franken Amendment to the Department of Defense Appropriations Act of 2010 notwithstanding, the court found that the Federal Acquisition Regulatory Council “does not possess similar authority to modify Congressional enactments such as the FAA.”

While striking down the mandatory disclosure and arbitration provisions, the court did not enjoin any aspect of the FPSW paycheck transparency provisions, which are scheduled to become effective on January 1, 2017 as originally planned. See FAR §§ 22.2005, 52.222-60.

The court’s preliminary injunction is nationwide in scope and effect. Given the effort the Obama administration put into the FPSW Regulations and Guidance, the government will likely appeal any adverse decision to the U.S. Court of Appeals for the Fifth Circuit, and possibly beyond.

Although federal contractors and subcontractors have been given a reprieve from compliance with the FPSW’s mandatory disclosure or arbitration provisions, this issue will likely resurface in the near future.