The Government Loses Round 1

October 26, 2016

By Jon A. Geier, Kenneth W. Gage & Tammy R. Daub

On Monday, the contractor community received at least a temporary reprieve from some of the requirements of Fair Pay and Safe Workplaces, which were set to take effect yesterday. In a last minute ruling on October 24, 2016, the United States District Court for the Eastern District of Texas granted Associated Builders and Contractors Inc. and the National Association of Security Companies’ motion for a preliminary injunction, in part, and preliminarily enjoined portions of the Federal Acquisition Regulatory Council’s Fair Pay and Safe Workplaces final rule (“FAR Rule”) and the Department of Labor’s accompanying guidance (“DOL Guidance”). Specifically, the order blocks those provisions that impose labor law violation reporting requirements on government contractors and subcontractors, as well as those that prohibit the use of pre-dispute arbitration agreements for claims under Title VII of the Civil Rights Act and for torts based on sexual assault or harassment. The pay transparency requirement, which is effective January 1, 2017 for covered contractors, remains intact. See Associated Builders and Contractors of Southeast Texas et al. v. Rung et al., Case number 1:16-cv-00425 (E.D. TX). For an extensive discussion of the FPSW see our client alert Going Out with a Roar: Final Regulations and Guidance Issued Under Fair Pay and Safe Workplaces Executive Order.

The labor law disclosure portion of the FAR Rule and DOL Guidance (sometimes referred to as the “blacklisting rules”) are highly controversial. These provisions require, among other things, federal contractors with a contract in excess of $500,000 to disclose violations of 14 federal labor and employment laws.

In their Complaint, the plaintiffs challenged the Executive Order, FAR Rule, and DOL Guidance on multiple independent grounds, each of which was found compelling enough for the court to conclude that the plaintiffs were likely to succeed on the merits. First, the court agreed with Plaintiffs that the Executive Order, FAR Rule, and DOL Guidance appear to exceed the President’s, FAR Council’s, and DOL’s authority and are otherwise preempted by other federal labor laws. Second, the court found merit in Plaintiffs’ contention that any bidder on a solicitation occurring after the FAR rule becomes effective will suffer an infringement of their First Amendment rights in the form of “compelled speech.” Third, the court held that the Executive Order, FAR Rule, and DOL Guidance likely violate the due process rights of contractors by compelling them to report and face adverse consequences from non-final agency allegations of labor law violations without first being entitled to a hearing:

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.

Fourth, the court agreed that the FAR Rule and DOL Guidance appear to be arbitrary and capricious and entitled to no deference. Finally, the court agreed that the Executive Order and FAR Rule are inconsistent with the Federal Arbitration Act, inasmuch as they preclude the use of pre-dispute arbitration agreements.

Furthermore, according to Judge Crone, Plaintiffs have demonstrated that they will suffer irreparable harm in the absence of immediate relief, that the balance of harms favored Plaintiffs, and that the public interest supports issuance of an injunction to maintain the status quo pending a final decision on the merits.

There are many rounds yet to fight in this litigation battle and we will continue to update you with developments.

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