Readers of this blog are well aware of President Obama’s Fair Pay and Safe Workplaces Executive Order (Executive Order 13673), which would require certain federal contractors and subcontractors to disclose alleged “violations” of a number of federal labor laws. That Order was set to go into effect on October 25, 2016 for prime contractors on solicitations and contracts estimated at $50 million or more. The Order was to be phased in for other contractors and subcontractors. On October 24, 2016, however, the Federal Court for the Eastern District of Texas (case no. 16-cv-00425-MAC) issued a preliminary injunction and enjoined enforcement of the bulk of the Order, effectively halting the onerous disclosure requirements. Portions of the Order dealing with paycheck disclosures, which are set to take effect on January 1, 2017, were not stayed.
The Court found several problems with the Order. First and foremost, the Court took issue with the Order’s requirement that contractors report “violations” that had not yet been conclusively adjudicated or that were still open to judicial review. Many of the predicate labor laws on which the “violations” were based – NLRA, FLSA, OSHA, etc. – have procedures in place whereby an employer can contest charges issued by the agency officer. While these initial charges were often modified, annulled, not enforced, or overturned by the agency or reviewing courts, they still had to be reported by the contractor before contractors had the opportunity to dispute them. The Court also noted that under prior law, contractors were already required to supply certain information relating to business integrity if those proceedings arose in the context of government contracting and reached final disposition.
Specifically, the Court found five independent grounds on which the plaintiff contractors were likely to succeed. It bears noting that the Court found that the contractors had shown a substantial likelihood of success on the merits, which is one of the prongs for granting a preliminary injunction. The case has not yet proceeded to a full trial on the merits, and the Court’s ruling is not final.
First, the Court noted that the disclosure and disqualification requirements are not authorized by statute, and thus the executive branch exceeded its rule-making authority. In line with this, the Court pointed out that Congress set forth detailed penalties for violations of the majority of the predicate labor laws, yet chose to omit from those penalties contractor debarment or responsibility determinations. The labor laws that do provide for contracting penalties do so only after a final adjudication with judicial review and contractors’ due process rights protected.
Second, the Court found that the Order violated the contractors’ First Amendment rights by compelling speech, and that such requirements were not narrowly tailored. Again, the Court looked to the fact that the Order required disclosure of alleged violations where there had been no final adjudication.
Third, the Court ruled that the disclosures violated the contractors’ due process rights by requiring them to report unproven allegations of labor law violations without providing the contractors a right to a hearing to contest the allegations. While contractors have due process rights under the substantive labor laws, the Order requires the government contracting officers to consider the potential violations in deciding on government awards without any due process procedures.
Fourth, the Court ruled that the government acted arbitrarily and capriciously by enacting the Order, which the Court described as cumbersome and potentially unworkable. The Court also questioned how contracting officers and their delegates could review significant numbers of administrative notices and decisions without training in the substantive fields that are the subject of their review. The Court also noted that the government had not shown that the Order would promote efficiency and economy in government contracting, but that it would significantly increase contractors’ costs.
Finally, the Court ruled that the Order, which also prohibited certain pre-dispute arbitration agreements concerning Title VII or sexual assault or harassment, overrode the Federal Arbitration Act’s requirement that courts enforce arbitration agreements in accordance with their terms.
It is likely this is merely the first step in an ongoing process. However, it is a good sign for those who do business with the federal government.