Blacklisting Rule Halted Ahead of Effective Date

The so-called blacklisting rule will not take effect on October 25, 2016 as planned. A federal district court Monday night granted a request to temporarily halt the regulation requiring federal contractors to report employment law violations to agencies that award contracts (Associated Builders and Contractors of Southeast Texas, et al. v. Rung, No. 1:16-cv-00425 (E.D. Texas, Oct. 24, 2016)).

“This is a huge win for contractors because most of them are just not prepared,” said H. Juanita Beecher, of counsel with Fortney & Scott. “Federal contractors should be very pleased.”

Background

Rules from the Federal Acquisition Regulatory (FAR) Council and a guidance from the U.S. Department of Labor (DOL) were scheduled to take effect in several phases, the first happening on October 25. (For details on the regulation, see Regs for Fair Pay and Safe Workplaces Executive Order Finalized and Final ‘Blacklisting’ Rule and Guidance Published: What Employers Need to Know.)

Associated Builders and Contractors of Southeast Texas filed a suit challenging the rule and on October 13, asked the U.S. District Court of the Eastern District of Texas for a preliminary injunction that would prevent the government from implementing or enforcing the rule. The plaintiffs said the rule was arbitrary and capricious and would cause irreparable harm to employers.

In a reply, the White House’s Office of Management and Budget said that the plaintiffs’ suit is unlikely to succeed later on the merits and that they did not demonstrate a substantial threat of irreparable harm, as is required for an injunction.

The court granted—in part—the request for a preliminary injunction.

“[T]he public disclosure and disqualification requirements being imposed on federal contractors and subcontractors are nowhere found in or authorized by the statute on which the Executive Order, FAR rule, and DOL Guidance relies,” Judge Marcia A. Crone write.

Moreover, none of the laws involved (like the Fair Labor Standards Act, Title VII, and the Americans with Disabilities Act) provide for debarment or disqualification of contractors for violations of their provisions, she said.

Also, in delegating disqualification responsibilities to contracting agencies, “the Executive Branch appears to have departed from Congress’s explicit instructions dictating how violations of the labor law statutes are to be addressed,” Crone added.

The judge also said the plaintiffs may be correct that the rules are arbitrary and capricious, noting that FAR and DOL “failed to give an adequate explanation for imposing the drastic new requirements.”

Crone, however, left intact the rules’ “paycheck transparency” requirements, which, according to DOL, require employers to provide wage statements detailing employees’ hours worked, overtime hours, pay and any additions made to or deductions made from pay. The provision requires contractors to inform an individual in writing if he or she is being treated as an independent contractor.

The plaintiffs failed to show that they likely would succeed on the merits of the paycheck transparency claim and that they would suffer irreparable harm from the provision, which doesn’t take effect until January 1, 2017.

Employer Takeaway

The National Employment Law Project, an employee advocacy organization, said that the order merely delays implementation of the Executive Order. “Historically, presidents from both parties have issued numerous executive orders affecting federal contracting during their terms in office. Ultimately, the courts have upheld nearly all these orders,” the organization’s Executive Director, Christine Owens, said in a statement.

Beecher, however, said that Crone’s order took DOL to task, calling her words “brutal.” The court may even ultimately determine that the executive branch overstepped its authority. “You can’t do what they were trying to do by executive order; you have to go back to Congress. How you get debarred is already spelled out in the law,” she said, adding that even if the case makes its way to the appellate level, it will be heard in the conservative 5th Circuit.

As for today, the order means that employers can hold off on compliance with everything except the paycheck transparency requirement. Stakeholders had argued that payroll companies aren’t yet able to accommodate that new requirement but Crone apparently didn’t think that warranted an injunction, Beecher said.

Regardless, she said, “it was a complete victory for federal contractors.”