by Susan Warshaw Ebner, H. Juanita M. Beecher, and Sean Lee
A Texas federal district court judge has granted a nationwide preliminary injunction that blocks implementation of the Fair Pay and Safe Workplaces rule’s requirements that federal contractors report labor law violations, that the government consider such disclosures when awarding contracts, and that contractors include certain restrictions in their arbitration programs. The injunction doesn’t affect Executive Order 13673’s “paycheck transparency” requirements, which will take effect as scheduled on January 1, 2017. The court strongly criticized the Executive Order and the final rule as “complex, cumbersome, and costly . . . without quantifiable benefits.” 
Judge highly skeptical of the final rule
On October 24, 2016, Judge Marcia A. Crone issued a nationwide preliminary injunction in Associated Builders and Contractors of Southeast Texas v. Rung (E.D. Texas, No. 1:16-CV-425), blocking the implementation of the Fair Pay and Safe Workplaces final rule. Specifically, the injunction blocks the rule’s provisions requiring that contractors self-disclose labor law “violations,” that those mandated disclosures be assessed and considered in making government contractor responsibility determinations, and that contractors eliminate provisions in their arbitration agreements restricting lawsuits under Title VII of the Civil Rights Act of 1964 or claims of sexual assault. The injunction doesn’t affect the Executive Order’s “paycheck transparency” requirements, which will take effect as scheduled on January 1.
The injunction was granted in the nick of time for federal contractors—just one day before the self-disclosure and arbitration requirements were scheduled to take effect. The preliminary injunction will last until a final decision is reached in the case, although the government will likely ask the judge to reconsider her ruling and will ultimately appeal to the U.S. Court of Appeals for the 5th Circuit and possibly even the U.S. Supreme Court. If the injunction is upheld, it remains to be seen whether the government will attempt to revise and significantly reduce the scope of the rule to address the multiple legal and constitutional shortcomings cited by the judge in her decision.
Finding that the contractors demonstrated both a “substantial likelihood of success on the merits of their case” and a risk of irreparable injury, the court heaped derision on the Executive Order, the final Federal Acquisition Regulation (FAR) rule, and the U.S. Department of Labor’s (DOL) guidance, noting they:
- Imposed “complex, cumbersome, and costly requirements . . . which hamper efficiency without quantifiable benefits”;
- Violated contractors’ First Amendment rights by forcing them to “publicly condemn” themselves for allegations that may ultimately have no merit;
- Violated contractors’ due-process rights by forcing them to report and defend against nonfinal agency allegations without a hearing;
- Exceeded the congressionally established administrative structure and limited remedies available under the identified labor laws, and
- Violated the Federal Arbitration Act (FAA).
The court repudiated the new class of reportable “administrative merits determinations” as “nothing more than allegations of fault asserted by agency employees [that] do not constitute final agency findings of any violation at all.”
The court’s injunction “to preserve the status quo and temporarily retain the same rules and guidelines in effect for government contractor selection that have been in place for decades” pending a final decision is the latest by a Texas federal district court barring implementation of a controversial labor regulation. In June, the U.S. District Court for the Northern District of Texas blocked the DOL’s “persuader rule.” A challenge to the DOL’s new overtime regulations is currently pending in the U.S. District Court for the Eastern District of Texas.
Next steps
Although the rule has been enjoined, there is still much that contractors must do. Existing rules and guidelines for contractor selection continue to allow the government to consider labor law violations when appropriate. If you have a labor law violation, consider how best to address it in the near term and examine whether your organization has systemic issues that need to be addressed in the long term.
The paycheck transparency rules go into effect on January 1. If you haven’t already started, get positioned to provide the necessary information (including hours worked and rate of pay) with paychecks issued on or after that date and to give exempt employees or independent contractors the required notice about their exempt status.
Susan Warshaw Ebner is a Shareholder at Fortney & Scott, LLC, where her practice concentrates on advising and representing businesses, as well as non-profit, academe and consortium clients on a broad spectrum of Federal, state and local government procurement matters. She may be contacted at sebner@fortneyscott.com. 
H. Juanita M. Beecher is a nationally-recognized expert on Office of Federal Contract Compliance Programs (OFCCP) and U.S. Equal Employment Opportunity Commission (EEOC) matters. She is Counsel to Fortney & Scott, LLC with a focus on OFCCP regulatory affairs. She may be contacted at nbeecher@fortneyscott.com
Sean Lee is an associate with Fortney & Scott, LLC, where his practice covers a broad spectrum of workplace-related matters. He can be reached at slee@fortneyscott.com.