A Win for Federal Contractors, Court Temporarily Enjoins Enforcement of Key "Blacklisting" Rule Provisions

Late in the day on Monday, October 24, 2016, a U.S. District Court Judge for the Eastern District of Texas granted a preliminary injunction against implementation of major and contentious provisions of the Fair Pay and Safe Workplaces Executive Order (E.O.), also known as the "blacklisting" rule. The injunction, requested by the Associated Builders and Contractors of Southeast Texas, the Associated Builders and Contractors national organization, and the National Association of Security Companies,1 will temporarily block implementation and enforcement of the E.O.'s (1) disclosure and disqualification requirements and (2) prohibition on pre-dispute arbitration agreements.

This controversial blacklisting rule requires federal contractors to disclose adverse findings and decisions related to their compliance with federal and state labor and employment laws, and empowers federal agencies to deny contracts to employers who are deemed to lack a satisfactory record of integrity and business ethics based on such disclosures.  The Federal Acquisition Regulatory (FAR) Council and the Department of Labor (DOL) issued a final rule and guidance to implement the E.O. on August 25, 2016. The main provisions at issue were slated to take effect on October 25, 2016.

Plaintiffs argued to the court that the disclosure requirements and related penalties were unlawful because:

  • The FAR Council, DOL and President exceeded their statutory and congressional authority by creating the rule.
  • The rule and its accompanying guidance are preempted by, or otherwise violate the plain language of, the 14 federal labor and employment laws that trigger reporting.
  • Conformity with the rule by contractors would cause compelled speech in violation of the First Amendment of the Constitution.
  • The final rule violates the Due Process Clause by disqualifying contractors based on labor law violations that are not final and have not been subject to adjudication or a hearing.
  • The rule is arbitrary and capricious because it upends significant amounts of established labor and employment law without offering a compelling reason.

Finding that the plaintiffs were likely to prevail on these arguments, the court enjoined implementation of the reporting requirements, which were scheduled to go into effect on October 25, 2016.

The Plaintiffs also argued that the E.O.'s ban on certain pre-dispute arbitration agreements violates the Federal Arbitration Act (FAA) because it forces contractors that enter into contracts for non-commercial items over $1 million to agree to not enter into mandatory pre-dispute arbitration agreements clauses with their workers for matters arising under Title VII of the Civil Rights Act or sexual assault and harassment claims. The FAA allows for these agreements, a fact that has been reinforced by Supreme Court precedent. 

Again, the court found the plaintiffs were likely to prevail and enjoined implementation of the arbitration bar, which also was scheduled to go into effect on October 25, 2016.

Further proceedings are expected and a final determination regarding the legality of the E.O. could take several years as the parties continue to argue the issues before the trial court and then seek appellate review.  Federal contractors are hoping that the injunction will remain in place pending an ultimate resolution of the issues.  For now, federal contractors should monitor further developments in the case, but can probably avoid significant investments in compliance efforts pending further judicial guidance. 

The paycheck fairness provisions of the E.O., which require contractors to include information regarding overtime pay and exempt status with each paycheck and to provide certain notices to independent contractors, have not been enjoined and are still scheduled to go into effect in connection with solicitations or contract amendments made on or after January 1, 2017.2

See Footnotes

1 The plaintiffs are represented in this action by Maury Baskin of Littler Mendelson.

 As lead counsel in the litigation, Littler Mendelson will keep its clients informed on any significant developments in the case as it proceeds towards final judgment or appeals.  For additional information contact Maury Baskin, Michael J. Lotito, Ilyse Schuman, Linda Jackson, or David Goldstein.

Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.