Texas Federal Judge Blocks Labor Violation Reporting Requirement of Fair Pay and Safe Workplaces rule (for now).

Contractors and subcontractors vying for federal government contracts were relieved of complying with a majority of the requirements of Executive Order 13673, the "Fair Pay and Safe Workplaces" rule, thanks to a nationwide preliminary injunction issued by U.S. District Judge Marcia Crone of the Eastern District of Texas on the eve of the new rule's implementation. The rule was supposed to take effect on October 25, 2016, but was halted by Judge Crone's determination that the rule explicitly conflicts with established federal labor law, and that it unconstitutionally compels speech by contractors in violation of their due process rights.  While the injunctive relief is a considerable triumph for the construction and security industry groups who advocated against the controversial rule, it is expected to be appealed by the government.

The 2014 Executive Order, and accompanying rule enacted by the Federal Acquisition Regulatory Counsel with regulatory guidance from the U.S. Department of Labor (the "DOL"), required all contractors bidding on government contracts that exceed $500,000 to disclose whether they have been subject to any administrative, arbitral, or judicial proceeding involving violations of substantive labor laws within the past three years. Such disclosures would include alleged violations of the Fair Labor Standards Act ("FLSA"), the Occupational Safety and Health Act of 1970 ("OSHA"), the National Labor Relations Act (“NLRA”), the Family and Medical Leave Act (the “FMLA”), Title VII; the Americans with Disabilities Act of 1990 (“ADA”), and the Age Discrimination in Employment Act of 1967 (“ADEA”), among others.

Referred to as the "blacklisting" rule by industry groups and trade associations, those disclosures would be considered by government contracting officers when determining whether to award or extend contracts, particularly when disclosed labor law violations show "serious, repeated, willful or pervasive" labor law violations. In effect, the rule forced contractors and prospective contractors to publicly declare whether they have faced allegations of labor violations, even those that have not been proven or fully adjudicated, and exposed them to the risk of potentially losing government-awarded contracts.  Among other things, the rule also restricted the availability of arbitration, which has been a popular forum for construction disputes under industry-specific rules developed by the American Arbitration Association.

In order to block the rule and underlying Executive Order from taking effect, the trade groups Associated Builders and Contractors, Inc. and National Association of Security Companies filed suit in early October 2016, in case number 1:16-cv-00425, in the U.S. District Court for the Eastern District of Texas. On October 24, 2016, the day before compliance with the rule was mandated, Judge Crone enjoined the government from enforcing the reporting requirements and the restrictions on the availability of arbitration.  Judge Crone agreed with the plaintiffs that the underlying Executive Order issued by President Barack Obama constituted an "unprecedented" overreach of executive authority over Congress' regulation of government contracts, and she declined to enable the power of federal agencies like the DOL to disqualify government contractors from bidding or performing contracts because established federal labor laws substantively govern how and when contractors can be disqualified.  The nationwide preliminary injunctions blocks implementation of the "blacklisting" reporting obligations and the restrictions on the availability of arbitration, but left intact the paycheck transparency provision of the rule, which requires contractors to provide wage statements to their workers.

Though advocates for industry groups in construction and security are relieved (for now) of their obligation to report labor law violations in their bids to the government, they are well-advised to continue planning for potential compliance with the rule, in the event that Judge Crone's ruling is reversed or narrowed on appeal. The DOL stated on October 25 that it is "confident that the rule and guidance are legally sound," and that it will continue to defend the rule's intent to "ensure compliance with basic labor standards, level the playing field for contractors that comply with the law, and promote responsible stewardship of taxpayer dollars."