Hours before the Fair Pay and Safe Workplaces final regulations were to take effect, the U.S. District Court for the Eastern District of Texas issued a preliminary injunction to block most of the regulations, including the contentious disclosure provisions.  In a 32-page order, Judge Marcia Crone enjoined two key sections of the regulations: (1) the requirement that federal contractors and subcontractors monitor and disclose violations of 14 federal labor laws and certain state laws; and (2) the prohibition on mandatory arbitration of claims arising under Title VII or involving claims of sexual assault or harassment.  The court left in place the “paycheck transparency” section of the regulations, which will take effect on January 1, 2017.  Relying on recent Fifth Circuit precedent that enjoined the Administration’s immigration policy nationwide, the court stated that this injunction also applied on a nationwide basis.

The court needed just a few pages to dispense with the mandatory arbitration provisions, holding that those regulations impermissibly conflicted with the pro-arbitration policy articulated in the Federal Arbitration Act (“FAA”).  The court noted that Congress may—by statute—prohibit mandatory arbitration in certain instances, as it did with respect to contractors dealing with the Department of Defense through the so-called Franken Amendment.  The Executive Branch, however, does not have the same prerogative as the legislature to countermand the FAA.

The disclosure obligations fared much worse.  In sharp language, the court criticized the breadth of the reporting obligations and the disconnect between the vast authority vested in agency labor compliance advisors and their limited experience with labor law.  Since the President issued the underlying Executive Order in 2014, commentators have challenged the decision to require contractors and subcontractors to disclose a wide range of “administrative merits determinations” relating to the covered labor laws.  That term had not been defined in prior laws, and the Labor Department’s guidance swept in a wide array of administrative actions, including some actions that bear more resemblance to a complaint than to a final judgment.  The court characterized these as “merely alleged violations” and “mere non-adjudicated, unresolved allegations of labor law,” and held that the obligation to disclose them exceeded the Executive Branch’s legal authority, represented arbitrary and capricious agency action, violated the First Amendment by unconstitutionally forcing contractors to engage in compelled speech, and violated contractors’ constitutional rights to due process.

Despite this temporary relief, federal contractors and subcontractors should still continue planning for potential future implementation of Fair Pay and Safe Workplaces rules.  The court’s analysis was focused heavily on the breadth of the definition of “administrative merits determinations,” so a more narrowly tailored disclosure regime—perhaps limited to final, adjudicated labor law violations—might survive. The final regulations establish October 25, 2015 as the baseline date for the look-back period during which contractors and subcontractors must initially report labor law violations. Although the baseline could shift later if litigation is lengthy, that structure suggests that eventual implementation will not simply be prospective.  In other words, contractors should plan for some amount of look-back analysis whenever the regulations take effect.

Litigation in federal court is complex, and could take months or years to reach final resolution.  Contractors and subcontractors should use this additional time to ensure that they have procedures in place to track and monitor labor law issues, and should be prepared to shift back to implementation mode once this litigation is resolved.