On October 24, 2016, just one day prior to effective date of the Regulations and Guidance implementing the Fair Pay and Safe Workplaces Executive Order (collectively the “Rule”), Judge Marcia Crone of the U.S. District Court for the Eastern District of Texas enjoined the implementation of almost every provision of the Rule.  Specifically, Judge Crone enjoined the implementation of the Rule’s new labor law violation reporting requirements and the Rule’s arbitration agreement restrictions.  Judge Crone declined to enjoin the paycheck transparency provisions, which go into effect on January 1, 2017.

In granting the preliminary injunction, Judge Crone found that the Plaintiffs had established a likelihood of success on the merits on nearly all of their arguments.  With respect to the labor law disclosure obligations – which would require federal contractors with contracts valued at $500,000 or more to disclose various “labor law violations” – Judge Crone found that the Rule exceeded the authority provided to the Executive Branch and was preempted by other federal labor laws.  Judge Crone noted that the 14 federal labor laws covered by the Rule have their own remedial schemes, and most do not provide for debarment or disqualification of federal contractors.  Judge Crone found that the Rule’s dictates “have departed from Congress’s explicit instructions dictating how violations of the labor law statutes are to be addressed.”  Judge Crone noted that the Rule “appear[s] to conflict directly with every one of the labor laws [it] purport[s] to invoke by permitting disqualification based solely upon ‘administrative merits determinations’ that are nothing more than allegations of fault asserted by agency employees and do not constitute final agency findings of any violation at all.”  Judge Crone expressed concern about the prospect for disqualification based on such decisions because agencies issue numerous “administrative merits determinations” per year, “many of which are dismissed or significantly reduced after they are contested ….”

Judge Crone also found that the Rule’s labor law violation reporting requirements violate the First Amendment by compelling contractors to “report that they have violated one or more labor laws and to identify publicly the ‘labor law violated’ along with the case number and agency that has allegedly so found.”  Judge Crone found that this compulsion – particularly in light of the non-final nature of reportable administrative merits determinations – “compels contractors to engage in public speech on matters of considerable controversy adversely affecting their public reputations and thereby infringing on the contractors’ rights under the First Amendment.”  In addition, the Court found that the Rule’s reporting requirements violate the Due Process rights of contractors and are arbitrary and capricious.  Judge Crone found the Rule to be arbitrary and capricious because it would increase the burden and logjam of the contracting process, without any credible evidence that it provided additional protections to the government.

In addition to the reporting requirements, Judge Crone found that the Rule’s restrictions on pre-dispute arbitration agreements for Title VII claims and torts relating to sexual harassment or assault violate the Federal Arbitration Act (“FAA”). Judge Crone found that the FAA requires the government to honor private arbitration agreements unless otherwise dictated by Congress, and that no such congressional command exists in this case.

The only portion of the Rule to survive the Court’s rulings is the paycheck transparency obligations.  These provisions require contractors to include certain information regarding the hours worked, compensation and overtime on employees’ paychecks.  Those obligations go into effect on January 1, 2017.

Government contracts can – for now – breathe a sigh of relief as the Rule will not go into effect unless and until the preliminary injunction is lifted or reversed.  We will continue to monitor developments and report them to you here.