On Oct. 24, 2016, a U.S. District Court issued a preliminary injunction restraining the U.S. Government from implementing the "Fair Pay and Safe Workplaces" Executive Order and the related Final Rule and Guidance (collectively, the "Order") issued in August of this year. Although certainly a win for federal contractors, the Government is widely expected to appeal the ruling and, even if unsuccessful in the appeal, may re-initiate the rulemaking process to craft requirements free of the defects found by the District Court. Additionally, the District Court left certain aspects of the Final Rule intact, necessitating minimum standards of compliance no matter the Order's ultimate requirements.
The Order was set to begin phased implementation on Oct. 25, 2016. Under the Final Rule, covered contractors would have been required to report "violations" – including non-final administrative determinations – of any of 15 categories of federal labor requirements and their state equivalents in order to compete for federal government contracts. Based on these disclosures, contracting officers were directed to make determinations regarding the contractor's responsibility based on the severity of the contractor's violation. This low threshold for disclosure, combined with the wide discretion afforded to contracting officers lacking expertise in labor law, led to widespread industry criticism that the Order amounted to little more than "blacklisting" in violation of contractors' free speech and due process rights. The Order would also have prohibited certain contractors from utilizing pre-dispute arbitration agreements covering Title VII claims and tort claims for sexual harassment/assault.
The District Court's preliminary injunction finds that the Order exceeded the President's authority to enforce the designated labor laws, which already contain enforcement provisions such as the mandatory debarment requirements found in the Service Contract and Davis Bacon Acts.
Despite the numerous flaws found by the District Court, the Government is expected to continue pressing to enforce the Order's requirements in some form, either through an appeal reinstating the Final Rule or through the issuance of an amended rule. Contractors that have already taken steps to prepare for compliance with the Order should not discard internal changes they have prepared, lest they incur duplicative compliance costs when the fate of the Order is ultimately resolved. Contractors that have not prepared for compliance should begin taking preliminary steps to do so, in the event the Government implements any eventual requirements on an accelerated schedule.
Additionally, all contractors should continue implementation of any necessary policies and procedures to comply with the Final Rule's paycheck transparency rules, which were undisturbed by the District Court's ruling. These rules, which remain scheduled to go into effect on Jan. 1, 2017, require covered contractors to provide in each paycheck specific wage and hour information, such as base pay, overtime and withholding calculations, and classification information regarding independent contractors. Questions regarding compliance with these rules or regarding the ongoing status of the Final Rule should be directed to Barron Avery, wavery@bakerlaw.com, 202.861.1705, with BakerHostetler's Government Contracts team, or to David Grant, dgrant@bakerlaw.com, 202.861.1638; Tom Seger, tseger@bakerlaw.com, 216.861.7413; or Scott McIntyre, smcintyre@bakerlaw.com, 513.852.2622, with our Employment Group.
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