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On October 24, 2016, just hours before they were set to take effect the following day, a federal district court judge in Texas entered a nationwide preliminary injunction halting the enforcement of most aspects of the “Fair Pay and Safe Workplaces” Executive Order and its final rules and guidance (the Rule), requiring most federal contractors to, among other things, disclose recent “labor law violations” when submitting a bid for a government contract. The Rule, which would be phased in over time, would require:

  • First, prime contractors bidding on certain federal contracts, including construction contracts, worth $50 million or more, and later, prime contractors and subcontractors bidding on contracts worth $500,000 or more, to publicly disclose any “administrative merits determination, arbitral award or decision, or civil judgment for any labor law violation(s)” rendered against the contractor during the period beginning on October 25, 2015 to the date of the bid/offer, or for three years preceding the date of the bid/offer, whichever period is shorter. The Order identifies fourteen types of labor and employment laws and executive orders, “violations” of which must be reported, including the FLSA, OSHA, the NLRA, Davis-Bacon, the FMLA, Title VII, the ADA, and the ADEA;
  • All contractors and subcontractors with federal contracts of more than $1 million would be prohibited from requiring employees to enter into mandatory pre-dispute arbitration agreements covering Title VII or sexual assault/harassment claims; and
  • All contractors and subcontractors with federal contracts of more than $500,000 would be subject to paycheck transparency requirements, mandating contractors to identify in employees’ paychecks their hours worked, overtime, rates of pay, gross pay, additions or deductions from pay, and whether they were classified as independent contractors.

Notably, with regard to the disclosure of “labor law violations,” the Rule considers all non-final “administrative merits determinations” as “violations” regardless of the severity of the alleged violation, whether a government contract was involved, whether a hearing had been held or an enforceable decision issued, and even though such determinations were still subject to judicial review and might later be reduced or reversed. Under the Rule, contracting officers could take into account these disclosures, and whether they purportedly show “serious, repeated, willful or pervasive” violations, when determining whether to award, extend or deny government contracts to potential contractors. Judge Marcia Crone of the U.S. District Court of the Eastern District of Texas enjoined enforcement of the Rule’s reporting and disclosure requirements on grounds that the requirements exceeded the President’s and the respective agencies’ authority, were preempted by other federal labor laws that address how violations should be addressed, were tantamount to compelled speech and violated the First Amendment, and violated contractors’ due process rights. The Court also enjoined provisions of the Rule, prohibiting mandatory pre-dispute arbitration agreements, as conflicting with the Federal Arbitration Act and Congress’ strong federal policy in favor of arbitration. The Court, however, did not enjoin the Rule’s paycheck transparency and independent contractor notice requirements, and those requirements remain scheduled to go into effect on January 1, 2017, for contractors and subcontractors with covered contracts of more than $500,000. Contractors can expect the government defendants to appeal the Court’s ruling and continue to fight for the Rule so long as the Obama administration is in office during these last few months. However, unless and until the injunction is lifted, contractors will not have to comply with the disclosure and no-arbitration requirements. Importantly, commentators are in agreement that this “Fair Pay” Executive Order will be among the first repealed and voided by President Trump. Chances are very good that this Order will simply disappear in the months to come. However, in the off chance this Rule may only be significantly pulled back to reduce the impact on contractors and address the Court’s criticisms, particularly the language requiring disclosure of non-adjudicated, non-final agency determinations and prohibiting mandatory pre-dispute arbitration agreements, federal contractors should monitor and track what would be considered “labor law violations” under the existing Rule that have occurred since October 25, 2015 in the event (however unlikely) future compliance is required. One item requires immediate attention -- contractors will need to review and update their wage statements and paychecks and develop independent contractor notices to comply with the paycheck transparency requirements of the Rule that were not enjoined and remain scheduled to go into effect on January 1, 2017. This aspect of the Rule also may be abolished after President Trump’s inauguration. Calfee will continue to monitor the matter closely and will keep you informed as future legal developments occur.

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For additional information and discussion on this topic, please get in touch with your regular Calfee contact or one of the attorneys listed below: John R. Cernelich 216.622.8251 Ronald M. McMillan 216.622.8698 

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