Hours before a controversial set of new reporting requirements for government contractors was set to take effect, a federal court in Texas enjoined implementation of the requirements across the country.Executive Order 13673, known as the Fair Pay and Safe Workplaces Executive Order, directed the Department of Labor and the Federal Acquisition Regulatory Council to create new rules and guidance aimed at ensuring that government contractors comply with existing federal and state labor laws. The resulting rule and guidance has three central components:
- Mandatory Labor Law Violation Reporting – The centerpiece of the new rule and guidance is a mandatory disclosure provision requiring companies who bid on government contracts to report any labor law violations the company has had within the previous three years, irrespective of whether the violation was in connection with the execution of a previous government contract. The violations are analyzed and taken into consideration by the agencies in awarding contracts.
- Arbitration Prohibition – The new rule and guidance prohibits companies awarded federal contracts valued at over $1 million from requiring workers to enter into pre-dispute arbitration agreements regarding claims that involve sexual harassment, sexual assault, or violations of Title VII of the Civil Rights Act.
- Paycheck Transparency – Under the new rule and guidance, contractors must provide wage statements to certain workers with specific information, including hours worked, overtime, pay, any additions and deductions to/from the worker’s pay, and whether the worker is considered an “independent contractor.”
These requirements were to be implemented over the course of a year, with the most onerous and controversial condition – mandatory disclosure of labor law compliance – to go into effect on Tuesday, October 25, 2016.
However, on October 24, 2016, a United States District Court for the Eastern District of Texas enjoined implementation of the new rule and guidance nationwide. In the lawsuit, a group of contractors that regularly solicits government contracts claims that the new requirements are preempted by other federal labor laws, violate the First Amendment and Due Process guarantees, are arbitrary and capricious, and violate the Federal Arbitration Act. In its October 24 order, the court found a substantial likelihood on the success of the merits for these claims and that a preliminary injunction is warranted. Only the “Paycheck Transparency” requirements are excepted from the injunction and may be enforced during the pendency of the lawsuit. All other requirements (including mandatory labor law violation disclosure and the prohibition against arbitration clauses for sexual harassment and discrimination claims) are enjoined from enforcement pending a final decision on the merits of the lawsuit. As a result, many companies who regularly seek government contracts are relieved from the potentially onerous reporting requirements indefinitely. The government may appeal the injunction, however, or change the provisions to be consistent with the court’s order so that the rule may take effect in some modified form. In either event, the uncertainty with respect to future enforcement of the reporting and arbitration requirements may be unsettling to some contractors, who can use the opportunity to seek additional assistance with risk assessment and compliance from lawyers knowledgeable in the fields of labor law, government contracting, and administrative law.
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