Federal Court Blocks President Obama’s New Requirements for Federal Bidders the Day Before They Were to Go Into Effect

Friday, 28 October 2016
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President Obama’s “Fair Pay and Safe Workplaces” executive order and related regulations and guidance (collectively, the “Order”) almost began phasing-in requirements for certain bidders on federal projects to disclose both final and alleged labor-law violations. But a Federal Court enjoined its enforcement.

The widely criticized Order required certain bidders to disclose disputed allegations of labor-law violations, in addition to final determinations. Contracting officers, who are not experts in assessing labor-law violations, would then have had to make sense of the disclosed information, including the disputed allegations, which may or may not have had merit, to make a responsibility determination for that bidder.

The Order also would have prohibited mandatory arbitration agreements with employees or independent contractors regarding Title VII (civil rights) or sexual assault and harassment claims, where the arbitration agreement was entered into before a dispute arose.

On October 24, 2016, the day before the Order was to go into effect, a United States District Court enjoined enforcement of most of its requirements in a lawsuit filed by Associated Builders and Contractors of Southeast Texas and Associated Builders and Contractors, Inc.

The court left intact an aspect of the Order requiring “paycheck transparency,[1] but blocked the reporting requirements for labor law "violations" and the arbitration requirements.

As discussed in more detail below, the court held that the reporting requirements were not statutorily authorized, violated the First Amendment, and were arbitrary and capricious. The court also held that the arbitration provisions were inconsistent with the Federal Arbitration Act.

Since this was a ruling on a preliminary injunction, the issue is far from resolved. The Order could still ultimately be upheld, or Congress or the President could take further action. But for the moment, the enjoined aspects of the Order, which would have gone into effect October 25, 2016, are on hold. The Department of Labor has directed agencies to comply with the court’s order and to ensure that the enjoined sections are not implemented. The Department of Labor’s memorandum is available here:

The District Court’s Order is available here:

Highlights of the District Court’s Order. Here are nine reasons why the District Court entered the injunction:

  • The reporting requirements are not authorized by statute.

The public disclosure and disqualification requirements being imposed on federal contractors and subcontractors are nowhere found in or authorized by the statute on which the Executive Order, FAR Rule, and DOL Guidance relies.[2]

  • Responsibility determinations based on alleged violations are not “necessary, practicable, or appropriate.”

During the course of many decades, neither Congress, nor the FAR Council, nor the DOL has deemed it necessary, practicable, or appropriate for government contracting officers to make responsibility determinations based on alleged violations of private sector labor and employment laws.[3]

  • Contracting Officers are unqualified to make determinations.

None of these laws provides for debarment or disqualification of contractors for violations of their provisions; none of them provides for such determinations to be made by unqualified, agency contracting officers (or ALCAs); and certainly none of these laws provides for any such action to occur based on non-final, unadjudicated, “administrative merits determinations.”[4] 

  • The Order conflicts with the very labor laws it sought to invoke.

The Order and Rule appear to conflict directly with every one of the labor laws they purport 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.[5]

  • The Order would violate the First Amendment by compelling speech.

Once the FAR Rule goes into effect, Plaintiffs’ government contractor members’ only means of avoiding losing such potential work will be to disclose alleged violations of a host of labor laws even if the purported violations have not been fully adjudicated and resolved. Based on the record and Plaintiffs’ declarations, such compelled speech infringes the First Amendment rights of bidders and contractors.[6]

  • The Order is cumbersome rather than efficient.

It is unclear how the concededly inexpert contracting officers, in conjunction with the newly created and questionably qualified ALCAs, can be expected to review what are expected to be significant numbers of administrative merits determinations (along with arbitration awards and court decisions), relating to esoteric fields of labor law that neither the contracting officers nor the ALCAs appear to be trained to administer. All of this is to occur within a three-day period, with some limited extensions, so as not to slow down the procurement process. Yet, it is apparent from the face of the FAR Rule and DOL Guidance that the examination and analysis of the necessary documents, administrative agency rulings, and contractor responses thereto and the preparation of written reports regarding the impact on contractor responsibility must certainly take substantially longer than three days to accomplish.[7]

  • The Order would impose significant expenses on bidders.

The FAR Rule and DOL Guidance also impose significant additional costs and expenses on government contractors who will incur substantial costs in looking back at their “violations” for a period of three years before a contract is offered, which then must be updated every six months.[8]

The court further held:

Expenditures will rise for in-house and outside legal counsel, expensive information technology systems, and expanded human resource personnel, negatively affecting the cost, availability, quality, and delivery of these vital protective services.[9]

  • The requirements are arbitrary and capricious.

[T]he complex, cumbersome, and costly requirements of the Executive Order and Rule, which hamper efficiency without quantifiable benefits . . . evince arbitrary and capricious rulemaking.[10]

  • The arbitration provisions overstep the President’s authority.

The Executive Branch does not possess . . . authority to modify Congressional enactments such as the [Federal Arbitration Act.][11]

 What’s next?

The court’s preliminary injunction was a strong rejection of the Order, but an appellate court might see things differently. We will need to keep watching to see how this matter is resolved in court.

Congress could pass a law to do what the Executive Branch could not, or the Executive Branch could issue another order that is more likely to be upheld, but there is not much time for these to occur as the Obama administration comes to a close. Our next President and Congress might be the ones deciding how to move forward. Whether this is a high priority for the next administration is yet to be seen.

Disclaimer: This material may be considered attorney advertising. This material is not legal advice. Consult with an attorney before taking any action based on information contained in this material.

[1] Associated Builders and Contractors of Southeast Texas v. Rung, No. 1:16-cv-00425-MAC, at 31 (E.D. Tex. October 24, 2016). Paycheck transparency requires those subject to the Order to state with each paycheck “the number of hours worked, overtime calculations (for non-exempt employees), rates of pay, gross pay, additions or deductions from pay,” and whether the person receiving the paycheck is classified as an employee or an independent contractor. Id. at 4.

[2] Id. at 12.

[3] Id. at 12-13.

[4] Id. at 13.

[5] Id. at 17.

[6] Id. at 28.

[7] Id. at 25.

[8] Id.

[9] Id. at 26.

[10] Id. at 26-27.

[11] Id. at 28.

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