October 25, 2016
A federal district court in Texas has granted a preliminary injunction enjoining implementation of key provisions of Executive Order 13673, Fair Pay and Safe Workplaces, and implementing regulations, which were scheduled to take effect today. As drafted, the Executive Order and corresponding Federal Acquisition Regulation ("FAR") provision, 81 Fed. Reg. 58562 (Aug. 25, 2016), require government contractors to disclose to the government a wide range of labor law violations and to provide employees and independent contractors certain information about their hours and wages. They also prohibit government contractors from requiring employees to arbitrate Title VII claims and sexual assault and harassment tort claims. Further details regarding these requirements are available in our prior client alerthere. Three associations whose members include government contractors challenged the Executive Order, FAR provision and related guidance, in a lawsuit filed on October 7, 2016, in the United States District Court for the Eastern District of Texas.
In a forceful opinion repudiating the very premise of the Executive Order and the accompanying FAR provision, the Court issued a preliminary injunction yesterday preventing implementation and enforcement of the labor law violation reporting requirements and the restrictions on arbitration agreements. The Court declined to enjoin enforcement of the paycheck transparency provisions, which are still scheduled to become effective on January 1, 2017.
The Court held that the plaintiffs had demonstrated a likelihood of success on the merits with respect to the labor law violation reporting requirements in that those requirements 1) are preempted by other labor laws and exceed agency authority; 2) violate contractors’ First Amendment and Due Process rights; and 3) are the product of arbitrary and capricious rulemaking. Much of the Court’s opinion focused on the extraordinarily broad scope of the reporting requirements, which would mandate disclosure of myriad agency decisions, notices, and citations that are not final and are subject to appeal. Citing statistical evidence and an economic analysis, the Court expressed particular concern over the number of reportable violations that are ultimately dismissed as lacking merit and the high costs contractors would likely incur as a result of the requirements–an estimated $458,352,949 during the first year of implementation–without any corresponding quantifiable benefit. The Court was also skeptical of the newly-created agency labor compliance officers–whom the court described as "questionably qualified"–who will be charged with making written reports to contracting officers within three days regarding whether a company’s actions warrant a finding of "a lack of integrity or business ethics."
Turning to the arbitration agreement restriction, the Court held that the provision violates the Federal Arbitration Act ("FAA"), which generally requires courts to enforce arbitration agreements according to their terms. In so holding, it distinguished the enforceability of the Executive Order and FAR provision from the enforceability of the Franken Amendment to the Defense Authorization Act (which sets forth a similar restriction applicable to certain defense contractors), noting that the Franken Amendment was passed by Congress, which–unlike the Executive Branch–has the authority to modify the FAA through a statutory enactment.
The Court succinctly disposed of the remaining three prongs of the preliminary injunction standard, holding that the plaintiffs had also demonstrated a substantial threat of irreparable harm; a lack of harm to the defendants (noting that the electronic portal for filing disclosures is not even operational at this time); and that an injunction was in the public interest.
The case is Associated Builders and Contractors of Southeast Texas, et al. v. Rung, Case No. 1:16-cv-425 (E.D. Tex.). The Court’s order is subject to immediate appeal pursuant to 28 U.S. Code § 1292(a)(1), which grants courts of appeals jurisdiction of appeals from interlocutory orders granting injunctions.
The following Gibson Dunn lawyers assisted in the preparation of this client alert: Jason C. Schwartz and Anna M. McKenzie.
Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments. Please contact the Gibson Dunn lawyer with whom you usually work, any member of the firm’s Labor and Employment or Government Contracts practice groups, or the following:
Catherine A. Conway – Co-Chair, Labor & Employment Practice, Los Angeles (+1 213-229-7822, firstname.lastname@example.org)
Karen L. Manos – Chair, Government Contracts Practice, Washington, D.C. (+1 202-955-8536, email@example.com)
Eugene Scalia – Co-Chair, Administrative Law & Regulatory Practice, Washington, D.C. (+1 202-955-8206, firstname.lastname@example.org)
Jason C. Schwartz – Co-Chair, Labor & Employment Practice, Washington, D.C. (+1 202-955-8242, email@example.com)
Joseph D. West – Partner, Government Contracts Practice, Washington, D.C. (+1 202-955-8658, firstname.lastname@example.org)
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