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Yesterday a federal court in Texas partially enjoined enforcement of what is known as the “blacklisting” rule.  The injunction comes one day before reporting was to begin under the Fair Pay and Safe Workplaces Executive Order, 13673.

The “blacklisting” order would have required prime contractors, as part of federal contract bidding that occurs after October 25, 2016, to report to the federal government all violations of fourteen labor and employment laws during the preceding year, via a public website.  The government would have the option to reject a contract bidder based on the violations disclosed. The order also would have imposed restrictions on pre-dispute arbitration agreements for civil rights and sexual assault claims, effective today.

The Fair Pay and Safe Workplaces order has received widespread criticism from federal contractors and industry groups since its issuance in 2014.  Discussion of a legal challenge was prevalent, while contractors waited anxiously, but no lawsuit was filed until after final regulations and guidance were issued to implement the Order.

On October 7, 2016, a suit challenging the order was filed in the U.S. District Court for the Eastern District of Texas.  The plaintiffs are Associated Builders and Contractors, Inc.  (ABC), ABC’s Southeast Texas Chapter, and the National Association of Security Companies.  The forum choice was strategic, since “federal courts in the Fifth Circuit have regularly enjoined federal agencies from implementing and enforcing new regulations pending litigation challenging them.”  Assoc. Builders and Contractors of Southeast Texas v. Rung, Case 1:16-cv-00425-MAC, p. 10 (E.D. Tex. Oct. 24, 2016).

ABC’s Complaint alleged that President Obama exceeded his executive authority in issuing the order, which imposes new regulatory burdens that exceed and conflict with those carefully enacted by Congress.  It also alleged the order is preempted by other federal laws, violates the First Amendment, and deprives federal contractors of due process. The court agreed.

The court’s opinion critically addressed not only the Executive Order, but also its Federal Acquisition Regulation (FAR) implementing regulations, and Department of Labor (DOL) Guidance issued to aid enforcement (collectively referred to as the “blacklisting rules”).  It found the rules to be arbitrary and capricious, entitled to no deference.  They are not narrowly tailored to achieve their end, and, in fact, have not been shown by the government to cause any likely improvement in federal procurement.   The rules would impose substantial harm on the plaintiffs (contractors), while no one would be harmed by their relief.  An injunction, found the court, is in the public’s interest.

Judge Marcia A. Crone outlined the reasons for the court’s ruling in a thirty-two (32) page opinion.  It noted that the rules conflict with existing federal laws, which already specify consequences for their violation.  And, the rules could impose debarment without the procedural protections required by Congress in its legislatively-enacted laws.  Id.  The court was troubled that the blacklisting rules would require contractors to report “mere allegations” of employment violations to the government. Non-final violations, issued without even quasi-judicial safeguards, would also be disclosed. Debarment could then result, even though not an existing remedy under the substantive laws encompassed by the order.  The Executive Branch thus “departed from Congress’s explicit instructions dictating how violations of the labor law statutes are to be addressed.” Id. p. 14.  The blacklisting rules also violate the “right not to speak” under the First Amendment, since the required public disclosures would force companies to “publicly condemn themselves” via government compulsion of speech. Id. p. 20. The court described the rules as suffering from “constitutional defect.” Id. p. 19.

The injunction applies nationwide, and enjoins enforcement of all reporting obligations under the order.  It also enjoins the rules’ pre-dispute arbitration limitation, which the court found in conflict with the Federal Arbitration Act (FAA).

The injunction does not reach the separate paycheck transparency requirement, scheduled to take effect on January 1, 2017.  The court found the plaintiffs did not demonstrate a substantial likelihood of success on their claims against that element, nor did they show irreparable harm from its more modest requirements.