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Federal Judge Blocks Federal Contractor "Blacklisting" Order

    Client Alerts
  • November 01, 2016

Executive Order 13673, entitled “Fair Pay and Safe Workplaces” requires certain federal contractors to disclose to the contracting officer violations over the past three years of 14 listed federal labor laws as well as some state law equivalents. The Department of Labor issued final regulations implementing the Order in August, and the first phase of those rules was scheduled to take effect October 25.

Under the DOL regulations, the disclosures must be updated every six months. Disclosed information will be maintained in a publically available database. DOL emphasized that mere disclosure of past violations will not disqualify a contractor from receiving federal work. However, prospective bidders can be required to provide explanations of the violations and remedial steps taken. The contracting agency can recommend that the contractor enter into labor compliance agreements with the federal agency responsible for enforcing the specific labor law. Bidders declining this recommendation could be disqualified from performing work on the contract.

However on October 24, a federal district court judge in Texas issued a preliminary injunction suspending implementation of the major portions of the Order. The October 25 disclosure implementation date only applied to federal contractors with $50 million or more in government work. The injunction also prohibits implementation of an October 25 provision of the rule that barred contractors and subcontractors with contracts of at least $1 million from requiring employees to sign mandatory arbitration agreements covering certain civil rights claims.

The district court judge concluded that the regulations exceed DOL’s underlying statutory authority, contain arbitrary and capricious requirements, and violate contractors’ constitutional rights. This reasoning cited the DOL requirement that contractors disclose violations that are not final, or are the subject of an appeal by the employer. The judge declined to enjoin portions of the DOL rules requiring federal contractors and subcontractors to begin providing employees with detailed pay information each pay period, and notifying independent contractors in writing of their non-employee status beginning January 1, 2017.

The DOL rules do not require labor law disclosures by contractors with $500,000 or more in federal work until April 24, 2017, and by subcontractors at the same level starting October 25, 2017. Under the rules, all federal contractors and subcontractors must begin making disclosures by October 25, 2018. At a minimum, the injunction will likely delay these effective dates as well.

DOL is likely to directly appeal the injunction to the Fifth Circuit Court of Appeals. Higher federal courts will have the final say on whether the regulations can stand as issued, or whether DOL must restart the rulemaking process.