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Portions of the Fair Pay and Safe Workplaces regulations, specifically those related to reporting violations of labor laws and restricting mandatory arbitration, have been enjoined on a nationwide basis by the District Court for the Eastern District of Texas (“District Court”). The paycheck transparency provisions were upheld by the District Court and remain enforceable. Following the District Court’s Order, on October 25, 2016, federal executive agencies issued guidance to their senior procurement officials to halt implementation of the Fair Pay and Safe Workplaces regulations enjoined by the Court, and confirmed that the paycheck transparency provisions (FAR 52.2005, 22.2007(d) and clause 52.222-60) remain in effect.
As reported, the government is still weighing whether to appeal the injunction. Although it seems likely that the government will appeal the District Court’s order and argue that the District Court does not have the authority to issue the injunction on a nationwide basis, it remains uncertain whether the government could actually obtain this relief. When faced with a similar TX federal district court nationwide injunction of executive action and regulation in the context of immigration, the U.S. Court of Appeals for the Fifth Circuit upheld the district court’s authority to issue that nationwide injunction. On review, the Supreme Court split 4-4, leaving the Fifth Circuit’s decision in place. Effectively, this means that TX federal district courts and the Fifth Circuit can stall the administration’s desired policies on a nationwide basis until the Supreme Court acquires another Justice. Because we are in an election year and do not know the identity of the next Supreme Court Justice or when that Justice would be confirmed, the ultimate outcome of this injunction remains elusive at this time. However, even with some legal uncertainty, we anticipate that most government contractors would prefer to forego all but the paycheck transparency requirements until there is a greater likelihood that the enjoined regulations will be upheld than exist at this time. Indeed, even beyond the strength of the substantive arguments, the District Court briefing and oral argument made clear that had the regulations had gone into effect, the government was not yet ready to accept any reports of purported “violations” because the electronic portal to receive such data was not yet complete.
Background and Full Summary of Order
President Obama issued the Fair Pay and Safe Workplaces Executive Order (13673) (the “Order”) in July 2014. The Order established three mandates that were to be implemented by the Federal Acquisition Regulatory Council (the “FAR Council”) and the Department of Labor (“DOL”): (1) reporting labor law “violations” under fourteen different federal employment and labor laws; (2) restricting the use of mandatory arbitration provisions; and (3) establishing paycheck transparency through wage statement and notice requirements. The FAR Council issued a final set of rules and the DOL issued final guidance implementing the Order on August 25, 2016.
In early October 2016, industry trade groups sued for injunctive relief before the District Court for the Eastern District of Texas (“District Court”), to prevent the FAR Council and DOL from implementing and enforcing their final rules and guidance. On October 24, 2016, the Court granted the injunction in part, enjoining on a nationwide basis enforcement of two aspects of the regulations: the “Reporting Regulations” and the “Arbitration Regulations,” summarized at greater length below. The Court upheld the “Paycheck Transparency Regulations,” which will go into effect on January 1, 2017.
The bulk of the District Court’s analysis addresses the plaintiffs’ challenge to the Reporting Regulations. Applying the traditional standard of review for the issuance of a preliminary injunction, the District Court initially determined that plaintiffs had a substantial likelihood of success on the merits that the Reporting Regulations were unlawful—and, more importantly, the District Court described that plaintiffs had attacked the Reporting Regulations on “multiple independent grounds, each of which is sufficient to render these government actions void and unenforceable.” Slip Op at 12.
The District Court held that the Arbitration Regulations are also unlawful because the Federal Arbitration Act (“FAA”) contains a strong preference in favor of arbitration provisions. Slip Op. at 27. Under settled Supreme Court doctrine, the District Court found that there was no congressional command to override the FAA in this instance, as compared to Congress’ express curtailing of the FAA upon enactment the Franken Amendment, which restricts certain mandatory arbitration provisions in the context of DoD’s contracts. Slip Op. at 27-28.
The District Court concluded that the other factors that must be considered likewise augured in favor of issuing an injunction. Plaintiffs were likely to suffer irreparable harm in the absence of an injunction, including First and Fifth Amendment injuries. In contrast, Defendants were unlikely to suffer any harm from the issuance of an injunction, which would merely preserve the status quo. The District Court also found that the injunction would be in the public interest by preventing the Executive Branch from acting in a manner contrary to law. See Slip Op. at 29-31.
The District Court did not find, however, that “Plaintiffs ha[d] established a substantial likelihood of success on their claims regarding” another aspect of the Challenged Regulations—the “Paycheck Transparency Requirement”—and likewise had failed to establish that “they will suffer irreparable harm as to the implementation of those provisions. Slip Op. at 31. Accordingly, the District Court did not enjoin implementation of those regulations.
Nationwide Application and Subsequent Agency Confirmation
Finally, with respect to the scope of relief, the District Court determined that it was appropriate to enjoin the Reporting Requirements and the Arbitration Requirements “on a nationwide basis.” Slip Op. at 32 (emphasis added). The plaintiff industry groups were well aware of the advantages of seeking to block the administration’s Order and implementing regulations in Texas. With appeals going to the U.S. Court of Appeals for the Fifth Circuit, widely considered be the most conservative federal appeals court in the country, and the Supreme Court split 4-4 on this issue, the federal government may not be able to obtain a stay of any injunction, leaving the district court and 5th Circuit rulings in place.
On October 25, 2016, federal executive agencies halted implementation of the Fair Pay and Safe Workplaces regulations that would have required reporting of labor law violations and placed restrictions on mandatory arbitration that had been enjoined by a Texas federal district court the day before. Agency leadership in OFPP, DoD, GSA, and NASA advised their senior procurement officials that “agencies are hereby directed to take all steps necessary with their workforces to comply with the Court Order and ensure the enjoined sections, provisions, and clauses of FAR Case 2014-025 are not implemented unless and until receiving further direction.” The guidance confirms that only the paycheck transparency provisions remain in effect (FAR 52.2005, 22.2007(d) and clause 52.222-60).
To be compliant with the Court Order, agencies received the following instructions:
GSA has also halted actions to release the changes for the System for Award Management (SAM) to support bidder and contractor submission of information on labor law decisions.
Agencies were directed to share the guidance widely among their workforces to ensure full awareness of and compliance with the Court Order. Although the guidance makes it less likely that any of the enjoined FAR clauses would appear in new solicitations or contracts, contractors would be wise to conduct their own review as well to ensure the defunct clauses are not inadvertently included.
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