‘Blacklisting Rule’ Blocked

Federal contractors given reprieve on eve of when the rule was to take effect

By Allen Smith, J.D. Oct 26, 2016
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A day before the Fair Pay and Safe Workplaces rule—the "blacklisting rule"—was to take effect, a federal court blocked most of the rule on Oct. 24, determining that the regulation likely violated a host of federal labor laws as well as the First Amendment and due process rights. However, the court left in place the rule's pay transparency provisions.

The blacklisting rule requires that federal contractors report all violations of 14 different labor laws, plus similar state laws, to the federal government, including violations that have not been fully litigated in court, even if they still are being contested or have been settled. Under the rule, the government then determines whether a federal contractor is responsible enough to be awarded more contracts.

The court's preliminary injunction "means that employers may enter into contracts on or after Oct. 25, 2016—even large contracts of $50 million or more, which were the first level for the phased-in requirements—without having to report violations of the 14 federal laws covered by the blacklisting rules," noted Cheryl Behymer, an attorney with Fisher Phillips in Columbia, S.C.

But employers still must comply with the pay transparency provisions.

Guy Brenner, an attorney with Proskauer in Washington, D.C., said the decision also means that federal contractors do not need to be concerned about the blacklisting rule's limits on employee arbitration agreements.

Preliminary, Not Permanent, Injunction

Jim Murphy, an attorney with Ogletree Deakins in Washington, D.C., said that federal contractors who have taken steps to identify what might be reportable under the rule should hang onto those documents, in case the court upholds the rule when it decides on a motion for a permanent injunction. But he said that "for now, any complaints or charges filed with agencies are entitled to a full adjudication on the merits" before contractors have to report them.

Noting that the injunction is preliminary, not permanent, Brenner said, "The trouble is that if the injunction is vacated or reversed and the blacklisting rule goes into effect, government contractors will have to collect and report violations, including those that occurred after the injunction date. My recommendation for HR professionals at this time is to enjoy the benefits of the injunction, understanding that it may not last."

Justin Chiarodo, an attorney with Blank Rome in Washington, D.C., cautioned contractors that they "shouldn't be popping the champagne corks yet." He recommended keeping compliance infrastructure in place to collect and report violations, in case the rule resurfaces.

But for now, if contractors see agency attempts to include Fair Pay and Safe Workplaces executive order requirements other than the paycheck transparency requirements in contracts, Eric Leonard, an attorney with Wiley Rein in Washington, D.C., said contractors should "raise immediate objections to the contracting officer," given the court's ruling.

Court's Findings

Associated Builders and Contractors of Southeast Texas, Associated Builders and Contractors, and the National Association of Security Companies filed a lawsuit on Oct. 7 against members of the Federal Acquisition Regulatory (FAR) Council, which issued the rule and is responsible for uniform acquisition procedures by the federal government, and Thomas Perez, secretary of the Department of Labor, which issued accompanying guidance.

They challenged the rule for requiring the reporting of violations that federal contractors are contesting or have settled. The court sided with the plaintiffs.

The labor laws whose violations must be reported, according to the rule, already have their own remedies, and an additional remedy—barring contracts for such violations as the mere issuance of agency complaints—is not permitted by those statutes, the court held.

In addition, the executive order, on which the rule and guidance were based, "compels contractors to engage in public speech on matters of considerable controversy affecting their public reputations and thereby infringing on the contractors' rights under the First Amendment," the court stated.

And the rule "likely violates the due process rights of plaintiffs' government contractor members by compelling them to report and defend against nonfinal agency allegations of labor law violations without being entitled to a hearing at which to contest such allegations," it said.

Pay Transparency

The decision leaves in place the paycheck transparency requirements.

Behymer noted that beginning with all contracts entered into as of Jan. 1, 2017, each pay period, contractors must provide notice to workers on covered federal contracts and subcontracts—not just employees—of the following on a weekly basis (even if the workers are paid biweekly or semimonthly):

  • Hours worked.
  • Overtime hours.
  • Rate of pay.
  • Gross pay and itemized additions to or deductions from gross pay.

"For employees exempt from the Fair Labor Standards Act's overtime requirements, hours worked information does not have to be provided if the worker has been informed of his or her overtime status in writing before or with his or her first pay statement provided for work on the covered contract," Brenner said.

"Exempt employees must be given notice of their exempt status prior to beginning work on the contract," Behymer said. "Independent contractors (ICs) must be given notice at the time the IC relationship is established, prior to their beginning work on the contract" of their status as ICs, in a document separate from the IC agreement.

She added that wage statements must be provided in a language other than English, as well as in English, if a significant portion of the workforce speaks a different language.

"Contractors must require their subcontractors to provide the same information for subcontracts of over $500,000," she noted.

"If the company regularly provides documents to employees electronically, it may provide the wage statement required by the executive order electronically as well," said Tasos Paindiris, an attorney with Jackson Lewis in Orlando, Fla. "Employees must be able to access the wage statement through a computer, device, system or network provided or made available by the company."

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