11th-Hour Attempt to Block the ‘Blacklisting Rule’ Filed

Fair Pay and Safe Workplaces rule poses many challenges for federal contractors

By Allen Smith, J.D. Oct 17, 2016
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The Fair Pay and Safe Workplaces rule—sometimes referred to as the "blacklisting rule" since it potentially could lead to barring federal contractors from contracts—starts to take effect Oct. 25, unless a motion for an emergency temporary restraining order (TRO) filed Oct. 13 succeeds in blocking the regulation.

Prior to the TRO motion, Associated Builders and Contractors of Southeast Texas, Associated Builders and Contractors, and 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 Thomas Perez, secretary of the Department of Labor, which issued guidance. The FAR Council is made up of the Department of Defense, the General Services Administration and the National Aeronautics and Space Administration and issues rules to assist in the coordination of government-wide procurement. Under the rule and guidance, federal contractors must disclose labor law violations to the federal government and can be barred from receiving contracts if their track record is poor. The regulations implement Executive Order 13673, which President Barack Obama issued July 31, 2014.

The complaint alleged that the regulations require disclosure of "violations" that have not been fully litigated in any court "even if the claimed violations are still being contested or have been settled without a hearing and without any finding of an actual violation of any law."

The complaint maintained that the regulations exceed the executive branch's authority and conflict with the labor laws enacted by Congress. They also alleged that the regulations violate the First Amendment by compelling speech, forcing them to make public declarations about "violations" that they are contesting or have settled. And they maintained the regulations deny them due process.

Reasons to Oppose the Regulations

Federal contractors have other reasons for opposing the regulations. "First, the rules impose a number of burdensome technical requirements that will impose additional costs on companies that, in recent years, have seen a steady increase in the number of regulatory requirements and burdens imposed on them," said Guy Brenner, an attorney with Proskauer in Washington, D.C.

"Second, there is uncertainty as to how the disclosure of labor law violations will impact the bidding process," he added.

"Third, the rules create new leverage for government agencies, plaintiffs' attorneys and unions to extract settlements and concessions, understanding that the value of settling claims now includes avoiding a possible reportable violation that could result in lost government business," Brenner said.

There is "the potential for the agency labor compliance advisors to second-guess conciliation or compliance agreements that contractors may have carefully negotiated" with federal agencies, noted Jim Murphy, an attorney with Ogletree Deakins in Washington, D.C.

In addition, violations must be reported through the federal government's System for Award Management website, which is available to the public, said Cheryl Behymer, an attorney with Fisher Phillips in Columbia, S.C. "This means that competitors also have this information available, which could be utilized in the competitive bidding process," she explained.

Federal contractors also are responsible to ask their subcontractors if they have reported violations and the types of violations, and then determine whether they want to move forward with those subcontractors. "This is a minor change from the proposed rules where the contractors were fully responsible for the subcontractors' violations reporting, but it still adds a layer of responsibility to the prime contractor that did not previously exist," she said.

Arbitration

The executive order and the regulations provide that contractors that enter into contracts of more than $1 million may not enter into any mandatory pre-dispute arbitration agreement with their employees or independent contractors on any matter arising under Title VII of the Civil Rights Act or sexual assault.

The ban on pre-dispute arbitration means that arbitration can't be required at the time of hire, noted David Goldstein, an attorney with Littler in Minneapolis. Federal contractors can offer arbitration only at the time of dispute, when an employee is much less likely to agree to arbitrate. However, there are some advantages for an employee to arbitrate, including that it's cheaper, faster and more confidential, he said. But plaintiffs' attorneys tend to prefer courts rather than arbitrators because they have more leverage to settle, Goldstein added.

The complaint noted that the Supreme Court has interpreted the Federal Arbitration Act as mandating the enforcement of arbitration agreements according to their terms.

"The use of arbitration as an alternative way to resolve employment disputes is well-settled in the courts, and the notion that it could be eviscerated by an executive order is troubling," said Alissa Horvitz, an attorney with Roffman Horvitz in McLean, Va.

Effective Dates

The regulations have different effective dates. Horvitz noted those dates as follows:

  • Oct. 25, 2016: Employers bidding on contracts valued at or above $1 million no longer are permitted to include pre-hire arbitration clauses in employment agreements covering violations of Title VII or sexual assaults.
  • Oct. 25, 2016: Employers bidding directly on contracts valued at or above $50 million will have to comply with the administrative merits determination, arbitration award and civil judgment disclosure requirements.
  • Jan. 1, 2017: Employers bidding on contracts and non-commercially available off the shelf (COTS) subcontracts valued at $500,000 or more will have to ensure that wage statements comply with pay transparency requirements, including information on hours worked and overtime calculations, rates of pay, gross pay and additions or deductions from pay, and whether individuals are classified as employees or independent contractors.
  • April 25, 2017: Employers bidding directly on contracts valued at $500,000 or more will have to comply with the administrative merits determination, arbitration award and civil judgment disclosure requirements, including bids to supply commercial and COTS items. 
  • Oct. 25, 2017: Prime contractors that have subcontractors at any level bidding $500,000 or more on non-COTS subcontracts to a covered prime contract will need to obtain from the U.S. Department of Labor a responsibility determination before awarding a subcontract. 
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