Contractor Blacklisting Update: Procurement Officials Stand Down for Now

On October 24, 2016, the U.S. District Court for the Eastern District of Texas entered a nationwide injunction preliminarily enjoining the Obama administration from implementing final rules to effectuate Executive Order 13673, Fair Pay and Safe Workplaces. The federal court’s decision came in the context of a lawsuit brought by trade associations challenging the final rules as an unauthorized and unconstitutional exercise of the President’s authority. The preliminary injunction came just hours before the final rules were scheduled to take effect and was seen as welcome news for regulation-weary federal contractors. 

In the wake of the injunction, the Federal Acquisition Regulatory Council (FAR Council) issued a formal memorandum to provide guidance to federal procurement officials. In the memorandum, which was dated October 25, 2016, the FAR Council directed federal agencies “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 memorandum, which was directed to Chief Acquisition Officers, Senior Procurement Executives, the Defense Acquisition Regulations Council, and the Civil Agency Acquisition Council, lays out three steps that federal agencies are supposed to take:

1. Ensure that new solicitations do not include the representations or clauses implementing the labor law disclosure requirements or the restrictions on pre-dispute arbitration agreements contained in the final rule.
2. Immediately amend any solicitation that may have been issued containing the enjoined representations and clauses.
3. Ensure that contracting officers do not implement the enjoined procedures.

The memorandum also announces a halt to changes being made to the System for Award Management that were intended to support the submission and consideration of decisions involving labor law violations. Changes that would have facilitated the public disclosure of contractor submissions via the Federal Awardee Performance and Integrity Information System also are on hold for now.

The U.S. Department of Labor’s (DOL) Fair Pay and Safe Workplaces webpage has been updated to include links to the FAR Council memorandum and to the decision from the Eastern District of Texas. Notably, the website’s directory of Agency Labor Compliance Advisors, which the DOL had promised to release on October 25, has not been populated yet.

Paycheck Transparency Requirements

It is important for contractors to remember that the Eastern District of Texas did not see fit to enjoin the “paycheck transparency” provisions of the final rule. Employers that anticipate an award of one or more federal contracts or subcontracts of $500,000 or more (other than subcontracts for commercially available off-the-shelf items) after January 1, 2017, should continue with their compliance efforts, which should include

• ensuring that wage statements and pay stubs contain the required information about gross pay, rate of pay, itemized additions to and deductions from gross pay, total hours of worked, and overtime hours worked;
• ensuring that employees who are exempt from overtime requirements receive the required exemption notices prior to the time they perform work on a covered contract and/or in the first wage statement received for work on the contract; and
• identifying independent contractors who will be working on covered contracts and ensuring that each is properly notified of his or her being classified as an independent contractor on the contract at issue.

What Happens Next?

The district court’s decision reflects the view of the trial court that the trade associations established a likelihood of success in their argument that the final rules are unconstitutional and unlawful. The preliminary injunction is a temporary measure to preserve the status quo until the court can reach a final decision in the case.  In the meantime, we anticipate that the U.S. Department of Justice (DOJ), which represents the government, will file an appeal asking the Fifth Circuit Court of Appeals to lift the preliminary injunction. The deadline for the government to appeal is December 23, 2016.

Even if the government ultimately prevails in the litigation, the long-term survival of the contractor blacklisting rules will depend upon the outcome of the presidential election on November 8, 2016. Presumably, a Clinton White House would press forward to implement as much of the final rule as possible. A Trump administration would almost certainly rescind the final rule and take steps to discontinue the DOJ’s defense of the rule in the Texas litigation.

We will provide further updates as new developments occur.