U.S. District Court Judge Puts "Blacklisting" Rules on Hold

Legal Alert

On October 24, 2016, one day before the "blacklisting" rules for federal contractors that stem from the Fair Pay and Safe Workplaces Executive Order were scheduled to take effect, a U.S. District Court judge granted a preliminary injunction halting the following two controversial parts of the rules:

1) the disclosure requirements for labor law violations, and 
2) the prohibition on pre-dispute arbitration agreements for employment-related claims.

We previously wrote about the requirements and burdens of the Fair Pay and Safe Workplaces Executive Order and related Federal Acquisition Regulations (FAR) and Department of Labor (DOL) Guidelines here. In short, had the preliminary injunction not been issued, federal contractors with contracts of $50 million or more would have faced disclosure requirements for numerous labor laws, and contracts over $1 million would have triggered restrictions in arbitration agreements, beginning on October 25, 2016. The paycheck transparency requirements are not impacted by the preliminary injunction and remain scheduled to take effect on January 1, 2017.

The preliminary injunction was obtained by the Associated Builders and Contractors of Southeast Texas, the Associated Builders and Contractors national organization, and the National Association of Security Companies. In granting the preliminary injunction, Judge Marcia Crone of the Eastern District of Texas, a George W. Bush appointee, found that the plaintiffs' challenges had a "substantial likelihood of success on the merits." Specifically, the Court held that the Obama Administration, the FAR Council, and the DOL all appeared to exceed their authority by issuing the Executive Order and accompanying rules and guidelines. The Court explained that the possibility federal contractors could be disqualified "based solely on 'administrative merits determinations' that are nothing more than allegations of fault asserted by agency employees" appeared to directly conflict with the numerous labor laws referenced in the rules. The Court also found merit in the plaintiffs' argument that the rules violated the First Amendment by requiring federal contractors to report "violations," regardless of whether violations even occurred at all. The Court also indicated that the rules appeared to violate Due Process rights and the Federal Arbitration Act, and were arbitrary and capricious.

What happens next depends on whether the DOL decides to appeal the entry of the preliminary injunction. Under normal circumstances, this decision would likely be appealed to the federal circuit court with jurisdiction over Texas (the Fifth Circuit) and then the party unsatisfied with the decision could thereafter file an appeal with the U.S. Supreme Court. Given the nature of the issues in this case, an appeal is very likely. But with the Supreme Court currently composed of only eight justices for an unknown length of time, and the very real potential of a 4-4 split, the final say on a stay of the injunction could rest with the Fifth Circuit, which is considered one of the most conservative circuits. In the event of a 4-4 Supreme Court decision, the Fifth Circuit Court of Appeals decision would govern the jurisdictions within that Circuit. And the Fifth Circuit has made it clear that it is willing to declare Executive Orders unlawful, as evidenced by a recent ruling essentially vacating the Obama administration's 2012 Executive Order on immigration.

If the DOL does not immediately appeal the entry of the preliminary injunction, it could stay in place until a trial has been held on the merits, but even then the parties could appeal. It is also possible that other lawsuits could be filed in other federal judicial districts, with different results. Thus, it is uncertain what the future will bring. But, for now, federal contractors have received a favorable first ruling out of the gate on these two controversial aspects of the Fair Pay and Safe Workplaces Executive Order.

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