On October 24, 2016, U.S. District Judge Marcia Crone granted a preliminary injunction to halt the implementation of the “Fair Pay and Safe Workplaces” Executive Order 13673 (EO 13673), implementing provisions of the Federal Acquisition Regulation (FAR) in the final rule, and Department of Labor (DOL) guidance that impose new reporting requirements on contractors regarding labor law violations.

President Obama signed EO 13673 in July 2014, and two years later the FAR Council and DOL issued a final rule and guidance on its implementation.  These new requirements would impose an affirmative obligation on contractors to publicly disclose any alleged violations of the various labor laws, including the National Labor Relations Act (NLRA), Fair Labor Standards Act (FLSA), Davis Bacon Act (DBA), Service Contract Act (SCA), and others, regardless of whether the alleged violation has been adjudicated.  Agencies could then use such public disclosures to make a responsibility determination based on those violations and alleged violations, potentially disqualifying offerors from contract award.

The new reporting requirements drew significant criticism due to the cost and compliance burden on contractors, its overlap with existing labor and employment laws, and negative responsibility determinations based on non-final administrative determinations, including those unrelated to government contracts. Indeed, the Regulatory Impact Analysis of the FAR final rule estimated calculated costs imposed on contractors/subcontractors in the first year alone of $458,352,949, and second-year costs of $413,733,272. The anticipated government costs for the first year were $15,772,150, and $10,129,299 in the second year. There was no estimate of the expected benefits, stating that “the agencies invited respondents to provide data that would allow for more thorough benefit estimations, however no data were received that could be used to quantify the benefits of the final rule.”

The District Court found the Fair Pay and Safe Workplaces requirements included in the EO, the FAR Rule, and the DOL Guidance, separately and together, were unconstitutional and must be enjoined because there was a substantial likelihood of success on the merits of the plaintiffs’ case, the constitutional violations posed a substantial threat of irreparable harm to the plaintiffs, an injunction would not harm the government, and injunctive relief was necessary to protect the public interest as “[p]ublic policy demands that governmental agencies be enjoined from acting in a matter contrary to law.”

In its analysis of the likelihood of success on the merits of plaintiffs’ claims, the Court held that EO 13673 the FAR Rule, and the DOL Guidance:

(1) reach beyond executive authority;

(2) are otherwise preempted by federal labor laws;

(3) violate due process;

(4) violate the First Amendment;

(5) violate the Federal Arbitration Act; and

(6) are arbitrary and capricious.

In making its decision, the Court noted that “[d]uring the course of many decades, neither Congress, nor the FAR Council, nor the DOL has deemed it necessary, practicable, or appropriate for government contracting officers to make responsibility determinations based on alleged violations of private sector labor and employment laws.”

The day following the District Court’s order, the Office of Federal Procurement Policy (“OFPP”) issued a memorandum to all agencies to comply with the order enjoining the provisions requiring labor law violations reporting. Measures have already been taken to ensure the System for Award Management (“SAM”) and the Federal Awardee Performance and Integrity Information System (“FAPIIS”) do not reflect the disclosure changes required by the final rule.

While the Eastern District of Texas’ decision is a significant victory for the host of parties opposed to the Fair Pay and Safe Workplaces regime set out in EO 13673 and the implementing regulations/guidance, this is probably not the end of the matter. There is a reasonable likelihood that the decision will be appealed or that revisions to the regulations and, perhaps, EO 13673, will be made.