A federal court has issued an emergency injunction that temporarily halts implementation of a so-called contractor “blacklisting” rule requiring that federal contractors bidding on contracts over $500,000 disclose labor law violations they’ve had during the last three years. The requirements were slated to go into effect on Oct. 25.

The temporary restraining order, issued in the U.S. District Court for the Eastern District of Texas by Judge Marcia Crone, was in response to a lawsuit filed by Associated Builders and Contractors and the National Association of Security Companies. In meeting the requirements needed for an immediate injunction, she found that the plaintiffs presented a convincing argument for emergency relief and also offered reasonable legal claims that were likely to prevail in a full and proper trial.

On Aug. 24, the Department of Labor and the Federal Acquisition Regulatory Council announced final regulations and guidance implementing a 2014 executive order by President Barack Obama. The Fair Pay and Safe Workplaces Directive set the stage for requiring that prospective federal contractors disclose labor law, civil rights, and wage violations. It also requires guidance for contracting agencies on how to factor in labor violations when awarding federal contracts and sub-contracts valued at more than $500,000. Pervasive, prolonged, willful, or serious violations can be used to block a company’s bid.

Government contractors are already required to disclose findings of fault and liability made in administrative or civil proceedings. Current disclosures, however, do not “give a full picture of the contractor’s labor compliance track record and leave agencies vulnerable to making awards to contractors that cheat their workers, competitors, and the taxpayers,” the Labor Department said in a statement.

Prospective contractors will be required to disclose violations of 14 laws (among them the Fair Labor Standards Act, Occupational Safety and Health Act, National Labor Relations Act; Americans with Disabilities Act, and Family and Medical Leave Act). The rule also limits the use of pre-dispute arbitration clauses in employment agreements on covered federal contracts.

The final regulations were initially intended to begin staggered implementation on Oct. 25, 2016, and will be implemented in phases. On Jan. 1, 2017 a “paycheck transparency” clause is still scheduled to take effect, requiring contractors to provide wage statements and notice of any independent contractor relationship to their covered workers.

“[We are] pleased the court ruled that the Obama administration cannot order private businesses to publicly disclose mere accusations of labor law violations that have not been fully adjudicated,” ABC Vice president of regulatory, labor and state affairs Ben Brubeck said in a statement. “By issuing this decision, the court has maintained the First Amendment rights of government contractors and protected them and taxpayers from the poorly crafted blacklisting rule.” Nationally, ABC members performed more than 60 percent of all federal government construction contracts exceeding $25 million from FY2009 to FY2015. The trade group was represented by Maury Baskin of the law firm Littler Mendelson, ABC's general counsel. 

The plaintiffs argued, and Judge Crone agreed, that the rule, as written, violates the due process rights of government contractors. “Courts have long held that contractors and offerors are entitled to due process before being disqualified from performing government contracts,” she wrote. The FAR Rule likely violates the due process rights of Plaintiffs’ government contractor members by compelling them to report and defend against non-final agency allegations of labor law violations without being entitled to a hearing at which to contest such allegations. Absent injunctive relief, Plaintiffs’ members will be required to report pending “violations”…even though years later they may be vindicated—such as by demonstrating to a court that the government’s case wholly lacked merit.”

The Court also agreed with the assertion that the Executive Order and resulting rule violated the First Amendment by requiring that federal contractors and their subcontractors, for the first time, report and publically disclose any “violations” of federal labor laws occurring since Oct. 25, 2015, regardless of whether “the alleged violations occurred while performing government contracts, and without regard to whether such violations have been finally adjudicated after a hearing or settled without a hearing, or even occurred at all.”

“It is well settled that the First Amendment protects not only the right to speak but also the right not to speak,” Judge Crone wrote. “Thousands of ‘administrative merits determinations’ are issued against employers of all types each year, many of which are later dismissed or settled and most of which are issued without benefit of a hearing or review by any court. The arbitration decisions and civil determinations, including preliminary injunctions, that will have to be reported under the FAR Rule are likewise not final and are subject to appeal. The Executive Order’s unprecedented requirement, as implemented by the FAR Rule and DOL Guidance, thus compels contractors to engage in public speech on matters of considerable controversy adversely affecting their public reputations and thereby infringing on the contractors’ rights under the First Amendment.”

Crone compared the requirements to another controversial government requirement that faced a First Amendment challenge, the Securities and Exchange Commission’s conflict minerals rule. “The Executive Order, FAR rule, and Department of Labor guidance share the same constitutional defect as the conflict minerals rule in NAM, only more so,” she wrote.

The court also agreed with the plaintiffs that the rule could reasonably be found to be “arbitrary and capricious” under the Administrative Proceedings Act and that it violates the Federal Arbitration Act by taking away the right to impose mandatory, pre-dispute arbitration agreements with their employees or independent contractors on any matter arising under Title VII, as well as any tort related to or arising out of sexual assault or harassment.

Satisfying other criteria for a preliminary injunction, the court saw merit in claims of potential, irreparable harm.

The Plaintiff’s, however, did lose one argument. “The Court does not find that plaintiffs have established a substantial likelihood of success on their claims regarding the ‘paycheck transparency requirement’ and have failed to establish that they will suffer irreparable harm as to the implementation of those provisions, which do not take effect until Jan. 1, 2017,” she wrote.