Portions of Fair Pay and Safe Workplaces Regulations and Guidance Preliminarily Enjoined

On October 24, 2016, the mandatory disclosure and arbitration provisions of the Fair Pay and Safe Workplaces (“FPSW”) Regulations and Guidance were preliminarily enjoined by the United States District Court for the Eastern District of Texas in Associated Builders and Contractors of Southeast Texas v. Rung, No. 1:16-cv-425-MAC. The paycheck transparency provisions remain, unaltered and in full force effective January 1, 2017.

U.S. District Court Judge Marcia A. Crone preliminarily enjoined the FPSW’s entire mandatory disclosure requirements finding the regulations (1) are preempted by other federal labor laws, (2) improperly infringe a contractor’s First Amendment rights against “compelled speech”; (3) violate contractor Fifth Amendment rights “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” violate; and (4) are arbitrary and capricious and entitled to no deference.

Judge Crone also preliminary enjoined the arbitration provisions of FPSW holding that the regulations violate the Federal Arbitration Act and its “liberal federal policy favoring arbitration agreements.” The nearly identical Franken Amendment to Department of Defense Appropriations Act of 2010 notwithstanding, the Court found that the FAR Council “does not possess similar authority to modify Congressional enactments such as the FAA.”

While striking down the mandatory disclosure and arbitration provisions, the Court did not enjoin any aspect of the FPSW paycheck transparency provisions. In other words, the paycheck transparency provisions are scheduled to become effective on January 1, 2017 as original planned. See FAR §§ 22.2005, 52.222-60.

The Court’s preliminary injunction is nationwide in scope and effect. Given the effort the Obama Administration put into the FPSW Regulations and Guidance, it is very likely the Government will ultimately appeal any adverse decision to the U.S. Court of Appeals for the Fifth Circuit, and possibly beyond.  Also, depending on the outcome of the upcoming Presidential Elections, it is very possible that a future Clinton Administration would continue to aggressively pursue FPSW.

While federal contractors and subcontractors can breathe a sigh of relief today that they do not need to comply with the FPSW mandatory disclosure or arbitration provisions starting October 2016 or likely any time prior to the previously scheduled April 2017 effective date for contracts in excess of $500,000, we have likely not seen the last of the FPSW’s mandatory disclosure or arbitration requirements.