California Labor &
Employment Law Blog

Oct. 25 2016

Court Blocks Fair Pay and Safe Workplaces Executive Order From Taking Effect

Topics: Court Decisions, New Laws & Legislation

On August 25, 2016, the Department of Labor published the Final Rule and related guidance implementing President Obama's Fair Pay and Safe Workplaces Executive Order.  This has been dubbed the "blacklisting rule" because, among other things, it requires federal contractors and subcontractors to disclose various labor-related violations to the government in order to be considered for a contract and allows the government to use that information in determining whether or not to contract with a particular entity.  The Final Rule was slated to take effect today (October 25, 2016).  However, two industry groups recently filed suit in federal court in Texas (Associated Building Contractors of Southeast Texas, et al. v Anne Rung, et al.) seeking to block implementation and enforcement of the Final Rule on several well-taken grounds, including that the government exceeded its authority in issuing the new rules and that the rules are preempted by various federal laws.  In a huge victory for the industry groups (and federal contractors covered by the new rules), yesterday the Texas court granted the industry groups’ motion for a nationwide preliminary injunction, immediately halting enforcement of key aspects of the Executive Order (“EO”) and Final Rule pending final resolution of the litigation.  The ruling enjoins the portions of the Final Rule requiring contractors to disclose labor violations and prohibiting covered contractors from requiring employees to arbitrate Title VII claims or tort claims for sexual assault or harassment.  The injunction does not block a third aspect of the Final Rule, the “paycheck transparency” portion, which requires covered contractors to provide employees with detailed wage statements.  That requirement takes effect January 1, 2017.  

We will of course continue to monitor the pending court case and status of the temporary injunction that significantly blocks the rules.  In the meantime, the following is a summary of the three major components of the challenged Final Rule implementing the Fair Pay and Safe Workplaces Executive Order:

Disclosure of Labor and Employment Violations

The Final Rule requires bidders on solicitations for federal contracts issued on or after October 25, 2016 to disclose whether or not it has had any labor law violations in the preceding 3 years OR back to October 25, 2015, whichever period of time is shorter.  [In other words, contractors will eventually have to disclose labor violations going back 3 years, but for now, the look back period is only to October 25, 2015.)  For contracts with a value in excess of $50 million, the disclosure requirement was slated to take effect October 25, 2016 (but this has been blocked).  For contracts with a value in excess of $500,000, the disclosure obligations begin with solicitations issued on or after April 24, 2017.  For subcontracts valued at over $500,000 (excepting contracts for commercially available off-the-shelf items), the disclosure obgliations begin October 25, 2017.

With respect to the substance of the required disclosures, the Final Rule requires covered contractors, when bidding on a covered contract and every 6 months after a contract award, to certify whether or not it has had any administrative merits determinations, arbitral awards or decisions, or civil judgments for any “labor law” violations rendered against it.  The applicable “labor laws” are the following:

  • The Fair Labor Standards Act;
  • OSHA;
  • The Migrant and Seasonal Agricultural Worker Protection Act;
  • The National Labor Relations Act;
  • The Service Contract Act;
  • Executive Order 11246 (Equal Employment Opportunity);
  • Section 503 of the Rehabilitation Act of 1973;
  • The Vietnam Era Veterans Readjustment Assistance Act of 1972 and the Veterans’ Readjustment Act of 1974;
  • The Family and Medical Leave Act;
  • Title VII of the Civil Rights Act of 1964;
  • The Americans With Disabilities Act;
  • The Age Discrimination in Employment Act;
  • Executive Order 13658 (Establishing a Minimum Wage for Contractors); and
  • State OSHA laws

If the contractor answers “yes” that it has had any of these determinations of labor law violations, then a Contracting Officer may request additional information from the contractor regarding the violations.  The information provided generally becomes publicly available.  The Contracting Officer can then use this information to determine whether or not the contractor is “responsible.”  If deemed “not responsible,” the bidder may not be awarded the contract.

Subcontractors make their disclosures to the Department of Labor rather than to the prime contractor or to the Contracting Officer.

Again, as explained above, a Texas court has enjoined the implementation and enforcement of these disclosure requirements, pending final determination of the lawsuit brought by industry groups to challenge the EO and Final Rule.

Restrictions on Pre-Dispute Employment Arbitration Agreements

The EO and Final Rule implementing the EO also impose restrictions on covered contractors’ ability to have arbitration agreements in place with their employees.  The arbitration limitation applies to contracts valued at more than $1,000,000 as well as subcontracts valued at more than $1,000,000 (excepting contracts for commercially available off-the-shelf items).  Covered contractors cannot have pre-dispute arbitration agreements with covered employees or independents contractors that require Title VII claims or tort claims arising out of sexual assault or harassment to be resolved by arbitration.  This provision does not apply to employees covered by collective bargaining agreements.  It also does not apply to pre-existing arbitration agreements, unless the employer has the right to change the terms and conditions of the arbitration agreement (which they almost always do) or the arbitration agreement is replaced or renegotiated.  

The restriction on arbitration agreements was slated to become effective October 25, 2016.  However, as explained above, both implementation and enforcement of this portion of the EO and Final Rule have been halted for now, pending final resolution of the Texas lawsuit brought by industry groups to challenge this new law.

Paycheck Transparency Requirements (Effective January 1, 2017)

The EO and Final Rule also impose new paycheck transparency requirements on covered contractors and subcontractors.  The paycheck transparency requirements apply to all prime contracts valued at more than $500,000, and to all subcontracts (excepting those for commercially available off-the-shelf items) valued at more than $500,000.  Effective January 1, 2017, the paycheck transparency provision requires covered contractors and subcontractors to provide employees performing work on the contract/subcontract with a detailed wage statement along with each paycheck.  The wage statement must show total hours worked in the pay period, the number of overtime hours worked, the rate of pay, the gross pay, and an itemized list of any additional to or deductions from pay.  If the employees are paid less frequently than on a weekly basis, then the wage statement must show the hours worked and overtime hours on a weekly basis.  If a covered employee is exempt from overtime, the wage statement does not need to list hours worked, but the contractor must inform the employee in writing of their exempt status either before the employee begins work on the contract or in the first wage statement provided under the contract.

If a contractor or subcontractor already complies with specified state laws, including that of California, requiring substantially similar wage statement disclosures, then the contractor is deemed in compliance with the paycheck transparency provsion of the Final Rule.

Finally, if the contractor/subcontractor has independent contractors performing work under the contract, the contractor must provide the independent contract with written notification of his or her independent contractor status prior to beginning work on a new federal contract.  The required notice is separate and apart from any written independent contractor agreement with the worker.

Reminder:  The Paycheck Transparency provisions of the new law have not been enjoined and are still scheduled to take effect January 1, 2017.

We will keep you posted of further developments on this topic.  For more information on the EO and the Final Rule, see here.

About CDF

For over 20 years, CDF has distinguished itself as one of the top employment, labor and immigration firms in California, representing employers in single-plaintiff and class action lawsuits and advising employers on related legal compliance and risk avoidance. We cover the state, with five locations from Sacramento to San Diego.

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About the Editor

Robin Largent represents employers, including major food and retail companies, in all types of employment litigation: wrongful termination, retaliation, breach of contract, wage and hour (California Labor Code) and unfair competition. She also regularly counsels and advises California employers on issues of compliance with California and federal employment laws.
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