President Obama’s Fair Pay and Safe Workplaces Executive Order in Critical Condition

One of President Obama’s signature measures, which was intended to improve the integrity of the government in contracting business and the workers’ environment, appears to be doomed. Hailed by labor and Democrats and derided by corporations and Republicans, much of it has been stopped in its tracks by a federal judge, and the whole thing could be shut down by the incoming Trump administration. 

Fair and transparent pay processes for employees. Workplace safety. Government contractors working on the up and up. Precious taxpayer dollars being spent wisely. As with many things that sound angelic, the devil may be found in the details; and if not there, it may be found wafting from our nation’s capital in this especially intense political environment.

President Obama signed the Fair Pay and Safe Workplaces measure—the 900-page Executive Order 13673—in 2014 following a Senate report that many federal contractors had been cited for “cheating, harassing and injuring their employees,” as The New York Times^® said in a recent editorial. (Fair Pay, Safe Workplaces, Republican Objections, The New York Times, Aug. 26, 2016.)

As a $500 billion a year industry in which one out of five American workers is employed, it’s a really big deal.

Here are the three components of Executive Order 13673:

Reporting Labor Violations. The executive order requires federal agency contracting officers to consider an employer’s record of workplace law compliance when awarding contracts and subcontracts valued at more than $500,000. Employers are to assess compliance with 14 relevant workplace laws and executive orders. The legal entity listed on the bid/offer or contract is to be required to make disclosures concerning the corporation’s compliance record, not its parent company or other subsidiaries. Regular reporting was to begin Oct. 25, 2016.

Prohibiting Pre-Dispute Arbitration Agreements. The executive order prohibits pre-dispute arbitration agreements to resolve Title VII of the Civil Rights Act and related tort claims for contracts of $1 million or more. The effective date for the arbitration prohibition provision is the same as the effective date for the final rule, Oct. 25, 2016.

Requiring Paycheck Transparency. The executive order requires regulation and guidance involving paycheck transparency relating to hours worked, overtime hours for non-exempt employees, deductions, identifying exempt employees and independent contractors, etc. The effective date for pay transparency is Jan. 1, 2017.

Labor loves it. The AFL-CIO said it would “make our contracting system more fair and accountable, which is good for working families, law-abiding employers, and communities. Companies that receive taxpayer funded contracts should obey the law and respect their employees’ rights …” (Fair Pay and Safe Workplaces Executive Order Makes Contracting System More Accountable, AFL-CIO, Aug. 24, 2016.)

The Leadership Conference on Civil and Human Rights called it “good news for working people and for the entire country,” adding, “This will help protect millions of workers from wage abuse, workplace discrimination, and unsafe working conditions.” (Civil and Human Rights Coalition Applauds Implementation of Fair Pay and Safe Workplaces Executive order, Aug. 24, 2016..

“At last, the government has devised a means to better protect American workers and ensure that companies obey the law. Why would anyone stand in the way?” asked The New York Times in an Aug. 26, 2016, editorial. (Fair Pay, Safe Workplaces, Republican Objections, The New York Times, Aug. 26, 2016.)

Well, since you asked, opponents to the measure have been pretty vocal, giving it less than affectionate nicknames like the “Blacklisting” executive order or the “Bad Actors” executive order. The Associated General Contractors of America, which claims to represent 26,000 firms, says it has fought hard against the order as “unfounded, unnecessary, unworkable and unlawful.” The group threw its weight behind blocking implementation of the measure. (Fair Pay and Safe Workplaces Executive Order, AGC of America.)

 Jeff Belkin, a partner at Alston & Bird, which represents federal contractors, told The Washington Post^®, “The contracting community has legitimate concerns that contracting officers may overreact to reported labor issues and penalize companies with any violation at all—especially when the rule is new. While placing more information in the decision-makers’ hands is a laudable effort in theory, in practice the fear is that contracting officers will simply write off any [potential contractor] who lists any past labor issue, regardless of the time, location, specific facts, context, or remedial efforts or mitigation. That would be wrong, and unfair, and cause more harm than good.” (Obama Executive Order on Contractor Workplace Violations Takes Place Soon, Despite Objections, Joe Davidson, Washington Post, Aug. 31, 2016.)

While the measure would stop a company from breaking the rules by suspending or even debarring the firm, the provisions came under assault from the GOP as well. The New York Times reported that both House and Senate Republicans opposed the order, adding a rider to appropriations for the Department of Defense that would exempt defense contractors. Democrats and the White House opposed the rider. “Since the defense appropriate is generally considered must-pass legislation, the rider may well be dropped,” the paper wrote. (Fair Pay, Safe Workplaces, Republican Objections, The New York Times, Aug. 26, 2016.)

Much of the concern is that the order would prevent good, honest government contractors from securing contracts. But, The New York Times editorial said, “The main goal is not to deny contracts or to blacklist companies, as critics claim, but to rectify and prevent violations.”

However, things aren’t looking good. Much of Executive Order 13673’s implementation has been put on hold by a federal judge in Texas. The future of another one of President Obama’s would-be signature accomplishments is looking dim.

 On the bright side for President Obama is that the paycheck transparency aspect of his executive order survived the Texas federal judge’s injunction. But even that light may be flickering, according to Leslie A. Stout-Tabackman of Jackson Lewis. Even though it is the least controversial component of the order, businesses consider it expensive and resource intensive to implement, Stout-Tabackman told The Advisory^®. She added that President-elect Trump, once in office, is “extremely likely” to pull the plug on the whole executive order. (See the Department of Labor’s announcement of the order and read the order HERE.)

The day before it was to go into effect, U.S. Judge Marcia A. Crone of the Eastern District of Texas enjoined the labor law violation reporting rules and the arbitration restrictions, but left the paycheck transparency requirements intact. The judge said President Obama exceeded his authority in implementing disclosure requirements and his executive order was pre-empted by other federal labor laws.

Attorneys at Proskauer Rose—Connie Bertram, Guy Brenner and Alex Weinstein—pointed out Judge Crone’s concern about the prospect for disqualification based on such decisions because agencies issue numerous “administrative merits determinations” per year, “many of which are dismissed or significantly reduced after they are contested …” The judge also found this aspect of the executive order to violate First Amendment and due process rights. (Breaking: Federal Judge Enjoins Implementation of Part of Fair Pay and Safe Workplaces [“Blacklisting”] Executive Order, Regulations, and Guidance.)

Knocking down the executive order’s restrictions on pre-dispute arbitration agreements for Title VII claims and torts relating to sexual harassment or assault violates the Federal Arbitration Act (FAA). “Judge Crone found that the FAA requires the government to honor private arbitration agreements unless otherwise dictated by Congress, and that no such congressional command exists in this case,” the Proskauer Rose attorneys wrote.

“Government contracts can—for now—breathe a sigh of relief as the rule will not go into effect unless and until the preliminary injunction is lifted or reversed,” they added. 

Attorneys at Jenner & Block—Cynthia J. Robertson, Elliot S. Tarloff, Gabrielle Sigel and Alexander J. Bandza—said the contractor industry’s decision to take their fight to Texas was strategic. “The plaintiff industry groups were well aware of the advantages of seeking to block the administration’s order and implementing regulations in Texas.   With appeals going to the U.S. Court of Appeals for the Fifth Circuit, widely considered to be the most conservative federal appeals court in the country, and the Supreme Court split 4-4 on this issue, the federal government may not be able to obtain a stay of any injunction, leaving the district court and Fifth Circuit rulings in place.”

 Carmen N. Couden of Foley & Lardner LLP said this was only one of three recent temporary takedowns of rules put in place by the Obama administration. The other two are the controversial Persuader Rule requiring employees to be told when outside consultants are scripting what managers and supervisors are saying to them, and the Department of Labor’s highly publicized overtime rule.

These developments, she wrote, “are a breath of fresh air for employers who have been struggling to keep up with the onslaught of new regulatory requirements advanced by the Obama administration.” 

Paycheck Transparency Still in Play

“Although the regulations implementing the labor violation reporting and anti-arbitration requirements were enjoined, the paycheck transparency requirements are still slated to take effect on Jan. 1, 2017,” Couden wrote. These apply to federal contractors and subcontractors who, after Jan. 1, enter into contracts that exceed $500,000. It requires them to provide: information on pay stubs such as hours worked and overtime hours by work week; written notice of exempt status to all exempt employees working on covered contracts; and written notice of independent contractors. They are also to incorporate language referencing the rule’s requirements into all covered subcontracts.

“Similarly,” Couden said, “the Equal Employment Opportunity Commission’s regulations modifying employers’ annual EEO-1 reporting obligations remain unaffected by the recent court activity. Therefore, absent any future government or court action, covered employers (e.g., federal contractors/subcontractors and non-contractor employers that have 100 or more employees) will still be required to begin reporting on hours of work and W-2 earnings for their workforce starting with the 2017 EEO-1 Report (currently due March 31, 2018).”

Picking up on the independent contractor notices, attorneys Stephen E. Ruscus and Sheila A. Armstrong, partners with Morgan, Lewis & Bockius, said, “The notice must be provided to each individual worker before a worker performs any work under the contract, and a new notice must be provided to an independent contractor each time he or she is engaged to perform work under a separate covered contract, regardless of whether the worker performs the same type of work. The notice must be separate from any independent contractor agreement between the contractor and the individual.” (Final Rule for Fair Pay and Safe Workplaces: Scant Relief for Federal Contractors, Morgan Lewis, Aug. 31, 2016.)

Should this part of the measure survive, Ruscus and Armstrong recommend that employers “establish policies and processes for evaluating subcontractor responsibility under the final rule and related clauses,” and “evaluate processes for issuing compliant wage statements and notices of independent contractor status (as appropriate) to individuals who work on a covered government contract.”

This article was edited for LexisNexis by Tom Hagy, managing director of HB Litigation Conferences and former publisher of Mealey’s^® Litigation Reports