Complex Litigation Awaits Fair Pay Executive Order

Daily Labor Report® is the objective resource the nation’s foremost labor and employment professionals read and rely on, providing reliable, analytical coverage of top labor and employment...

By Ben Penn

March 30 — In anticipation of an imminent final rule and guidance implementing the president's Fair Pay and Safe Workplaces executive order, attorneys are preparing arguments for an inevitable lawsuit that could be filed within hours of the regulation's publication.

Regulations that place new burdens on employers are often subject to litigation, and this executive order applying to federal contractors is no exception. Preparation for litigation involves multiple laws, creating a particularly grueling process for attorneys on both sides of the issue.

“This is not your one-shot, one-subject regulation,” Roger King, senior labor and employment counsel at the HR Policy Association, told Bloomberg BNA.

Federal contractors account for at least 20 percent to 25 percent of the nation's employers and there are multiple laws in play, making the regulation “so comprehensive, so wide-sweeping” that it has required more preparation than a typical regulatory lawsuit, added King, who recently retired as a partner and labor relations attorney at Jones Day.

The executive order (E.O. 13,673), signed by President Barack Obama in 2014 , requires businesses to disclose any violations of 14 federal labor and employment laws for the previous three years to be eligible for contracts worth more than $500,000. It allows agencies to deny contracts based on the information.

A coalition of business groups, led by the U.S. Chamber of Commerce and the HRPA, has vowed to challenge the executive order, citing a number of vulnerabilities. The exact legal arguments they'll use depends on how the Federal Acquisition Regulatory Council and the Labor Department finalize the proposed rule (RIN 9000-AM81) and guidance that implement the executive order.

In last fall's regulatory agenda, the administration said it was aiming for an April release of the final rule. As of March 30, the FAR Council hadn't yet sent the draft final rule to the White House's Office of Management and Budget for review.

Election Could Affect Litigation

The executive order might also face headwinds on Capitol Hill. Republican lawmakers are discussing a Congressional Review Act challenge and an appropriations policy rider that would block the order's implementation . A CRA motion of disapproval on regulations published late enough in the year would wind up in the hands of the next president to veto or sign.

The next president could also repeal the order, which is exactly what President George W. Bush did to a somewhat similar contracting regulation issued in the final days of the Clinton administration .

Fair Pay and Safe Workplaces would likely be doomed under a Republican White House next year. But because of campaign trail unpredictability, a lawsuit is currently considered the more reliable course of action for the executive order's opponents.

And if a Democrat is elected president, “this could drag on” for years in the courts, Leslie Stout-Tabackman, a principal at Jackson Lewis P.C. in Washington, told Bloomberg BNA.

Rule Vulnerable to Challenge?

The Chamber and other groups first previewed their legal arguments in comments submitted on the proposed rule last year. Now, in the lead-up to a final rule, the trade associations are more actively talking to outside attorneys and drafting language for a lawsuit.

“Unless the final regulation changes substantially from what was proposed, we think that the executive order is quite vulnerable to a legal challenge,” said the HRPA's King. “We are looking at a number of legal options, including potential multiple litigation scenarios.”

Angela Styles, a partner in the government contracts group at Crowell & Moring LLP in Washington, recently told Bloomberg BNA she agrees that once the regulation is finalized, it will likely have weaknesses.

Styles, who was chairwoman of the FAR Council from 2001 to 2003, said it's possible that the final rule would close some of the legal gaps she observed in the proposal.

But she highlighted two legal arguments she said would stand the best chance in court: that the administration has exceeded its authority, as determined by Congress, regarding debarment from federal procurement; and that the order is arbitrary and capricious under the Administrative Procedure Act because of an insufficient regulatory flexibility analysis.

Seth Harris, a former deputy labor secretary in the Obama administration, told Bloomberg BNA that the lawsuit wouldn't be “a slam dunk” for the employer associations. “There are arguments in support of the president’s position” in response to each of their contentions, Harris said. “It’s just a matter of whether or not the court is going to accept them.”

The argument that the National Labor Relations Act preempts the president from adding new penalties to past labor law violations “will be a difficult argument to overcome,” an attorney who studies labor-related executive orders told Bloomberg BNA. The attorney spoke on condition of anonymity to preserve relationships with people on both sides of the case.

History suggests the Chamber might file a lawsuit based on location, Charles Tiefer, a University of Baltimore law professor, told Bloomberg BNA. “They’ll pick that geographically somewhere they like, like Texas,” said Tiefer, who wrote a national casebook on government contract law.

Administration, Democrats Expecting Lawsuit

A DOL official working on the rulemaking told Bloomberg BNA that at the administration's first listening session with the employer community, the Chamber made it clear that the executive order would be litigated. That warning hasn't deterred the DOL and FAR, which are pushing forward, the official said.

As the implementing regulation and guidance were being drafted, Democratic members of the House Education and the Workforce Committee requested a report from the Congressional Research Service on the executive order's legality, a committee staffer told Bloomberg BNA.

The resulting analysis, published in July 2015, found that Fair Pay and Safe Workplaces would likely pass the applicable legal standard under the Federal Property and Administrative Services Act, known as the nexus test. That test places the burden on the president to establish a close nexus between the executive order's purpose and promoting economy and efficiency.

“We asked the CRS to scrub this for us and we're pretty comfortable with the analysis they did,” said the Democratic committee staffer, who spoke on condition of anonymity.

But King pointed to other areas that he said the CRS failed to fully consider, such as whether the executive order violates the Federal Arbitration Act. A separate, less-discussed provision of the order would forbid contractors from forcing employees to arbitrate sexual assault or civil rights claims. To King, this is “a clear violation” of the FAA.

Advocacy Groups Divvy Up Defense

Because of the arbitration provision, the American Association for Justice is defending the regulation. Eradicating forced arbitration is among the advocacy missions of the AAJ, formerly the Association of Trial Lawyers of America.

Sarah Rooney, the AAJ's director of regulatory affairs, told Bloomberg BNA that contrary to King's assertion, “it's perfectly within the bounds” of the FAA for the administration “to place restrictions around how and when arbitration can be conducted.”

However, if a court were to agree with the HRPA's stance, it could move to invalidate only the arbitration section, while leaving the remainder of the executive order intact, Rooney added.

Attorneys representing unions and other worker advocacy organizations have taken the lead on defending the president's right to impose new requirements on contractors related to labor and employment.

The Service Employees International Union, which represents property service workers on government contracts, is among the unions preparing to take additional steps to back the rulemaking.

“SEIU supports the President’s issuance of the Executive Order and will take appropriate steps to defend the interests of our members and the hundreds of thousands of other workers affected by the EO,” Arun Ivatury, SEIU policy director, said in a statement provided to Bloomberg BNA.

Proponents of the rule and the government will make many reasonable arguments on the labor and employment front, Tiefer said. The law professor disputed the business community's claim that the president has made unauthorized changes to existing laws. The executive order “doesn't change labor law at all,” Tiefer said. “It just tunes up the ears of the government contracting offices so that they listen to what is happening in labor law.”

Arguments Await Final Regulation

For both sides, the legal theories can't truly take shape until the FAR and the DOL publish the final implementing rule and guidance.

For instance, as Stout-Tabackman said, uncertainty remains about whether the final rule would allow government agencies to place new sanctions on top of previous penalties assessed for labor and employment violations. Depending on what's in the final rule, this could trigger a lawsuit arguing that the final rule exceeds statutory authority, she said.

The moment the rule drops, the employer associations have numerous strategies at their disposal to attack it. “We are examining any number of different legal options,” King said. “Even beyond those that were contained in our comments on the proposed regulations.”

To contact the reporter on this story: Ben Penn in Washington at

To contact the editor responsible for this story: Susan J. McGolrick at