Fair Pay Order Enters Next Phase: Lawsuits, Compliance

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By Ben Penn

Aug. 25 — The White House’s just finalized requirement that federal contractors disclose recent labor law violations now enters a new chapter, involving careful compliance planning and very likely, litigation.

“Various legal strategies are under active consideration, especially in light of the announcement by the administration today,” Roger King, senior labor and employment counsel for the HR Policy Association, told Bloomberg BNA Aug. 24, after reviewing the final Fair Pay and Safe Workplaces rule and guidance.

Asked whether a lawsuit would be filed in time to convince a judge to enjoin the rules before they’re scheduled to take effect Oct. 25, King said, “That’s an option that we are reviewing.”

Government contractors, and their lobbyist and attorney representatives, strongly opposed this policy, which they term “blacklisting,” ever since President Barack Obama first signed the executive order in 2014. The order mandates that federal contractors and subcontractors report all violations of 14 federal labor and employment laws—and state law counterparts—when bidding on contracts. Agency procurement officers will be able to debar or suspend businesses that are egregious violators.

The HR Policy Association, the U.S. Chamber of Commerce and other trade groups have formed a coalition to attack the order in Congress and the courts. Now that the rules and guidance are final, “the general trade association community is working in concert,” said King, who recently retired as a partner and labor relations attorney at Jones Day.

‘There Is No Blacklist.'

But the Labor Department, backed by unions and worker advocacy groups, called this a commonsense regulation that benefits taxpayers, employees and law-abiding employers. They’ve argued that for the vast majority of contractors, the reporting process will be simple and the vast majority of affected companies will proceed as government business partners.

“There is no blacklist,” Debbie Berkowitz, who until recently was chief of staff at the DOL’s Occupational Safety and Health Administration, told Bloomberg BNA Aug. 24. “In fact, I think many people think” the final version “goes way too far over to the other side to accommodate lawbreakers, to bring them into compliance,” she said.

The true outcome might lie somewhere between the two sides’ contentions, Christopher Wilkinson, who was an associate labor solicitor at DOL when the agency developed the initiative, told Bloomberg BNA Aug. 25.

“As much as the blacklisting concerns may be termed as overblown, the government’s sense that this is just going to be easy from a compliance standpoint is just as overblown,” said Wilkinson, now advising contractors as a partner with Orrick Herrington & Sutcliffe in Washington.

He said he thinks the biggest concern for contractors is that the rules don't require “consistency in responsibility determinations” among labor compliance advisers across different agencies, Wilkinson added. “So regardless of whether the number of people affected is small or not, contractors want to know where the government stands, and there is a great chance of inconsistency,” he said.

Due Process, NLRA Arguments Emerge

As the employer groups now adjust their drafted legal filings in accordance with the final rules and guidance, several leading arguments are emerging.

The contention that the National Labor Relations Act preempts the president from adding new penalties to past labor law violations is compelling, David Fortney, who represents contractors at management firm Fortney & Scott in Washington, told Bloomberg BNA. “There is some very specific case law that has rejected similar attempts by states to impose additional remedies similar to what has been done in this” order “that have been found to be preempted because the NLRA has its own remedial scheme,” said Fortney, who was acting labor solicitor under President George H.W. Bush.

Still, the separate argument that the executive order violates employers’ constitutional due process rights “is perhaps the strongest,” added Fortney. “From the contractor community, due process is a stronger argument because that’s an across-the-board challenge,” he said. “The narrower challenge could only result in a partial set aside,” he said, such as in just the NLRA violation disclosure requirements.

The reporting of alleged violations before final adjudication could prevent a business from receiving a contract over a charge that winds up being overturned by an appeals court, contractor attorneys say.

Berkowitz, now a senior fellow at the National Employment Law Project, said the due process concerns aren't valid.

“Companies don’t have to apply for federal contracts. If they don’t want to be responsible, then they shouldn’t apply,” she said. “This doesn’t give them any new legal obligations. This doesn’t change any requirement for any of the 14 labor statutes. It simply says you need to be in compliance if you want to get a federal contract, and if you’re not, you need to come into compliance.” Due process “is a bogus argument,” she said.

The contractor legal positions would face a rebuttal of “these aren’t penalties” imposed by the Fair Pay and Safe Workplaces rules, Bill Samuel, government affairs director at the AFL-CIO, told Bloomberg BNA Aug. 24. “Evidence of significant violations of health and safety laws or anti-discrimination statutes suggests that they may not have appropriate levels of business ethics, and that’s already in the law that they have to meet those standards,” Samuel said.

“This is just another way of uncovering” companies that don’t meet ethical standards and is intended “to provide transparency and corrective measures so that the companies that have shown this type of pattern will take steps to correct it,” he said.

Another possible employer legal argument is that the legislative branch has been circumvented by this executive action, the HR Policy Association's King said.

Pre-Assessment Process Gets Closer Look

The order’s gradual implementation timeline officially begins Oct. 25, when prime contractors bidding on awards valued at $50 million or more are subject to the reporting requirements. But an earlier date looms for all potential contractors and subcontractors.

In less than three weeks, on Sept. 12, the DOL opens up a voluntary pre-assessment process, allowing companies to submit their violation histories to the department before the rules take effect. The agency will inform prospective bidders whether their track records are satisfactory and if not, will guide them toward compliance.

Further details on exactly what the pre-assessment will entail will be announced by the DOL in the next few weeks. But for the time being, there is anxiety about what the department could do with information voluntarily divulged.

“I think some companies that are poised to bid on a contract or know that they’ve got a troublesome history of labor violations may take advantage” of the DOL assessment, Leslie Stout-Tabackman, who counsels federal contractors as a principal at Jackson Lewis P.C. in Washington, told Bloomberg BNA Aug. 24. “That’s going to be tempered by once you walk in the door, you may lose control of what happens next.”

When the agency does expound on contractor pre-assessment, clarity will be key, Fortney said. “I think the Labor Department needs to be crystal clear with the contractor community what will and will not happen with all of the data that has been collected” and “whether they would pass it on to other enforcement agencies,” he said. “That’s a troubling one because depending on the answer, it may undercut the efficacy of the pre-asssessment process,” he said.

Congress May Reprieve Defense Contractors

More uncertainty exists for the executive order on Capitol Hill, as a Republican-backed attempt to excuse defense contractors from the rules will be considered this fall.

The House and Senate passed National Defense Authorization Act bills for fiscal year 2017 that would exempt defense contractors, which account for about two-thirds of federal contracts, from the order. That provision of the NDAA is subject to removal as the bill heads to conference committee when Congress reconvenes in September.

In an Aug. 24 statement, Sen. Lamar Alexander (R-Tenn.), chairman of the Senate Health, Education, Labor and Pensions Committee, called on NDAA conferees to pass the conferenced bill in September, to prevent the order from affecting defense contracts.

However, the Fair Pay and Safe Workplaces language and other controversial defense bill provisions could drag the conference negotiations past the election.

Even defense contractors holding out hope that the president would sign an NDAA bill that retained this provision should still be prepared to comply with Fair Pay and Safe Workplaces for their non-defense contracts, Fortney said.

Contractor Prep

Faced with a looming compliance date, contractors large and small are now dealing with the challenges of compiling their violation histories for disclosure to the government and, through an online database, the public.

“The initial difficult task for contractors is to identify personnel internally and set up compliance systems to cover multistate operations and multi-business-unit operations where you have potential violations,” Stephen McBrady, a government contracts group partner at management firm Crowell & Moring LLP in Washington, told Bloomberg BNA Aug. 24.

“At a small company it can be even more difficult because you may not have the internal resources to build a compliance infrastructure, and it may be very expensive,” McBrady said.

To contact the reporter on this story: Ben Penn in Washington at bpenn@bna.com

To contact the editor responsible for this story: Susan J. McGolrick at smcgolrick@bna.com

For More Information

Text of the final rule is available at http://src.bna.com/hZm and the guidance at http://src.bna.com/hZn.

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