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Fair Pay and Safe Workplaces – What Is “Responsibility”?

This past Monday Judge Crone of the U.S. Court for the Eastern District of Texas granted a nationwide Temporary Restraining Order prohibiting the OMB or the Department of Labor from beginning enforcement of most of the Fair Pay and Safe Workplaces Regulations that were scheduled to go into effect on Tuesday.

This means that the labor law violation reporting requirements and the prohibition on pre-dispute arbitration agreements for Title VII or sexual harassment claims do not come into effect now, but that the paycheck transparency requirements, which are scheduled to go into effect January 1 of 2017, are still on schedule.

Contractors should still be on notice that the requirements could still go in effect, but there’s no requirement to start reporting now.

The Order can be found here, and is a very good read. It lays out plainly and in detail Judge Crone’s concerns with the regulatory requirements. As I read it, Judge Crone’s main concern is that the mandate makes complaints from administrative bodies into reportable “violations” before the contractors have an opportunity to contest those complaints. From the Judge’s Order:

“The Executive Order, FAR Rule, and DOL Guidance explicitly conflict with those labor laws that already specify debarment procedures, after full hearings and final adjudications, for contractors who violate the requirements specifically directed at government contracting, i.e., DBA, SCA, Rehabilitation Act, VEVRAA, Executive Order 11246, and Executive Order 13658. It defies reason that Congress gave explicit instructions to suspend or debar government contractors who violate these government-specific labor laws only after a full hearing and final decision, but intended to leave the door open to government agencies to disqualify contractors from individual contract awards without any of these procedural protections.” (p. 16) (emphasis added)

and

“The Order and Rule appear to conflict directly with every one of the labor laws they purport to invoke by permitting disqualification based solely upon “administrative merits determinations” that are nothing more than allegations of fault asserted by agency employees and do not constitute final agency findings of any violation at all.” (p. 17) (emphasis added)

The second highlighted passage gets to the heart of the matter, and the heart of the contracting community’s issue with the rule: Because the rule requires reporting of ‘administrative merits determinations’ if effectively requires the reporting of allegations of wrongdoing regardless of whether those allegations were substantiated. For example, again from the Order, the EEOC issues approximately 3,000 “reasonable cause notices” a year but only litigates approximately 150 of those and a substantial proportion of those 150 are found to be meritless. The reasonable cause notices serve effectively as complaints of wrongdoing, not as adjudication that the complained about wrongdoing actually occurred.

This dovetails with the second part of the rule, where a contractor’s “mitigation strategy” is taken into account in determining whether a contractor that has reported violations under this rule should be found non-responsible and therefore ineligible for award. As Judge Crone notes, this requirement forces contractors to potentially settle or otherwise mitigate cases that could have been found meritless had the contractor defended them before a neutral adjudicating body.

The mechanism by which the rule disqualifies contractors from participating in a specific contract is that the Contracting Officer can use violations reported under this rule to find a contractor “non-responsible” and thereby ineligible for award even if the contractor otherwise would be.

Responsibility determinations mostly consist of capacity review – physical plant, financial resources, personnel resources, production facilities, construction facilities, organization, operational processes, proper clearances, proper certifications, etc. FAR 9. 104-1. However, there is one line in the responsibility standards that asks Contracting Officers to make an ethical review. Subsection (d) requires contractors to “have a satisfactory record of integrity and business ethics.” FAR 9.104(d). The Government in its opposition to the TRO request pointed specifically to that section of the responsibility criteria as an example that Contracting Officers already review violations of law and regulation when determining responsibility: “Long-standing existing law requires contractors to make a variety of disclosures of certain tax delinquencies, criminal convictions, indictments, civil judgments, and charges, in order to enable contracting officers to make the required responsibility determination. See, e.g., FAR §§ 52.209-5, 52.209-7.” (Opposition To TRO Motion, p. 3).

Judge Crone found that while the current responsibility regulation and its enforcement requires reporting of what I’ll call “adjudicated wrongdoing” the new regulations require reporting of purported wrongdoing that has not been adjudicated.

What it all comes down to is that Judge Crone found that contractors would have to report items that are effectively nothing more than allegations of labor law violations, and directly conflict with the labor laws themselves because they side-track the judicial process by which contractors could defend themselves against the allegations.

A direct operational result of the decision is that the enforcement of the labor law reporting and prohibition on certain arbitration agreement is stayed indefinitely. Contractors should be aware that that could change and enforcement could begin. But secondarily, the decision is important reading for an understanding of the interplay between the FAR, DOL regulations, government contracting, and contractors’ obligations under other laws. It lays out very thoroughly how policy (penalize contractors who take unfair advantage of their employees) doesn’t always effectively translate to regulation (penalize contractors who’s employees file claims, regardless of the merit of those claims).

You can find the memorandum and order here.