TEXAS FEDERAL COURT BLOCKS CONTRACTOR BLACKLISTING RULES

On October 24, 2016, a Texas federal judge issued a preliminary injunction preventing Executive Order No. 13673 (“EO”) and its rules (FAR Rule and DOL Guidance) – commonly referred to as the “contractor blacklisting rules” – from going into effect. The blacklisting rules would have imposed new – and in the Court’s opinion – onerous reporting requirements regarding labor law violations on contractors that are bidding for certain federal contracts.

Specifically, blacklisting rules would have required contractors bidding on projects in excess of $500,000 to report formal allegations and decisions against the contractor for violations of fourteen federal labor laws, including FLSA, OSHA, NLRA, and the EEO. Contractors would have been under an obligation to report “violations” going back three years from the date of the bid, and would be compelled to report not only proven violations, but also non-final administrative merit determinations, non-adjudicated complaints and unproven allegations. Based on those reports, contractors could be disqualified from consideration for certain federal contracts or required to enter into labor compliance agreements based on their alleged violations to obtain or retain federal contracts. The information would be used by federal employees to make a determination as to whether the bidders were “non-responsible” based on a “lack of integrity and business ethics” and thus not eligible to be awarded a bid on certain federal contracts.

In a thorough and scathing opinion in the case entitled Associated Builders and Contractors of Southeast Texas, et al. v. Rung, Judge Marcia Crone granted the Plaintiffs’ request for a preliminary injunction on three major grounds: 1) The EO, FAR Rule and DOL Guidance exceeded executive power and/or were preempted by existing federal labor laws; 2) the blacklisting rules violated contractors’ First Amendment rights through compelled speech; and 3) the rules would likely violate contractors’ due process rights.

In finding that the blacklisting rules exceeded executive power and were preempted by existing federal law, the Court took particular issue with the blacklisting rules’ disregard for “Congress’s explicit instructions dictating how violations of the labor law statutes are to be addressed.” “It defies reason,” the Court stated, “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.” In short, the blacklisting rules conflicted directly with all the labor laws they claimed to invoke and this formed part of the basis for granting the injunction.

The second major reason the court granted the injunction was that the blacklisting rules would infringe upon contractors’ First Amendment rights in the form of compelled speech. The requirement to make contractors publicly disclose controversial matters – including allegations that are unproven or perhaps even completely false – is a form of compelled speech not allowed under the First Amendment.

Finally, the Court granted the injunction partially on the basis that the blacklisting rules would violate the due process rights of contractors’ bidding on certain federal contracts. The Court’s concern was that contractors would be required to report and defend against non-final allegations of labor law violations without being entitled to a hearing at which they could challenge such allegations.

For these reasons, as well as several others, the Texas federal court enjoined the blacklisting rules from being enforced because the rules had the potential to cause irreparable harm to contractors and create significant financial costs (with little to no clear benefit) both to contractors and to the federal government.