Obama Regulatory Order on Federal Contracts Misfires

A judge issues a preliminary injunction against the implementation of the Fair Pay and Safe Workplaces executive order

On Oct. 24, large companies that hold federal government contracts were saved from one of the last blasts of the Obama administration’s regulatory agenda when a Texas judge issued a preliminary injunction against the implementation of the Fair Pay and Safe Workplaces executive order. The executive order was scheduled to take effect Oct. 25.

The executive order, issued July 31, 2014, and made final with regulations announced in August, says that if a company or one of its subcontractors has allegations of violations of federal labor and employment laws, it may lose its federal contracts or the opportunity to bid on others.

The company can be tarred before allegations are proved, with no chance to defend itself. It will be pressured to settle accusations in order to retain the right to have contracts with the federal government.

Such laws include the Fair Labor Standards Act, the Occupational Safety and Health Act, the Family and Medical Leave Act and the National Labor Relations Act.

U.S. District Court Judge Marcia Crone’s order is an indictment of Labor Secretary Thomas Perez’s rule-making guidance. She says the new rule is arbitrary and capricious, and exceeds the authority of the agencies and conflicts with other labor laws. The Supreme Court overturned similar action in 1986 (“Wisconsin Department of Industry v. Gould”). In addition, the rule infringes on companies’ First Amendment rights and due process, because it obligates companies to disclose accusations of violations before they are settled.

The judge said: “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.”

The 50,000 federal contractors and their uncounted subcontractors should, of course, follow the law, but the executive order is an open invitation to extortion and blackmail. It gives government agencies such as the National Labor Relations Board and the Occupational Safety and Health Administration the opportunity to influence the selection of contractors.

If contractors are considered to have “serious,” “repeated” or “willful” violations, they lose the opportunity to bid on contracts, or lose contracts if they have them. This is a loose standard, with possibilities for cronyism. For those with the right friends, violations may be considered less serious.

Before the stay, companies with contracts of more than $50 million would have been required to disclose allegations of their violations over the past year to the Labor Department beginning Oct. 25. If the rule were to be fully phased in, on Oct. 25, 2017, all companies with contracts worth $500,000 or more, and potential subcontractors, would have to report allegations of their violations over the past two years (rising to three years in October 2018), and update this information every six months during the life of the contract.

The executive order would put pressure on companies to settle alleged violations, because a company could receive or keep a contract if it were to promise to reach an agreement in the future with the complaining agency. Dozens of federal offices, ranging from the Equal Employment Opportunity Commission to the Occupational Health and Safety Administration, would be able to have input into whether companies receive federal contracts.

The AFL-CIO called for this executive order in its 2008 recommendations to the Obama-Biden Transition Project. It proposed the creation of a “government-wide database, searchable by employer through a common identifier, of violations of federal law in actions brought against employers by administrative agencies.”

Coincidentally, or not, even before the final regulations were issued, the National Labor Relations Board announced the creation of such a database on July 1, 2016, in a memo from Associate General Counsel Anne Purcell. The NLRB now collects dataon companies’ ID numbers and contractor status as well as labor complaints.

Unions that want to organize workplaces recognize that they now have new powers over employers by accusing them of unfair labor practices.

Teamsters for a Democratic Union, an organization trying to rebuild the Teamsters, said Aug. 22 that “the Executive Order gives unions unprecedented new leverage against companies and institutions that contract with the federal government.” TDU proposed that union officials say: “Unless you settle this strike within the next few days, and the union withdraws its charges, you are likely to be marked as a ‘repeat labor law offender,’ one of the highest categories of wrongdoing under the President’s Order.”

This is just the latest slap in the face of Secretary Perez. On June 27, Texas Senior U.S. District Judge Sam R. Cummings prevented the Labor Department from enforcing its “persuader rule,” which would have deprived companies from confidential legal advice on labor matters. (For prior coverage, see here.) In “Gate Guard Services vs. Perez,” the Fifth Circuit awarded Gate Guard attorneys’ fees due to five years of the Labor Department’s frivolous and oppressive behavior.

With this latest decision, Perez becomes the face of executive-branch overreach. With Politico listing him as the likely attorney general in Hillary Clinton’s administration, people should be on their guard. Americans have been saved from another abuse of power — but for how long?

This piece originally appeared on WSJ's MarketWatch

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Diana Furchtgott-Roth is a senior fellow and director of Economics21 at the Manhattan Institute. Follow her on Twitter here.

This piece originally appeared in WSJ's MarketWatch