The Arbitration Obligations Imposed by the Fair Pay and Safe Workplaces Executive Order

by Ogletree, Deakins, Nash, Smoak & Stewart, P.C.

As we discussed previously in our blog post, “President Obama Issues Two Executive Orders in 10-Day Period,” last week President Obama issued the Fair Pay and Safe Workplaces Executive Order. Under this order, federal contractors will be required to disclose labor law violations and comply with additional obligations regarding pay information that must be disclosed to workers.

The executive order also includes a prohibition against pre-dispute mandatory arbitration agreements for some employers with large federal contracts. Accordingly, some contractors or subcontractors’ agreements to arbitrate certain claims must be made with the voluntary post-dispute consent of their employees or independent contractors.

These requirements apply to claims arising under Title VII of the Civil Rights Act of 1964 and sexual assault and harassment-related tort claims. Additionally, the new arbitration limitation applies only to contracts where the estimated value of the supplies acquired and services required exceeds $1 million, and it also requires contractors to incorporate the requirement into subcontracts in the same value range. This obligation does not apply to contracts or subcontracts for the acquisition of commercial items or commercially available off-the-shelf items.

The executive order includes exceptions. First, the prohibition on mandatory, pre-dispute arbitration agreements does not apply to employees who are covered by a collective bargaining agreement that was negotiated between the contractor and a labor organization representing the employees.

Second, the prohibition against certain arbitration agreements does not apply to employees or independent contractors who enter into valid agreements to arbitrate prior to the contractor or subcontractor’s bid on a contract covered by this executive order (unless such arbitration agreement is changed, renegotiated or replaced after the implementation date of this provision). Because this section is unlikely to take effect until 2016, employers should consider implementing or updating their arbitration agreements, as applicable, in the near future.

The executive order also leaves several questions unanswered with regard to the prohibition on certain arbitration agreements. For example, the order does not specify how the contractual minimum (which must exceed $1 million) is calculated. And while the executive order excludes from the arbitration rule “contracts or subcontracts for the acquisition of commercial items or commercially available off-the-shelf items,” it does not define such items. The executive order also does not specify whether the arbitration rule applies to an entire company or only to the business unit within the company that has the federal contract.

Overall, the executive order, when implemented, will impose yet another restriction on employers’ ability to enter into arbitration agreements. The order comes in the wake of a number of recent rulings on the permissible contents of arbitration programs. For example, in D.R. Horton, Inc. v. NLRB, which was argued by Ogletree Deakins, the Fifth Circuit Court of Appeals upheld the employer’s argument that class action waivers in mandatory employment arbitration agreements are permissible. The National Labor Relations Board had ruled such waivers violated employees’ rights to engage in protected concerted activity. In denying enforcement of the Board’s order, the Fifth Circuit held that under the Federal Arbitration Act and several decisions by the Supreme Court of the United States (American Express Co. v. Italian Colors Restaurant and Oxford Health Plans LLC v. Sutter), employers could insist on class action waivers in arbitration agreements, thereby providing employers with a powerful weapon against class, collective, and multi-plaintiff actions.

The White House has announced in its Fact Sheet explaining the Fair Pay and Safe Workplaces Executive Order that the order will be implemented in stages during 2016. The Federal Acquisition Regulatory Council, which helps direct and coordinate the procurement policy and procurement regulatory activities of the federal government, will propose “necessary and appropriate” implementing regulations to carry out the executive order, including the arbitration rule, and will issue final regulations after considering public comments. We estimate this could occur within 90-120 days.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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