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New Obligations to Disclose Labor Law Violations Could Expose Contractors to Defamation Liability

Company communications with government authorities about potential criminal activity or wrongdoing by the company’s employees may expose that company to liability for defamation; that is, unless those communications are considered privileged.  In the majority of states, communications with police or prosecutors are afforded “qualified” or “conditional” privilege, and generally may be the basis of a defamation suit only if they are made with malice or are knowingly false.  And several states have afforded absolute privilege or immunity to communications that are made in response to a government investigation that could lead to prosecution.

But importantly for contractors, potential defamation liability on the basis of statements to the government could arise outside the context of a government investigation.  For example, the recent issuance of the Fair Pay Safe Workplaces Order (“FPSW Order” or “Order”), which requires contractors to disclose violations of number of labor laws, may have significant implications for contractors’ exposure to defamation suits.  

Typical Contours of the Privilege

Last month, the Supreme Court of Texas decided that a company’s communications with the Department of Justice (“DOJ”) about a former employee’s alleged violations of the Foreign Corrupt Practices Act (“FCPA”) were absolutely privileged. Because of the privileged nature of these communications, the former employee was foreclosed from suing the company for defamation.

The court explained that absolute privilege or “immunity” “is based on the personal position or status of the actor” and that one is “absolutely privileged to publish defamatory matter concerning another in communications preliminary to a proposed judicial proceeding or as part of a judicial proceeding in which he is testifying.”   Thus, absolute privilege applied because the company was the target of a DOJ FCPA investigation.  The justification for such privilege, the court stated, is that “[t]he proper administration of justice requires full and free disclosure of information as to criminal activity both by the public and by participants in judicial proceedings.” The court further explained that “absolute privilege is also extended to quasi-judicial proceedings and other limited instances in which the benefit of the communication to the general public outweighs the potential harm to an individual.”

In contrast, the court opined that qualified or conditional privilege applies where one “communicat[es] information of public interest to a public officer or private citizen authorized to take action if the information is true.”  For instance, in a previous case, the court found that only a qualified privilege applied where a company that reported criminal violations was not the target of the government’s investigation at the time of the report.  Further drawing this distinction, the court cited a federal district court case where absolute privilege applied because the individual was “for all practical purposes compelled to make his statements to the commission” and “to classify [the] statements as only conditionally privileged would have caused great harm to the administration of government and the government’s ability to ensure justice was served.”

Interaction with the FPSW Order

The FPSW Order requires offerors for government contracts to disclose whether there have been any “administrative merits determination, arbitral award or decision, or civil judgment . . . rendered against the offeror within the preceding 3-year period” for violations of any of 14 federal labor laws and equivalent state laws. As we previously wrote, the Department of Labor (“DOL”) recently published guidance to assist federal agencies in implementing the Order.  In that guidance, DOL encouraged contractors to also “provide any information that may mitigate a labor law violation,” including the employer’s efforts to comply with labor laws, and the extent to which the contractor has remedied the violation and taken steps to prevent its recurrence.

Such disclosures and accompanying provision of mitigating factors, however, could give rise to defamation allegations—for instance, where a contractor alleges that the violation was the fault of a rogue employee who acted in spite of the company’s compliance efforts. It is unclear whether any privilege, absolute or qualified, will apply in such a situation.

On one hand, the disclosure of violations certainly seems to be compelled by the Order, and applying the privilege would seem consistent with the goal of facilitating “full and free disclosure of information.”  Furthermore, the President’s stated goal in issuing this order, “promot[ing] economy and efficiency in procurement by contracting with responsible sources who comply with labor laws,” could arguably outweigh potential harm to an individual.   On the other hand, a contractor’s decision to make an offer for a government contract in the first place is certainly voluntary, and that contractor will not be able to claim that it was a “target” of an investigation.  If privilege applies at all, these facts may put such disclosures in the “qualified privilege” category in states like Texas.

Given the broad disclosure obligations that the FPSW Order will impose, and the fact that contractors will likely want to provide mitigating evidence to supplement disclosures, contractors should be aware that these communications could become the basis of defamation suits.  And, we have yet to see what level of privilege, if any, courts will afford these communications.

© 2019 Covington & Burling LLP

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About this Author

Jason A. "Jay" Carey, Covington Burling, Government Contracts Attorney,
Partner

Jason Carey represents clients in litigation with the government and other private parties, counsels clients regarding a wide range of formation and compliance matters, and defends clients under investigation by federal and state governments. Mr. Carey regularly represents government contractors in bid protests before the U.S. Government Accountability Office and the Court of Federal Claims. He has prosecuted and defended more than 80 protests covering a wide range of procurements, such as:

  • aerospace and defense (including an $11B launch services contract);
  • ...
202 662 5186
Brandon Myers, Covington, Commercial Litigation Attorney
Associate

Brandon Myers represents clients in a broad array of high-stakes litigation matters, with particular emphases on advertising disputes, product liability and consumer protection actions.

He also counsels and represents clients in a wide range of employment law matters, in addition to maintaining an active pro bono practice.

202-662-5132