A July 31 executive order from President Obama will make it very costly for employers to challenge dubious allegations of wrongdoing against them, if they are government contractors (which employ a quarter of the American workforce). Executive Order 13,673 will allow trial lawyers to extort larger settlements from companies, and enable bureaucratic agencies to extract costly settlements over conduct that may have been perfectly legal. That’s the conclusion of the The Wall Street Journal and prominent labor lawyer Eugene Scalia.

This “Fair Pay and Safe Workplaces” order allows the government to cut off the contracts of contractors and subcontractors that do not “consistently adhere” to a wide array of complex labor, antidiscrimination, harassment, workplace-safety and disabilities-rights laws. Never mind that every large national business, no matter how conscientious, has at least one successful lawsuit against it under federal labor and employment laws, which is inevitable when a company has thousands of employees who can sue it in hundreds of different courts that often have differing interpretations of the law. The order also bans using perfectly legal arbitration agreements, overstepping the President’s legal authority.

Although it will increase the cost of government contracts (by making them legally riskier and less desirable), this sweeping executive order is purportedly grounded in efficiency. As a defender of the order concedes, “to be sustained under FPASA, a presidential directive must have a rational, nonarbitrary relationship to the goal of ‘an economical and efficient system’ of federal procurement.” This efficiency rationale is false and absurd: One of the laws covered by the order, the Davis-Bacon Act, not only dramatically increases contracting costs and shrinks the economy, but had racist, anti-black origins. Other laws covered by the order seek to promote inclusion or social justice, not efficiency. For example, the Rehabilitation Act requires costly accommodations of the disabled that an efficient, profit-maximizing employer would not voluntarily make. Overtime rules contained in the FLSA increase employers’ costs and reduce flexibility in hours and scheduling. Federal law bans some employment practices that are inefficient — like intentional race and sex discrimination — but it also restricts many economically rational and efficient business practices.

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