Implications of Recent and Upcoming Supreme Court Decisions for Government Contractors

The Supreme Court has recently addressed, and will soon further clarify, the scope of liability facing government contractors.  In The GEO Group, Inc. v. Menocal, the Court issued a unanimous decision limiting interlocutory appeals of the Yearsley defense. At the same time, contractors await the Court’s ruling in Hencely v. Fluor Corp., which will address whether federal law preempts state tort claims against contractors operating in a military context. Together, these cases shape contractors’ litigation risk, strategy, and exposure.

Yearsley Defense Not Immediately Appealable

As discussed previously, GEO Group involved detainees who alleged that GEO’s work policies violated federal and state law. GEO argued that it was not liable under Yearsley v. W.A. Ross Construction Co. because ICE authorized and directed the challenged conduct. The district court rejected that defense, and the Tenth Circuit held that the ruling was not immediately appealable. The Supreme Court unanimously agreed. It held that the Yearsley doctrine is a defense to liability, not immunity from suit, and therefore does not justify interlocutory appeal. Under Yearsley, a contractor is not liable for conduct “authorized and directed by the Government,” unless it exceeds its authority or the authority was not validly conferred. Because that inquiry turns on the merits—and does not shield unlawful conduct—it must be resolved after factual development and final judgment, not at the outset.

As a result, contractors asserting Yearsley may be required to litigate through discovery and trial before obtaining appellate review, even where they contend their actions were government-directed. This heightens the importance of clearly defining, documenting, and adhering to the scope of government authorization to support the defense and potentially limit litigation exposure.

Coming Soon: State Tort Liability in Military Contracting

In Hencely v. Fluor Corp., the Court will consider whether federal law preempts state tort claims against contractors operating in a combat zone. The case arises from injuries sustained by a U.S. servicemember in Afghanistan when a subcontractor employee detonated an explosive vest. The plaintiff alleged state-law negligence claims against Fluor, which had contracted with the Department of Defense to provide base support services.

The district court—and later the Fourth Circuit—held that the claims were preempted, relying on the Federal Tort Claims Act and its combatant activities exception. The Fourth Circuit emphasized that the military retained ultimate authority over base security and personnel protocols, precluding state-law intrusion into wartime operations.

The case is complicated by allegations that Fluor violated military rules and contractual requirements. The Supreme Court will now decide whether the combatant activities exception preempts state tort claims even when a contractor allegedly fails to comply with military directives. An affirmance would further insulate contractors from state-law liability arising from military operations. A reversal, however, could open the door to increased tort exposure where contractors deviate from contractual or military requirements. Oral argument was held in November, and a decision is expected this spring or early summer.

Takeaways

• These cases underscore the evolving and highly nuanced liability landscape for government contractors. GEO Group clarifies that Yearsley is a merits defense, not a procedural shield, affecting litigation strategy and cost expectations.
• Hencely is poised to determine how far federal preemption extends in the military contracting context. Contractors should closely monitor both decisions and assess how they document authority, manage compliance, and evaluate litigation risk.
• Current compliance polices inform future litigation strategy. Companies should treat compliance as a value driver, mitigating risk through recalibrated risk assessments, rigorous third-party diligence, and strengthened internal controls around heightened risk activities. Specifically, companies should consider mapping, including updating their risk assessment scope, to evaluate activities in light of evolving legal landscapes.

Womble Bond Dickinson (US) LLP’s White Collar Defense and Criminal Investigations Team and its Government Contracts Team frequently work together to represent government contractors in all manner of white collar, regulatory, corporate and congressional investigations. Our team includes a distinguished roster of veteran defense attorneys, former federal prosecutors and U.S. Attorneys who served at the highest levels of the Department of Justice and at leading United States Attorneys’ Offices. Our team includes Chambers Ranked (Band 1) lawyers and alumni of the U.S. Department of Justice, the SEC’s Enforcement Division, the U.S. Senate, House of Representatives, and in-house compliance specialists of publicly traded companies. If you have any questions or concerns about this alert, please contact Matt Delfino, Josh Mullen, Luke Cass, or your regular Womble Bond Dickinson attorney.  

Please note that the opinions expressed in this client alert are solely those of the authors.