With the US Supreme Court’s 2025–2026 term nearing its conclusion, several recent decisions have already emerged as important developments for government contractors. Although arising in different contexts, three rulings this term address the boundaries of contractor liability and the circumstances under which contractors may invoke federal protections when facing litigation. The decisions underscore a common theme: contractors are most likely to receive legal protection when they can demonstrate a clear connection between the challenged conduct and specific government direction or authorization.
Supreme Court Clarifies Limits of Government Contractor Immunity
In Geo Group Inc. v. Menocal, the Supreme Court addressed whether a federal contractor may immediately appeal a trial court’s rejection of a Yearsley defense, which protects contractors from liability when they act pursuant to valid federal authority.
The Court held that contractors may not immediately appeal denial of a Yearsley defense because the doctrine does not provide immunity from suit comparable to sovereign immunity. Instead, it serves as a defense to liability that generally may be reviewed only after final judgment.
In reaching that conclusion, the Court rejected arguments that federal contractors possess a form of derivative sovereign immunity equivalent to the government’s own immunity. As a result, contractors whose Yearsley defenses are rejected at the outset of litigation will generally be required to continue through discovery and trial before seeking appellate review.
For government contractors, the decision reinforces the importance of maintaining detailed records demonstrating government direction, approval, and oversight. The stronger the connection between the challenged conduct and specific government authorization, the stronger the potential Yearsley defense. Contractors should also anticipate more extensive discovery disputes as parties seek to develop factual records concerning the government’s role in directing the conduct at issue.
Court Broadens Access to Federal Court for Contractors
In Chevron USA Inc. v. Plaquemines Parish, Louisiana, the Supreme Court considered when defendants may remove state-law claims to federal court under the federal officer removal statute.
The case arose from environmental claims brought by Louisiana parishes against Chevron relating to oil production activities that Chevron argued were connected to wartime contracts with the federal government during World War II.
In a unanimous decision, the Court interpreted the statute’s “related to” requirement broadly, holding that removal is appropriate when there is a meaningful relationship between the challenged conduct and the defendant’s federally contracted activities. A contractor need not show that the federal government specifically directed every action challenged in the lawsuit. Rather, it is sufficient that the claims bear a substantial connection to performance of federal contractual obligations.
Applying that standard, the Court concluded that Chevron’s conduct was meaningfully connected to its wartime production activities and allowed the case to proceed in federal court.
The decision expands the circumstances under which contractors may seek access to federal courts when facing state-law claims connected to federal work. For contractors, the ruling may increase access to procedural advantages often associated with federal court litigation, including broader federal defenses, stricter pleading standards, and more centralized case management.
Supreme Court Narrows Scope of Federal Preemption Defense
In Hencely v. Fluor Corp., the Supreme Court addressed whether state-law claims against military contractors are preempted simply because the conduct occurred in a military or combat-zone setting.
The case involved claims brought by an Army specialist injured during a suicide bombing at Bagram Airfield in Afghanistan. The plaintiff alleged that Fluor negligently supervised the attacker, one of its employees, in violation of instructions provided by the US government.
The Court held that the claims were not preempted. It explained that federal law does not automatically displace state-law claims merely because the challenged conduct occurred in an area traditionally associated with federal authority. Instead, preemption is less likely when a contractor retains discretion over how to perform its work and can comply with both federal requirements and state-law duties of care.
The decision narrows the circumstances under which military contractors may rely on federal preemption to defeat state-law tort claims and may have implications beyond combat zones, including overseas operations and work performed on domestic military installations.
Like Geo Group, the decision highlights the importance of demonstrating that challenged conduct was required, authorized, or closely controlled by the government. The more discretion retained by the contractor, the less likely federal preemption may apply.
Looking Ahead
Taken together, these decisions provide important guidance on the legal protections available to government contractors when facing litigation. While the Court broadened contractors’ ability to remove certain cases to federal court, it also limited opportunities to obtain early appellate review of Yearsley defenses and narrowed circumstances in which federal preemption may bar state-law claims.
The common thread across all three decisions is the importance of documenting government direction and oversight. Contractors should continue evaluating contract administration, recordkeeping, and compliance practices with an eye toward preserving evidence that challenged actions were undertaken pursuant to specific federal authorization. Such documentation may prove critical when asserting defenses tied to federal contracts and government-directed performance.