Pay to Play with the Feds: Update on Minimum Wage Increases for Federal Contractors

As previously reported here, in February 2014 President Barack Obama issued Executive Order 13658, which directed the US Department of Labor (DOL) to propose new guidelines to increase the minimum wage for federal contractors. On June 12, the DOL, in conjunction with the White House, released its proposed rule that raises the minimum wage for workers on federal service and construction contracts to $10.10 per hour. The 181-page proposed rule (RIN 1235-AA10) would increase wages for nearly 200,000 workers, according to an economic analysis included in the proposal. The Executive Order applies to new and renegotiated federal contracts starting January 1, 2015.

The proposed rule is based on several underlying rationales. First, it states that there is evidence that boosting low wages can reduce turnover and absenteeism in the workplace, while also improving morale and incentives for workers, thereby leading to higher productivity overall. Second, the DOL thinks that cost savings and quality improvements in the work performed by parties who contract with the federal government will lead to improved economy and efficiency in government procurement. For these reasons, the DOL believes that by increasing the quality of employees working as contractors, the increase in minimum wage will improve the value that taxpayers receive from the federal government’s investment. As part of the development of the proposed rule, the DOL engaged stakeholders likely subject to the Executive Order to solicit their views on what the Executive Order will mean for their operations and workers. The DOL conducted a number of “listening sessions” with contractors, contracting agencies, and unions regarding the provisions of the Executive Order.

The proposed rule would apply to all construction contracts covered by the Davis-Bacon Act; service contracts covered by the Service Contract Act; concessions contracts, such as contracts to furnish food and lodging on federal property; and contracts to provide services, such as child care or dry cleaning, in federal buildings. Tipped employees of government contractors and their subcontractors would also receive a raise under the proposed rule. Under the Executive Order, tipped workers will be paid a minimum hourly wage of $4.90 by their employer in addition to the amount they earn in tips. This new tipped wage is more than double the current federal tipped minimum wage of $2.13 per hour. Starting in 2016, the $4.90 minimum for tipped workers would climb by 95 cents per year until it equals 70 percent of the minimum wage for non-tipped workers under government contracts.

The DOL’s Wage and Hour Division will be responsible for enforcing the proposed rule. The proposed rule contains a mechanism for investigations and informal complaint resolution as well as remedies for violations, including the payment of back wages and debarment. Importantly, the proposed rule also contains an anti-retaliation provision, making it unlawful for any person to discharge or in any other manner discriminate against any worker because such worker has filed any complaint or instituted (or caused to be instituted) any proceeding under or related to Executive Order 13658, or has testified (or is about to testify) in any such proceeding. This language is derived from the FLSA’s anti-retaliation provision and protects employees who file oral as well as written complaints. And, like the FLSA, workers cannot waive, nor may contractors induce workers to waive, their rights under Executive Order 13658.

For more information about the Executive Order or other minimum wage issues, please contact the authors of this alert or any other members of the Arent Fox Labor & Employment Group, or the Arent Fox professional who handles your matters.