All posts tagged 'Executive Order 13658'
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President Signs Federal Contractor "Minimum Wage" Order (Updated 02 20 14)

February 14, 2014 02:24
by John E. Thompson

The White House Press Office reports that President Obama has now signed an Executive Order to raise the minimum-wage rate for workers on federal contracts, as he announced he would do in his recent State of the Union speech.  His intentions are clearer than they were, but the document is not a model of intelligibility or precision; significant ambiguities and questions remain.

The Basics

The order says that covered "new" federal contracts, "contract-like instruments", and related subcontracts must include a clause providing that, no sooner than January 1, 2015, workers performing under such arrangements will be paid a rate of at least $10.10 per hour.  Under the clause, the minimum rate will be determined (and probably raised) annually thereafter by the U.S. Secretary of Labor with reference to percentage increases in the Consumer Price Index.

The minimum cash wage for tipped employees falling within the order's provisions will be $4.90 an hour (it is currently $2.13 per hour under the federal Fair Labor Standards Act) no sooner than January 1, 2015.  It will rise annually thereafter until the rate equals 70% of the minimum rate ($7.07 based upon a $10.10 rate).  Of course, tips themselves must make up the difference; if they do not, then the employer must pay the shortfall in cash.

The order refers to a variety of contracts and "contract-like instruments" as falling within its scope.  Among them will be those for certain federal procurements, for a variety of services (including at federal properties and on federal lands), for construction, and for certain concessions, the wages under which are governed by the FLSA, the Service Contract Act, or the Davis-Bacon Act.

"Details To Follow . . ."

Official elaborations upon the order's meaning and implementation apparently must await the issuance of regulations by the U.S. Labor Department and the Federal Acquisition Regulatory Council.  USDOL's are due by October 1, 2014, with the FARC's to follow within 60 days after USDOL's.  Presumably, they will address such matters as, for instance, the circumstances under which "a new contract" will be deemed to include renewed and modified agreements.  On the other hand, even assuming that these agencies meet the deadlines, there will be little lead time before January 1, 2015.

Experience suggests that these provisions will be lengthy, densely-worded, complicated, and ambiguous in their own ways.  Moreover, again using history as a guide, one could anticipate that the regulations might well contain significant requirements, limitations, and "interpretations" that are by no means obvious from or even discernible on the face of the order itself.

The order also contains several qualifiers, such as multiple insertions of the phrase "to the extent permitted by law".  Whether this is boilerplate or is instead an implicit acknowledgement of insecurity about the validity of the order's requirements remains to be seen.  As we said earlier, it is subject to debate whether President Obama may unilaterally impose these measures in circumstances in which wages are controlled by the FLSA, the SCA, or the DBA (or another federal law).

The Bottom Line

At least there is now enough information for employers to begin to evaluate what President Obama's earlier announcement means for them, including their (i) determining whether they will be affected, and (ii) assessing the extent and timing of the order's potential impact.  Nonetheless, the degree to which employers can do this is unavoidably limited by continuing uncertainty as to the order's exact meaning and what the coming regulations might say.

And we continue to believe that many will be raising questions, expressing doubts, and perhaps even planning legal challenges concerning the extent to which and with respect to whom a president has any enforceable power to do what the order calls for.


UPDATED 02 20 14:  The order has now been officially published in the Federal Register.  It has been designated Executive Order 13658.


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SOTU "Minimum Wage" Announcement: What Does It Mean?

January 30, 2014 07:41
by John E. Thompson

Considerable concern and confusion has arisen from President Obama's State of the Union announcement that he will raise the minimum wage for individuals working on federal contracts to $10.10 per hour.  Until it is possible to study any Executive Order(s) he issues on the matter, the precise meaning, parameters, and effects of what he intends to do will remain unclear.  As of this writing, no such order has been published in the Federal Register.

May The President Do This?

Published reports seem to indicate that any such measures will apply only to new contracts or to some renewals of contracts; some say that no change will occur before 2015.  If this turns out to be so, then many or even most federal contractors might not face any pressure to act immediately.  If instead the President is proposing to change ongoing contracts, then he is likely to face significant challenges in this regard.

A broader question is whether President Obama has any enforceable authority to order such an increase without Congressional action.  Administration officials reportedly are contending that authority flows from the Federal Property and Administrative Services Act of 1949, which calls for "economical and efficient" federal procurement.  What rationale the administration might offer for how a minimum-wage increase would advance this aim, and whether the courts will defer to such an explanation, are difficult to predict at present.

But What About Other Federal Laws?

However, the rates to be paid under many federal contracts are specified by or under other federal laws which do not appear to grant President Obama the power simply to pick a different amount that he happens to prefer.  For example, the Service Contract Act requires "service employees" furnishing services under many federal contracts to be paid (i) "prevailing rates in the locality" as determined by the Secretary of Labor under a prescribed procedure, or (ii) the rates in an applicable collective-bargaining agreement, none of which may be less than the federal Fair Labor Standards Act's minimum (currently $7.25 an hour).

Similarly, the Davis-Bacon Act, which has to do with the construction, alteration, or repair of public buildings and public works (including many projects funded by or under the American Recovery and Reinvestment Act), requires "laborers and mechanics" engaged in this activity to be paid at least the locally-prevailing wage rates for corresponding work on similar projects in the area.  Again, these rates (which cannot be less than the FLSA minimum wage) are to be established by the Secretary of Labor based upon an adequate analysis of specific, relevant information.

Another illustration is the Walsh-Healey Act, which applies to certain prime contractors or "substitute manufacturers" on some federal contracts for furnishing goods or supplies.  It says that workers on these contracts must be paid at least "the prevailing minimum wages, as determined by the [U.S. Labor] Secretary, for individuals employed in similar work or in the particular or similar industries or groups of industries currently operating in the locality in which the materials, supplies, articles, or equipment are to be manufactured or furnished under the contract . . .."  The current prevailing rate determined by the Secretary "[i]n all industries" is the FLSA minimum wage.

The Bottom Line

Concerned employers should await the actual publication of any directive(s) before deciding what impact, if any, President Obama's remarks might have.  Only then will it be possible to begin evaluating what steps are advisable.

And it is likely that further questions will be raised in coming days about whether, to what extent, and with respect to whom a president has the power to raise a minimum wage for private-sector employees merely with the stroke of a pen.


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