During the recent State of the Union Address, President Obama announced that he is preparing to sign an Executive Order raising the minimum wage to $10.10 per hour for those working on future federal contracts for services. According to a “Fact Sheet” posted online by the White House, the Order would cover “workers who are performing services or construction and are getting paid less than $10.10 an hour.” It would apply only to new contracts after the effective date of the Order.
All federal contractors with employees performing covered work should begin to prepare now for the likely issuance of this Order. Covered contractors should review their current and intended future payroll practices to assess compliance with this increased minimum. Moreover, prudent contractors may review their entire payroll structure to gauge the potential impacts of wage compression at other levels of compensation – e.g., what impact will this new minimum wage have on employees currently earning $10-11 per hour, etc. Wage compression can be a source of employee friction and discontent, which can lead to broader legal challenges for employers.
There are almost certain to be legal challenges to the Order itself, brought on in part by apparent conflicts between the President’s announced intent and the McNamara-O’Hara Service Contract Act (SCA). The SCA requires certain federal contractors and subcontractors to pay service employees at minimum wage rates expressly spelled out in their service contracts with the government. Section 6703 of the SCA, however, provides that the specified minimum wage to be paid under a particular service contract is to be:
determined by the Secretary or the Secretary’s authorized representative, in accordance with prevailing rates in the locality, or, where a collective-bargaining agreement covers the service employees, in accordance with the rates provided for in the agreement, including prospective wage increases provided for in the agreement as a result of arm’s length negotiations. (Emphasis supplied)
This statutory provision – requiring an Act of Congress to amend – may provide grounds for challenging such an Executive Order. Clearly, if $10.10 per hour were a “prevailing rate” for the covered work in a variety of jurisdictions, there would be little, if any, impetus for this intended increase.
Moreover, contractors should remain vigilant as this may be just the first announced step in a longer-term agenda of increased regulatory aim at the nation’s government contractors. As we reported on our blog, LaborRelationsToday, just last month, the Senate Health, Education, Labor and Pensions (HELP) Committee, unveiled a Committee report, titled “Acting Responsibly? Federal Contractors Put Workers Lives and Livelihoods at Risk.” The lengthy report recommends significant changes to the federal contracting process to “ensure that taxpayer dollars are spent in a way that promotes compliance with federal law and improves the quality of life for working Americans.” Among its recommendations, the HELP Committee believes it is necessary to increase the availability to contracting officers of DOL and GSA information on workplace safety and labor law violations; and, establishing tools beyond the existing determination, suspension and debarment processes, that contracting officers can use to increase compliance with federal labor laws.
Contractors looking a little farther down the road may consider performing a thorough audit of their labor and employment policies and practices, to prepare for compliance with an increasingly complex and rigorous set of legal obligations.
