Implementing a promise from his State of the Union Address, President Obama issued Executive Order (“E.O.”) 13658 on February 12, 2014, imposing a mandatory minimum wage of $10.10 per hour for some Federal prime contracts and subcontracts. 79 Fed. Reg. 9849 (Feb. 20, 2014).  The current Federal minimum wage is $7.25 per hour for all covered, non-exempt employees under the Fair Labor Standards Act (“FLSA”), although many states impose a higher minimum wage.

The new E.O. applies to the following types of procurement contracts and subcontracts (at any tier) signed after January 1, 2015:

  • Procurement contracts for services or construction;
  • Contracts or contract-like instruments for services covered by the Service Contract Act (“SCA”);
  • Contracts or contract-like instruments for concessions; and
  • Contracts or contract-like instruments with the Federal government in connection with Federal property or lands, and related to offering services for Federal employees, their dependents, or the general public.

The E.O. is only applicable if wages for the workers under the above contracts are governed by the FLSA, the SCA, or the Davis-Bacon Act (“DBA”), and if the contract or contract-like document is subject to the Federal Acquisition Regulation (“FAR”).  Based on the above list, it appears that the mandate will apply to these types of contracts and subcontracts whether or not they are subject to the Service Contract Act.  However, the E.O.’s requirements will be implemented on a contract-by-contract basis, and the mandatory minimum wage will only attach to employees performing under a covered contract or subcontract.

Starting January 1, 2015, solicitations and contract documents for these types of contracts must include a clause stating that, as a condition of payment, the minimum wage paid to workers must total $10.10 per hour.  This amount will be adjusted for inflation each year, as determined by the percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers.  Employees compensated based on a tip structure must be paid the equivalent of $10.10 per hour through base wages and tips.

The President has ordered that the Department of Labor (“DOL”) issue regulations implementing the minimum wage policy by October 1, 2014.  The FAR Council then has sixty days to issue its own regulations and a contract clause pursuant to the E.O.  Even if a FAR clause is not finalized by January 1, 2015, executive agencies are directed to “take steps” to ensure that contracts entered into after that date comply with the E.O.

The DOL regulations may include “exclusions from the requirements . . . where appropriate.”  79 Fed. Reg. 9852.  Additionally, the DOL regulations will import statutory threshold requirements from the SCA, DBA, or FLSA.  The regulations will also outline remedies, sanctions, and enforcement measures.  Agencies are “strongly encouraged” to take all reasonable steps to ensure that workers under contracts signed between now and January 1 will be paid an hourly wage of at least $10.10 as of the first of the year.

As explained in his February 22 weekly address, the President is continuing to press Congress for an increase in the minimum wage for all workers.