In advance of tonight’s State of the Union Address, the White House announced that the President will issue an Executive Order that will increase the minimum mandatory wage paid to employees of federal contractors covered by the Service Contract Act (for federal service contracts) (“SCA”) and the Davis-Bacon Act (for federal construction contracts and many federally funded/assisted construction projects ) (“DBA”) to $10.10 per hour.  Those wage rates are currently set by the U.S. Department of Labor pursuant to the express Congressional delegation of authority to do so in the SCA and DBA. 

In an effort to ensure that the participation of the federal government in a local labor market does not unduly affect the wages in that local labor market, both the SCA (first enacted in 1965) and the DBA (first enacted in 1931) require that the Secretary of Labor determine the “prevailing” wages in a locality.  DBA requires that the rates be established for “corresponding classes of laborers and mechanics employed on projects of a character similar to the contract work in the city, town, village, or other civil subdivision of the State.”  SCA requires that the rates be established for the “various classes of service employees . . . in accordance with the prevailing rates for such employees in the locality.”  Both the SCA and the DBA have comprehensive and detailed regulatory frameworks intended to determine and develop the prevailing wages for a particular locality. 

Numerous legal — and far more political — battles have been fought over the proper manner and method by which those prevailing wages are determined.  With the anticipated EO, the President seeks to unilaterally override the Congressional mandate for locally prevailing wages and to dispense with the regulatory process for any and all workers earning less than $10.10 per hour.  The EO would establish a “national prevailing minimum wage” for hundreds of classifications across the country (and that would be supplemented by the DOL-determined local prevailing wages).

Although the President has great discretion in the area of procurement, an express override of the Congressional delegation of authority to the Secretary of Labor to establish locally prevailing wages arguably would be beyond the outer limits of that authority.  Without any statistically valid methodology or regard for the wage variations in local labor markets — or the concomitant impact of this decision on those local labor markets — the President’s Executive Order would raise wage rates for some classifications in a wide array of localities by up to nearly 40%.

The EO is, of course, part of a larger debate on whether to increase the FLSA’s minimum wage, which would require an Act of Congress.  Indeed, the Fair Minimum Wage Act of 2013, which was co-sponsored by 33 Democrats in the Senate and 181 Democrats in the House of Representatives, was introduced to both houses of Congress, and anticipated a gradual increase to $10.10 over two years.  The bills have not made it out of committee in either house.  Expect a renewed focus on the minimum wage in the coming months.   

Whether this Executive Order will hold-up to judicial scrutiny, or if it will have the intended effect of putting pressure on Congress to increase the minimum wage across the board is unclear.  What is certain is that, for at least the time being, some employers will see a significant increase in the wages they must pay to certain employees working on federal contracts and uncertainty regarding the battle that may play out in the near- and long-term over this Executive Order.