Biden Administration Raises Minimum Wage for Federal Government Contractors As Congress Mulls $2 Trillion Infrastructure Plan
On April 27, 2021, President Biden issued an executive order (the “Order”) increasing the minimum wage for Federal Government contractors and subcontractors from $10.95 per hour to $15.00 per hour. The text of the Order is available here. This is the most significant increase in the minimum wage for contractors since the Obama administration issued Executive Order No. 13658 (“EO 13658”) in 2014, which raised the minimum wage from $7.25 to $10.10.
Aside from the increased minimum wage and the application of that wage to option exercises, the Biden Order is nearly identical to EO 13658. As a result, although the new Order directs the Department of Labor (“DOL”) to issue regulations implementing the Order, it appears that 29 C.F.R. part 10 and Federal Acquisition Regulation (“FAR”) subpart 22.19, which were promulgated to implement EO 13658, can also implement the new Order without substantial revision.
Although the Order follows the same approach and structure as EO 13658, the new Order is notable because it follows on the heels of the Biden administration’s “American Jobs Plan,” which proposes roughly $2 trillion in spending to improve the nation’s infrastructure and shift to greener energy over the next 8 years. The $15.00 minimum wage mandated by the Order applies to contracts governed by the Fair Labor Standards Act, the Service Contract Labor Standards (formerly known as the Service Contract Act of 1965), or the Construction Wage Rate Requirements statute (formerly known as the Davis-Bacon Act) and therefore would apply to most Federal Government contracts that could be funded by the American Jobs Plan. Like EO 13658, the new Order does not apply to grants. The stated purpose of the Order is to promote “economy and efficiency” on the rationale that raising the minimum wage enhances worker productivity and generates higher quality work. If enacted, the American Jobs Plan may well provide substantial empirical data to test that rationale.
This increase to $15.00 per hour will apply to new Federal Government contracts and subcontracts entered into on or after January 30, 2022. Solicitations must incorporate the new minimum wage if the associated contract will be entered into after January 30, 2022. For existing contracts, agencies must implement the increased minimum wage if the parties extend, renew, or exercise an option under the contract after January 30, 2022. The application of the higher minimum wage to option exercises is a notable difference from EO 13658, which did not apply to the unilateral exercise of a pre-negotiated option to renew an existing contract, and one area where the existing rules in FAR subpart 22.19 will need to be revised to provide for an appropriate price adjustment to accommodate the higher wage.
The Order will not affect the minimum wage on existing contracts with a term going beyond January 30, 2022, unless the contract is extended, renewed, or an option is exercised. The Order directs DOL to issue regulations clarifying what subcontracts will be covered by the new minimum wage requirements by November 24, 2021. Within 60 days of the issuance of the DOL regulations, the Federal Acquisition Regulatory Council (“FAR Council”) must amend the FAR to include clauses to implement the Order. As noted above, it appears that much of 29 C.F.R. part 10 and FAR subpart 22.19 can be used to implement the new Order, as can the current contract clause at FAR Section 52.222-55.
All subcontracts, regardless of dollar value, are likely to be affected by the upcoming regulations. Under the regulations implementing EO 13658, the minimum wage applied to all subcontracts that were subject to the Service Contract Labor Standards or the Construction Wage Rate Requirements statute and performed in whole or in part in the United States.
The Order also provides for annual cost of living adjustments to the minimum wage. The adjusted minimum wage will be tied to the Consumer Price Index and will take effect each year beginning January 1, 2023. DOL will announce the new minimum wage at least 90 days prior.
Like EO 13658, the $15 minimum wage extends to federal contract workers with disabilities. Thus, even if the Service Contract Labor Standards or the Walsh-Healy Public Contracts Act would otherwise permit contractors to pay certain workers with disabilities less than the prevailing wage, the new minimum of $15 per hour will apply to those workers.
The Order, however, does not supersede the prevailing wage requirements under the Service Contract Labor Standards or the Construction Wage Rate Requirements statute if the prevailing wages under those statutes are higher than $15 per hour.
Although rules implementing EO 13658 will be superseded to the extent that they are inconsistent with the upcoming implementing regulations, the enforcement provisions of EO 13658 remain unchanged, so there is no indication that enforcement of the wage requirements or remedies for violations will be different. Moreover, like EO 13658, the Order mandates that contracts specify that, “as a condition of payment,” prime and subcontractors must pay the minimum wage. This language implicates the False Claims Act, which defines “material” as “having a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property.” 31 U.S.C. § 3729(b)(4).
Federal contractors and subcontractors should prepare for these increased wages when calculating costs for new contracts and existing contracts with upcoming renewal or extension dates. Contractors should also review those renewal and extension dates to see if their contracts will be impacted by this Order.
V&E will continue to monitor developments and provide updates as DOL and the FAR Council issue implementing regulations.
This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.