Obama Raises Minimum Wage For Federal Contractors


In his fifth State of the Union speech, President Obama announced that he planned to issue an executive order raising the minimum wage for workers under new federal contracts to $10.10 per hour, up from the current federal minimum wage of $7.25 an hour and higher than the $9.00 per hour rate the president sought last year from Congress. The White House released a fact sheet explaining the background for the decision and outlining some economic and broad legal arguments in support of the administration’s authority. The order will be modeled after legislation sponsored by Senator Tom Harkin (D-Iowa) and Representative George Miller (D-California) who introduced the "Fair Minimum Wage Act" last year. The proposed law would increase the minimum wage for all employers to $10.10 in three 95-cent increments and index it for inflation, as well as boost the sub-minimum wage for tipped workers to 70 percent of the minimum, or $7.07 at the outset.

The White House did not announce a timetable for executing the impending executive order, but it is expected to have a greater political than practical impact on employers because of its planned limited scope. The new executive order would not affect federal contractors’ existing contracts or employers who only receive federal subsidies, grants, or loans, such as those from the USDA, the FCC’s Universal Service or Connect America Funds, or the Department of Energy. Federal employees would have to wait for an increase as well, since only Congress can alter their pay rates. The executive order would only apply to new federal contracts and, if other provisions in them also change, to renewals of existing contracts.

President Obama used his annual address to Congress to highlight his support for the Harkin-Miller bill. In statements before the speech, White House officials argued that the decision to issue the executive order would increase the pressure on Congress to pass this broader legislation. Officials also contended the President’s efforts had encouraged states such as Illinois to increase their own minimum wage rates. Republican leaders criticized the President for bypassing Congress, and some political observers questioned whether a blanket increase in the minimum wage for contractors qualifies as a measure ensuring "economy and efficiency" that the president would be authorized to institute under the 1949 Federal Property and Administrative Services Act.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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