Your Guide to the Proposed Rules Under Executive Order 13658 Setting a Minimum Wage for Federal Contractors

by Ogletree, Deakins, Nash, Smoak & Stewart, P.C.
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On February 12, 2014, President Barack Obama signed Executive Order 13658 (“Establishing a Minimum Wage for Contractors”), with instructions to U.S. Secretary of Labor Thomas E. Perez to issue regulations by October 1, 2014 implementing the requirements of the order. On June 17, 2014, a notice of proposed rulemaking (NPRM) was published in the Federal Register, proposing the addition of a new Part 10 to Title 29 of the Code of Federal Regulations. Comments to the NPRM are due by July 17, 2014.

Executive Order 13658 requires that for new covered federal contracts, contract-like instruments, and solicitations, the minimum wage for covered employees be increased to $10.10 per hour beginning January 1, 2015. Starting January 1, 2016, and each year thereafter, the Secretary of Labor is given authority to propose hourly rates within the requirements of the order. The NPRM proposes to base future minimum wage increases, beginning January 1, 2016, on the most recent annual data in the Consumer Price Index for Urban Wage Earners and Clerical Workers in order to minimize the impact of seasonal wage fluctuations. Additionally, covered individuals paid on a tipped basis (meaning they regularly receive more than $30 per month in tips) must receive an hourly cash wage of $4.90 per hour beginning on January 1, 2015, with increases in succeeding years until certain wage benchmarks in the order are achieved.

Example: A two-year contract entered into on June 1, 2014, is not subject to Executive Order 13658, even though it is being performed in 2015 and 2016.

Example: A two-year contract entered into on January 1, 2015, would require that covered employees be paid a minimum wage of $10.10 per hour in 2015 and possibly a higher wage in 2016 depending on the hourly rate proposed by the Secretary of Labor. (Note: Once a multi-year contract is covered by Executive Order 13658, it is possible that the minimum wage under the federal contract may increase during its term.)

The requirements of Executive Order 13658 apply to new solicitations issued, or contracts awarded outside the solicitation process on or after January 1, 2015, provided the following exists:

  1. The wages of applicable workers are governed by the Fair Labor Standards Act (FLSA), the McNamara-O’Hara Service Contract Act (SCA) or the Davis-Bacon Act (DBA); and
  1. The solicitation or contract is one or more of the following:

  • a procurement contract of at least $2,000 for construction covered by the DBA (which applies to federal contracts for the construction, alteration, or repair of public buildings and public works requiring or involving the work of mechanics or laborers);

  • a procurement contract for services of at least $2,500 covered by the SCA (which applies to federal contracts for the furnishing of services through the use of service employees and does not extend to contracts for services to be performed exclusively by persons who are not service employees, such as executive, administrative, or professional employees);

  • a concessions contract under which the federal government grants a right to use federal property, including land or facilities, for furnishing services such as food, lodging, automobile fuel, souvenirs, newspaper stands, and/or recreational equipment; or

  • a contract with the federal government in connection with federal property or lands related to offering services to federal employees, their dependents, or the general public.

  • For procurement contracts where only the FLSA governs wages, “covered contracts” are those exceeding the current micro-purchase threshold of $3,000. (Note that there are no threshold dollar amounts for subcontracts awarded under covered prime contracts.)

  1. The federal contract requires performance in whole or in part within the United States.
  1. The federal contract is for services to an executive agency, military department, independent agency, and/or wholly owned government corporations. Independent regulatory agencies are not subject to the order.

Executive agencies or departments that are subject to the order include:

  • the Department of State
  • the Department of the Treasury
  • the Department of Defense
  • the Department of Justice
  • the Department of Homeland Security
  • the Department of Health and Human Services
  • the Department of Housing and Urban Development
  • the Department of Commerce
  • the Department of Labor
  • the Department of Agriculture
  • the Department of Energy
  • the Department of Transportation
  • the Department of the Interior
  • the Department of Education
  • the Department of Veterans Affairs

Military departments that are subject to the order include:

  • the Department of the Army
  • the Department of the Navy
  • the Department of the Air Force

Independent establishments that are subject to the order include:

  • the Government Accountability Office
  • an establishment in the executive branch (other than then United States Postal Service or the Postal Regulatory Commission) that is not an executive department, military department, government corporation, or part thereof, or part of an independent establishment

Wholly owned government corporations that are subject to the order include:

  • the Commodity Credit Corporation
  • the Export-Import Bank of the US
  • the Federal Crop Insurance Corp.
  • Federal Prison Industries, Inc.
  • the Tennessee Valley Authority
  • the Panama Canal Commission
  • the Millennium Challenge Corp.
  • the Pension Benefit Guaranty Corp.
  • the Overseas Private Investment Corp.
  • the International Clean Energy Foundation
  • the Pennsylvania Avenue Development Corp.
  • the Community Development Financial Institutions Fund
  • the Corporation for National and Community Service
  • the Government National Mortgage Association
  • the Rural Telephone Bank (until ownership, control and operation of the Bank are converted under section 410(a) of the Rural Electrification Act of 1936)
  • the Secretary of Housing and Urban Development (when carrying out  duties and powers related to the Federal Housing Administration Fund)

The term “contract or contract-like instrument” is intended to be interpreted broadly and is defined as a verbal or written agreement between two or more parties creating obligations that are enforceable or otherwise recognizable at law. This includes, but is not limited to,

  • a mutually binding legal relationship obligating one party to furnish services (including construction) and another party to pay for those services;
  • any contract or subcontract of any tier, whether negotiated or advertised;
  • procurement actions, lease agreements, cooperative agreements, service agreements, licenses, permits, or other type of agreement;
  • any contract that may be consistent with the definition provided in the Federal Acquisition Regulations or applicable federal statutes;
  • any contract that may be covered under any federal procurement statutes;
  • contracts that result from competitive bidding or awarded to a single source;
  • awards and notices of awards;
  • job orders or task letters issued under basic ordering agreements;
  • letter contracts;
  • orders and purchase orders where a contract becomes effective upon written acceptance or performance; and
  • bilateral contract modifications.

Various sections of the NPRM also identify which contracts may be covered or excluded from the order’s requirements:

COVERED

EXCLUDED

new contracts, contract-like instruments and solicitations, including subcontracts, resulting from a solicitation issued by an executive department or agency on or after January 1, 2015

 

automatic (no bilateral negotiation) renewal of contracts entered into before January 1, 2015

replacements for expiring contracts resulting from a solicitation issued by an executive department or agency on or after January 1, 2015 (including subcontracts under the prime contract)

 

exercise of options under automatic renewal contracts entered into before January 1, 2015

renewals or extensions of contracts that result from bilateral negotiations awarded by an executive department or agency after January 1, 2015 (even if negotiations occur during options periods)

 

grants (within the meaning of the Federal Grant and Cooperative Agreement Act)

 

contracts not issued by an executive agency or department

 

contracts and agreements with and grants to Indian Tribes (under the Indian Self-Determination and Education Assistance Act)

 

procurement contracts exempted from coverage by the SCA (unless otherwise expressly covered by Executive Order 13658 and the NPRM)

 

employees exempt from the minimum wage requirements under the FLSA under 29 U.S.C sections 213(a) and 214(a)-(b) and those exempt from overtime requirements

 

contracts subject to the Walsh-Healy Public Contracts Act (contracts for the manufacturing or furnishing of materials, supplies, articles or equipment to the federal government), based upon the preamble language although not explicitly stated in the proposed regulations

 

Example: A supervisor conducting work under a federal contract who is not otherwise entitled to receive overtime based on the executive or administrative exemptions in the FLSA is not subject to the requirements and protections of Executive Order 13658.

The U.S. Department of Labor (DOL) also intends for the term “worker” to be interpreted broadly “without regard to the contractual relationship alleged to exist between the individual and the employer.” With this gloss, the DOL reinforces its ongoing scrutiny of independent contractor relationships and temporary employees who may actually be paid by third-party staffing agencies.

For DBA contracts, the NPRM expands the new minimum wage requirement beyond laborers and mechanics who work directly on site (and are covered by prevailing wages) to other workers covered by the FLSA who support the DBA contract work.

Example: An FLSA-covered administrative employee working on a DBA-covered contract, or a security guard patrolling a construction worksite where DBA covered work is being performed, is entitled to the minimum wage established by Executive Order 13658.

The NPRM also expands the new minimum wage requirements to include not only workers who directly perform contract work covered by the SCA, but also workers covered only by the FLSA who provide support for the contract.

Example: A non-exempt accounting clerk who is covered by the FLSA and who exclusively processes invoices and work orders related to an SCA-covered contract would be covered by the minimum wage order even though he or she may not qualify as a “service employee” under the SCA.

Contractors with covered contracts will be required to incorporate language into lower-tier subcontracts specifying that, as a condition for payment, the minimum wage requirements of Executive Order 13658 must be met. If the prevailing wage under a contract subject to the DBA or SCA is less than the new minimum wage, the contractor must pay the new wage pursuant to Executive Order 13658. However, if the prevailing wage under such a contract is higher than the new wage requirements, the higher wage under the contract must be used. The same is true with any applicable federal, state, or local laws that may prescribe a higher rate than what is required by Executive Order 13658.

Example: A contractor paying a covered employee an hourly wage of $7.50 and fringe benefits equal to $3.50 per hour is in violation of Executive Order 13658. (Note: Fringe benefits cannot be applied to a covered employee’s base pay to meet the minimum wage requirements of the order.)

The NPRM also requires contractors to keep pay records for three years concerning:

  • the name, address, and social security number of each individual;
  • the wage rate(s) paid;
  • the number of daily and weekly hours worked by each individual; and
  • any deductions made.

In addition, the proposal would limit the frequency of pay for covered employees to a period no longer than semi-monthly, and would require that wages be paid no later than one pay period following the pay period in which wages are earned.

Finally, the NPRM provides for enforcement procedures. Specifically, complaints for violations of Executive Order 13658 may be made to the Wage and Hour Division (WHD) of the DOL. The NPRM also sets forth a process by which investigations and conciliation can occur, as well as provisions for litigation and remedial measures when violations are found to exist. Potential remedies include the recovery of unpaid wages, withholding of payments due on a contract, employment, reinstatement or promotion, and debarment. Anti-retaliation and anti-kickback provisions are found in several sections of the NPRM. It includes an administrative procedure before an administrative law judge and/or the Administrative Review Board for resolving factual or legal disputes involving a contractor’s compliance with the minimum wage requirements of Executive Order 13658.

The NPRM’s Appendix A includes a model minimum wage contract clause, which contracting agencies are expected to include in all covered contracts and solicitations for contracts.

Comments

As noted above, the 30-day comment period for this NPRM ends on July 17, 2014. Comments may be submitted via mail or electronically. Should you have an interest in submitting a comment and need assistance or information, please contact the Ogletree Deakins attorney with whom you normally work or the Client Services department of Ogletree Deakins at clientservices@ogletreedeakins.com.

 

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.

© Ogletree, Deakins, Nash, Smoak & Stewart, P.C. | Attorney Advertising

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