$15/Hour Minimum Wage for Many Federal Contractors to Take Effect

Pillsbury Winthrop Shaw Pittman LLP

The federal government, led by the U.S. Department of Labor, is moving forward on implementing the provisions of President Biden’s Executive Order 14026, which was signed in April 2021. Most new federal government contracts or contract extensions awarded after January 30, 2022 will require contractors—and subcontractors—to pay their service and construction workers at least $15/hour.

TAKEAWAYS

  • New contracts (broadly defined) and contract options/extensions executed after January 30, 2022 are subject to the new minimum hourly wage rate of $15/hour. Previously awarded contracts are subject to a minimum wage rate of $11.25 as of January 1, 2022 by operation of a prior Executive Order entered by President Obama in February 2014, until such time as an option or new contract subject to the $15 rate is executed.
  • A new contract clause directs, as a condition of payment under the contract, that all workers must be paid the applicable, effective minimum wage, which will be subject to annual increases directed by the Secretary of Labor. Paying less than the required minimum wage may delay payment by the federal government of invoices submitted under a covered, prime government contract.
  • The new contract clause requires the prime contractor to include the minimum wage clause in any lower-tier subcontracts and to ensure compliance by any subcontractor or lower-tier subcontractor with the new minimum wage requirements, whether or not the requisite contract clause is included in those subcontracts.

Since President Biden issued his Executive Order 14026 in April 2021 (as reported previously), there have been several efforts made by the Department of Labor to fill in the contours of that Order. First, on September 16, 2021, the Department of Labor issued a Notice in the Federal Register that addressed how a prior Executive Order (13658) signed by President Obama on February 12, 2014 and implementing a minimum wage rate of $10.10 hour would be implemented and further explaining that the new minimum wage rate under that prior Order would increase to $11.25 on January 1, 2022. In this same Notice, the Department of Labor also devoted attention to President Biden’s later Executive Order 14026, and stated in part, “Covered contracts that are entered into on or after January 30, 2022, or that are renewed or extended [pursuant to an option or otherwise] on or after January 30, 2022 will be generally subject to a higher $15.00 minimum wage rate established by Executive Order 14026 . . . .” In this same notice, the Department of Labor also observed, “The Department anticipates that, in the relatively near future, essentially all covered contracts with the federal government will qualify as ‘new’ contracts under Executive Order 14026 and be subject to the higher minimum wage rate.”

Second, on November 24, 2021, the Department of Labor published its final rule implementing President Biden’s Executive Order 14026. The 348-page final rule “fills in the gaps” left by Executive Order 14026 but makes it clear that “executive departments and agencies shall . . . to the extent permitted by law, ensure that new covered contracts, contract-like instruments, and solicitations (collectively referred to as ‘contracts’) include a clause, which the contractor and any covered subcontractors shall incorporate into lower-tier subcontracts, specifying, as a condition of payment, that the minimum wage to be paid to workers . . . performing work on or in connection with the contract or any covered subcontract thereunder, shall be at least . . . $15.00 per hour beginning January 30, 2022.” The final rule provides that the Secretary of Labor will determine a new (and presumably higher) minimum wage beginning on January 1, 2023 and continuing each year thereafter.

Finally, Subpart C of the final rule sets forth “contractor requirements” to ensure compliance with the rule. Section 23.210 of Subpart C sets forth a short contract clause that essentially restates two basic requirements: (a) The contractor, as a condition of payment, must abide by the terms of the applicable Executive Order minimum wage, and (b) The contractor must flow-down the minimum wage contract clause to any covered subcontracts and such subcontractor must, in turn, flow-down the clause to any lower-tier subcontractor.

On January 26, 2022, the Federal Acquisition Regulatory Council (FAR Council) issued an interim rule, amending FAR 52.222-55, to implement the procedures and requirements set forth by the Department of Labor, as summarized above. The interim rule largely adopts the Department of Labor’s final rule with one technical, clarifying exception—the FAR interim rule does not adopt the Department of Labor’s definition of “new contract.” The applicability of the interim rule to new or existing contracts, nevertheless, tracks the reach and scope of the Department of Labor’s final rule.

Contractors subject to the new $15 minimum wage requirement as of January 30, 2022 should be prepared to give the contracting agency timely notice of their intention to recover their increased labor costs under the FAR Changes clause or one of the Service Contract Labor Standards price adjustment clauses found at FAR 52.222-43 or FAR 52.222-44, as applicable.

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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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