DOL Issues Proposed Rule On New Minimum Wage For Some Federal Contractors

by Constangy, Brooks, Smith & Prophete, LLP
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Today the U.S. Department of Labor issued its Notice of Proposed Rulemaking to implement the new minimum wage for certain federal contractors based on the Executive Order that President Obama signed on February 12. The Notice sets forth the agency's proposed regulations to clarify and provide guidance to contractors as to their obligations under the new Executive Order.

The new minimum wage

As we previously reported, the EO provides for an increase in the minimum wage paid to employees under specific contracts for solicitations and contracts issued on or after January 1, 2015. The new minimum wage for 2015 will be $10.10 per hour. Beginning January 1, 2016, this amount will increase based on the Consumer Price Index for Urban Wage Earners and Clerical Workers. The proposed regulation would require the Department of Labor to publish the new minimum wage in the Federal Register and on the Wage Determinations OnLine website on an annual basis at least 90 days before the new minimum wage is to take effect.

Which contracts are covered?

The Executive Order specified that the new minimum wage would apply only to a relatively narrow subset of government contracts. The proposed regulations expand the applicability somewhat. Under the proposed regulations, the new minimum wage would apply to all contracts issued or awarded on or after January 1, 2015, if they meet the following criteria:

(1) the wages of the workers under the contract are governed by the Fair Labor Standards Act, the Service Contract Act, or the Davis Bacon Act, and

(2) the contract is either

* a procurement contract for construction covered by Davis Bacon, or

* a contract for services covered by the Service Contract Act, or

* a contract for concessions, even those excluded from coverage under the Service Contract Act by 29 CFR 4.133(b), or

* a contract in connection with Federal property or lands and related to offering services for Federal employees, their dependents, or the general public.

For contracts covered by the Service Contract Act or Davis Bacon, the new EO applies only to prime contracts at the thresholds specified in those statutes. For procurement contracts where workers' wages are governed by the FLSA, the minimum wage applies only when the prime contract exceeds the micro-purchase threshold of $3,000, as defined in 41 U.S.C. 1902(a). The Department proposes that there be no value threshold for subcontracts. Additionally, the minimum wage requirement applies only to contracts where the contract is performed, in whole or in part, within the United States.

The proposed regulations would specifically exclude certain agreements from coverage; these items include grants, contracts and agreements with and grants to Indian Tribes, procurement contracts for construction that are excluded from coverage of Davis Bacon, contracts for services that are exempted from coverage under the Service Contract Act, and employees who are exempt from the minimum wage requirements of the FLSA (such as apprentices, and students and white-collar exempt employees). All contracts that meet the threshold requirements and are not specifically excluded must comply with the law.

Employees entitled to minimum wage

Significantly, the proposed regulations make it clear that all employees of the contractor who provide support work for the covered contract would be subject to the minimum wage. In other words, the minimum wage coverage would extend beyond employees already covered by the prevailing wage statute. For example, on a Davis Bacon contract, all employees covered by the FLSA who support the Davis Bacon contract work would be entitled to the new minimum wage, not just the laborers and mechanics who work directly on site. The proposed regulations define those performing within the scope of a covered contract as all workers who "are engaged in working on or in connection with the contract, either in performing the specific services called for by its terms or in performing other duties necessary to the performance of the contract." This language is likely to generate substantial comment because it is broader than the EO and is expected to be difficult for contractors to administer.

Tipped employees

As we previously reported, the EO provides that tipped employees must be paid an hourly cash wage of at least $4.90 an hour beginning January 1, 2015. The proposed regulation does not change this provision. This hourly cash rate will increase each year by 95 cents until the hourly rate paid equals 70 percent of the minimum hourly wage paid to other employees under the EO for the previous year. In addition, the tipped employee must receive tips which, when added to the hourly rate, bring the tipped employee to the minimum hourly wage under the EO. If the tipped employee does not receive enough in tips to bring his total hourly rate up to the minimum, the contractor must make up the difference. Further, when a tipped employee works overtime, the proposed regulations would require that the tipped employee's "regular rate of pay" for purposes of calculating overtime should include both the cash wages paid by the employer and the amount of any tip credit taken. Any tips received by the employee in excess of the tip credit are not included in the regular rate of pay. The regulations provide specific definitions of "tipped employee" that track those under the FLSA.

Contract clause and consequences for absence

The EO provides that the contracting agency must include a specific contract clause on minimum wage in all covered contracts. The proposed regulations set forth the consequences in the event the contracting agency fails to do so. If the contracting agency mistakenly fails to include the language, it would have 15 days after notice of this failure to fix the mistake and retroactively include the clause in the covered contract. If the contractor fails to comply with the requirements of the EO and regulations, then the contracting agency can withhold the accrued payments or advances as may be necessary to pay workers the full amount of wages required under the EO.

Enforcement

The proposed regulations contain an anti-retaliation provision that mirrors the FLSA's provision. Specifically, the proposed regulations would make it unlawful "for any person to discharge or in any other manner discriminate against any workers because such worker has filed any complaint or instituted or caused to be instituted any proceeding" or has testified in a proceedings to enforce this law. A protected complaint can be made orally, or in writing. The proposed regulations provide for reinstatement, promotion, payment of lost wages, and any other appropriate relief.

As with the FLSA, the proposed regulations provide that workers cannot waive their rights under the EO.

If the government determines that a contractor has failed to make minimum wage payments as required by the EO, the proposed regulations would allow it to order the contractor to make the required payment to its employees. The government would also be allowed to withhold the money owed the contractor under the contract. The proposed regulations further provide that "whenever" a contractor is found by the Secretary of Labor to have violated the EO or its regulations, the contractor and its responsible officers would be ineligible to be awarded any contract or subcontract subject to the EO for a period of up to three years. Additionally, if the contractor does not make the payments and the money withheld by the government does not cover the wages owed, the Secretary of Labor may bring a civil action in court to recover the remaining unpaid wage. The proposed regulations do not provide for a private right of action by employees. The regulations propose a specific procedure for contractors to use when disputing a finding under the EO.

Contractor requirements

Under the proposed regulations, covered contractors must include the minimum wage contract clause in every subcontract and require that subcontractors include the clause in any lower-tiered subcontract as a condition of payment. The proposed regulations also state "the prime contractor and any upper-tiered contractor shall be responsible for the compliance by any subcontractor or lower-tier subcontractor with the Executive Order minimum wage requirements, whether or not the contract clause was included in the subcontract." It is not clear how contractors are expected to ensure compliance by its subcontractors or whether this provision is designed to hold contractors liable for their subcontractors' noncompliance.

Conclusion

Federal contractors covered by the Service Contract Act and Davis Bacon need to pay close attention to the proposed regulations, especially because coverage under the proposals would extend to many employees not currently covered by these laws.

Anyone who is interested in providing comments to the government has 30 days from publication in the Federal Register (until July 17, 2014) to do so. Written comments may be submitted at www.regulations.gov.

PRESIDENT TO BAN DISCRIMINATION BY FEDERAL CONTRACTORS ON THE BASIS OF SEXUAL ORIENTATION AND GENDER IDENTITY

In other news, it has been reported that President Obama will sign an Executive Order prohibiting federal contractors from discriminating against applicants and employees on the basis of sexual orientation and gender identity. As soon as the EO is issued and we know the particulars, we will issue another AA Alert.

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.

© Constangy, Brooks, Smith & Prophete, LLP | Attorney Advertising

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