President Signs Executive Order on Minimum Wage Increase

by Ogletree, Deakins, Nash, Smoak & Stewart, P.C.

On Wednesday, February 12, President Barack Obama signed an Executive Order to raise the minimum wage to $10.10 for federal contract workers. The president issued the Executive Order, in part, based upon the Federal Property and Administrative Services Act, 40 U.S.C. 101 et seq. The Executive Order goes into effect immediately and applies, once the necessary regulatory notices are issued, to new “covered contracts” where a solicitation is issued on or after January 1, 2015. As for contracts and contract-like instruments issued between the date of the issuance of the Executive Order and January 1, 2015, it encourages agencies to take legally permissible and reasonable actions to ensure that individuals working on those contracts are paid at least $10.10 per hour.

As you may recall, in the State of the Union address on January 28, the president called on Congress to raise the federal minimum wage from $7.25 to $10.10 per hour. He also announced that he would sign an Executive Order doing so for individuals who begin work on new federal service contracts. In keeping with these promises, the Executive Order includes the following actions:

  1. The Executive Order increases the minimum wage to $10.10 effective January 1, 2015. The new wage rate will apply to new contracts and replacements of expiring contracts.
  2. The Executive Order authorizes the Secretary of Labor to publish in the Federal Register an increase in this minimum wage beginning on January 1, 2016.
  3. The Executive Order indexes future increases to the Consumer Price Index for Urban Wage Earners and Clerical Workers as published by the Bureau of Labor Statistics.
  4. The Executive Order establishes an hourly cash wage for tipped workers of $4.90 per hour effective on January 1, 2015, and also ties this rate to the increased minimum wage for future years.
  5. The Executive Order directs the Secretary to issue regulations by October 1, 2014, to implement this Executive Order and the Federal Acquisition Regulatory Council to take action to include the appropriate clause in the Federal Acquisition Regulation.
  6. The Executive Order authorizes the Secretary to investigate violations of the Executive Order and achieve compliance with it.
  7. The Executive Order describes the new contracts and contract-like instruments that it covers including construction contracts, contracts for services, and concessionaire contracts.

In a fact sheet that The White House released on the same day the president signed the Executive Order, the administration stated that the increase will benefit hundreds of thousands of federal government workers and “will also improve the value that taxpayers are getting from the federal government’s investment.” According to the administration’s talking points on the issue, an increase in the nationwide minimum wage for these employees will increase earnings for millions of workers and increase “the bottom lines of businesses across the country.” Specifically, more than 28 million employees will benefit from the minimum wage increase and some 19 million employees will receive an increase in their wages. This increase in wages, the administration alleges, will give consumers more spending money that will help businesses and grow the economy.

Many have questioned the president’s authority to issue such an Executive Order and claim it will hurt small businesses. So this action may generate further debate and possible challenges. We will keep you informed of all new developments concerning the wages owed to federal contract workers.

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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