WHD Publishes Final Rule Increasing Federal Contractors’ Minimum Wage

On October 7, 2014, the Wage and Hour Division (WHD) of the U.S. Department of Labor (DOL) published its Final Rule establishing standards and procedures to implement Executive Order 13658, entitled “Establishing a Minimum Wage for Contractors.” 79 Fed. Reg. 60634. Executive Order 13658 increases the federal contractor minimum wage to $10.10 per hour and applies to new contracts and replacements for expiring contracts with the federal government that result from solicitations issued on or after January 1, 2015, or to contracts that are awarded outside the solicitation process on or after January 1, 2015.

The Final Rule adds part 10 to Title 29 of the Code of Federal Regulations (CFR). It consists of five subparts and includes an Appendix A that is a contract clause to implement the executive order. It is very similar to the proposed regulations that the WHD published in June, and in many instances the WHD “ultimately declines to make any of the suggested changes,” as it stated in response to the comments to the proposed definition of the terms “contract” and “contract-like instrument.” 79 Fed. Reg. 60641.

Subpart A: Key Terms Defined

Specifically, subpart A contains general provisions that include a section defining several key terms, a section describing the coverage of the executive order, another one addressing contracts excluded from the executive order, as well as one establishing an anti-retaliation provision. One term, for example, that the WHD did revise is the definition of a “new contract” in section 10.2. This new definition impacts the description in section 10.3 of the types of “new contracts” covered by the executive order.

While the Final Rule reiterates that “new contracts” are existing contracts that are renewed on or after January 1, 2015, through bilateral negotiations, the WHD made two clarifications to the definition. One is that an extension of such a contract would not be a “new contract” if the extension was a limited short-term extension authorized to be made by the contract terms as of December 31, 2014. The other clarification is that a modification (as opposed to an extension or renewal) is not a “new contract” unless it constitutes a modification outside the scope of the contract.

In the preamble, the WHD also addressed comments about whether task orders would be a “new contract,” stating that task orders issued pursuant to “indefinite delivery, indefinite quantity” contracts executed prior to January 1, 2015, would not be covered until the master contract is modified to include the federal contractor minimum wage requirement. The preamble to the Final Rule also addressed comments from concessionaire contractors and franchise owners on military installations seeking some relief since they do not receive funds directly from the federal government. The DOL, however, declined such requests, indicating that these commenters “fail to account for a number of factors that the Department anticipates will substantially offset many potential adverse economic effects on their businesses.” 79 Fed. Reg. 60653.

In addition, section 10.5 of the Final Rule sets forth the $10.10 federal contractor minimum wage effective January 1, 2015, as well as the methodology to adjust this minimum wage annually based upon the Consumer Price Index for Urban Wage Earners and Clerical Workers, effective January 1, 2016. As for the anti-retaliation provision that was included in the notice of proposed rulemaking (NPRM) and which was modeled after such a provision in the Fair Labor Standards Act, the DOL adopted the anti-retaliation language as proposed: The Final Rule protects employees who file oral as well as written complaints, protects those who complain to the WHD (as well as those who complain internally via an employer’s complaint mechanism), and applies to a former employee or applicant who may not have an employment relationship with the employer.

Subpart B: Contracting Agencies’ Obligations

Subpart B outlines the requirements that contracting agencies as well as the DOL itself must follow. Except for a technical change, the WHD adopted the proposed section 10.11 in the Final Rule, which requires agencies to include the executive order minimum wage clause contained in Appendix A in new contracts or solicitations subject to the executive order. It also delineates the types of information an agency must submit to the WHD when it investigates a complaint. As for section 10.11 in the Final Rule, which addresses the requirements for the DOL, the WHD adopted the proposed rule with one modification to expand the methods of notifying contractors of changes in the federal contractor minimum wage.

Subpart C: Federal Contractors’ Requirements

Subpart C contains various provisions with which federal contractors must comply, including sections that address the frequency with which employees must be paid, sections that prescribe the records that a contractor must keep, and sections that address tipped employees who must be paid a cash wage of at least $4.90 per hour. The subpart also includes a provision requiring contractors to include the minimum wage contract clause in any contracts and subcontracts and to ensure that subcontractors include such language in all lower-tier subcontracts. Subpart C also requires a contractor to post a notice that is included in an appendix to the Federal Register publication. The WHD adopted the proposed language in the final regulations with little change.

Subparts D & E: Enforcement and Conciliation

Finally, subparts D and E contain regulations that prescribe the enforcement and conciliation procedures for the WHD and the administrative procedures applicable to legal or factual disputes over a contractor’s compliance with the executive order and implementing regulation.

The DOL’s Pronouncements on the Final Rule

Last week, the DOL issued a number of pronouncements on the Final Rule, including a fact sheet and a Frequently Asked Questions (FAQs) page. In addition, Secretary of Labor Thomas E. Perez issued a press release in advance of the Final Rule’s publication.

The DOL’s fact sheet provides details on key provisions of the Final Rule. Among these is an explanation of which contracts the executive order’s $10.10 minimum wage requirement applies to

  • all procurement contracts for construction covered by the Davis-Bacon Act;
  • service contracts covered by the Service Contract Act;
  • concessions contracts, such as contracts to furnish food, lodging, automobile fuel, souvenirs, newspaper stands, and/or recreational equipment on federal property; and
  • contracts to provide services in federal buildings for federal employees or the general public.

The FAQs page on the executive order explains how the Secretary of Labor will determine the minimum wage.The minimum wage will be

  1. not less than the amount in effect on the date of such determination;
  2. increased from such amount by the annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (United States city average, all items, not seasonally adjusted), or its successor publication, as determined by the Bureau of Labor Statistics; and
  3. rounded to the nearest multiple of $0.05.

The DOL also states why it issued the Final Rule, explaining that “[t]he Executive Order seeks to increase efficiency and cost savings in the work performed by parties that contract with the Federal Government.”

The FAQs page also addresses the following issues:

  • the types of contracts that are covered
  • definitions of key terms such a “contract,” “contract-like instrument,” “new contract,” and “concessions contract”
  • whether the executive order covers AbilityOne contracts
  • which federal contracts are excluded from coverage of the executive order

Secretary Perez’s press release on Executive Order 13658 claims that the increased minimum wage will “benefit nearly 200,000 American workers.” He also stated that the increased minimum wage will benefit taxpayers. According to the press release, “Boosting wages lowers turnover and increases morale, and will lead to higher productivity.”

Background

The Final Rule was nearly eight months in the making as President Obama signed the executive order in February of 2014. The executive order directed the DOL to issue regulations to implement the new federal contractor minimum wage by October 1, 2014. Accordingly, in June, Secretary Perez announced a proposed rule that was published in the Federal Register on June 17, 2014. The NPRM defined the same key terms that the Final Rule defined, in addition to covering the recordkeeping requirements and enforcement procedures of the executive order. Our June 18, 2014 blog post, “Your Guide to the Proposed Rules Under Executive Order 13658 Setting a Minimum Wage for Federal Contractors,” provides a detailed analysis of the NPRM.

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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