In April 2021, President Biden issued Executive Order 14026 to increase the minimum wage for federal government contractors to $15 per hour. On November 23, 2021, the Department of Labor (DOL) issued its final rule implementing Executive Order 14026. The rule requires any federal “contractor” to pay employees a minimum hourly wage of $15 and overtime wages for work beyond 40 hours per week. This wage is subject to yearly increases determined by DOL.

The new federal contractor minimum wage applies to federal contracts entered into after January 30, 2022, and existing federal contracts that are renewed or extended after January 30, 2022. It applies, generally, to these types of federal contracts for work within the United States and its territories:

• Procurement contracts for construction covered by the Davis-Bacon Act.
• Contracts for services covered by the Service Contract Act.
• Contracts for concessions.
• Contracts entered with the federal government in connection with federal property or lands and related to offering services for federal employees, their dependents, or the general public and with wages governed by the Fair Labor Standards Act, Service Contract Act, or Davis-Bacon Act.

The Executive Order does not apply to contracts for the manufacturing or furnishing of materials, supplies, articles, or equipment to the federal government, including those that are subject to the Walsh-Healey Public Contracts Act. The Executive Order also rescinded an Executive Order from President Trump (Executive Order 13838) that exempted outfitters and guides operating on federal lands from President Obama’s Executive Order 13658, which established a $10.10 minimum wage for federal contractors. 

In February 2022, the Tenth Circuit, in Bradford v. U.S. Department of Labor, No. 22-1023, stayed implementation of the rule as it applies to “contracts … in connection with seasonal recreational services or seasonal recreational equipment rental for the general public on federal lands.”

On February 9, 2022, the states of Indiana, Idaho, Arizona, Nebraska, and South Carolina filed an action in the Federal District Court for the District of Arizona, Mark Brnovich, et. al. v. Joseph R. Biden, et. al., Case No. 2:22-cv-213-JJT, challenging the President’s ability to increase the federal contractor minimum wage by Executive Order. On April 18, 2022, the plaintiffs filed a motion for a preliminary injunction that seeks to prevent enforcement of Executive Order 14026 or its implementing regulations. 

The plaintiffs argue that President Biden exceeded his authority under the Procurement Act (the stated basis for the Executive Order), asserting that the Procurement Act does not confer authority to implement minimum wage mandates and that Congress has already spoken regarding federal contractor minimum wages, through the Davis-Bacon Act and Service Contract Act. The plaintiffs’ further point out that prior to issuance of Executive Order 14026, the U.S. Senate had rejected a legislative increase to the federal contractor minimum wage by a vote of 42-58. The plaintiffs, similar to the claims made in federal contractor vaccine cases and the successful attempt to invalidate the Occupational Safety and Health Administration’s large employer test or vaccinate mandate, further argue that the validity of the rule must be considered in light of the major questions doctrine and the principle of constitutional avoidance, and that it fails under both because Congress has not clearly authorized the President to increase federal contractor minimum wage rates. 

The plaintiffs also argue that DOL violated the Administrative Procedure Act (the APA) when adopting the implementing regulations by not considering and discussing alternatives. Under the APA, agencies generally must consider and discuss alternatives when engaging in rulemaking and “cogently explain” why they make a particular choice from among those alternatives. In adopting its final rule, DOL stated that “due to the prescriptive nature of Executive Order 14026, the Department does not have the discretion to implement alternatives that would violate the text of the Executive order, such as the adoption of a higher or lower minimum wage rate, or continued exemption of recreational businesses.” Plaintiffs argue that DOL’s failure to consider alternatives violated the APA. 

The government opposes the plaintiffs’ request for a preliminary injunction and has moved to dismiss their complaint. The government argues that the Executive Order is within the broad authority given to the President under the Procurement Act to establish policies for the executive branch that “the President considers necessary” to foster an “economical and efficient system” for procuring and supplying goods and services and for using property. The government notes there had been no legal challenge to President Obama’s Executive Order 13658 that established a $10.10 minimum wage for federal contractors and Congress had an opportunity to respond to that Executive Order and restrict presidents’ authority but took no action. The government further argues that there is a nexus between Executive Order 14026 and the efficiency of government procurement because “[r]aising the minimum wage enhances worker productivity and generates higher-quality work by boosting workers’ health, morale, and effort; reducing absenteeism and turnover; and lowering supervisory and training costs.”

Briefing on the plaintiffs’ motion for a preliminary injunction and the government’s motion to dismiss is currently scheduled to be completed by June 17, 2022, with oral argument to be held June 27th to the 30th or July 11th and July 12th. 

If the challenge to Executive Order 14026 is sustained, it may relieve federal contractors from the obligation to pay a higher minimum wage to their employees covered by the Davis-Bacon Act or Service Contract Act and may impact President Obama’s Executive Order 13658 establishing a $10.10 minimum wage for federal contractors. Conversely, denial of the plaintiffs’ claims will be a clear signal to federal contractors that they will need to prepare for, and budget, higher minimum wages for their employees working on governments contracts in the coming year.

This article summarizes aspects of the law and does not constitute legal advice. For legal advice for your situation, you should contact an attorney.