Effective January 1, 2024, the minimum wage for workers who perform work on or in connection with federal contracts will increase from $16.20 per hour to $17.20 per hour. This will apply to most federal contracts entered into or extended on or after January 30, 2022.

Background

On April 27, 2021, President Biden signed Executive Order 14026, which increased the minimum wage for federal contractors to $15.00 per hour, beginning January 30, 2022. As discussed in a prior update, Executive Order 14026 applies to any new contract, contract-like instrument, solicitation, or extension or renewal of an existing contract (including the exercise of an option) on or after January 30, 2022, for: (1) procurement; (2) services under the Service Contract Act; (3) concessions; and (4) services in connection with federal property, where wages under the contract are governed by the Fair Labor Standards Act, Service Contract Act, or Davis Bacon Act. Executive Order 14026 provided for annual increases for inflation to be implemented by the Department of Labor (DOL).

Annual Adjustment for Inflation

The DOL’s implementing regulations for Executive Order 14026 require the department to determine the applicable minimum wage rate every year, beginning January 1, 2023. The applicable minimum wage for each successive year must be: (1) not less than the current minimum wage; (2) increased by the annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W); and (3) rounded to the nearest multiple of $.05. Under the implementing regulations, the DOL compares the CPI-W for the most recent year with the index for the preceding year.

2024 Minimum Wage Rate

Applying this methodology, the DOL determined that the annual percentage increase in the CPI-W was 6.163%. And, applying that percentage to the then-current minimum wage rate of $16.20 per hour (and rounding to the nearest multiple of $.05), the department determined that the minimum wage for 2024 would be $17.20 per hour.

Tipped Employees

Executive Order 14026 specified a different methodology to determine the minimum hourly wage for tipped employees working on or in connection with covered contracts. It specified that for 2024, however, the minimum wage for tipped employees would increase to 100% of the wage applicable to other workers. Accordingly, the DOL has confirmed that tips are no longer credited toward the minimum wage for tipped employees, and tipped employees who work on covered contracts will also be entitled to a minimum wage of $17.20 per hour.

Court Challenge to Executive Order 14026

In a decision issued on September 26, 2023, the U.S. District Court for the Southern District of Texas struck down the president’s increase of the minimum wage for federal contractors to $15 per hour under Executive Order 14026, at least as it applies to Texas, Louisiana, and Mississippi. See Memorandum Opinion and Order, Texas et al. v. Biden et al., No. 6:22-CV-00004 (S.D. Tx. Sept. 26, 2023).

Background: The states of Texas, Louisiana, and Mississippi joined to file a challenge against Executive Order 14026 in the U.S. District Court for the Southern District of Texas. The plaintiffs challenged Executive Order 14026 on five different grounds:

• by issuing Executive Order 14026, President Biden exceeded the authority granted to him under the Procurement Act;
• the wage mandate of Executive Order 14026 is unlawful under the Administrative Procedures Act;
• the DOL’s actions in implementing the Final Rule were arbitrary and capricious;
• the non-delegation doctrine barred Congress from transferring its legislative power to President Biden in this situation; and
• the wage mandate violates the Spending Clause.

For purposes of analysis, the court addressed grounds 2 and 3 together.

The court recognized that Executive Order 14026 was issued by President Biden pursuant to Section 121(a) of the Procurement Act (40 U.S.C. § 121), which provides that “[t]he President may prescribe policies and directives that the President considers necessary to carry out this subtitle. The policies must be consistent with this subtitle.” The court’s analysis focused on whether EO 14026 was a policy “consistent with this subtitle.”

Recounting the history of the Procurement Act as a prelude to its interpretation, the court concluded that the president’s authority under the Procurement Act was supervisory in nature, in that he could direct subordinates as they carried out specific provisions of the act. The court also observed that the Supreme Court historically interprets the presidential grant of authority under Section 121(a) of the Procurement Act narrowly. Specifically, the court cited Chrysler Corp. v. Brown, 441 U.S. 281, 304 n.34 (1979), wherein the Supreme Court held there must be a “specific reference” within the Procurement Act from which  Executive Branch authority must be derived. Thus, the district court concluded that, for President Biden’s wage mandate in Executive Order 14026 to be within his authority, there must be a specific reference or section of the Procurement Act that grants the president authority to adjust the wages of federal contractor employees.

The court rejected the federal government’s argument that Section 101 of the Procurement Act (40 U.S.C. § 101) grants the president authority to adjust wages. It concluded that Section 101, rather than serving as a positive grant of authority to the president, only memorialized the purposes of the Procurement Act, which were to provide “a relatively hands-off framework that enables agencies to determine for themselves the quantity and quality of items to procure on behalf of the federal government.” The court concluded that Section 101 “does not confer authority for the President to decree broad employment rules.”

In reaching this conclusion, the District Court also addressed the Davis-Bacon Act and the Walsh-Healey Public Contracts Act, which “expressly gave the Secretary of Labor limited power to tailor the minimum wage of certain classes of federal contractors.” The court acknowledged this delegation of authority to the president but concluded that it required “tailoring [wage increases] to the specific classes of laborers or state in which the work is to be performed,” which was not done in Executive Order 14026. Further, the court opined that the presence of this language indicated that Congress could make explicit wage-setting authority, but had declined to do so in the Procurement Act.

The court also stated that the major questions doctrine would bar the President from issuing the wage mandate of Executive Order 14026. Generally, the doctrine states that when the executive branch makes a decision that regulates “a significant portion of the American economy” or has “vast economic and political significance,” there must exist “clear congressional authorization” for such exercise of power, rather than “modest words” or “vague terms.”

In concluding that the wage mandate of Executive Order 14026 posed a major question that implicates the major questions doctrine, the District Court compared the wage mandate with the federal contractor vaccine mandate, established by Executive Order 14026. The District Court observed that several U.S. Circuit Courts had held the federal contractor vaccine mandate, which was issued under the auspices of the Procurement Act, is in violation of the major questions doctrine and thus invalid. After a discussion of the likely economic impacts of the wage mandate, the District Court adopted those courts’ reasoning and concluded that the wage mandate of Executive Order 14026 was invalid since Congress had not “clearly spoken” to give the president authority to raise the minimum wage for federal contractor employees.

With respect to the challenge under the Administrative Procedures Act, the court concluded that executive orders were presidential actions, rather than agency actions, so the APA did not apply to Executive Order 14026. In light of its findings that the president lacks authority under the Procurement Act to issue the wage mandate of Executive Order 14026, the court declined to address whether the final rule issued pursuant to the executive order is reviewable under the APA. Likewise, the court declined to address the challenges based on the non-delegation doctrine and the spending clause, because it had determined the president lacks authority under the Procurement Act to issue the wage mandate of Executive Order 14026.

The court granted the plaintiffs an injunction against the increase in the federal contractor minimum age, but limited the scope to federal contractors in the specific plaintiff states (Texas, Louisiana, and Mississippi). Furthermore, the court observed at least two cases—Bradford v. U.S. Dep’t of Lab., 582 F.Supp.3d 819, 833–41 (D. Colo. 2022) and Arizona v. Walsh, No. 3:22-CV-00213, 2023 WL 120966, at *5–9 (D. Ariz. Jan. 6, 2023)—issued by district courts outside the Fifth Circuit have determined that EO 14026 is lawful. Thus, a difference of opinion exists across various circuits, and will likely not be resolved until these matters reach their respective Circuit Courts or, if the split persists, the Supreme Court, should it decide to take up the matter.

For businesses that engage in federal contracts within Ninth Circuit jurisdictions, the Walsh opinion is more pertinent, since it relies upon Ninth Circuit precedent, so the wage mandate of Executive Order 14026 is likely valid for at least states within the Ninth Circuit. However, for federal contractors in Texas, Louisiana, and Mississippi, Executive Order 14026 is enjoined from enforcement for the moment.

Walsh is being appealed to the Ninth Circuit, as we have previously discussed. It is possible that the Ninth Circuit will address the District Court’s decision when it decides that appeal.

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