Proposed Rule Implementing Executive Order Raising Minimum Wage Clarifies Covered Entities and Obligations

On June 12, 2014, the U.S. Labor Secretary Thomas E. Perez, released a Notice of Proposed Rulemaking (NPRM) to implement Executive Order 13658, “Establishing a Minimum Wage for Contractors” which will raise the minimum wage paid to federal contractors to $10.10 per hour, beginning in January 2015. In addition to reiterating the general scope and purpose of the order, the proposed rule answers many questions that have been raised since it was signed by President Barack Obama in February 2014.

The proposed rule defines key terms to clarify which workers and contracts the new order covers, provides guidance for contractors on their obligations under the order, and establishes an enforcement process. As noted in our February 2014 Client Alert, the order will apply to any contractual agreements which are new or renewed on or after January 1, 2015 and fall into any of the following four categories:

Procurement contracts for construction covered by the Davis-Bacon Act;

  • Service contracts exceeding $2,500 covered by the Service Contract Act;
  • Concessions contracts under which the federal government grants a right to use federal property for furnishing services; and
  • Contracts in connection with federal property or lands and related to offering services for federal employees, their dependents, or the general public.

The NPRM grants exclusions from coverage for grants, contracts and agreements with Indian Tribes, procurement contracts for construction which are not subject to the Davis-Bacon Act, any contracts for services that are not expressly covered in the Rule, and any contracts for the manufacturing or furnishing of materials, supplies, articles or equipment to the federal government.

According to the NPRM, the Executive Order generally applies to all workers who are working under a federal contract and are governed by the Fair Labor Standards Act (“FLSA”), the Service Contract Act, or the Davis-Bacon Act, including employees who are covered by the FLSA and provide support on Service Contract Act and Davis-Bacon Act covered contracts. The NPRM also defines tipped workers as those who receive more than $30 a month in tips, and lays out rate of pay and overtime pay requirements for this class of employees. The NPRM estimates that hundreds of thousands of workers will benefit from the new order.

The NPRM requires that contractors pay workers no less than the minimum wage set by the new Executive Order, include the Executive Order minimum wage contract clause in lower-tiered subcontracts, and comply with wage deduction, frequency of pay and recordkeeping requirements.

Any person who believes there has been a violation will be able to file a complaint with the Department of Labor, which will initiate an investigation. The NPRM includes remedies and sanctions for violations as well as an administrative process to resolve disputes and an informal complaint resolution process.

The final version of the rule must be issued by October 1, 2014. The NPRM has been approved by the Office of Management and Budget, and there will be a 30-day period for public comment beginning on June 17, 2014.

Leech Tishman’s Employment Practice Group is available to discuss with you the increases to the wages of federally contracted workers and has experience with other federal, state, and local wage and hour issues as well as all employment issues affecting federal contractors.

Please feel free to contact the Employment Group with any questions regarding federal, state, and local wage and hour issues. Leech Tishman is a firm dedicated to providing full-service commercial legal services to individuals, businesses, and institutions. We combine a deep understanding of our clients’ and their businesses with skilled legal counsel to find solutions. We offer legal services in alternative dispute resolution, bankruptcy & creditors’ rights, construction, corporate, employment, energy, environmental, safety & toxic torts, estates & trusts, government relations, insurance coverage & corporate risk mitigation, international legal matters, intellectual property, litigation, real estate, and taxation. For more information call us at 412.261.1600 or visit www.leechtishman.com.