crystalball25942067.jpgLast month, I wrote about the Obama Administration’s Presidential Memorandum to the U.S. Department of Labor (DOL) instructing its Secretary to update regulations regarding overtime protection for workers under the Fair Labor Standards Act (FLSA), the federal law that establishes minimum wage and overtime pay requirements.  Since then, DOL Secretary Perez has spoken publicly about the possible scope of the changes.  I’ve also spoken at a couple of events on this issue, and have gotten three questions: Can the president really do this?  What do you think DOL will do?  How soon could this happen?  I wanted to share my thoughts on these three questions and give you a sense of what I think about the direction the DOL will take when it does propose new rules.

A quick background on the FLSA’s “white collar” exemptions

By way of background, under the FLSA,  employers must pay employees at least the federal minimum wage (currently $7.25/hour) and overtime at a rate of at least 1.5 times the employee’s regular rate for any hours worked over 40 in a week, unless exempt from the overtime requirement. The FLSA lists a number of various exemptions from the overtime requirement, but the most common of are the executive, administrative or professional exemptions, commonly referred to as the “white collar” exemptions.  It is these exemptions that the White House is instructing the DOL to update. 

In general, employees qualify for these overtime exemptions if:  (1) they are paid a fixed minimum salary for each workweek regardless of the number of hours they work or the quality or quantity of work they perform (the “salary basis” test); and (2) they perform specific executive, administrative or professional job duties outlined by the regulations (the “job duties” test).   These exemptions capture millions of workers and have been the source of many lawsuits challenging exempt status.  Given the antiquated nature of these exemptions (actual or perceived), they appear to be the focus of any proposed regulatory changes.  President Obama’s executive memorandum indicates that he wants the DOL to adjust both the salary basis and the job duties tests to narrow the scope of the exemptions, making more workers eligible for overtime pay.

Can the administration really do this without Congress?

In short, yes.  This is an area that Congress has specifically left to the executive branch.  President Obama does not need Congressional approval to make these changes to the FLSA regulations.  While the FLSA establishes the white collar exemptions, it does not define them, leaving that authority to the DOL.  President Bush used the DOL’s authority to make the most recent changes to the FLSA regulations in 2004, which increased the minimum salary and took away any requirement for a set minimum percentage of time spent performing exempt duties.  Other than these changes by the Bush Administration, the exemptions have been largely untouched since the 1970’s.

The White House’s announcement is not a surprise given the administration’s focus on the misclassification of independent contractors and increased scrutiny given to exempt classifications by the DOL’s Wage and Hour Division.  The timing of the memorandum also supplies some context as it is directly on the heels of the President’s executive order raising the minimum wage for workers under new federal contracts from $7.25 per hour to $10.10 per hour.  Indeed, many consider this to be a political maneuver by President Obama as part of his larger agenda of raising the minimum wage and making a greater impact on job and economic growth

President Obama has instructed the DOL to modernize and streamline the existing overtime regulations and to do so in a way that is consistent with the FLSA’s intent, the changing nature of the workplace and which will allow both workers and business to better understand and apply the exemptions.  In other words, the memorandum is lacking on specificity.  That being said, given these broad guidelines and the administration’s focus, I expect that any revisions will likely focus on raising the minimum salary and further defining the job duties test.

What can employers expect?

First, any revised regulations would almost certainly include an increase to the $455 minimum weekly salary threshold for exempt workers.  Even though the Obama administration did not provide any specific guidance, at $455/week, those workers earning as little as $24,000 per year currently meet the minimum salary threshold.  Indeed, the White House observed that just 12% of salaried workers now fall below this threshold, compared to 65% in 1975 when the regulations set a $250/week minimum.  California and New York already require employers in those states to pay higher minimums ($600 in New York, increasing to $675/week by 2016; $720/week in California, increasing to $800/week by 2016).  I anticipate that an increase in the minimum salary would have the most impact on production, service and retail industries that have substantial numbers of low paid supervisors.

Second, any new regulations would likely change the various job duties test.  The 2004 revisions to the FLSA regulations focused on subjective factors, such as “primary duties,” rather than the actual time spent by an employee on a particular duty.  DOL Secretary Perez has described this current regulatory test as a “loophole” that lets employers treat many workers as exempt, even if the vast majority of their work is the same as non-exempt workers who receive overtime.  In making such statements, Perez has referred to a lawsuit brought by a former store manager for the Family Dollar discount chain that alleged she and other managers had been improperly classified as executives when they spent the “vast majority” of their time on “non-executive tasks,” such as stocking shelves.  Secretary Perez claimed that the 2004 revisions to the “primary duty” test “eroded that article of faith” that workers should receive overtime for working more than 40 hours per week.  Given these comments, the Obama administration seems set to return to some form of the pre-2004 test that would require at least a minimum percentage of time devoted to overtime exempt work.

Want to know what that might look like, and don’t remember the confusing pre-2004 federal regulatory regime?  Look no further than California!  That state continues to be a hotbed of wage and hour litigation, and the issue of proper classification of employees as “exempt” or “non-exempt” is often at the core of disputes before California’s state and federal courts and its Division of Labor Standards Enforcement (DLSE).  California uses a “quantitative” test (seeChapters 52-54 of the DLSE Enforcement Manual) that focuses primarily on the percentage of time spent on individual duties, rather than the “qualitative” test in the current FLSA regulations.  The state did not adopt the 2004 amendments to the FLSA regulations and, in some cases, still relies on the pre-2004 regulations for guidance on the executive, professional and administrative exemptions.

How soon would all of this happen?

Despite all the rhetoric, it is unlikely that any changes to the regulations will take place any time soon.  Proposed changes to the regulations are subject to the federal Administrative Procedure Act’s rulemaking process, which means the administration would need to complete a number of time-consuming steps before any rule change could take effect. These steps include a required notice of proposed rulemaking and a public comment period. Then, the DOL would need to hear testimony, consider public comments, and have a final version of the revised regulations approved by the Office of Management and Budget.  To put this in perspective, the 2004 regulatory change took over 18 months to implement, and those were not viewed as “drastic” as what is anticipated to come from the DOL as part of this initiative.  Even if the administration can push through the new regulations before the end of President Obama’s term, affected parties are likely to file legal challenges to any revisions, which could potentially delay their implementation further.

Obama.jpgRecently, we told you about President Obama’s Executive Order increasing the minimum wage for employees of federal contractors to $10.10 per hour. Tomorrow, President Obama is expected to announce that he will sign two new executive orders that will apply to federal contractors: (1) one order will forbid retaliation by federal contractors against employees that discuss their compensation with other employees; and (2) the other order will require federal contractors to maintain certain records on compensation organized by race and gender, and report that data to the federal government. These Orders are being issued to further advance the Administration’s cause of equal pay for women.

Approximately 25% of the U.S. workforce engages in federal contracting at least in part, including large, well-known businesses like Northrop Grumman and Boeing and a host of smaller manufacturers, suppliers, and service companies. Unlike the recent minimum wage order, which applied only to new and certain renewed contracts because of the change in compensation rates, these orders could be implemented immediately and apply to all contractors, making these orders’ potential impact much wider.

Continue Reading Obama Administration Expected to Expand Wage and Hour Protections, Disclosures for Federal Contractors’ Employees

In past Franczek Radelet Alerts and webinars, my colleagues and I have talked at length about the potential pitfalls for employers of background checks and the changes that the advent of the Consumer Financial Protection Bureau (CFPB) and the resulting reorganization at the FTC meant for employers. Yes, I know, this is a wage and hour-focused blog, but before you can tackle wage and hour issues, you have to hire employees! Many employers who do background checks have not given much thought to what (if any) documentation they collect from applicants or employees before running them, so with hiring season upon us for many seasonal industries, now is a good time for a reminder about this “pre wage and hour” issue.

The situations we encounter can vary: relying on printed or online forms from a provider like ADP or Paychex, grabbing an application form from the Internet or a mailing list of HR professionals, or sometimes relying on whatever language is on the job application you’ve used for years.

Judy Greenwald, who I have had the pleasure of speaking with in the past on other topics, wrote last month in Business Insurance about a new class action lawsuit filed against Whole Foods’ California division alleging that Whole Foods’ online authorization form used to get job applicants’ approval for criminal background checks violates the federal Fair Credit Reporting Act:

According to the lawsuit filed in U.S. District Court in Oakland, Calif., in Esayas Gezahegne v. Whole Foods Market California Inc., the language in the authorization includes a waiver of claims against those who obtain a consumer reports, in violation of the FCRA. Consumer reports include criminal background checks, credit checks and other similar reports…

The online authorization forms all contained language releasing those who obtained the consumer reports from all liability, in violation of the FCRA’ s requirement that the authorizations be pristine documents that contain nothing other than the required disclosures and the requested authorization. In other words, defendant’s authorization forms were facially invalid,” the lawsuit states.

As I discussed during our webinar on background checks back in 2012, a number of courts have begun requiring employers to draft a standalone disclosure without releases. This lawsuit is one more reminder of that point!

Private attorneys are not the only ones scrutinizing background checks. Earlier this month, the Federal Trade Commission and the EEOC released joint guidance on employment background checks that further explains that:

Hiring decisions are among the most important choices for any employer, but the process can be complex. For the first time, the Federal Trade Commission (FTC) and the Equal Employment Opportunity Commission (EEOC) have co-published two short guides on employment background checks that explain the rights and responsibilities of the people on both sides of the desk.

The FTC and the EEOC want employers to know that they need written permission from job applicants before getting background reports about them from a company in the business of compiling background information. Employers also should know that it’s illegal to discriminate based on a person’s race, national origin, sex, religion, disability, or age (40 or older) when requesting or using background information for employment.

At the same time, the agencies want job applicants to know that it’s not illegal for potential employers to ask someone about their background as long as the employer does not unlawfully discriminate. Job applicants also should know that if they’ve been turned down for a job or denied a promotion based on information in a background report, they have a right to review the report for accuracy.

If you haven’t looked at your forms in the last year, now would be a good time to make sure that what you are using won’t run afoul of the FTC, EEOC, and your own applicants.

The California Supreme Court has decided to hear a case that could impact the ability of undocumented workers to collect back wages or sue employers for discrimination in California, and may prove instructive in other courts that periodically have to tackle these issues. The case is Salas v. Sierra Chemical Co. (Case No. S196568), and the California Supreme Court will consider whether an employee’s use of false documentation (in this case, a Social Security number) to obtain employment precludes future actions by that employee for discrimination (disability discrimination here). The court has previously sought briefing on three issues:

  • Did the trial court err in dismissing plaintiff’s claims under the Fair Employment and Housing Act (Gov. Code § 12900 et seq.) on grounds of after-acquired evidence and unclean hands, based on plaintiff’s use of false documentation to obtain employment in the first instance?
  • Did Senate Bill No. 1818 (2001-2002 Reg. Session) preclude application of those doctrines in this case? (See Civ. Code § 3339; Gov. Code § 7285; Health & Saf. Code § 24000; Lab. Code § 1171.5.)
  • Does federal immigration law preempt state law and thereby preclude an undocumented worker from obtaining, as a remedy for a violation of “state labor and employment laws” (Lab. Code § 1171.5; Civ. Code § 3339; Gov. Code § 7285; Health & Saf. Code § 24000), an award of compensatory remedies, including backpay? (See Hoffman Plastic Compounds, Inc. v. NLRB (2002) 535 U.S. 137.)

For those of you with employees in California, the first two issues are more important. Outside of California, they may have less of a direct impact. However, whenever a state supreme court considers the applicability of Hoffman Plastic, you should take notice. Courts and agencies, including the NLRB, have long sought to find broad remedies for undocumented workers, including backpay. As I’ve written elsewhere, Hoffman Plastic upset the balance between immigration law and available remedies for wage and hour, NLRA, and other violations. This case will add one more important voice to the debate over how to strike that balance post-Hoffman Plastic. The court scheduled Salas for oral argument in Los Angeles and will issue a decision by July 1, 2014.

Yesterday, we discussed the first part of the Seventh Circuit’s recent decision in Mitchell v. JCG Industries penned by Judge Richard Posner. 

As discussed in yesterday’s post, in Mitchell, the Seventh Circuit affirmed a district court’s decision dismissing an FLSA and Illinois Minimum Wage Law claim where unionized poultry processing plant workers alleged they had not been compensated for time spent donning and doffing protective and sanitary clothing at the start and end of their meal periods.

I mentioned yesterday that this opinion reminded me of another case before a panel that included Judge Posner from my days at the Social Security Administration’s General Counsel’s office. That case involved a limited issue addressing the district court’s decision not to award attorney’s fees under the Equal Access to Justice Act. However, Judge Posner spent nearly the entire oral argument questioning us about the difference between COPD and emphysema. His curiosity was on full display, but did not bleed into the final opinion in that case.  This time, in Mitchell, that curiosity may bleed into the opinion.

In Mitchell, the workers advanced two theories. The first, discussed in yesterday’s post, was a novel argument about their “workday” (answered by an equally novel opinion). The workers’ second theory was that the time spent donning and doffing was not “de minimis” because, according to their affidavits, it took them between 10 and 15 minutes to change in and out of their clothing and gear. The company had countered with its own affidavits that the tasks took just a few minutes at most. The district court had granted summary judgment for the company, agreeing with its calculations.

After concluding that it would be difficult for the trial level court to come to a factual conclusion on the matter, the opinion states that “one of us” in the majority conducted a “novel” experiment, videotaping three members of the court’s staff donning and doffing the same clothing as if they were plant workers, and found that the process took less than two minutes. Although the experiment is mentioned, the Court included the disclaimer that the videotape (which was not released by the court) “was not ‘evidence’” and that the intent of the experiment was only to “satisfy curiosity rather than to engage in appellate fact-finding.” However, the majority continued by acknowledging that it did rely on the information to confirm “the common sense intuition that donning and doffing” would not “eat up half the lunch break.”

While denying it was doing so, the majority appears to have attempted to develop factual evidence in the name of common sense. Judge Wood strongly criticized the majority for its experiment.

Because the opinion simply described the results depicted on the videotape, rather than making the video available for the parties and the public to review, we don’t know the outcome of the actual experiment. While the plaintiffs’ assertions about the length of time to don and doff the clothing stretch the bounds of credulity in my opinion, it is unsettling that we are left with nothing more about the videotape than a statement that the court staff was neither “rushing nor dawdling.”

Insights for Employers and Practitioners

Attorneys, don’t try experiments like these in your own employment cases. Rule 10 of the Federal Rules of Appellate Procedure (FRAP) states that “If the appellant intends to urge on appeal that a finding or conclusion is unsupported by the evidence or is contrary to the evidence, the appellant must include in the record a transcript of all evidence relevant to that finding or conclusion.” Indeed, appellate courts and trial courts routinely criticize parties that suggest facts outside of the record.

What is most perplexing about this opinion is that the majority’s “experiment” introduced an improvisational element to a relatively straightforward de minimis case. Keep in mind, though, that this is just one panel’s opinion. Courts do not generally decide a case in chambers, even in part, based on evidence they generate on their own.

The employer appears to have won this case based on common sense. However, employers and practitioners should not expect to cite this decision as breaking new ground in the world of donning and doffing cases. The DOL is unlikely to change its opinion about the continuous workday, and the Court’s novel interpretation may not gain traction in appellate courts, even within other panels of the Seventh Circuit. Most importantly, the novel outcome here gives me another opportunity to repeat (as I do whenever I give presentations on FLSA issues) that litigation is not only expensive, it is unpredictable. As I said yesterday, novel theories can lead to novel outcomes, and those may or may not be positive for you. The employer’s “win” was still an expense in time, money and resources…To avoid this in the future, one approach to consider is to address obvious donning and doffing issues during collective bargaining, through company policies and, most importantly, in communications with employees.

The bottom line: the way to “win” cases like these is to proactively address the situations that can lead to litigation.

A few weeks ago on Twitter, I remarked on Mitchell v. JCG Industries, a case from the Seventh Circuit penned by Judge Richard Posner:

140 characters do not do this decision justice, though. Reading it reminded me of another case we had argued before a panel with Judge Posner and Judge Wood during my time at the Social Security Administration. I’ll get back to that in part two of this post. 

In Mitchell, over a dissent from Judge Wood, the Seventh Circuit affirmed a district court’s decision dismissing an FLSA and Illinois Minimum Wage Law claim where unionized poultry processing plant workers alleged they had not been compensated for time spent donning and doffing protective and sanitary clothing at the start and end of their meal periods.  While the end result was a win for employers, the opinion itself opened to the door to more questions.

As we previously reported after the Supreme Court’s Sandifer decision in January 2014, the U.S. Department of Labor’s (DOL) regulations have long required employers to pay employees for time spent changing into protective gear and equipment, as well as the time spent taking it off, if that gear is required to perform the job. But under Section 203(o) of the FLSA, employers do not have to pay employees for time spent “changing clothes or washing at the beginning or end of each workday” if a “bona fide collective-bargaining agreement” excludes that time as compensable work time. Unlike Sandifer, the Mitchell case did not involve a question about whether the “clothes” at issue fell within the meaning of Section 203(o). Although the regulations provide employers and employees the opportunity to collectively bargain a different result, the CBA at issue in this case did not require the employer to compensate employees for donning and doffing.

The Mitchell plaintiffs were employees who worked eight hour shifts but were required to wash their hands before and after handling unprocessed chicken and who had to don and doff their protective clothing and gear both before and after their lunch breaks. The company took the time the workers spent washing and changing out of their uncompensated meal breaks rather than paying it as part of their shift.

The workers presented two theories, the first of which is the subject of today’s post. Rather unconventionally, the plaintiffs claimed that the time they spent donning and doffing was compensable because Section 203(o) only excludes from compensation time spent “at the beginning or end of each workday…by the express terms of or by custom or practice under a bona fide collective-bargaining agreement.” The workers argued that changing clothes at the beginning and end of the meal period was not the same as changing them “at the beginning or end of each workday.” Therefore, the workers contended that the exclusion in Section 3(o) would not apply at all.

A more conventional approach would have been to argue that the meal period was not a “bona fide” unpaid break (i.e., at least 30 minutes) on account of the amount of work the company required workers to engage in during that break.  Judge Posner found this tactical decision implied “that the amount of time consumed in changing is indeed slight.” The plaintiffs’ litigation strategy shows the risk that advancing an unconventional theory by itself presents.

Writing for the majority, Judge Posner found that “the identical considerations attend payment” for clothes changing time at meal periods as at the beginning or end of the workday. Further, he observed that meal periods did not have to be provided at all in the union setting, since that issue was left to collective bargaining. Judge Posner then concluded that the inclusion of a meal period meant that workers were “in effect working two four-hour workdays in an eight-and-a-half hour period.”  So how did he reach that conclusion?

Judge Posner reasoned that since “workday” could also include “worknight” (a word he created to describe workers who worked second or third shift), “it may also include four‐hour shifts separated by meal breaks.” This reasoning certainly differs from  the conventional understanding of “workday” in 29 C.F.R. § 790.6(b). That DOL regulation defines “workday” to mean “in general, the period between the commencement and completion on the same workday of an employee’s principal activity or activities.” Apparently seizing on the phrase ”in general,” Judge Posner observed that Section 203(o) of the Act does not mention meal breaks at all and “does not consider the effect they may have on a practical definition of ‘workday’,” thereby justifying the multiple “workday” per day definition.

This is a novel construct of the FLSA, at least from the standpoint of the DOL, which has typically strictly construed the concept of a “continuous workday.” The opinion did not address another potentially conflicting provision of Illinois state law, the One Day Rest in Seven Act. 820 ILCS 140/3.  This Illinois law, unlike the Minimum Wage Law the majority examined in its opinion, provides a meal period for all employees “who are to work for 7 1/2 continuous hours or longer,” which conflicts with the “workday” definition used by the court. If the court decided not to apply the continuous workday definition from this section because of its carve out for collective bargaining agreements, or if the case was meant to apply only to those employees represented by a CBA, the opinion was silent on that matter. Without any such caveats, application of the Court’s “workday” definition could be viewed as making the Illinois statute superfluous, since any worker with the mandatory meal period would not be working 7 ½ continuous hours.

Judge Diane Wood, in dissent, also observed that dividing the workday into two four-hour shifts was incompatible with the “continuous workday” concept in the DOL’s regulations and criticized the majority for rejecting the DOL’s interpretation of the FLSA without going through the “normal analysis” to justify disregarding that interpretation. Because changing clothes at the meal period is part of the continuous workday, Judge Wood reasoned, unions “cannot bargain away worker compensation for mid-day breaks.”

Insights for Employers and Practitioners

Perhaps the plaintiffs were too clever by asserting a novel approach to their claim. Unconventional litigation strategies can lead to unconventional results. As the classic SNL skit goes, sometimes a banana is just a banana. From a litigation standpoint, the employer properly approached this case as what it was: a de minimis donning and doffing matter that did not transform the bona fide meal period. Interestingly, the novel definition of “workday” was far from the strangest part of the opinion. I’ll save that for part two tomorrow, along with some other insights about what the employer could have done better in this situation.

US Department of Labor logo.jpgRecently on Twitter, I commented that revising the FLSA regulations won’t be quick or easy. Speaking of Twitter, if you’re not following @WageHourInsight yet, why not? I find lots of interesting tidbits every day that don’t make it here to the blog, and you can follow along with some of the more free-wheeling conversations HR professionals have on the very same topics we discuss here. 

My comment on Twitter should come with the added caveat: if they’re revised correctly. Merely increasing the minimum salary (the focus of the Secretary’s recent blog post) for the white collar exemption is not enough. Want some examples? DOL Secretary Perez referred to the Family Dollar case as an example of where the “primary duty” test revisions by the Bush administration swept up far more employees than he believes the FLSA intended. Need another? Tip credits. 

Continue Reading FLSA Revisions Won’t be Quick or Easy

In an unexpected move, the Obama administration officially announced today that it will issue a Presidential Memorandum to the U.S. Department of Labor (DOL) instructing its Secretary to update regulations regarding overtime protection for workers under the FLSA. Any changes to the regulation would be the first since 2004, when the Bush administration increased the minimum weekly salary for overtime-exempt workers to $455 per week. 

While the FLSA requires employers to pay most employees overtime pay, Section 13 provides an exemption from overtime pay for employees employed as bona fide executive, administrative, professional, and outside sales employees (commonly referred to as the “white collar” exemptions). Under current regulations, to qualify for the “white-collar” exemptions, employees must be paid at least $455 per week on a salary basis and their job duties must meet specific tests outlined in DOL regulations. Of course, job titles alone do not determine whether employees are exempt from the overtime requirement. In general, “exempt” employee duties must include managing a part of a business, supervising other employees, exercising independent judgment on significant matters, or utilizing advanced knowledge. This latest initiative is expected to seek to tighten the qualifications for these white collar exemptions to make it more difficult for employers to avoid paying overtime.

While promising to order a full modernization of existing regulations, the White House focuses on the salary threshold and indicates this amount will be increased. In particular, it notes that the $455 amount, up from $250 in 1975, is the equivalent of $561 in today’s dollars, and observes that states like New York and California have set their own, higher salary thresholds. The Presidential Memorandum also will direct the Secretary of Labor to “simplify” overtime rules to make them easier to understand and apply. 

Employer Insight

Whether the DOL seeks to raise the income threshold or tighten the duties requirements (or both), any such move will likely have a substantial impact on employers by expanding the range of workers entitled to overtime pay. While employers must view this initiative with caution, the impact is not likely to be immediate. Employers should have some time to prepare for (and respond to) whatever proposal is ultimately unveiled by the DOL. The 2004 revisions to the FLSA regulations took the DOL nearly two years to implement from the preparation of initial draft changes to sifting through tens of thousands of public comments and following protocols established by the Office of Management and Budget for final approval. Nonetheless, with less than two years left in the Obama administration, we will keep a close watch for announcements about proposed rule changes and provide further guidance as appropriate.

Guest Blogger: Sunghee W. Sohn

iStock_WageIncrease.XSmall.jpgOn February 12, 2014, President Obama increased the minimum wage for federal contractors and subcontractors by an Executive Order to $10.10 per hour. This announcement comes on the heels of 13 states and 4 cities that also raised their own state and local minimum wages in 2014. Effective January 1, 2015, the federal contractors’ minimum wage will be the highest minimum wage in the country.

Which federal contractors are subject to the new minimum wage?

The Executive Order states federal contractors who receive new contracts on or after January 1, 2015 will be responsible for paying the new minimum wage. In addition, only contractors who win new contracts for procurement of services or construction, services covered by the Service Contract Act, concessions, and services in connection with federal property or lands will be subject to the new minimum wage. The government is expected to issue regulations by April 12, 2014 that will include three exclusions from the requirement. It is still unclear as to what classification of federal contractor or work will be excluded from the Executive Order. Employers who believe they will be impacted should begin to analyze and prepare their budgets, payroll, benefits and, for some, collective bargaining obligations in light of the order.

Continue Reading Q&A: Executive Order Increasing Minimum Wage for Federal Contractors

In his fifth State of the Union speech, President Obama announced that he planned to issue an executive order raising the minimum wage for workers under new federal contracts to $10.10 per hour, up from the current federal minimum wage of $7.25 an hour and higher than the $9.00 per hour rate the president sought last year from Congress. The White House released a fact sheet explaining the background for the decision and outlining some economic and broad legal arguments in support of the administration’s authority. The order will be modeled after legislation sponsored by Senator Tom Harkin (D-Iowa) and Representative George Miller (D-California) who introduced the “Fair Minimum Wage Act“ last year. The proposed law would increase the minimum wage for all employers to $10.10 in three 95-cent increments and index it for inflation, as well as boost the sub-minimum wage for tipped workers to 70 percent of the minimum, or $7.07 at the outset.

The White House did not announce a timetable for executing the impending executive order, but it is expected to have a greater political than practical impact on employers because of its planned limited scope. The new executive order would not affect federal contractors’ existing contracts or employers who only receive federal subsidies, grants, or loans, such as those from the USDA, the FCC’s Universal Service or Connect America Funds, or the Department of Energy. Federal employees would have to wait for an increase as well, since only Congress can alter their pay rates. The executive order would only apply to new federal contracts and, if other provisions in them also change, to renewals of existing contracts.

President Obama used his annual address to Congress to highlight his support for the Harkin-Miller bill. In statements before the speech, White House officials argued that the decision to issue the executive order would increase the pressure on Congress to pass this broader legislation. Officials also contended the President’s efforts had encouraged states such as Illinois to increase their own minimum wage rates. Republican leaders criticized the President for bypassing Congress, and some political observers questioned whether a blanket increase in the minimum wage for contractors qualifies as a measure ensuring “economy and efficiency” that the president would be authorized to institute under the 1949 Federal Property and Administrative Services Act.