DOL Publishes Final Regulation on New Minimum Wage for Certain Federal Contractors

Last week, the Federal Register published the final regulation by the Department of Labor implementing Executive Order 14026, raising on January 30, 2022 the minimum wage applicable to many, but not all, federal contractors to $15/hour with automatic annual increases.   Like other Executive Orders, this only applies to new contracts, renewals and extensions, but agencies have been “strongly encouraged” since April to include this requirement in new contract solicitations, contracts and extensions.  It also only applies to certain types of federal contracts, including McNamara-O'Hara Service Contract Act of 1965 covered contracts, concessions contracts, contracts related to federal property and “a procurement contract or contract-like instrument for services or construction” if those employees are also subject to the Service Contract Act, the Davis-Bacon Act or the Fair Labor Standards Act and only for hours worked on or in connection with a federal contract.   The regulation gradually phases out all tip credits by 2024 and revokes some prior exemptions granted by the prior Administration.  The DOL has also created a new poster to be displayed or distributed by covered employers.

Sections 23.30(d) and 23.40 specifically exclude coverage to certain types of federal contracts and workers: (i) “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, 41 U.S.C. 6501 et seq.” (ii) grants, (iii) agreements with Indian Tribes, (iv) construction procurement contracts not covered by the Davis-Bacon Act, (v) certain contracts specifically excluded from the Service Contract Act, (vi) with certain exceptions, employees exempt under the FLSA, (vii), FLSA-covered employees who perform less than 20% of their time in connection with (rather than directly for) a covered contract and (viii) contracts resulting from a solicitation issued before January 30, 2022, but entered into on or between January 30, 2022 and March 30, 2022. 

The definition section of the regulation describes the covered “workers” as follows:

any person engaged in performing work on or in connection with a contract covered by the Executive Order, and whose wages under such contract are governed by the Fair Labor Standards Act, the Service Contract Act, or the Davis-Bacon Act, other than individuals employed in a bona fide executive, administrative, or professional capacity, as those terms are defined in 29 CFR part 541, regardless of the contractual relationship alleged to exist between the individual and the employer. The term worker includes workers performing on or in connection with a covered contract whose wages are calculated pursuant to special certificates issued under 29 U.S.C. 214(c), as well as any person working on or in connection with a covered contract and individually registered in a bona fide apprenticeship or training program registered with the U.S. Department of Labor's Employment and Training Administration, Office of Apprenticeship, or with a State Apprenticeship Agency recognized by the Office of Apprenticeship. A worker performs “on” a contract if the worker directly performs the specific services called for by the contract. A worker Start Printed Page 67227 performs “in connection with” a contract if the worker's work activities are necessary to the performance of a contract but are not the specific services called for by the contract.

Except when covered by FAR, applicable federal agencies, contractors and subcontractors are required to include a new clause in their covered contracts:

(b) Flow-down requirement. The contractor and any subcontractors shall include in any covered subcontracts the Executive Order minimum wage contract clause referred to in § 23.110(a) and shall require, as a condition of payment, that the subcontractor include the minimum wage contract clause in any lower-tier subcontracts. The prime contractor and any upper-tier contractor shall be responsible for the compliance by any subcontractor or lower-tier subcontractor with the Executive Order minimum wage requirements, whether or not the contract clause was included in the subcontract.

The new, lengthy clause reads as follows: 

(a) Executive Order 14026. This contract is subject to Executive Order 14026, the Start Printed Page 67234 regulations issued by the Secretary of Labor in 29 CFR part 23 pursuant to the Executive Order, and the following provisions.

(b) Minimum wages. (1) Each worker (as defined in 29 CFR 23.20) engaged in the performance of this contract by the prime contractor or any subcontractor, regardless of any contractual relationship which may be alleged to exist between the contractor and worker, shall be paid not less than the applicable minimum wage under Executive Order 14026.

(2) The minimum wage required to be paid to each worker performing work on or in connection with this contract between January 30, 2022 and December 31, 2022, shall be $15.00 per hour. The minimum wage shall be adjusted each time the Secretary of Labor's annual determination of the applicable minimum wage under section 2(a)(ii) of Executive Order 14026 results in a higher minimum wage. Adjustments to the Executive Order minimum wage under section 2(a)(ii) of Executive Order 14026 will be effective for all workers subject to the Executive Order beginning January 1 of the following year. If appropriate, the contracting officer, or other agency official overseeing this contract shall ensure the contractor is compensated only for the increase in labor costs resulting from the annual inflation increases in the Executive Order 14026 minimum wage beginning on January 1, 2023. The Secretary of Labor will publish annual determinations in the Federal Register no later than 90 days before such new wage is to take effect. The Secretary will also publish the applicable minimum wage on https://alpha.sam.gov/​content/​wage-determinations (or any successor website). The applicable published minimum wage is incorporated by reference into this contract.

(3) The contractor shall pay unconditionally to each worker all wages due free and clear and without subsequent deduction (except as otherwise provided by 29 CFR 23.230), rebate, or kickback on any account. Such payments shall be made no later than one pay period following the end of the regular pay period in which such wages were earned or accrued. A pay period under this Executive Order may not be of any duration longer than semi-monthly.

(4) The prime contractor and any upper-tier subcontractor shall be responsible for the compliance by any subcontractor or lower-tier subcontractor with the Executive Order minimum wage requirements. In the event of any violation of the minimum wage obligation of this clause, the contractor and any subcontractor(s) responsible therefore shall be liable for the unpaid wages.

(5) If the commensurate wage rate paid to a worker performing work on or in connection with a covered contract whose wages are calculated pursuant to a special certificate issued under 29 U.S.C. 214(c), whether hourly or piece rate, is less than the Executive Order minimum wage, the contractor must pay the Executive Order minimum wage rate to achieve compliance with the Order. If the commensurate wage due under the certificate is greater than the Executive Order minimum wage, the contractor must pay the worker the greater commensurate wage.

(c) Withholding. The agency head shall upon its own action or upon written request of an authorized representative of the Department of Labor withhold or cause to be withheld from the prime contractor under this or any other Federal contract with the same prime contractor, so much of the accrued payments or advances as may be considered necessary to pay workers the full amount of wages required by Executive Order 14026.

(d) Contract suspension/Contract termination/Contractor debarment. In the event of a failure to pay any worker all or part of the wages due under Executive Order 14026 or 29 CFR part 23, or a failure to comply with any other term or condition of Executive Order 14026 or 29 CFR part 23, the contracting agency may on its own action or after authorization or by direction of the Department of Labor and written notification to the contractor, take action to cause suspension of any further payment, advance or guarantee of funds until such violations have ceased. Additionally, any failure to comply with the requirements of this clause may be grounds for termination of the right to proceed with the contract work. In such event, the Government may enter into other contracts or arrangements for completion of the work, charging the contractor in default with any additional cost. A breach of the contract clause may be grounds for debarment as a contractor and subcontractor as provided in 29 CFR 23.520.

(e) Workers who receive fringe benefits. The contractor may not discharge any part of its minimum wage obligation under Executive Order 14026 by furnishing fringe benefits or, with respect to workers whose wages are governed by the Service Contract Act, the cash equivalent thereof.

(f) Relation to other laws. Nothing herein shall relieve the contractor of any other obligation under Federal, state or local law, or under contract, for the payment of a higher wage to any worker, nor shall a lower prevailing wage under any such Federal, State, or local law, or under contract, entitle a contractor to pay less than $15.00 (or the minimum wage as established each January thereafter) to any worker.

(g) Payroll records. (1) The contractor shall make and maintain for three years records containing the information specified in paragraphs (g)(1)(i) through (vi) of this section for each worker and shall make the records available for inspection and transcription by authorized representatives of the Wage and Hour Division of the U.S. Department of Labor:

(i) Name, address, and social security number;

(ii) The worker's occupation(s) or classification(s);

(iii) The rate or rates of wages paid;

(iv) The number of daily and weekly hours worked by each worker;

(v) Any deductions made; and

(vi) Total wages paid.

(2) The contractor shall also make available a copy of the contract, as applicable, for inspection or transcription by authorized representatives of the Wage and Hour Division.

(3) Failure to make and maintain or to make available such records for inspection and transcription shall be a violation of 29 CFR part 23 and this contract, and in the case of failure to produce such records, the contracting officer, upon direction of an authorized representative of the Department of Labor, or under its own action, shall take such action as may be necessary to cause suspension of any further payment or advance of funds until such time as the violations are discontinued.

(4) The contractor shall permit authorized representatives of the Wage and Hour Division to conduct investigations, including interviewing workers at the worksite during normal working hours.

(5) Nothing in this clause limits or otherwise modifies the contractor's payroll and recordkeeping obligations, if any, under the Davis-Bacon Act, as amended, and its implementing regulations; the Service Contract Act, as amended, and its implementing regulations; the Fair Labor Standards Act, as amended, and its implementing regulations; or any other applicable law.

(h) Flow-down requirement. The contractor (as defined in 29 CFR 23.20) shall insert this clause in all of its covered subcontracts and shall require its subcontractors to include this clause in any covered lower-tier subcontracts. Executive Order 14026 does not apply to subcontracts for the manufacturing or furnishing of materials, supplies, articles, or equipment, and this clause is not required to be inserted in such subcontracts. The prime contractor and any upper-tier subcontractor shall be responsible for the compliance by any subcontractor or lower-tier subcontractor with this contract clause.

(i) Certification of eligibility. (1) By entering into this contract, the contractor (and officials thereof) certifies that neither it (nor he or she) nor any person or firm who has an interest in the contractor's firm is a person or firm ineligible to be awarded Government contracts by virtue of the sanctions imposed pursuant to section 5 of the Service Contract Act, section 3(a) of the Davis-Bacon Act, or 29 CFR 5.12(a)(1).

(2) No part of this contract shall be subcontracted to any person or firm whose name appears on the list of persons or firms ineligible to receive Federal contracts.

(3) The penalty for making false statements is prescribed in the U.S. Criminal Code, 18 U.S.C. 1001.

(j) Tipped employees. In paying wages to a tipped employee as defined in section 3(t) of the Fair Labor Standards Act, 29 U.S.C. 203(t), the contractor may take a partial credit against the wage payment obligation (tip credit) to the extent permitted under section 3(a) of Executive Order 14026. In order to take such a tip credit, the employee must receive an amount of tips at least equal to the amount of the credit taken; where the tipped employee does not receive sufficient tips to equal the amount of the tip credit the contractor must increase the cash wage paid for the workweek so that the amount of cash wage paid and the tips received by the employee equal the applicable minimum wage under Executive Order 14026. To utilize this proviso:

(1) The employer must inform the tipped employee in advance of the use of the tip credit; Start Printed Page 67235

(2) The employer must inform the tipped employee of the amount of cash wage that will be paid and the additional amount by which the employee's wages will be considered increased on account of the tip credit;

(3) The employees must be allowed to retain all tips (individually or through a pooling arrangement and regardless of whether the employer elects to take a credit for tips received); and

(4) The employer must be able to show by records that the tipped employee receives at least the applicable Executive Order minimum wage through the combination of direct wages and tip credit.

(k) Antiretaliation. It shall be unlawful for any person to discharge or in any other manner discriminate against any worker because such worker has filed any complaint or instituted or caused to be instituted any proceeding under or related to Executive Order 14026 or 29 CFR part 23, or has testified or is about to testify in any such proceeding.

(l) Disputes concerning labor standards. Disputes related to the application of Executive Order 14026 to this contract shall not be subject to the general disputes clause of the contract. Such disputes shall be resolved in accordance with the procedures of the Department of Labor set forth in 29 CFR part 23. Disputes within the meaning of this contract clause include disputes between the contractor (or any of its subcontractors) and the contracting agency, the U.S. Department of Labor, or the workers or their representatives.

(m) Notice. The contractor must notify all workers performing work on or in connection with a covered contract of the applicable minimum wage rate under the Executive Order. With respect to service employees on contracts covered by the Service Contract Act and laborers and mechanics on contracts covered by the Davis-Bacon Act, the contractor may meet this requirement by posting, in a prominent and accessible place at the worksite, the applicable wage determination under those statutes. With respect to workers performing work on or in connection with a covered contract whose wages are governed by the FLSA, the contractor must post a notice provided by the Department of Labor in a prominent and accessible place at the worksite so it may be readily seen by workers. Contractors that customarily post notices to workers electronically may post the notice electronically provided such electronic posting is displayed prominently on any website that is maintained by the contractor, whether external or internal, and customarily used for notices to workers about terms and conditions of employment.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

DOL Publishes Final Rule for EO 13658 Raising Minimum Wage for Certain Federal Contractors to $10.10/hour in 2015

Today, the Department of Labor published the final rule implementing Executive Order 13658, which raises the minimum wage for certain employees of certain federal construction and service contractors to $10.10/hour with new and replacement government contracts issued after January 1, 2015.  Interestingly, the EO and final regulation exclude certain employers (including those located outside the U.S.) and employees (such as students, individuals exempt from minimum wages under the FLSA, and those who work less than 20% on covered contracts). It also does not mandate application of the rule to independent agencies, such as the FDIC: 

The Executive Order strongly encourages, but does not compel, ‘‘[i]ndependent agencies’’ to comply with its requirements. 79 FR 9853. The Department interpreted this provision, in light of the Executive Order’s broad goal of adequately  compensating workers on contracts with the Federal Government, as a narrow exemption from coverage. See 79 FR 9851. As discussed above, the proposed rule interpreted independent agencies to mean any independent regulatory agency within the meaning of 44 U.S.C. 3502(5). This interpretation is consistent with provisions in other Executive Orders. See, e.g., Executive Order 13636, 78 FR 11739 (Feb. 12, 2013); Executive Order 12861, 58 FR 48255 (Sept. 11, 1993). Thus, under the proposed rule, the Executive Order would cover executive departments and agencies but would not cover any independent regulatory agency within the meaning of 44 U.S.C. 3502(5).

Accordingly, federal contractors would be prudent to examine whether their contract fits within the coverage for this Executive Order.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

June Ends with a Bang with DOL Moving to Amend FMLA Regulations and Three Supreme Court Employment Decisions

The end of June is traditionally a busy week for legal observers since many of the Supreme Court’s most contentious employment decisions are issued before it recesses for the year.  This year was no exception.  However, there were also a number of regulatory matters raised by the Department of Labor which were equally – and maybe more – noteworthy.  First, the DOL has proposed to amend the FMLA regulation defining spouse to require employers in states where same-sex marriage is not recognized – like Ohio -- to provide FMLA leave to employees who were legally married in another state.  Second, the DOL proposed regulations to increase the minimum wage for certain employees of certain federal contractors beginning in 2015.  Next, a unanimous Supreme Court held that the Senate – not the President – gets to decide when it is in recess.  Therefore, Presidential appointments to the NLRB made during brief adjournments were not constitutional.  In addition, a divided Supreme Court found that the First Amendment rights of de factor independent contractors trumped the government’s interest in giving them union rights and requiring them to subsidize through fair share fees the political lobbying activities of unions to which the workers objected.  Finally, a divided Supreme Court found that closely held corporations can assert statutory and First Amendment rights to object to contraceptive coverage mandated by ObamaCare regulations and the government failed to show that less restrictive means existed to achieve its aims.

FMLA Rights of Domestic Partners.  On June 20, the Department of Labor announced that it would be proposing to change the regulatory definition of “spouse” in the Family and Medical Leave Act to include individuals who were legally married  in one country (like Argentina) or state, like Massachusetts, even though they currently reside in a state, like Ohio, which does not recognize that marriage.  Currently, FMLA rights only extend to individuals whose marriage is legal in the state where the employee resides.  The Act itself provides in § 2611(13) that “[t]he term “spouse” means a husband or wife, as the case may be.”    The current regulatory definition provides that: “Spouse means a husband or wife as defined or recognized under State law for purposes of marriage in the State where the employee resides, including common law marriage in States where it is recognized.” Under the proposed rule – which was published in the Federal Register last week on June 27 – same sex and common law marriages will be included in the definition of “spouse” based on the place of celebration instead of the place of residence. The DOL also revised other regulations to replace “husband and wife” with “spouse” and “mother and father” with “parent.”   The DOL will consider comments on the proposed changes which are received before August 11.   The expansion of the rule will affect spousal leave (to care for an ill/injured spouse or during a qualified exigency military leave), child care leave (to care for ill step-children even if the employee is “does not stand in loco parentis” to that child) and parental leave (to care for an employee’s step-parent in a same sex marriage).

The new definition at §825.102 and §825.122 will read as follows:

Spouse, as defined in the statute, means a husband or wife. For purposes of this definition, husband or wife refers to the other person with whom an individual entered into marriage as defined or recognized under State law for purposes of marriage in the State in which the marriage was entered into or, in the case of a marriage entered into outside of any State, if the marriage is valid in the place where entered into and could have been entered into in at least one State. This definition includes an individual in a same-sex or common law marriage that either (1) was entered into in a State that recognizes such marriages or, (2) if entered into outside of any State, is valid in the place where entered into and could have been entered into in at least one State.

NLRB Recess Appointments.  Last week, a unanimous Supreme Court affirmed the D.C. District and Court of Appeals in finding that President Obama exceeded his authority in appointing three NLRB members during a three day adjournment.   NLRB v. Noel Canning, No.12-1281 (2014).  Under the Constitution, NLRB members must be confirmed by the Senate, although the President has the right under the Constitution to temporarily appoint members when the Senate is in “recess.”  In this case, President Obama appointed three members when the Senate was on a three –day adjournment and not on a self-declared recess.  An employer which lost a case at the NLRB challenged the appointment of the three adjournment-appointed members and, thus, the Board’s quorum to conduct business and make decisions.  The Court ultimately held that Congress is presumptively in recess or in business when it  says it is and the President does not get to decide that for Congress by declaring a three day adjournment to be a recess.   The recess appointments clause was not meant as a routine alternative for the President to avoid Senate confirmation.  In addition, the Court indicated that adjournments of less than 10 days would presumptively not be recesses so that the President could avoid Senate confirmation.   Accordingly, all of the decisions made by those appointed NLRB members are invalid and, if still pending in the legal process, likely will not be enforced by the Courts.  However, there is a legal quorum on the NLRB a present and it has indicated that it intends to act quickly to reconsider (and probably reconfirm) these challenged decisions.

Public Union/First Amendment Rights for Independent Contractors.  On Monday, a divided Supreme Court limited the ability of public unions in Illinois’ to encourage unionization of home healthcare workers (who had traditionally been considered independent contractors) by precluding the unions’ ability to collect “fair share fees” from the home healthcare workers who object under the First Amendment to joining and financially supporting a union.   Harris v. Quinn, No. 11-681 (2014).   The State of Illinois had declared the Personal Assistant (home healthcare workers) to be “employees” of the state by virtue of the fact that the state paid them with Medicaid funds even though they were hired, trained, supervised and fired by individual citizens receiving Medicaid assistance.   As described by the Court’s syllabus, “[o]ther than compensating PAs, the State’s involvement in employ­ment matters is minimal. Its employer status was created by execu­tive order, and later codified by the legislature, solely to permit PAs to join a labor union and engage in collective bargaining under Illi­nois’ Public Labor Relations Act (PLRA).”   The healthcare workers do not receive other state government employee benefits and are not protected by, for instance, sovereign immunity.  Because the home healthcare workers were only partial government employees, there was little service that the union was providing them in exchange for union dues or a fair share fee (to preclude free riders) since Medicaid dictated a uniform rate of pay and the employing citizens governed virtually all other terms and conditions of employment.   Accordingly, the Court refused to extend prior Court decisions to these de facto independent contractors and, instead, applied the traditional First Amendment legal analysis to the propriety of requiring these individuals to pay a fee to a union which they did not join or support.   The Court’s majority concluded that there was no compelling government interest which could not be achieved by less restrictive means that would override the workers’ First Amendment rights.

 

First Amendment Rights of Small Businesses.  On Monday, a divided Supreme Court held that closely-held corporations could exercise First Amendment and statutory rights as “persons.”   Burwell v. Hobby Lobby Stores, Inc.¸ No. 13-354 (2014).  The Court noted that it had previously recognized these rights when raised by non-profit corporations and by for-profit sole proprietorships.  Therefore, when the owners of these businesses objected to being required to pay for methods of contraception which interfered with fertilized eggs, they had standing to raise the claims. The Court noted that it would be impractical for a publicly held corporation to assert similar claims.  On the merits, the Court found that the government had failed to demonstrate the existence of a compelling interest to justify its regulations that could not be addressed with less restrictive measures. 

Minimum Wage for Federal Contractors. In February, President Obama issued Executive Order 13658 requiring federal contractors to increase the minimum wage paid to certain employees to $10.10/hour beginning with contracts issued in 2015. That amount will be tied to the Consumer Price Index and may be adjusted going forward.   This month, the Department of Labor issued proposed regulations to implement this Executive Order.   Importantly, not all federal contractors or hourly employees are covered.  The EO covers mostly those employees covered by the Service Contract Act, Davis-Bacon and work in federal park concessions.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.