Authored by Alex Passantino

Earlier today, the Department of Labor’s Wage & Hour Division (WHD) announced that it will publish a Notice of Proposed Rulemaking (NPRM) to implement a $10.10 minimum wage for federal contractor employees pursuant to Executive Order 13658.  Comments to the NPRM will be due 30 days after its publication in the Federal Register, which has not yet occurred.

Last month, we noted that DOL had submitted its proposed rule to White House’s Office of Management and Budget (OMB).  Although, as of this morning, OMB’s Office of Information and Regulatory Affairs’ website indicates that it is still reviewing the rule, the Department has established a website containing information about the rulemaking, including the text of the proposed rule.

The text of the proposed rule provides answers to some of the questions that contractors have had since the Executive Order (E.O.) was issued.  Highlights of the NPRM include:

  • Employees who work in “support” of the contract, but who would not be subject to the SCA or the DBA, may be covered by minimum wage requirements of the E.O.
  • Application to subcontracts and subcontractors when a prime contract is subject to the E.O.
  • Coverage of private entities that lease space in a Federal building to provide services to Federal employees or the general public.
  • Application of the E.O. to nonappropriated fund instrumentalities under the jurisdiction of the Armed Forces (e.g., the Army and Air Force Exchange Service) or of other Federal agencies, including concession contracts with those instrumentalities.

Contracts/Agencies/Contractors Covered

  • The E.O. applies to new contracts and replacements for expiring contracts with the Federal Government that result from solicitations issued on or after January 1, 2015 or to contracts that are awarded outside the solicitation process on or after January 1, 2015.
    • The “Federal Government” includes nonappropriated fund instrumentalities under the jurisdiction of the Armed Forces or of other Federal agencies, but does not include the District of Columbia or any Territory or possession of the United States.
    • “Truly automatic” renewals of contracts or exercises of options devoid of any bilateral negotiations will fall outside the scope of the E.O.
      • According the NPRM, when a contracting agency exercises its unilateral right to extend the term of an existing service contract and simply makes pricing adjustments based on increased labor costs that result from its obligation to include a current SCA wage determination, but no bilateral negotiations occur (other than any necessary to determine and effectuate those pricing adjustments), the Department would not view the exercise of that option as a “new contract” covered by the E.O.
    • Any renewals or extensions of contracts resulting from bilateral negotiations involving contractual modifications other than administrative changes, however, would be “new contracts” subject to the E.O. if they are awarded on or after January 1, 2015, even if such negotiations occur during option periods.
  • The NPRM defines the term “contract” as “all contracts and any subcontracts of any tier thereunder, whether negotiated or advertised, including any procurement actions, lease agreements, cooperative agreements, provider agreements, intergovernmental service agreements, service agreements, licenses, permits, or any other type of agreement, regardless of nomenclature, type, or particular form, and whether entered into verbally or in writing.”
  • When a contract is subject to the E.O., then the prime contractor and all of its first or lower-tier subcontractors will be subject to the E.O.

Contractual Arrangements Covered

  • In general, there are four major categories of contractual agreements that will be subject to the minimum wage requirement:
    • procurement contracts for construction covered by the Davis-Bacon Act (DBA).  It does not apply to contracts that are subject only to the Davis-Bacon Related Acts (such as Federal Highway Administration grants for road reconstruction or Housing and Urban Development-funded construction by local housing authorities).
    • service contracts covered by the Service Contract Act (SCA).
    • concessions contracts, including any concessions contract excluded from the SCA by the Department of Labor’s regulations at 29 CFR 4.133(b).  Thus, “concessions contract” includes, but is not limited to, a contract whose principal purpose is to furnish food, lodging, automobile fuel, souvenirs, newspaper stands, and/or recreational equipment, regardless of whether the services are of direct benefit to the Government, its personnel, or the general public.
      • The proposed rule extends coverage of the E.O. to all concession contracts with the Federal Government, including those excluded from SCA coverage by regulations, such as concession contracts with the Federal Government to operate souvenir shops or to provide food or lodging in national parks.
    • contracts in connection with Federal property or lands and related to offering services for Federal employees, their dependents, or the general public.  The NPRM interprets this provision as generally including leases of Federal property, including space and facilities, and licenses to use such property entered into by the Federal Government for the purpose of offering services to the Federal Government, its personnel, or the general public.
      • In other words, private entities that lease space in a Federal building to provide services to Federal employees or the general public are covered by the E.O. and this part.
      • The NPRM provides examples of the types of entities that will be subject to the E.O. pursuant to this section:  a private fast food or casual dining restaurant that rents space in a Federal building and serves food to the general public; and delegated leases of space in a Federal building from an agency to a contractor whereby the  contractor operates a child care center, credit union, gift shop, barber shop, or fitness center in the Federal agency building to serve Federal employees and/or the general public.

Exemptions and Exclusions

  • Contracts for the manufacturing or furnishing of materials, supplies, articles, or equipment to the Federal Government, i.e., those subject to the Walsh-Healey Public Contracts Act, are not covered by E.O.
  • The NPRM contains certain narrow exclusions from coverage for the following types of contractual agreements: (1) grants; (2) contracts and agreements with and grants to Indian Tribes under Public Law 93-638, as amended; (3) any procurement contracts for construction that are not subject to the DBA (i.e., procurement contracts for construction under $2,000); and (4) any contracts for services, except for those otherwise expressly covered by the proposed rule, that are exempted from coverage under the SCA or its implementing regulations.
  • For example, the SCA exempts contracts for public utility services, including electric light and power, water, steam, and gas, from its coverage.  It additionally exempts employment contracts providing for direct services to a Federal agency by an individual. Such contracts would also be exempt from coverage of the E.O. and the NPRM.

Workers Covered

  • Workers performing on covered Federal contracts whose wages are governed by the FLSA, the SCA, or the DBA are entitled to receive the E.O. minimum wage for all time spent performing on covered Federal contracts.
  • The E.O. generally applies to the following categories of workers performing on covered Federal contracts: (1) employees who are entitled to the FLSA minimum wage; (2) service employees who are entitled to prevailing wages under the SCA; and (3) laborers and mechanics who are entitled to prevailing wages under the DBA (including apprentices).
  • The NPRM  specifically notes that the E.O. minimum wage protections apply to FLSA-covered employees who provide support on SCA- and DBA-covered contracts that is necessary for the performance of the contract, even if those employees are not covered by the SCA or DBA.
    • The NPRM provides the following example under the SCA:  a non-exempt accounting clerk who is covered by the FLSA and who exclusively processes invoices and work orders and responds to other administrative matters on an SCA-covered contract would be covered by the E.O. even though the non-exempt accounting clerk may not qualify as a “service employee” for purposes of the SCA.
    • The NPRM also provides a DBA example:  an administrative employee working on a DBA-covered contract or a security guard patrolling a construction worksite where DBA-covered work is being performed whose wages are governed by the FLSA would be a covered worker entitled to the minimum wage established by the E.O.  Coverage to FLSA-covered employees working on DBA-covered contracts will be extended regardless of whether such employees are physically present on the DBA-covered construction worksite.
  • The NPRM notes that the E.O. specifically provides that workers whose wages are calculated pursuant to special certificates issued under 29 U.S.C. 214(c) are entitled to receive the E.O. minimum wage.
  • The NPRM adopts the FLSA’s standards for tipped employees.

Interested parties will have until 30 days after the NPRM is published in the Federal Register to submit their comments.  After comments are received and reviewed by WHD, it will issue a final rule, which the E.O. requires to be completed by October 1.