As promised in his 2014 State of the Union Address, President Obama has turned to executive action to advance his agenda, which includes increasing the minimum wage and creating improved tools to ensure equal pay for women and minorities. And unfortunately for federal contractors, the President’s recent executive actions have imposed increased, and potentially costly, obligations on federal contractors.
1. Policies to Ensure Equal Pay for Women and Minorities
On April 8, 2014, President Obama signed a Presidential Memorandum directing the Secretary of Labor to propose regulations within 120 days that will require federal contractors and subcontractors to provide the U.S. Department of Labor data regarding employee compensation broken down by sex and race. See 79 Fed. Reg. 20751 (Apr. 11, 2014). The Presidential Memorandum asserts that female employees are paid 77 cents for every dollar earned by male employees for performing the same work—the pay gap is purportedly even more significant for female minority employees. While federal laws today already prohibit pay discrepancies between male and female employees, the White House feels that these laws cannot be effectively enforced without more reliable information regarding employee compensation.
Although the President has directed that the regulations “minimize, to the extent possible, the burden on Federal contractors and subcontractors and in particular small entities,” as well as avoid new record-keeping requirements, the exact obligations that these regulations will place on federal contractors are still undefined. The issues that the regulations are anticipated to address include which federal contractors and subcontractors are covered. For example:
- Will these obligations apply to contractors of all sizes?
- Will smaller contractors have different, less burdensome requirements?
- How often will compensation data need to be reported?
- In what format should the data be reported?
- Will the Government collect the data through a pre-existing web portal? Or will the Government be implementing a new website to collect the information?
- What will be the penalties for non-compliance?
The same day he issued the Presidential Memorandum, the President also signed Executive Order 13665, which prevents federal contractors from retaliating and discriminating against employees who discuss their compensation with their co-workers. See 79 Fed. Reg. 20749 (Apr. 11, 2014). The President’s Executive Order was aimed at reducing the pay gap by prohibiting retaliation and discrimination against employees or applicants who have “inquired about, discussed, or disclosed” their compensation (or the compensation of another employee or applicant) with other employees and applicants. The President stated that when employees are prohibited from discussing compensation with fellow employees, “compensation discrimination is much more difficult to discover and remediate, and more likely to persist.” The Executive Order directs the Secretary of Labor to propose implementing regulations within 160 days. The Order will apply only to contracts entered into on or after the Department of Labor regulations become effective.
Federal contractors should watch for the proposed regulations and should take steps to determine whether the new regulations will apply to them. In the meantime, contractors can take this opportunity to look at their employee handbooks and other employment policies to determine whether they could be read to prohibit—or even discourage—employees and applicants from inquiring about, discussing, or disclosing their wages or another’s wages with other employees or applicants. Contractors are also encouraged to review their employment policies in advance of the regulations, as any such policies may also violate the National Labor Relations Act. Federal contractors concerned about their policies should seek advice from competent labor counsel.
2. Minimum Wage Increase for Employees of Federal Contractors
The above-referenced executive actions on equal pay come only two months after President Obama signed Executive Order 13658 directed at federal contractors that increased the hourly minimum wage for employees of federal contractors and subcontractors to $10.10 beginning January 1, 2015 (and included new rules regarding the compensation of tipped employees). See 79 Fed. Reg. 9849 (Feb. 20, 2014). Pursuant to that Executive Order, the minimum wage rate will be annually increased thereafter by the Secretary of Labor.
This Executive Order applies to the following types of contracts and contract-like instruments: (1) procurement contracts for services or construction; (2) contracts for services covered by the Service Contract Act; (3) concessions contracts; and (4) contracts entered into with the Federal Government in connection with Federal property or lands and related to offering services for Federal employees, their dependents, or the general public. Additionally, the Executive Order will only apply if: (1) employee wages under these contracts are already governed by the Service Contract Act or the Davis-Bacon Act; or (2) employee wages are governed by the Fair Labor Standards Act and the contract exceeds the micro-purchase threshold defined in 41 U.S.C. § 1902(a) (which is currently $3,000).
The Executive Order requires that implementing regulations be issued by October 1, 2014, and we expect those regulations to provide additional detail on several points, including: (i) the scope of “contract-like instruments” to which the minimum wage will apply, (ii) whether the new minimum wage applies to all employees of a federal contractor or only those who work on a federal contract, (iii) whether the new minimum wage will apply to existing contracts when an agency exercises a contract option, (iv) the types of contracts, if any, that the Secretary of Labor excludes from compliance with these requirements, and (v) penalties for non-compliance.
The Executive Order will require compliance with the new minimum wage rate for covered contracts related to solicitations issued on or after January 1, 2015. However, it also exhorts federal agencies to “take all steps that are reasonable and legally permissible” to ensure that contracts negotiated between February 12, 2014—the date the Order was signed—and January 1, 2015, require an hourly wage of at least $10.10. Accordingly, contractors may begin to see higher hourly wage requirements in contracts before January 1, 2015. Whether there is any legal basis to require such wages is unclear; however, agencies typically have significant flexibility in setting their own solicitation requirements and new, higher wage rates could easily be part of these new requirements.
It is also important to note that, notwithstanding this Executive Order, federal contractors must still comply with applicable prevailing wage laws (such as the Service Contract Act) and any other laws or ordinances that establish a higher minimum wage than the Executive Order. If in doubt regarding the applicability of any of these various federal wage laws and regulations to a specific contract, federal contractors should consult competent counsel.
The Executive Orders and Presidential Memorandum discussed above can be accessed through the following links:
- Executive Order 13665 (Non-Retaliation for Disclosure of Compensation Information)
- Presidential Memorandum (Advancing Pay Equality Through Compensation Data Collection)
- Executive Order 13658 (Establishing a Minimum Wage for Contractors)
Contracts that do not reach the micro-purchase threshold may still be subject to the Order if the Department of Labor’s regulations so require.