Highlights
- The U.S. Court of Appeals for the Ninth Circuit ruled that the president lacks authority under the Federal Property and Administrative Services Act of 1949 to set a federal contractor minimum wage, creating a split with other circuits and setting the stage for potential U.S. Supreme Court review.
- Federal contractors should continue to follow the U.S Department of Labor's (DOL) contractor minimum wage rule unless exempted by a judgment or injunction. An expected district court injunction may limit enforcement in specific states but is unlikely to apply nationwide.
- A shift in presidential administration or further legal challenges could result in the rule's repeal or modification Even if rescinded, contractors remain bound by state minimum wages and federal statutes such as the Service Contract Act and the Davis-Bacon Act.
The U.S. Court of Appeals for the Ninth Circuit held on Nov. 5, 2024, ruled that the president lacks authority to require federal contractors to pay a minimum wage. Nebraska v. Su, No. 23-15179, 2024 WL 4675411 (9th Cir. Nov. 5, 2024). The 2-1 decision follows a string of federal court opinions in 2022 enjoining the government contractor vaccine mandate, and sets up a circuit split on the president's authority to issue a contractor minimum wage under the Federal Property and Administrative Services Act of 1949 (the Procurement Act).1
- The ruling does not halt the application of the federal contractor minimum wage nationwide because the injunction will apply only in favor of the plaintiffs in that case.
- For the moment, most federal contractors remain subject to the presidentially imposed minimum wage. However, even if this rule is eventually discarded, federal contractors remain subject to any applicable state minimum wage, as well as federal wage statutes such as the Service Contract Act and the Davis-Bacon Act.
History of the Federal Contractor Minimum Wage
On Feb. 12, 2014, President Barack Obama signed Executive Order (EO) 13658, "Establishing a Minimum Wage for Contractors."2 Its minimum wage was set at $10.10 per hour. This was the first time that a president had ever established a minimum wage for federal contractors. Congress had previously directed minimum wages on certain types of federal contracts through laws such as the McNamara-O'Hara Service Contract Act of 1965, which requires a "prevailing wage" on contracts with service employees, and the Davis-Bacon Act, which requires the same on federal contracts for construction, alteration and repair.3
President Obama issued EO 13658 under the authority of the Procurement Act, echoing its purpose by stating that a minimum wage on federal contracts "promote[d] economy and efficiency in procurement by contracting with sources who adequately compensate their workers."4
The U.S. Department of Labor's (DOL) final rule implementing EO 13658 noted several comments "expressing strong opposition to the EO and questioning its legality and stated purpose."5 The DOL did not respond to those concerns because "comments questioning the legal authority and rationale underlying the EO are not within the purview of this rulemaking action."6
The contractor minimum wage largely stayed in place after President Obama left office. On May 25, 2018, President Donald Trump issued EO 13838, "Exemption from EO 13658 for Recreational Services on Federal Lands," declaring that EO 13658 "shall not apply to [federal] contracts or contract-like instruments" entered into "in connection with seasonal recreational services or seasonal recreational equipment rental."7 President Trump kept the contractor minimum wage in place as it applied to all other federal contractors.
On April 27, 2021, President Joe Biden signed EO 14026, titled "Increasing the Minimum Wage for Federal Contractors."8 EO 14026 rescinded President Trump's exemption for seasonal recreational services and raised the hourly minimum wage paid by contractors to workers on or in connection with covered federal contracts to $15 per hour for federal contracts beginning on or after Jan. 30, 2022. This amount is adjusted annually; the rate announced for 2025 is $17.75 per hour.9 EO 14026 and its higher minimum wage applies to the same types of contracts with the federal government that were covered by President Obama's EO 13658. However, the more recent EO 14026 only applies to contracts with the federal government that were entered into on or after Jan. 30, 2022, or that were renewed or extended on or after Jan. 30, 2022.10 Contracts before that period remain subject to the lower minimum wage previously instituted by President Obama in EO 13658 (now at $12.90 per hour). Like President Obama, President Biden cited the Procurement Act as authority for the contractor minimum wage, using the same introductory language as Obama's order.
On Nov. 16, 2021, the DOL published its final rule implementing EO 14026, raising the minimum wage to $15 per hour.11 As with the final rule during the Obama Administration, the DOL did not address commenters' concerns over the EO 14026's legality: "Comments questioning the legal authority and rationale underlying the President's issuance of the...
