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Items of Interest

Obama Issues New Executive Order Affecting Wages

President Obama signed an Executive Order raising the minimum-wage rate for workers on federal contracts, as he announced he would do in his recent State of the Union speech. Although, his intentions are clearer than they were at the time, this Executive Order is neither a model of intelligibility nor precision; significant ambiguities and questions remain.

The Basics
The order covers "new" federal contracts, "contract-like instruments", and related subcontracts. Under the Executive Order such contracts must include a clause providing that, no sooner than January 1, 2015, workers performing under such arrangements will be paid a rate of at least $10.10 per hour.  Under the clause, the minimum rate will be determined (and probably raised) annually thereafter by the U.S. Secretary of Labor with reference to percentage increases in the Consumer Price Index.

The minimum cash wage for tipped employees falling within the Order's provisions will be $4.90 an hour (currently it sits at $2.13 per hour under the federal Fair Labor Standards Act) no sooner than January 1, 2015.  It will rise annually thereafter until the rate equals 70% of the minimum rate ($7.07 based upon a $10.10 rate).  Of course, tips themselves must make up the difference; if they do not, then the employer must pay the shortfall to its employee in cash.  The Order affects a variety of contracts and "contract-like instruments."  Among them will be those for certain federal procurements, for a variety of services (including at federal properties and on federal lands), for construction, and for certain concessions, wages that fall under the FLSA, the Service Contract Act, or the Davis-Bacon Act.

Details To Follow 
Elaborations upon the Order's official meaning and implementation, apparently, must await the issuance of regulations by the U.S. Labor Department ("USDOL") and the Federal Acquisition Regulatory Council ("FARC").  USDOL's are due by October 1, 2014, with the FARC's to follow within 60 days after USDOL's.  Presumably, they will address such matters such as the circumstances under which "a new contract" will be deemed to include renewed and/or modified agreements.  Even assuming that these agencies meet their respective deadlines, there will still be little lead time before January 1, 2015, for employers, and their attorneys, to get up to speed.

Experience suggests that these provisions will be lengthy, densely-worded, complicated, and ambiguous in many ways.  Moreover, one can anticipate that the regulations may very well contain significant requirements, limitations, and "interpretations" that are by no means obvious from, or even discernible on, the face of the Order itself.

The Order also contains several qualifiers, such as multiple insertions of the phrase "to the extent permitted by law." Whether this is boilerplate or an implicit acknowledgement regarding the questionable validity and enforceability of the Order remains to be seen.  It is subject to debate whether President Obama may lawfully and unilaterally impose changes to the minimum wage requirements in circumstances in which wages are controlled by the FLSA, the SCA, and/or the DBA, or other federal law(s)
The Bottom Line
At least the Order provides a bit more substantive language so that employers may begin to evaluate what President Obama's earlier announcement means for them.  This includes: (i) determining whether they are, or will be, subject to the Order; and (ii) assessing the extent and timing of the order's potential impact on their organization.  Regardless, the degree to which employers can ascertain answers to these and other questions is unavoidably limited by continuing uncertainty regarding the Order's exact meaning and what the related and subsequent regulations might provide.  In the future, there will be many employers, and others, who will be raising questions, expressing doubts, and likely planning legal challenges concerning the extent to which, and with respect to whom, a president has the lawful authority to accomplish what this Executive Order purports to accomplish.

If you would like to comment about this Executive Order, or have a questions about any component of it, drop us a line here on our "Contact US" page, go to or email Kerry Hultquist, the firm's Lead Counsel at  We look forward to hearing from you!

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