An executive order increasing the minimum wage for non-exempt employees working on specified types of federal contracts took effect January 30, 2022. However, recent wage determinations issued by the Department of Labor (DOL) fail to appreciate that contracting officers are supposed to modify contracts to include the applicable Federal Acquisition Regulation (FAR) before the new minimum wage provisions are effective. Raising wages prior to proper incorporation of the applicable FAR provision risks a government contractor’s eligibility for a contract price adjustment to account for increased wages. Therefore, contractors should make sure that future contracts reference the appropriate FAR provision.
President Biden’s Executive Order (EO) 14026, entitled “Increasing the Minimum Wage for Federal Contractors,” increased the minimum wage applicable to non-exempt employees working on or in connection with certain contracts from $11.26 per hour to $15.00 per hour. Importantly, the EO applies only to contracts entered into, renewed, or extended on or after January 30, 2022.
The EO is being implemented by FAR 52.222-52, Minimum Wages for Contractor Workers Under Executive Order 14026. (Astute readers and FAR enthusiasts will note that the clause shares the same FAR number as its predecessor Executive Order 13658 clause but has an updated title.) The EO’s implementing regulations instruct that the FAR clause be included in solicitations and contracts that include FAR 52.222-6, Construction Wage Rate Requirements, or FAR 52.222-41, Service Contract Labor Standards, where work is to be performed in the United States.
Meanwhile, in an attempt to align contracts with EO requirements, the DOL twice updated the language in newly issued area wage determinations. DOL did so initially in December 2021, before the EO was effective, and again on March 15, 2022. DOL’s latest wage determination language aggressively declares that the new wage requirements apply to all new contracts, modifications, and extensions effective after January 30, 2022, without also mentioning that the regulations require contracting officers to modify the contract to include FAR 52.222-52, Minimum Wages for Contractor Workers Under Executive Order 14026.
The wage determination language mistakenly implies that the wage determination itself makes the EO applicable to the contract when in reality the triggering event is inclusion of FAR 52.222-52, Minimum Wages for Contractor Workers Under Executive Order 14026. While this might achieve DOL’s goal to increase wages quickly, it can cause problems for government contractors who will need to request a price adjustment from the agency to account for resulting wage increases. To be eligible for these price adjustments, the contract must first include the applicable FAR provision. The wage determination language alone does not modify the contract to include the EO.
The new wage determination language regarding the EO unnecessarily sets the DOL on a collision course with contractors and contracting agencies regarding the EO’s application. This is not the first time contractors have had to navigate the conflicting priorities of the DOL and contracting agencies. To avoid unnecessary challenges in application, federal contractors should consider the following best practices:
- First, when an option is exercised, a contract is extended, or a solicitation is issued, a contractor should look to see if FAR 52.222-52, Minimum Wages for Contractor Workers Under Executive Order 14026 is included.
- Make sure the title of the FAR clause references Executive Order 14026. If it is not included, ask the contracting officer to include it or consult with legal counsel.
- Do not assume the new wage determination language automatically incorporates the requirement.
- Do not ignore the fact that the FAR provision should be included because its absence could expose the contractor to an unnecessary wage and hour investigation.
- If the contracting officer fails to include the FAR clause and DOL investigates the contract, DOL can require that the contract be modified to include the clause retroactively. However, DOL will require the contractor to make back wage payments to employees immediately, which is likely long before the contractor will receive any funds from the contracting agency to account for the agency’s error.
- Finally, watch for annual increases to the minimum wage rate that should be issued by the DOL. Once the correct FAR provision is in a contract, the issued increases will become applicable each January without further need to modify the contract.
If you have any questions or concerns regarding the EO or its application to your contracts, contact Nichole Atallah or Sarah Nash, the authors of this blog, or another member of PilieroMazza’s Labor and Employment Group.
