In April 2021, President Biden issued Executive Order 14026, which increased the minimum wage for federal contractors to $15.00 per hour for contracts under the Service Contract Act and Davis-Bacon Act. The U.S. Department of Labor subsequently issued a final rule implementing the Executive Order, and the new $15.00 minimum wage for federal contractors took effect in January 2022, with annual increases thereafter.
Immediately after implementation, Texas, Louisiana, and Mississippi filed suit against President Biden and the Department of Labor challenging the validity of the new minimum wage for federal contractors. The states argued that the wage mandate was unlawful under the Procurement Act and the Administrative Procedure Act, and unconstitutional under the non-delegation doctrine and spending clause of the U.S. Constitution.
On September 26, 2023, Judge Drew Tipton of the Southern District of Texas ruled that the President exceeded his authority under the Procurement Act in issuing Executive Order 14026. Judge Tipton held that “the Procurement Act’s text, history, purpose and structure limit the President to a supervisory role in policy implementation rather than a unilateral, broad policy-making power to set a minimum wage,” and he enjoined the Department of Labor from enforcing the wage mandate in Texas, Louisiana, and Mississippi. Importantly, the Court declined to extend its ruling beyond the scope of those three states, allowing other courts to weigh in on the issue when raised in those jurisdictions. Just two days after Judge Tipton’s ruling striking down the $15.00 minimum wage for federal contractors in three states, the U.S. Department of Labor issued an updated minimum wage for 2024 and phased out the cash wage for tipped employees. As a result, contracts entered into with the federal government on or after January 1, 2024 will have a new minimum wage of $17.20 per hour. Federal contractors in Texas, Louisiana, and Mississippi do not have to comply with the newly-announced minimum wage for 2024. The shifting landscape of the federal minimum wage across the country will continue to develop as other state attorney generals attempt to use the success of the lawsuit in Texas to challenge Executive Order 14026 in their states as well. We will update you with important developments here.