Alert

Executive Orders and Federal Contractors: Minimum Wage Requirements Called into Question

February 13, 2025

We’ve seen the President issue a number of executive orders in recent weeks. What is the precedent for these orders, particularly when it comes to governing the operations of federal contractors? What is the process for these orders to be implemented, and what can employers expect?

Executive Orders and Federal Contractors

Presidents have the authority to establish policies through executive orders, which can be challenged in court or revoked by future presidents. Employers make efforts to comply with these executive orders, but that task proves difficult when a court’s future interpretation of the legality of those executive orders is unpredictable, as are the actions of future presidents.

For example, consider Executive Order 11246 issued by President Lyndon Johnson on September 24, 1965. EO 11246 mandated that federal contractors engage in affirmative action for minorities and women and was enforced by the Office of Federal Contract Compliance Programs (OFCCP). EO 11246 remained largely unchallenged in the courts and by future presidents until 2025. Within the first few days of his presidency, President Trump eliminated EO 11246 and any requirement for federal contractors to engage in affirmative action.

What about requiring employers to pay a mandatory minimum wage that is higher than the minimum wage set forth in the Fair Labor Standards Act (FLSA)? In 2014, President Obama issued Executive Order 13658 requiring federal contractors to pay their employees at least $10.10 per hour. This executive order was largely unchallenged even through the first Trump administration; however, the first Trump administration excluded contracts related to seasonal recreational services from the minimum wage requirements under EO 13658.

Within three months of taking office in 2021, President Biden issued Executive Order 14026 requiring federal contractors to pay employees a $15 minimum wage.   

While there was no serious challenge to raising the minimum wage to $10.10 per hour, the increase to $15.00 per hour motivated federal contractors to take legal action. Several lawsuits were filed across the country, with the two most notable decisions coming from the Fifth Circuit and the Ninth Circuit.

Executive Orders on Appeal

After a lengthy discussion of grammatical semantics, on February 4, 2025, the Fifth Circuit Court of Appeals (which includes Mississippi, Louisiana, and Texas), ruled in Texas v. Trump [1] that President Biden had not exceeded his power in signing Executive Order 14026. The executive order mandated a minimum wage for federal contractors that exceeded minimum wage requirements under the Fair Labor Standards Act (FLSA).

In considering the president’s authority, the Fifth Circuit had to construe the Federal Property and Administrative Services Act of 1949 (FPASA). The FPASA “provide[s] the [f]ederal [g]overnment with an economical and efficient system” for, among other things, “[p]rocuring and supplying property and nonpersonal services, and performing related functions including contracting.”  40 U.S.C. §101(1). President Biden justified his minimum wage mandate under the FPASA stating that the raise in pay would enhance “worker productivity and generat[e] higher-quality work by boosting workers’ health, morale, and effort; reducing absenteeism and turnover; and lowering supervisory and training costs.” 86 Fed. Reg. 22,835 (Apr. 27, 2021). President Biden provided no information that the projected savings would equate or exceed the cost of the mandated minimum wage.

Ultimately, the Fifth Circuit found that the FPASA allowed the president to prescribe policies or directives the president considers necessary to carry out the provisions of the Act, so long as such policies or directives do not conflict with the underlying provisions. The Court concluded that President Biden’s executive order fell within the statutory authorization and was a valid exercise of President Biden’s authority under the FPASA.

A Different Interpretation on Federal Contractors         

Is it settled that a president may rely on executive orders to mandate a minimum wage for federal contractors? Not necessarily. In 2024, the Ninth Circuit Court of Appeals (which includes Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, Guam, and Northern Mariana Islands) found exactly the opposite to the Fifth Circuit.

The Ninth Circuit delved a bit deeper into the reasons for the mandatory minimum wage hike. The Ninth Circuit noted the FPASA’s purpose, as described above. The Ninth Circuit noted that the Department of Labor (DOL) recognized that the Executive Order would cost federal contractors $1.7 billion, which would likely be passed along to the federal government. While this cost may have resulted in benefits such as improved governmental services, increased morale, and productivity, etc., there was no empirical research to support that the claims considered “[an equivalent] change in the minimum wage” and is largely “based on voluntary changes made by firms.”  As stated by the Ninth Circuit, “Any increases in productivity and reductions in turnover are only expected to ‘help offset the costs’ of the rule – not to outweigh the costs.” Ultimately, the Ninth Circuit found that the FPASA did not give the president the authority to issue an executive order mandating significant minimum wage hikes for federal contractors.

Circuit Splits and Next Steps for Federal Contractors

Given conflicting rulings, what is an employer to do?  For employers with operations in Mississippi, Texas, or Louisiana, compliance with President Biden’s Executive Order 14026 requires an increased minimum wage. Employers within the Ninth Circuit’s jurisdiction may think they’re off the hook.

However, the Supreme Court is likely to weigh in on this issue, particularly given the circuit splits – a primary reason the Supreme Court will grant certiorari to hear a dispute. Or, in another scenario, President Trump may halt all litigation by simply revoking Executive Order 14026.

McGlinchey’s Employment team is closely monitoring the administration’s actions related to management and employers’ obligations. Stay tuned as developments unfold.

[1] While the suit is captioned with Trump as the defendant, Trump was substituted for Biden upon Trump’s reelection to the presidency.