Trump Rescinds Executive Order That Raised Minimum Wage for Federal Contractors

On March 14, as part of an extensive rollback of Biden-era mandates, President Donald Trump rescinded Executive Order (EO) 14026. Issued in April 2021, former President Joe Biden’s order required that the minimum wage for federal contractors be raised to $15 per hour, with scheduled increases. The mandate expanded upon former President Barack Obama’s original order, EO 13658, from 2014. As of this month, federal contractors are required to pay their employees a minimum wage of $17.75, reflecting the periodic adjustments over the past four years. Trump’s new order would see that sum significantly reduced. 

For years, there has been debate between Republicans and Democrats about whether there should be a minimum wage for federal contractors and whether it is within the president’s authority to impose a minimum wage. When Biden issued EO 14026, the ambitious order immediately faced legal challenges, and indeed, much of that litigation has lingered in the appellate courts (and is now moot). 

When Trump entered office earlier this year, “the thinking was: Would [the president] defend President Biden’s minimum wage, or would he essentially revoke it and say, ‘We’re not going to defend it’?” said Craig Leen, an attorney with K&L Gates based in Washington, D.C., who is the former director of the Office of Federal Contract Compliance Programs. 

The strategic rationale behind the president’s decision remains a matter of speculation. It is Leen’s opinion that because Trump came into office with a deregulatory agenda, this rescission could just be an element of his grander scheme to put less burden on businesses. 

What’s the Standard?

This leaves a question as to where the minimum wage for federal contractors now falls. In Trump’s revocation of EO 14026, he only rescinded Biden’s executive order, not Obama’s original mandate. According to Greg Hare, attorney at Ogletree Deakins based in Atlanta, “Most pundits agree that means the number drops back not to the federal minimum wage base, but rather it drops back to the Obama executive order,” thereby reducing it to $13.30 per hour. 

Of course, the administration may decide to go further and repeal the minimum wage order from Obama’s period in office, which would “[leave] it up to the federal and state minimum wages that exist,” Leen said. 

However, it should be noted that Biden-era U.S. Department of Labor (DOL) regulations are still in place. Federal contractors must therefore wait for Trump’s DOL to issue interim regulations before making any changes to their wage structure, which could take several months or longer to draft.

This rescission may appear to impact a broad category of workers, but it in fact affects a relatively small group. 

“A lot of times, Davis-Bacon and the Service Contract Act will apply and [the employees] will have higher wages,” Leen said. 

Both of those statutes, which enforce paying the prevailing wage, are not affected by Trump’s rescission. In practice, the only employees who may be impacted are those who are 1) presently working on a federal contract, 2) not subject to either the Davis-Bacon Act or the McNamara-O’Hara Service Contract Act, and 3) working for a contractor that chooses to amend their wages. 

Hare warned that employers who are tempted to reduce their minimum wage should first check whether these statutes apply to their workforce, as well as whether any state or local minimums supersede the federal mandate altogether. 

Employee Relations Issues

Indeed, there are a few legal stumbling blocks that federal contractors should be aware of before making any changes to their compensation. For one, docking current employees’ wages by 30% or 40% would be asking for trouble. Hare was blunt about the potential fallout of such a move: “It would be an employer relations and morale disaster.” 

Not only would the decision sow discord within the workforce, but it could also stir up talk of a union organizing campaign among disaffected employees. 

To preserve employee retention and prevent turnover, Hare said he believes the only realistic option is to “have some kind of two-tiered wage system” where “the folks coming in on the new contract might not be in the 17-dollar-per-hour range, but may be in the 13-dollar-per-hour range.”  

Not only must employers check with their employment counsel about when Davis-Bacon and the Service Contract Act apply, but they must also be aware of any existing collective bargaining agreements. These would have established a wage rate that is immune to Trump’s rescission of the previous administration’s EO. In the end, companies will have to analyze whether the money saved justifies the effort of preserving compliance and employee satisfaction. 

Downstream Effects

Regardless of whether a contractor chooses to reduce their minimum wage, there are notable shifts expected on the macro level. 

As Leen noted, “the biggest impact of this will be that every year there was going to be an increase in the wage based on cost of living” under Biden’s EO, but “that’s not going to happen anymore.” 

Rather than cutting wages, many companies may simply decide not to adjust compensation based on cost of living. 

There is also an impact on smaller contractors, who previously may not have been able to budget for a contract under the higher minimum wage. 

Hare suggested that “the decisional calculus may change to the point that they say, ‘Well, I don’t have to pay $17.75 an hour anymore, but at $15 an hour, I can actually make money on this.’ ” 

This would ostensibly clear the field for smaller companies to bid on contracts, with the result being that more people would be employed at a lesser wage. But bearing in mind the national cost of living debate, employers contemplating a lower wage should carefully consider their value proposition.  

In the wake of the rescission of EO 14026, federal contractors, especially those who struggled with the Biden-era minimum wage, may wonder what to do. 

“Nothing,” Hare recommended. “Because nothing has officially changed; those Department of Labor regulations are still out there.” 

For now, companies will have to wait for the DOL to issue new interim regulations before reassessing their wage structure. 

Rachel Zheliabovskii is a SHRM specialist, B2C content.